Riches to Rags v. McALEXANDER & ASSOCIATES

• Court: Georgia Court of Appeals
• Writing for the Court: RUFFIN.
• Citation: Riches to Rags v. McALEXANDER & ASSOCIATES, 549 S.E.2d 474, 249 Ga. App. 649 (Ga. App. 2001)
• Decision Date: 17 May 2001
• Docket Number: No. A01A0166.,A01A0166.
• Parties: RICHES TO RAGS, INC. v. McALEXANDER & ASSOCIATES, INC.

549 S.E.2d 474

249 Ga. App. 649

RICHES TO RAGS, INC. v. McALEXANDER & ASSOCIATES, INC.

No. A01A0166.

Court of Appeals of Georgia.

May 17, 2001.

Paul, Hastings, Janofsky & Walker, John G. Parker, Joseph C. Sharp, Atlanta, for appellant.

J. Christopher Simpson, Greg S. McLaughlin, Atlanta, for appellee. RUFFIN, Judge.

Over three years after McAlexander & Associates, Inc. (McAlexander) filed suit against Riches to Rags, Inc., the trial court struck Riches to Rags' answer and counterclaims for discovery abuses. On appeal, Riches to Rags contends that the trial court abused its discretion in so doing. We disagree and affirm.

The record demonstrates that McAlexander agreed to distribute Riches to Rags' products, and Riches to Rags agreed to pay a seven percent commission on goods sold. McAlexander contends that, in 1996, Riches to Rags failed to pay certain commissions and McAlexander obtained an attorney who sent a demand letter to Riches to Rags. Stanley Atkins, who managed Riches to Rags, responded by writing a letter to the attorney denying that Riches to Rags owed any commissions. Atkins also wrote that

this [case] will drag over two years or three and even if you have a still tight case (which [McAlexander] couldn't be further from), it still doesn't mean [McAlexander] will be a winner.... It was [McAlexander] who caused this and it will be [McAlexander] who loses. Sure you can sue me. I also can play this game and once I start I will not let go and he will not be able to afford it.... You say I owe you, then sue. Then I'll start playing the game.

In April 1997, McAlexander filed suit and served its first interrogatories, seeking information regarding orders placed and commissions paid. Rather than providing the information in narrative form, Riches to Rags elected to produce documents, which it claims were responsive to McAlexander's interrogatories. Donna Guttmann, a McAlexander employee, examined four boxes produced by Riches to Rags containing over 11,000 documents. According to Guttmann, the boxes included documents pertaining only to those orders for which McAlexander had already been paid. In her affidavit, she also stated that the "documents were not organized or assembled in a fashion that would enable [McAlexander] to reasonably obtain the information necessary to confirm the commissions due and owing." McAlexander wrote Riches to Rags, asserting that Riches to Rags had failed to produce the requisite information and requesting that Riches to Rags supplement its discovery responses.

Riches to Rags apparently did not supplement its responses, and on August 18, 1997, McAlexander filed a motion to compel discovery. Following a hearing on the motion, the trial court ordered Riches to Rags to "prepare a monthly accounting in substantially the same form as [Riches to Rags] provided to [McAlexander] prior to the termination of their agreement."

Riches to Rags produced an accounting and submitted an amended answer in which it conceded that "it may be indebted to [McAlexander] in the amount of $9,970.68." Notwithstanding Riches to Rags' apparent concession, McAlexander asserted that Riches to Rags' accounting was incomplete and did not fully comply with the trial court's order. The trial court conducted a hearing to address McAlexander's assertion, after which it determined "that an independent accounting is required in order to obtain the information necessary for the case to proceed and to determine whether [Riches to Rags] has complied with the terms of this Court's [prior] Order." The parties were unable to agree upon an auditor, and on September 28, 1998, the trial court appointed Frank Henry.

Once Henry was appointed, the parties were ordered to pay him fifty percent of his retainer within ten days of receiving his retainer agreement. On September 30, 1998, Henry forwarded "Engagement Letters" to both McAlexander and Riches to Rags, but did not receive a response or payment from Riches to Rags until October 26, 1998, well after the time specified by the trial court. Upon receiving the signed agreement, Henry wrote the attorney for Riches to Rags, informing him that the audit was scheduled for November 10 through November 12, 1998. Nevertheless, Riches to Rags waited until November 16, four days after the audit was to commence, to send Henry any documents, which Henry characterized as "incomplete, constituting merely a partial document production." In a letter dated November 19, 1998, Henry requested that Riches to Rags produce additional information, including (1) a comprehensive sales journal for the relevant time period; (2) bank statements; (3) a reconciliation to each deposit amount by customer; (4) a listing of each bank and account number used; and (5) a list of all people who performed accounting for Riches to Rags and their availability for meetings. The attorney for Riches to Rags called Henry and informed him that the company did not maintain a comprehensive sales journal or deposit reconciliations, but that Riches to Rags would gather and forward bank statements and provide the name of its accountant.

Riches to Rags did not provide this information, and Henry wrote again on December 9, 1998, requesting the information and reminding the company that, pursuant to Henry's engagement letter, it was subject to a $500 per day penalty if it failed to cooperate. Atkins responded by letter dated December 14, 1998, forwarding "all of the bank statements [he could] find." Atkins also wrote,

[w]e are a mom and pop business and this is our busiest time of the year. We have not had time to prepare what you need. Your letter of request on November 19, 1998 was in our peak time. Since this has been going on for over 2 years now the only rush I see is that you are heading into your busiest time. Mr. Henry it is us who are paying for this service.

(Emphasis in original.) Atkins later found additional bank statements, which were forwarded to Henry. On December 29, 1998, Atkins wrote Henry that he was "welcome to our offices [to] dig [and] get whatever else you need." Evidently, Riches to Rags did not produce any additional information, and Henry did not go to Riches to Rags' offices to look for more documents.

McAlexander subsequently filed a motion for sanctions, requesting that the trial court strike Riches to Rags' answer and counterclaims "for discovery abuse and non-compliance with the Court's Orders." Following a hearing, the trial court granted the motion, finding that Riches to Rags

has intentionally and wilfully refused to comply with the Orders of

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