United States District Court, N.D. Indiana, South Bend Division
OPINION AND ORDER
Michael G. Gotsch, Sr. United States Magistrate Judge
On June
7, 2017, Defendants, Zhejiang Jinfei Kaida Wheels Co., Ltd.
(“Jinfei”), Future Industrial & Trading,
Inc., and Bingzao Ge (collectively “Defendants”),
filed their Motion for Rule 11, 28 U.S.C. § 1927, and
Inherent Authority Sanctions Against Plaintiffs and Their
Counsel [DE 60]. On June 21, 2017, Plaintiffs,
Aaron, MacGregor & Associates, LLC (“AMA”)
and Future International, LLC, and Third-Party Defendant
Aaron Zou (collectively “Plaintiffs”), filed
their brief in opposition to Defendants' motion for
sanctions. Defendants' motion became ripe on June 28,
2017, when they filed their reply brief. The undersigned
retains jurisdiction over this case based on the parties'
consent and 28 U.S.C. § 636(c). For the reasons
discussed below, the Court issues the following Opinion and
Order denying without prejudice Defendants' motion for
sanctions.
I.
Relevant Background
A.
Factual Background
AMA is
a business that buys and sells vehicle parts for resale.
While visiting China, AMA's president and founder, Aaron
Zou, was approached by Bingzao Ge, the chairman of Jinfei, a
Chinese company that manufactures vehicle parts. On behalf of
their respective companies, Zou and Ge reached a deal to form
Future International, LLC (“Future
International”). Through Future International, AMA was
expected to assist Jinfei with the expansion of its market in
the United States beginning with the recreational vehicle
market around Elkhart, Indiana. The parties entered three
contracts to govern the funding, development, and management
of Future International.
The
parties' Investment Contract and Consultation Contract
were executed on February 26, 2012. Despite agreeing that AMA
would fund about 10% of the company while Jinfei would fund
90% of the company, neither company had invested in Future
International as of October 2012. AMA had been waiting to
invest until Jinfei received approval from the Chinese
government. Jinfei, however, received the required approval
in April 2012 without disclosing it to AMA. In October 2012,
the parties executed a new contract that provided for
AMA's 10% investment in Future International and
Jinfei's payment of consulting fees to AMA back to
February 2012. On January 31, 2013, Jinfei and Ge registered
Future Industrial & Trading, Inc. (“FIT”)
with the Indiana Secretary of State without informing AMA.
Jinfei never invested any funds into Future International and
never paid consulting fees to AMA.
B.
Procedural Background
On May
13, 2015, Plaintiffs filed a complaint in St. Joseph County
Superior Court alleging that FIT retained profits generated
by customer contacts they established through their
connection to AMA and that the FIT name, under which it
continues to operate, is confusingly similar to the name
Future International. Plaintiffs' complaint included
claims for breach of the three contracts, breach of fiduciary
duty, unjust enrichment, unfair competition, and trademark
infringement. Defendants removed the case to this Court
alleging original jurisdiction under 28 U.S.C. § 1331
arising from Plaintiffs' Lanham Act (15 U.S.C.
§ 1051 et seq.) claim for federal trademark
infringement.
Before
Defendants responded to Plaintiffs' original complaint,
Plaintiffs filed their amended complaint on August 12, 2015.
In response, Defendants filed a motion to dismiss for failure
to state a claim challenging all seven causes of action as
raised by Future International and the unjust enrichment and
trademark infringement claims raised by AMA as well. On April
11, 2016, this Court denied Defendant's motion to
dismiss.[1] [DE 28].
The
Court then issued its Rule 16(b) Preliminary Pretrial
Scheduling Order on July 7, 2016, setting November 28, 2017,
as the deadline for the close of all discovery on
Plaintiffs' remaining claims. [DE 47]. In
September 2016, FIT and Ge served their first sets of
discovery requests, including requests for production,
requests for admission, and special interrogatories, on
Plaintiffs. On November 2, 2016, AMA served responses to FIT
and Ge's interrogatories [DE 61-3] and Future
International responded to Ge's request for production of
documents [DE 61-4]. On November 9, 2016, Future
International served responses to FIT's requests for
admission [DE 61-6].
Through
their interrogatories, FIT and Ge sought “foundational
information” from AMA regarding the facts supporting
Plaintiffs' claims. AMA objected to most of the requests
as “overly burdensome insofar as [they seek] ‘all
facts, ' [and] to the extent [they seek] the mental
impressions of counsel in violation of the work product
doctrine.” [DE 61-3 at 3-4]. Nevertheless, AMA
responded by repeating facts incorporated into the amended
complaint while noting that “discovery is ongoing, and
[reserving] the right to supplement its answer.”
[Id.].
Through
his requests for production of documents, Ge similarly sought
documents supporting Future International's contentions.
Future International objected to each request as overly
burdensome for seeking “all” documents and the
mental impressions of counsel using the same language AMA
used when objecting to FIT and Ge's interrogatories.
[DE 61-4 at 3-4]. Future International then
responded by referring to “Plaintiffs Bates 295-298,
” which are the incorporation documents for FIT dated
October 20, 2014, on file with the Indiana Secretary of
State. [Id.; see also DE 61-5].
Through
its requests for admission, FIT asked for admissions related
to facts it deemed foundational to Plaintiffs' claims,
including whether (1) Future International sold any goods or
products, provided any services, or advertised goods or
services using its mark; (2) Future International has any
evidence of FIT using Future International's mark or a
confusingly similar mark or any evidence of confusion; (3)
Jinfei owned 100% of Future International; and (4) Future
International ever used its own mark, obtained a tax ID,
engaged in business operations, or opened a business bank
account. Future International admitted only that it
“has not had a business bank account.” [DE
61-6 at 5]. Future International denied the rest of
FIT's requests with objections to most alleging that FIT
was seeking “the mental impressions of counsel in
violation of the work product doctrine.” [Id. at
3-5]. To some requests, Future International also noted
that it was “not able to respond until discovery is
completed.” [Id.].
Finding
Plaintiffs' responses deficient, Defendants' counsel
wrote a letter to Plaintiffs' counsel on March 8, 2017,
seeking supplementation. [DE 61-7]. In a written
response dated April 28, 2017, Plaintiffs highlighted ongoing
discovery shortcomings by Defendants and indicated that their
supplementation had been hindered by Defendants'
withholding of relevant discovery responses. [DE 61-8 at
3]. Specifically, Plaintiffs' counsel stated:
Plaintiffs will supplement their responses after Defendants
confirm the scope of their supplementation and produce the
entire supplementation. Plaintiffs will require thirty (30)
days to review the information after Defendants submit their
final supplementation, and Plaintiffs will then supplement
accordingly.
[Id.]. On May 1, 2017, Defendants' counsel sent
another letter to Plaintiffs' counsel reiterating
concerns over Plaintiffs' discovery responses, alerting
Plaintiffs to the possibility of a Rule 37 motion to compel,
and arguing that Plaintiffs' insufficient discovery
responses proved a violation of the Rule 11(b) requirement of
a reasonable investigation of claims before they are filed.
[DE 61-9].
On May
11, 2017, Defendants' counsel then served a copy of the
instant motion for sanctions and its accompanying memorandum
in support on Plaintiffs' counsel. [DE 61-10,61-11]. Plaintiffs did not withdraw their claims or
otherwise correct them. Therefore, Defendants filed the
instant motion on June 7, 2017, having waiting more than the
21 days required by Fed. R. Civ. P.
11(c)(2).[2] Through their motion, Defendants ask the
Court to use its authority under Rule 11(c), 28 U.S.C. ยง
1927, and its own inherent power to sanction Plaintiffs by
(1) dismissing all of the claims in their amended complaint
with prejudice and (2) ordering Plaintiffs and their counsel
to pay Defendants' reasonable attorney fees and costs
incurred in litigation of this action after removal. In their
defense, Plaintiffs argue that (1) Defendants are raising
discovery disputes that do not rise to the level of Rule 11
litigation abuses; (2) the Court's order denying
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