Aaron v. Zhejiang Jinfei Kaida Wheels Co., Ltd.

          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. § 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 ...