Finkel v. WeVeel LLC (In re Atomica Design Grp., Inc.)
| Decision Date | 04 October 2018 |
| Docket Number | Adv. Proc. No. 14-00333-AMC,Case No. 12-17235-AMC |
| Citation | 591 B.R. 217 |
| Parties | IN RE ATOMICA DESIGN GROUP, INC., Debtor Bonnie Finkel, as Chapter 7 Trustee of the Estate of Atomica Design Group, Inc., Plaintiff v. WeVeel LLC ; Junto Creative LLC; Joseph Dipalma; Tiziano Recchia; Jason Lane; IYA Technologies, LLC; and LaRose Industries, LLC, d/b/a Cra-z-Art. Defendants |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Wade D. Albert, Sobol & Sobol, P.C., Casey B. Green, Gary Green, Colleen S. Heckman, Larry M. Keller, Sidkoff, Pincus & Green, P.C., Philadelphia, PA, for Plaintiff.
Andrea Dobin, McManimon Scotland & Bauman, LLC, Trenton, NJ, Michele M. Dudas, Trenk DiPasquale Della Fera & Sodono PC, West Orange, NJ, Robert A. Badman, Craig F. Turet, Curtin & Heefner LLP, Yardley, PA, Robert Mark Bovarnick, Bovarnick & Associates, LLC, David B. Aaronson, McCarter & English LLP, Philadelphia, PA, Richard A. Beran, Lisa S. Bonsall, McCarter & English LLP, Newark, NJ, for Defendants.
IYA Technologies, LLC, pro se.
Bonnie F. Finkel, the Chapter 7 Trustee in this case ("Trustee"), has filed a Motion for Sanctions ("Motion") against defendant, WeVeel, LLC ("WeVeel"), seeking reasonable attorneys' fees and costs incurred as a result of WeVeel's violation of this Court's orders compelling production of documents. Because WeVeel unreasonably withheld crucial financial documents and engaged in a pattern of deceit and delay since March of 2017, the Court will grant the Trustee's motion, in part, and sanction WeVeel pursuant to Federal Rules of Civil Procedure 37(b)(2)(C) and 37(a)(5)(A) (" Rule 37").
On February 10, 2017, the Trustee served defendants WeVeel and Jason Lane ("Mr. Lane" and collectively with WeVeel, the "Defendants") with her first request for production of documents and first set of interrogatories ("Discovery Request"). Mot. for Sanc. ¶ 9. In relevant part, the Trustee requested that WeVeel provide (1) records which record, reflect, refer, or relate to the distribution and/or sales of Scentos brand markers; (2) records which record, reflect, refer, or relate to the distribution and/or sales of Sidewalk Tattoos; (3) records which record, reflect, refer, or relate to the distribution and/or sales of Kindercrafts; (4) records which record, reflect, refer, or relate to the distribution and/or sales of Best Friends products; and (5) documents sufficient to establish WeVeel's sales, by dollar and unit volume, for each of those products sold, offered for sale, advertised or promoted by WeVeel, for each year from 2010 through the present date (collectively, "the Sales Requests"). Mot. for Sanc. Ex. B First Set of Doc. Requests for Defendant WeVeel, at ¶¶ 6, 9, 12, 15, 18. In addition, the Trustee requested Mr. Lane's federal income tax returns ("Tax Returns") from 2009 through the present. Mot. for Sanc. Ex. B First Set of Doc. Requests for Defendant Jason Lane, at ¶ 17.
WeVeel's initial disclosures, submitted February 21, 2017, failed to identify any documents or classes of documents which would relate either to its defenses or the Trustee's claims regarding the debtor, Atomica's, alleged stolen intellectual property. Trustee Mot. to Compel 4; see ECF No. ("ECF") 131. Accordingly, on March 1, 2017, the Trustee filed a Motion to Compel Disclosures and Strike Initial Disclosures as Non-responsive. ECF 135.
On March 13, 2017, the Defendants jointly filed a motion to stay discovery and mediation on the basis that the Defendants would soon be filing a motion for summary judgment. ECF 140; Mot. to Stay Disc. ¶ 27. On March 24, 2017, the Trustee filed a Motion to Compel Responses to Her Requests for Production of Documents and Interrogatories ("Motion to Compel") based upon Defendants' failure to comply with the Trustee's Discovery Request. ECF 144.
On March 31, 2017, the Defendants filed their motion for summary judgment ("SJ Motion"). ECF 147. On May 15, 2017, the SJ Motion was denied and the Court entered an order granting the Motion to Compel on May 16, 2017. ECF 162, ECF 168. Specifically, the order stated that "Defendants shall, within ten (10) days of this Order, provide full and complete responses, without objection to each and every Interrogatory and Document Request." ECF 168. On May 18, 2017, the Court amended its order to add that "Defendants are permitted to include limited objections with their responses to Plaintiff's Interrogatory and Document Requests." (collectively "the May Orders"). ECF 169.
On June 20, 2017, WeVeel responded to the Trustee's document requests, producing thousands of documents electronically and making 18 boxes available for inspection ("18 Boxes") at WeVeel's office in Morrisville, Pennsylvania ("Morrisville Office"). Mot. for Sanc. ¶ 12; Opp. ¶ 11. On July 13, 2017, the Trustee sent WeVeel a letter notifying it that WeVeel's discovery responses were deficient because, inter alia, they "failed to include any responsive financial documents."1 Mot. for Sanc. Ex. D. On July 25, 2017, WeVeel responded and initially asserted that it was "prohibitively difficult to produce the financial and sales records that were being requested " and that Trustee's counsel was "welcome to visit [WeVeel's] offices in Morrisville, Pennsylvania for the purpose of reviewing the same."2 Id. Ex. E (emphasis added).
On August 1, 2017, WeVeel again made a representation to the Trustee that financial and sales records were available for review in hard copy in the 18 Boxes at the Morrisville Office, including a detailed sales history with supporting checks, invoices, and payments, in addition to corporate records, licensing information, and employee records.3 Trustee's Supp. Brief Ex. D. The letter also explained that, in WeVeel's early years as a start-up company, it did not have a sophisticated accounting system and did not classify items or the history of thousands of products because it had not needed to do so as a business function. Id. It could only verify sales by matching item numbers from art files with item numbers for each account to the hard copies of invoices and bank records available for inspection. Id.
On August 4, 2017, the Trustee notified WeVeel that she had contacted a copy company that could scan the 18 Boxes offsite in one week. Mot. for Sanc. ¶ 22. On August 15, 2017, WeVeel responded to the Trustee and stated its preference to use a local copy company. Id. at ¶ 23. WeVeel's copy company, however, did not deliver the scanned documents to WeVeel until six weeks later, on September 26, 2017. Id. at ¶ 24. WeVeel waited until October 6, 2017 to produce the scanned documents to the Trustee. Id.
After the Trustee reviewed the documents in the 18 Boxes, she found that the documents were largely non-responsive, in no particular order, and not labeled to correspond to the Trustee's requests. Id. Ex. M. Furthermore, the 18 Boxes lacked documents reflecting even basic financial data or rudimentary sales figures and included no tax returns. Id. at ¶ 25, Ex. M. The documents in the 18 Boxes included random, generic customer invoices, isolated purchase orders with no discernable information about the specific products sold, random bank statements lacking any reference to which products payments were attributable to, manufacturer invoices, packing lists, shipping documents, product testing invoices, invoices for legal fees, Target chargebacks, order forms for WB Mason office supplies, documents which were written almost entirely in Chinese, and more. Trustee's Supp. Brief 7 n. 5, Ex. G; Opp. Ex. F-I; Trustee's Reply to Opp. 9; Tr. May 30 Hrg. 69:9-11, 73:13-22, 82:19-23.
On December 8, 2017, in order to obtain sufficient discovery to engage in mediation, the Trustee wrote to WeVeel and Mr. Lane and requested that they provide, at a minimum: (1) sales revenue figures from 2010 to the present for Scentos, Sidewalk Tattoos, Kindercrafts, and Best Friends; (2) WeVeel's and Mr. Lane's federal tax returns from 2009 to the present;4 and (3) audited financial statements,5 all by December 22, 2017. Mot. for Sanc. Ex. G. By this point, the Trustee had made repeated requests for Mr. Lane's Tax Returns, as well as sales and financial information about Scentos, Sidewalk Tattoos, Kindercrafts, and Best Friends, since her original February 2017 document request with no success. See Mot. for Sanc. ¶¶ 10, 14, 27, Ex. B First Set of Doc. Requests for Defendant WeVeel, at ¶¶ 6, 9, 12, 15, 18; First Set of Doc. Requests for Defendant Jason Lane, at f 17; Ex. D, Ex. F; Trustee's Supp. Brief Ex. D.
On December 13, 2017, WeVeel continued to insist that it did not maintain its sales records in a way that allows it to easily separate out specific products and product lines. Mot. for Sanc. Ex. H. WeVeel also asserted that raw sales data responsive to the Sales Requests was produced, and that WeVeel did not have audited financial statements. Id. However, when challenged by the Trustee to identify the bates numbered documents which contained the raw sales data, WeVeel failed to identify any such documents. Id. at ¶ 36.
On December 17, 2017, the Trustee made a last-ditch effort to try to persuade WeVeel to provide limited sales and financial information and notified WeVeel that the Trustee believed that WeVeel's refusal to produce the requested documents was unreasonable and clearly sanctionable. Id. Ex. M. The Trustee still offered to go to mediation if the requested documents were provided by December 22, 2017. Id. WeVeel rejected the Trustee's proposal and, on December 21, 2017, again represented that it had produced or made available for inspection all documents in its possession which were responsive to the Trustee's requests in the form in which they were maintained in the ordinary course of business. Opp. Ex. B.
Shortly thereafter, the Trustee discovered sales reports for WeVeel products generated by WeVeel customers ("Customer...
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