Gutierrez v. Selection Mgmt. Sys.

• Decision Date: 21 June 2022
• Docket Number: 1:20-cv-354
• Parties: Jennifer Gutierrez, et al., Plaintiffs, v. Selection Management Systems, Inc., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

Jennifer Gutierrez, et al., Plaintiffs, v. Selection Management Systems, Inc., et al., Defendants.

No. 1:20-cv-354

United States District Court, S.D. Ohio, Western Division

June 21, 2022

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Susan J. Dlott United States District Judge

This contract-dispute action is before the Court on Plaintiffs' Motion for Partial Summary Judgment and Defendants' Motion for Summary Judgment. (Docs. 52 53.)^[1] For the reasons that follow, both motions will be GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

A. Facts

Defendant Selection Management Systems, Inc. (“SMS”) is an Ohio for-profit corporation that performs civil and criminal background checks, and other similar functions, for a range of clients. (Doc. 53-1 at PageID 3609-10; Doc. 56-1 at PageID 3652.) Defendant John Hart is the majority shareholder of SMS, as well as SMS's chairman and chief executive officer. (Doc. 53-1 at PageID 3609; Doc. 56-1 at PageID 3652.) In 1997, Charles Bailey (“Mr. Bailey”) joined SMS as a 10% shareholder and executed a Close Corporation Agreement (the “CCA”) with Hart. (Doc. 52-1 at PageID 3566; Doc. 57-1 at PageID 3678.)

In 2016, Mr. Bailey expressed to Hart his intention to retire at the end of the year, and the two negotiated for Mr. Bailey to assign his shares of SMS stock to SMS. (Doc. 53-1 at PageID 3610; Doc. 56-1 at PageID 3652.)

The negotiations culminated in Mr. Bailey and SMS, with the approval of Hart, executing an Assignment of Shares agreement (the “Assignment”) on September 8, 2016. (Doc. 53-1 at PageID 3610-11; Doc. 56-1 at PageID 3652.) The Assignment provides that:

Assignee shall pay Assignor, as consideration for the assignment of the Assigned Shares, $27,500 per quarter, in advance, for forty (40) calendar quarters (each a “Quarterly Payment”). Each Quarterly Payment shall be made on the first day of each calendar quarter beginning with the calendar quarter starting January 1, 2017, with the final payment due on October 1, 2026, unless the amount due hereunder has been accelerated pursuant to the terms of this Agreement. Each Quarterly Payment shall be paid by wire transfer of immediately available funds to an account designated by Assignor. In the event Assignor shall die before the payments are complete, all payments due after Assignor's death shall be made to Assignor's surviving spouse or trust until the final 40^th scheduled payment has been completed.

(Doc. 1-1 at PageID 8.)

Tragically, Mr. Bailey and his wife, Rita Bailey (“Mrs. Bailey”), were involved in a fatal motorcycle accident in the summer of 2019, with Mr. Bailey passing away in June and Mrs. Bailey passing away shortly thereafter in July. (Doc. 52-1 at PageID 3574-75; Doc. 57-1 at PageID 3685-86.) Prior to their untimely deaths, in 2018 Mr. and Mrs. Bailey executed The Charles and Rita Bailey Living Trust (the “Bailey Living Trust”). (Gutierrez Dep., Doc. 45-3 at PageID 2684; Doc. 49-3.) Upon the deaths of Mr. and Mrs. Bailey, Plaintiffs Jennifer Gutierrez, Mr. Bailey's daughter, and Bree Alexander, Mr. Bailey's step-daughter, became co-trustees of the Bailey Living Trust. (Doc. 52-1 at PageID 3564-65; Doc. 57-1 at PageID 3677.)

Pursuant to the terms of the Assignment, SMS made 11 quarterly payments of $27,500 between 2017 and 2019. (Doc. 45-2 at PageID 2606-10; Doc. 53-1 at PageID 3611; Doc. 56-1 at PageID 3653.) The first 10 quarterly payments were made to Mr. Bailey, individually. (Doc. 53-1 at PageID 3611; Doc. 56-1 at PageID 3653.) The 11th quarterly payment, made in the third quarter of 2019 and prior to Mrs. Bailey's death, was sent to Gutierrez as requested and made payable to the Bailey Living Trust. (Nelson Dep., Doc. 45-1 at PageID 2531-34; Doc. 53-1 at PageID 3612; Doc. 56-1 at PageID 3653.) On September 25, 2019, Defendants informed Gutierrez that no more payments pursuant to the Assignment would be forthcoming. (Doc. 53-1 at PageID 3612; Doc. 56-1 at PageID 3653.) Prior to ceasing the quarterly payments, SMS paid a total of $302,500 under the Assignment. (Doc. 52-1 at PageID 3575; Doc. 57-1 at PageID 3686.) Plaintiffs contend that, pursuant to the Assignment, the Bailey Living Trust is entitled to the remaining 29 quarterly payments totaling $797,500.

B. Procedural Posture

Plaintiffs initiated this action in their capacity as the co-trustees of the Bailey Living Trust^[2] on May 4, 2020, asserting six claims against Defendants. Count I alleges SMS breached the Assignment by ceasing the quarterly payments. Counts II and III are asserted only against Hart, alleging he personally guaranteed payments due under the Assignment and breached this guaranty and his fiduciary duty, respectively. And in Counts IV and V, Plaintiffs assert claims of unjust enrichment and conversion against both Defendants, respectively. Lastly, Count VI seeks a declaratory judgment regarding the parties' rights and obligations under the Assignment and CCA.

Plaintiffs and Defendants have filed cross-motions for summary judgment. (Docs. 52, 53.) Plaintiffs have moved for summary judgment on Counts I, II, and VI, and Defendants have moved for summary judgment on all claims. Defendants also request discovery sanctions for Plaintiffs' failure to preserve electronically stored information. Both motions are fully briefed and ripe for review.

II. STANDARD OF LAW

Federal Rule of Civil Procedure 56 governs motions for summary judgment. Summary judgment is appropriate if “there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant has the burden to show that no genuine issues of material fact are in dispute. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); Provenzano v. LCI Holdings, Inc., 663 F.3d 806, 811 (6th Cir. 2011). The movant may support a motion for summary judgment with affidavits or other proof or by exposing the lack of evidence on an issue for which the nonmoving party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986). In responding to a summary judgment motion, the nonmoving party may not rest upon the pleadings but must “present affirmative evidence in order to defeat a properly supported motion for summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).

A court's task is not “to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Id. at 249. “[F]acts must be viewed in the light most favorable to the nonmoving party only if there is a ‘genuine' dispute as to those facts.” Scott v. Harris, 550 U.S. 372, 380 (2007); see also E.E.O.C. v. Ford Motor Co., 782 F.3d 753, 760 (6th Cir. 2015) (en banc) (quoting Scott). A genuine issue for trial exists when there is sufficient “evidence on which the jury could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252; see also Shreve v. Franklin Cnty., Ohio, 743 F.3d 126, 132 (6th Cir. 2014) (“A dispute is ‘genuine' only if based on evidence upon which a reasonable jury could return a verdict in favor of the non-moving party.”) (emphasis in original) (citation omitted). “Factual disputes that are irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248.

“The court need consider only the cited materials, but it may consider other materials in the record.” Fed.R.Civ.P. 56(c)(3). “When opposing parties tell two different stories, one of which is blatantly contradicted by the record, so that no reasonable jury could believe it, a court should not adopt that version of the facts for purposes of ruling on a motion for summary judgment.” Scott, 550 U.S. at 380 (relying on videotape evidence to refute a party's alleged facts); Shreve, 743 F.3d at 132-33.

III. ANALYSIS

A. Discovery Sanctions

In moving for summary judgment, Defendants also seek discovery sanctions under Federal Rule of Civil Procedure 37(e) for Plaintiffs' failure to preserve electronically stored information (“ESI”). Specifically, Defendants request dismissal of this case via summary judgment. In the alternative, Defendants request Plaintiffs be precluded from introducing parol or extrinsic evidence, or the Court give a permissive inference in favor of Defendants at trial. Defendants also request attorneys' fees.

“As a general matter, it is beyond question that a party to civil litigation has a duty to preserve relevant information, including ESI, when that party ‘has notice that the evidence is relevant to litigation . . . or should have known that the evidence may be relevant to future litigation.'” John B. v. Goetz, 531 F.3d 448, 459 (6th Cir. 2008) (citation omitted). Rule 37(e) governs situations where “electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery.” Fed.R.Civ.P. 37(e). If a court finds that prejudice has resulted due to such a failure, a court “may order measures no greater than necessary to cure the prejudice.” Fed.R.Civ.P. 37(e)(1).

Alternatively, if a court finds the offending party “acted with the intent to deprive another party of the information's use in the litigation,” a court may “(A) presume that the lost information was unfavorable to the party; (B) instruct the jury that it may or must presume the information was unfavorable to the party; or (C) dismiss the action or enter a default judgment.” Fed.R.Civ.P. 37(e)(2)(A)-(B). “Sanctions under Rule 37(e) are discretionary.” Faulkner v. Aero Fulfillment Servs.,...