United States District Court, N.D. Alabama, Western Division
LUTHER S. PATE, Plaintiff,
MARK TOTO, ET AL., Defendants.
MEMORANDUM OF OPINION
SCOTT COOGLER UNITED STATES DISTRICT JUDGE.
the Court is Plaintiff's, Luther S. Pate
(“Pate”), Motion for Default Judgment (doc. 46);
Defendants', Mark Toto (“Toto”) and Moboco
Fine Jewelry & Gems (“Moboco”) (collectively
“Defendants”), Second Motion for Summary Judgment
(docs. 55 & 67); and Defendants' Motion to Strike
(doc. 61). These motions have been fully briefed and are ripe
for decision. For the following reasons, Pate's Motion
for Default Judgment is due to be denied; Defendants'
Second Motion for Summary Judgment is due to be granted in
part and denied in part; and Defendants' Motion to Strike
is due to be denied.
Toto, a businessman from California, owns Moboco Fine Jewelry
& Gems, which sells jewelry and fine watches. He has many
years of experience appraising diamonds and learned how to
evaluate gemstones by taking courses through the Gemological
Institute of America. Toto became acquainted with Pate, an
Alabama real estate developer and investor, sometime in the
mid-1990s. Soon thereafter, Pate became Toto's customer.
Around June 2006, Toto began discussions to determine if Pate
would be interested in acquiring a red diamond. On June 8,
2006, Toto emailed Pate that he would sell the red diamond
for $2, 100, 000. Central to the parties' dispute is
whether this represented a fair price. Although there is no
dispute that Toto originally paid $800, 000 to obtain the
diamond, there is some dispute as to what profit Toto
actually made from the deal.
the summer of 2006, Pate and Toto continued to negotiate
Pate's purchase of the red diamond. On September 6, 2006,
Toto brought the diamond to Alabama for Pate to inspect.
Pate's breach of contract claim is based on Toto's
alleged statement at this meeting that the red diamond was
worth at least $2, 100, 000 and that Toto would help Pate
sell the diamond in three to five years for at least twice
that amount. Pate asserts that Toto also told him that he
would only be making a $100, 000 profit on Pate's
purchase of the diamond. Pate then agreed to purchase the red
diamond from Toto, but the terms of this agreement were not
put into writing.
early October 2006, Pate paid Toto for the red diamond. On
November 14, 2006, Toto sent Pate an appraisal which stated
that the diamond had been appraised for $2, 100, 000.
Although the appraisal's fine print noted that the
appraisal reflected “the costs incurred to replace or
reproduce any gems in like quality” (doc. 55-9 at 24),
there is a dispute as to whether Toto represented that the
appraisal's “estimate of value” reflected the
diamond's actual value. The fine print also provided that
the appraisal should not be considered a guarantee or
warranty as to the value of the red diamond. Pate states that
due to poor eyesight he could not read the portion of the
appraisal noting that the red diamond was being appraised at
replacement costs or the portion disclaiming any guarantee as
to the actual value of the diamond. Following Pate's
purchase of the red diamond, he and Toto began discussing
Toto finding a buyer for the diamond. In the spring of 2008,
Pate agreed to sponsor Toto's trip to Russia where he
would market the red diamond at the Moscow Art Faire
(“Moscow Fair”). Pate and Toto agreed that Toto
could sell the red diamond to buyers at the Moscow Fair for
$3, 500, 000. Ultimately, Toto did not sell the red diamond
on his trip to Russia and returned the diamond to Pate in
several other occasions between Pate's acquisition of the
diamond and 2011, Toto and Pate discussed Toto marketing the
red diamond. In 2009, Toto convinced Pate to have the diamond
mentioned in the book Famous Diamonds by Ian
Balfour. The book currently lists the diamond's value at
$6 million. Toto also referred Pate to potential buyers and
asked Pate to allow him to market the diamond at a California
jewelry presentation in May 2010.
January 2011, Pate learned from a story on the Internet that
in 2005 a red diamond had been offered for sale in Hong Kong
for $700, 000. Pate emailed Toto asking him what he knew
about the story and expressed his belief that it provided
interesting history on his red diamond. Toto replied that he
had never heard that story. In response, Pate stated that it
was “[n]ot a story . . . a fact!”
parties dispute whether Toto and Pate had any additional
conversations regarding the Hong Kong auction prior to August
2011. In early August 2011, Pate discussed the Hong Kong
auction with Quin Bruning (“Bruning”), a diamond
expert at Sotheby's auction house in New York. During
that conversation, Bruning expressed his belief that the two
diamonds were the same. On August 3, 2011, Pate called Toto
and asked him questions about the profit Toto made on the
diamond and its value. During that conversation, Toto stated
that he thought his profit was around $155, 000, which he now
states was his profit after factoring in overhead expenses.
Toto further stated that although he did not know whether the
red diamond was the same as the one sold in Hong Kong that
Pate's diamond “definitely wasn't a $750, 000
diamond.” (See Doc. 55-9 at 40-41.) Although
Pate acknowledges that this August 2011 conversation was the
first time that he believed Toto had lied to him, he disputes
that he knew at that time what Toto had misrepresented and
the extent of those misrepresentations.
20, 2013, Pate first filed suit against Toto. The parties
litigated their first suit until July 1, 2015 when they
mediated their dispute. Attorney Bruce Rogers
(“Rogers”) served as the mediator. Following the
mediation, the parties entered into a settlement agreement,
which provided that Pate would give Toto until January 31,
2016 to market and sell the red diamond. Toto would then pay
most of the settlement amount from the proceeds of that sale.
The settlement agreement also included a tolling provision,
which tolled the statute of limitations on Pate's claims
during the pendency of his first lawsuit and up to March 1,
2016. Because Toto agreed that the action could be dismissed
without prejudice, the settlement agreement also included a
provision that Pate had the right to refile his lawsuit if
the diamond was not sold by January 31, 2016.
of the settlement agreement, the parties agreed that the red
diamond would be transported to California by the armored
transportation company Brink's, which would hold the
diamond for Pate while Toto showed it in California. However,
Brink's never signed off on the proposed terms of the
settlement agreement. Ultimately, Brink's never agreed to
the settlement agreement's terms and Pate began working
to find an alternate delivery arrangement. According to Pate,
these efforts were done in conjunction with Toto and Rogers.
However, Toto disputes that he was heavily involved in these
discussions. In March 2016, Rogers reached out to Toto who
provided Rogers with an alternate delivery arrangement that
he would be comfortable with. Toto stated that fixing the
delivery arrangement issues would help with his efforts to
market the red diamond. Rogers then relayed this information
to Pate's attorney Jim Ward (“Ward”) in an
April 4, 2016 email. However, apparently due to computer
problems, Ward did not receive this email until May 11, 2016.
After Ward received Rogers's email, he and Pate requested
a May 18, 2016 conference call between Rogers, the parties,
and the attorneys. Ultimately, it appears that that
conference call never occurred, and the parties did not
discuss any alternate delivery arrangement after May 2016.
Pate then refiled this lawsuit on July 15, 2016.
judgment is appropriate “if the movant shows that there
is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed.R.Civ.P.
56(a). A dispute is genuine if “the record taken as a
whole could lead a rational trier of fact to find for the
nonmoving party.” Id. A genuine dispute as to
a material fact exists “if the nonmoving party has
produced evidence such that a reasonable factfinder could
return a verdict in its favor.” Greenberg v.
BellSouth Telecommunications, Inc., 498 F.3d 1258, 1263
(11th Cir. 2007) (quoting Waddell v. Valley Forge Dental
Assocs., 276 F.3d 1275, 1279 (11th Cir. 2001)). The
trial judge should not weigh the evidence, but determine
whether there are any genuine issues of fact that should be
resolved at trial. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249 (1986).
considering a motion for summary judgment, trial courts must
give deference to the non-moving party by “view[ing]
the materials presented and all factual inferences in the
light most favorable to the nonmoving party.”
Animal Legal Def. Fund v. U.S. Dep't of Agric.,
789 F.3d 1206, 1213-14 (11th Cir. 2015) (citing Adickes
v. S.H. Kress & Co., 398 U.S. 144, 157 (1970)).
However, “unsubstantiated assertions alone are not
enough to withstand a motion for summary judgment.”
Rollins v. TechSouth, Inc., 833 F.2d 1525, 1529
(11th Cir. 1987). Conclusory allegations and “mere
scintilla of evidence in support of the nonmoving party will
not suffice to overcome a motion for summary judgment.”
Melton v. Abston, 841 F.3d 1207, 1220 (11th Cir.
2016) (per curiam) (quoting Young v. City of Palm Bay,
Fla., 358 F.3d 859, 860 (11th Cir. 2004)). In making a
motion for summary judgment, “the moving party has the
burden of either negating an essential element of the
nonmoving party's case or showing that there is no
evidence to prove a fact necessary to the nonmoving
party's case.” McGee v. Sentinel Offender
Servs., LLC, 719 F.3d 1236, 1242 (11th Cir. 2013).
Although the trial courts must use caution when granting
motions for summary judgment, “[s]ummary judgment
procedure is properly regarded not as a disfavored procedural
shortcut, but rather as an integral part of the Federal Rules
as a whole.” Celotex Corp. v. Catrett, 477
U.S. 317, 327 (1986).
Pate's Motion for Default Judgment
initial matter, the Court will address Pate's Motion for
Default Judgment, which argues that a default judgment or
“all sanctions which the Court deems appropriate”
should be entered against Defendants due to discovery abuses.
(Doc. 46.) Defendants respond that no default judgment should
be entered against them because they did not violate any
discovery order entered by this Court and made a good faith
effort to respond to Pate's request for the documents
that were the subject of his motion.
argues that the Court should enter default judgment as a
sanction for Defendants' failure to produce documents
regarding communications between NBS Diamonds
(“NBS”) and Defendants. Pate states that
Defendants did this in a deliberate attempt to hide their
relationship with NBS and its employee Bruno Scarselli. As
evidence of Defendants' failure to produce responsive
documents, Pate attached to his motion NBS's production
of over one hundred and ninety-nine pages of communications
between NBS and Defendants. (See Docs. 46-3 to
46-6.) Pate argues that the existence of these documents
demonstrates that Defendants did not comply with their
discovery obligations. Additionally, Pate argues that due to
Defendants' failure to produce these communications he
has been unable to prepare for depositions and trial.
respond by stating that they have not engaged in any
discovery abuse. Defendants argue that they have produced
communications with NBS that are relevant to Pate's
claims and objected to production of other communications
with NBS on relevancy grounds. Defendants state that most of
the documents that are the subject of Pate's motion were
copies of Pate's own expert report, communications
between Toto and NBS related to Pate's subpoena of NBS,
and emails regarding gems other than Pate's red diamond.
Defendants further state that the documents that do concern
the red diamond are documents related to efforts to sell the
red diamond after the settlement of Pate's first lawsuit,
which the parties agreed would not be discoverable. Finally,
Defendants argue that they did make good faith attempts to
produce responsive documents to Pate and that they were
attempting to comply with Pate's requests at the time he
filed this motion.
Federal Rule of Civil Procedure 37(b)(2), a default judgment
may be entered against a party as a discovery sanction.
See Fed. R. Civ. P. 37(b)(2)(A)(vi). Discovery
sanctions may be issued when “a party or a party's
officer, director, or managing agent . . . fails to obey an
order to provide or permit discovery.” Fed.R.Civ.P.
37(b)(2)(A). This includes orders under Rules 26(f), 35, or
37(a). Id. Additionally, Rule 37(d) allows for the
sanction of default judgment if a party “fails to serve
its answers, objections, or written response” to
interrogatories or a request for inspection. Fed.R.Civ.P.
Rule 37 confers upon district court judges broad discretion
to fashion appropriate sanctions for the violation of
discovery orders, this discretion is not unbridled.”
United States v. Certain Real Property Located at Route
1, Bryant, Ala., 126 F.3d 1314, 1317 (11th Cir. 1997)
(citations omitted). Accordingly, Rule 37 sanctions, such as
entry of default judgment, are only appropriate “where
the party's conduct amounts to flagrant disregard and
willful disobedience of discovery orders.”
Id. (quoting Buchanan v. Bowman, 820 F.2d
359, 361 (11th Cir. 1987)) (emphasis in original).
Pate asks the Court to enter a default judgment pursuant to
the Federal Rules of Civil Procedure, Pate does not point the
Court to a provision of the Federal Rules that would allow
such default judgment to be entered. Before filing his motion
for default judgment, Pate did not file a motion to compel as
contemplated by Rule 37(a). Accordingly, the Court did not
enter a discovery order under that Rule. Moreover, Pate has
failed to demonstrate that Defendants acted in violation of
Rule 37(d). There is no dispute that Defendants did respond
to Pate's requests for production and interrogatories.
Although Pate now asserts that Defendants' responses were
insufficient, he did not challenge them at the time they were
made. By failing to do so, he deprived the Court of an
opportunity to direct Defendants to produce the requested
documents. Because violation of a discovery order is a
prerequisite to sanctions, the Court cannot enter a default
judgment against Defendants under Rule 37.
addition to Rule 37, courts have the inherent power to enter
a default judgment as a sanction for litigation misconduct.
See Eagle Hosp. Physicians, LLC v. SRG Consulting,
Inc., 561 F.3d 1298, 1306 (11th Cir. 2009). The
court's inherent power derives from the court's need
to “manage [its] own affairs so as to achieve the
orderly and expeditious disposition of cases.”
Id. (citing Chambers v. NASCO, Inc., 501
U.S. 32, 43 (1991) (quotation marks and citation omitted)).
This power, however, “must be exercised with restraint
and discretion.” Id. (citing Roadway
Express, Inc. v. Piper, 447 U.S. 752, 754 (1980)).
“A primary aspect of that discretion is the ability to
fashion an appropriate sanction for conduct which abuses the
judicial process.” Chambers, 501 U.S. at
44-45. Dismissal of a lawsuit, or entry of a default
judgment, is a “particularly severe sanction.”
Id. at 45. “The key to unlocking a court's
inherent power is a finding of bad faith.” Eagle
Hosp., 561 F.3d at 1306 (quoting Barnes v.
Dalton, 158 F.3d 1212, 1214 (11th Cir. 1998)). A party
can act in bad faith in this context by delaying or
disrupting litigation or hampering enforcement of a court
order. Barnes, 158 F.3d at 1214.
the Court does not find that Defendants' failure to
produce communications with NBS was in bad faith. As stated
above, Defendants did not engage in willful violations of any
order issued by this Court. At most, Defendants failed to
produce certain documents that were responsive to Pate's
requests for production and interrogatories. Even assuming
that Pate is correct in stating that Defendants intentionally
withheld these documents, Defendants appear to have done so
due to their belief that the documents were either irrelevant
or non-discoverable. Moreover, Defendants have certified to
the Court that they were actively looking for these documents
when Pate filed his motion. Although Defendants' belief
that they did not have to turn over these documents may have
been misguided, it does not warrant imposition of default
judgment or other monetary sanctions against Defendants.
Therefore, Pate's Motion for Default Judgment is due to
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