Youn v. Track, Inc.

• Decision Date: 24 March 2003
• Docket Number: No. 01-3625.,01-3625.
• Parties: Baron T. YOUN; Kyong Hwan Choi, d/b/a CKH Sportsworld, Ltd., Plaintiffs-Appellants, v. TRACK, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 409

324 F.3d 409

Baron T. YOUN; Kyong Hwan Choi, d/b/a CKH Sportsworld, Ltd., Plaintiffs-Appellants, v. TRACK, INC., Defendant-Appellee.

No. 01-3625.

United States Court of Appeals, Sixth Circuit.

Argued: December 4, 2002.

Decided and Filed: March 24, 2003.

COPYRIGHT MATERIAL OMITTED

William H. Blessing (argued nd briefed), Law Offices of William H. Blessing, Cincinnati, OH, for Plaintiffs-Appellants.

Brian E. Hurley (briefed), Crabbe, Brown, & James, Cincinnati, OH, Jonathan Yedor, San Antonio, TX, for Defendant-Appellee.

Before RYAN, CLAY, and GIBBONS, Circuit Judges.

OPINION

CLAY, Circuit Judge.

Plaintiffs, Baron T. Youn and Kyong Hwan Choi, d/b/a CKH Sportsworld, Ltd., appeal the district court's order of May 31, 2001 refusing to transfer their action for breach of contract and dismissing their action with prejudice based on lack of personal jurisdiction. They also appeal an order denying their request to recuse the magistrate judge on March 7, 2000, and three separate orders imposing discovery sanctions on April 29, 1996, May 30, 1996, and June 7, 1996. We AFFIRM in part and REVERSE in part.

FACTS

In 1989 and 1990, Plaintiff Choi lived with his sister and his brother-in-law, Plaintiff Baron T. Youn, in Sharonville, Ohio. Choi resides in South Korea and sought to import American-made sports equipment. Youn is an Ohio resident.

Choi noticed a bowling ball advertisement from Track ("Old Track"), a bowling ball seller based in Solon, Ohio. Choi brought the ad to Youn's attention. Youn telephoned Old Track and arranged a meeting with its President, Phil Cardinale. Other telephone and fax communications between Cardinale and Youn followed their initial meeting. Choi speaks very little English, so Youn, acting as an interpreter, engaged in all communications with Old Track.

Plaintiffs allege that negotiations between Youn and Old Track led to an agreement between Old Track and CKH Sportsworld, Ltd. ("CKH"), the name under which Choi was doing business. Pursuant to this alleged contract, on or about September 1, 1990, CKH became the exclusive Korean distributor of Old Track's products, including the "Trackster," one of Old Track's bowling balls.

Plaintiff Choi operated CKH as a sole proprietorship in South Korea. CKH imported sporting goods for sale in South Korea. All of CKH's employees resided in South Korea. Furthermore, CKH sold products and services only in South Korea. It had no American customers. Plaintiff Youn had no ownership interest in CKH.

Regular commerce between CKH and Old Track began, with Youn communicating with Old Track several times each week. From Cincinnati, Youn generated orders for bowling balls and directed those orders to Old Track's Solon, Ohio office. Old Track normally faxed confirmation of these orders back to Youn in Sharonville, Ohio.

Old Track itself did not manufacture the bowling balls. As CKH ordered balls, Old Track hired Columbia 300, a San Antonio, Texas-based company, to build the balls. Initially, Old Track shipped the balls to its Ohio location and exported them to South Korea from there. Later, Columbia 300 shipped the balls from San Antonio to Los Angeles, and then from there the balls traveled to South Korea.

In late 1991, Old Track's owner, Paul Seegott, sold the company's assets to a new Nevada corporation also called Track, Inc. ("New Track"), with its principal place of business in San Antonio, Texas.¹ All of Old Track's assets were located in Ohio. According to the asset-purchase agreement, New Track purchased the assets and assumed the liabilities specifically mentioned in the contract. The asset purchase contract does not mention the CKH-Old Track agreement. New Track hired Old Track's employees, including Cardinale, and opened offices in Solon, Ohio. New Track continued operating Old Track's bowling ball business. It arranged for Ohio telephone service and registered with various Ohio agencies as an Ohio employer; however, New Track's Texas office performed various shipping, billing and administrative functions.

After the asset purchase, the distributor arrangement between CKH and New Track continued as it had with Old Track. CKH purchase orders still originated from Youn, who sent them to New Track's offices in Salon. New Track confirmed these orders via fax. Columbia 300 continued to manufacture the balls in San Antonio. In 1992, CKH generated orders for over 19,000 bowling balls at a price of approximately $675,000. New Track, however, sold only 227 bowling balls and twenty bowling shirts to other customers from its Ohio office in 1992.

During the course of CKH's business relationship with New Track, Youn designed bowling ball logos for CKH's use in the Korean market. Youn called one of these logos the "Volcano." In early 1992, with Youn's authorization, CKH entered into a contract with New Track whereby New Track would sell CKH the same balls marketed as the "Trackster," but for less money.² CKH sold these balls under the "Volcano" logo. Pursuant to the Volcano agreement, New Track could sell Volcano balls in the United States, but not in Korea. Youn registered the Volcano logo as a trademark with Ohio's Secretary of State in August of 1992.

At the end of 1992, New Track moved its offices.³ It transferred its Ohio offices and President Cardinale to San Antonio. In 1993, Youn directed CKH purchase orders to the new office in Texas. New Track still issued regular confirmations to Youn in Ohio. On January 14, 1994, New Track notified CKH that it would terminate the exclusive distributorship agreement at the end of that year.

On February 3, 1994, Plaintiff Kyong Hwan Choi, d/b/a CKH Sportsworld, Ltd., filed a complaint in the Court of Common Pleas for Hamilton County, Ohio, against New Track, Inc., alleging that New Track breached the exclusive distributorship agreement. Choi voluntarily dismissed this complaint before complying with any of New Track's document requests.

On March 15, 1995, Choi and Youn sued New Track in the District Court for the Southern District of Ohio. Their complaint asserted breach of contract claims based on the alleged exclusive distributorship agreement and trademark infringement related to the "Volcano" logo. New Track responded on May 15, 1995, with a motion to dismiss that asserted the district court lacked personal jurisdiction. Plaintiffs filed a response in opposition to the motion on June 19, 1995.

In September of 1995, after one federal judge to whom the case had been assigned died and another took senior status, the parties agreed to have a magistrate judge adjudicate their case pursuant to 28 U.S.C. § 636(c)(4). The district court's order of reference referred the case to Magistrate Judge Robert A. Steinberg. On September 27, 1995, after conferring with counsel for the parties, U.S. Magistrate Judge Steinberg issued an order declaring New Track's personal jurisdiction motion "withdrawn," subject to reinstatement if settlement negotiations failed. The parties failed to settle, but New Track never formally moved to reinstate its motion.

Magistrate Judge Steinberg resigned in January of 1996. On February 12, 1996, the case was transferred to a visiting Magistrate Judge, Lynn V. Hooe, Jr. Five months later, the case was transferred again to the docket of another visiting Magistrate Judge, James Cook, who kept the case until November 21, 1996, when Magistrate Judge Timothy Hogan received the case.

Shortly after Plaintiffs filed their suit, New Track issued its initial discovery requests, including requests for documents. Plaintiffs responded by answering interrogatories and producing hundreds of documents. In August of 1995, New Track made a second series of document requests, including requests for Youn's personal income tax returns and CKH's financial statements. Youn objected to the request for his personal income tax returns and offered instead to produce any portions of the tax returns that had anything to do with the subject of the lawsuit. Plaintiffs also failed to produce documents supporting their damage calculations and CKH's financial statements. New Track then moved to compel discovery and Plaintiffs asked for a protective order. Less than a month later, New Track filed its first motion for sanctions.

On February 26, 1996, the court held a hearing on the two motions. The court granted the motion to compel on March 4, 1996, but declined to impose sanctions. The court also granted a protective order. The motion to compel directed Plaintiffs to produce all documents responsive to New Track's second set of requests, including the tax returns, financial statements, and documents supporting their damage claims. The order allowed Plaintiffs fifteen days to comply and further directed Plaintiffs to produce an index identifying which documents were responsive to which specific request.

According to Plaintiffs, they produced every requested document in their possession, custody, or control. Their production included more than 3000 documents, including Choi's Korean tax returns. An index accompanied the documents, identifying which were produced in response to which request. New Track complained, however, that many documents were written in Korean, making it difficult to determine whether Plaintiffs had completely complied with the March 4, 1996 order. Furthermore, Plaintiffs failed to produce any of Youn's Ohio income tax returns, his federal income tax returns for calendar years 1990-92, or any financial statements. Choi claims not to have produced financial statements for CKH because no such statements ever existed. Youn produced five years of his federal income tax returns and later provided New Track with a signed form authorizing New Track's counsel to obtain the remaining federal returns. Youn also denied filing Ohio income tax returns.

New Track filed a second motion for sanctions, seeking both monetary penalties and the dismissal of Plaintiffs' claims. On April 25, 1996, the court...