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Pate v. Toto

United States District Court, N.D. Alabama, Western Division

October 12, 2018

LUTHER S. PATE, Plaintiff,
v.
MARK TOTO, ET AL., Defendants.

          MEMORANDUM OF OPINION

          L. SCOTT COOGLER UNITED STATES DISTRICT JUDGE.

          Before 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)[1]; 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.

         I. Background[2]

         Defendant 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.

         Throughout 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.

         In 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 June 2008.

         On 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.

         In 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!”

         The 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.

         On June 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.

         As part 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.

         II. Standard

         Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact[3] 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).

         In 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).

         II. Discussion

         A. Pate's Motion for Default Judgment

         As an 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.

         Pate 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.

         Defendants 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.

         Under 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. 37(d)(1)(A)(ii).

         “[A]lthough 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).

         Although 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.

         In 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.

         Here, 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 be denied.

         B. Statute of Limitations on ...


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