Mitchell v. Arco Indus. Sales
| Docket Number | 20210726-CA |
| Decision Date | 06 July 2023 |
| Citation | 2023 UT App 70 |
| Parties | John B. Mitchell, Appellant and Cross-appellee, v. Arco Industrial Sales, Arco Packaging/Janitorial Sales, and John A. Mitchell, Appellees and Cross-appellants. |
| Court | Utah Court of Appeals |
Third District Court, Salt Lake Department The Honorable Adam T Mow No. 170905725
Greggory J. Savage, James A. Sorenson, and Carol Ann Funk Attorneys for Appellant and Cross-appellee
Robert W. Hughes, Attorney for Appellees and Cross-appellants
OPINION
¶1 John B. Mitchell (John)[1] appeals from the district court's ruling that barred him from presenting evidence of damages as a sanction for failing to file supplemental discovery disclosures as required by rule 26(a)(1)(C) of the Utah Rules of Civil Procedure. We reverse the imposition of sanctions against John without considering the issue on the merits because he presented a plausible basis for reversal and Defendants inadequately briefed the argument. In their cross-appeal, Defendants challenge the district court's decision to strike their Answer and Counterclaim as a sanction for their violation of the court's discovery orders. We affirm the district court's entry of default against Defendants because their challenge is unsupported by any reasoned analysis of the district court's ruling and, thus, they have failed to carry their appellate burden.
¶2 In 2006, John accepted a position with Arco Industrial Sales (Arco) and moved from Pennsylvania to Utah. At the time, Arco was wholly owned by John's father, John A. Mitchell (Jack). According to John, he took the job because Jack and Arco (collectively Defendants) made multiple promises on which he relied. These promises related to John's compensation and included representations that Jack would transfer ownership of Arco to John within five years. During John's tenure, additional promises were made to induce him to remain employed at the company, including assurances he would receive income, bonuses, and profit sharing equal to Jack. John eventually resigned from his position at Arco because Defendants failed to fulfill all of their promises.
¶3 In 2017, John filed this lawsuit, asserting claims for breach of agreement, misrepresentation, promissory estoppel, breach of fiduciary duty, unjust enrichment, and an accounting. Defendants filed an answer to the complaint, raising multiple defenses to John's claims and asserting a counterclaim seeking repayment of loans allegedly made to John by both Arco and Jack. John then timely filed an initial, but incomplete, disclosure of damages as required by rule 26(a)(1) of the Utah Rules of Civil Procedure. The initial disclosure stated John was seeking "the value of the equity in Arco that was promised to him," income and benefits promised but not paid, damages from lost business opportunities, and "emotional hardship and suffering in an amount to be determined later." As to the amount or calculation of these damages, the disclosure only stated: "Plaintiff's damages will be determined after discovery and will be the subject of expert testimony."
¶4 John served Defendants with his first set of discovery requests on October 30, 2017. Believing Defendants had not produced all of the documents he requested, John subsequently sought intervention from the district court. Among other things, John represented to the court that Defendants failed to produce financial statements, accounting records, tax returns, and business valuations. John stated he needed this information to calculate his damages. John also sought copies of Arco's corporate documents, including minutes taken at meetings of the shareholders and the board of directors. The district court granted John's motion in part and ordered Defendants to produce the documents within thirty days.
¶5 Defendants turned over a handful of documents, but John again doubted they had produced everything he requested. Accordingly, he filed a Motion for Sanctions, asking the district court to impose terminating sanctions by striking Defendants' Answer and Counterclaim and entering default in his favor if all the documents were not produced within seven days. The district court granted John's motion and detailed the documents Defendants were required to produce. The court warned Defendants that if they failed to comply with its discovery order, the "likely next step is to strike [their] Answer and Counterclaim and enter default judgment in favor of [John]."
¶6 Despite the district court's clearly worded order, Defendants did not produce the requested documents within the required timeframe. This prompted John to file a third motion with the district court, again requesting terminating sanctions. John's motion detailed Defendants' ongoing failure to produce documents and also contained allegations that Defendants destroyed relevant evidence when they replaced Arco's computer server and scrubbed the laptop John used during his employment at Arco.
¶7 The district court denied John's motion for terminating sanctions, concluding there was no credible evidence Defendants scrubbed his laptop after they were informed of their obligation to preserve the information on it. The court also concluded John failed to present credible evidence that Defendants intentionally destroyed electronically stored information (ESI) or acted in bad faith when they replaced Arco's computer server. As to John's allegations that Defendants failed to comply with the district court's order compelling them to produce certain documents, the court noted John failed to specifically identify the documents he believed were being withheld. Accordingly, the court ruled John was not entitled to sanctions pursuant to rule 37 of the Utah Rules of Civil Procedure.
¶8 John then filed a motion for reconsideration. He directed the district court to statements Defendants made in response to his motion for terminating sanctions wherein they represented they had copied and preserved "all files and documents" from his company laptop before it was scrubbed and had produced that information in discovery. John argued the undisputed evidence showed that, contrary to Defendants' assertions, they had not produced all the documents they allegedly backed up from his laptop before it was scrubbed.
¶9 The district court concluded it was unable to rule on John's motion for reconsideration because of the "competing narratives of what has been produced." The court ordered Defendants to arrange for a time when John could inspect their "electronic devices, including computers, software, emails, and servers, to locate any additional ESI [John] believe[d was] missing." When John's computer forensics vendor conducted the inspection, she located numerous documents Defendants had not produced. According to John, the inspection confirmed that Defendants had produced only a "small portion" of the documents backed up when his laptop was scrubbed. The inspection also uncovered other relevant and responsive documents that Defendants failed to produce despite repeatedly assuring the district court they had fully complied with John's discovery requests.
¶10 The district court heard oral argument on John's allegations of discovery violations. The court found Defendants failed to produce documents and ESI requested by John, noting their failure to do so was in violation of the court's orders and was "willful and due to the fault of Defendants." As a sanction for these willful violations, the district court struck Defendants' Answer and Counterclaim and entered default against them. The court stated it would hold an evidentiary hearing on the issue of John's damages. See Utah R. Civ. P. 55(b)(2) (permitting a district court to conduct an evidentiary hearing on damages after default is entered if it deems one "necessary and proper").
¶11 In a written order following its oral ruling, the district court detailed the bases for its grant of terminating sanctions. The court found "Defendants did not produce documents and electronically stored information responsive to Plaintiff's discovery requests" in violation of "the Court's orders entered on February 16, 2018, and July 2, 2018." The court further found Defendants willfully "failed to meet" their discovery obligations and "intentionally failed to conduct the level of inspection necessary to ensure that responsive documents were produced." Noting that Defendants made their own determination of what information was relevant, the court found that many of the documents Defendants failed to produce were "at the heart of [the] dispute" and there was "no basis for not producing those documents."
¶12 Nearly a year after default was entered against them but before the evidentiary hearing on John's claims for damages, Defendants filed a motion in limine requesting an order barring John from introducing any evidence of damages because he failed to supplement his damages disclosure as required by rule 26(a)(1)(C) of the Utah Rules of Civil Procedure. Specifically, they alleged John failed to furnish any method or formula for calculating damages. John opposed the motion, arguing it should be denied because (1) he no longer had any obligations under rule 26 once the default was entered against Defendants, (2) Defendants waited too long to complain about his damages disclosure, and (3) any deficiencies were the result of Defendants' well-documented failures to meet their discovery obligations.
¶13 At a hearing on Defendants' motion, the district court ruled that John had a continuing obligation under rule 26(a)(1)(C) to supplement his damages disclosure but failed to do so. The court then considered,...
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