INTERNATIONAL PLASTIC & EQUIPMENT CORP. v. TAYLOR'S INDUSTRIAL SERVICES, LLC et al, No. 2:2007cv01053 - Document 79 (W.D. Pa. 2010)
Court Description: MEMORANDUM AND OPINION re: 50 MOTION to Amend/Correct Judgment Based Upon Admissions and MOTION for Sanctions For Failure To Participate and Cooperate In Discovery In Aid Of Execution filed by INTERNATIONAL PLASTIC & EQUIPMENT CORP. Signed by Judge William L. Standish on 9/29/2010. (md)
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INTERNATIONAL PLASTIC & EQUIPMENT CORP. v. TAYLOR&#039;S INDUSTRIAL SERVICES, LLC et al Doc. 79 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA INTERNATIONAL PLASTICS & EQUIPMENT CORP., ) ) ) Plaintiff, ) ) vs. ) Civil Action No. 07-1053 ) TAYLOR'S INDUSTRIAL SERVICES, ) LLC and SANDRETTO USA, INC., ) ) Defendants. } MEMORANDUM OPINION A. BACKGROUND On July 27, 2007, Corporation ("IPEC") ("HPM"), Sandretto Taylor's USA, discovery, the Plastics & Equipment filed suit against HPM, A Taylor's Company Industrial Inc. breach of warranty, International Services, ("Sandretto"), LLC for and misrepresentation. Court granted Defendants' ("Taylor's"), breach of and contract, After some limited motion for summary judgment on the breach of warranty claiml and dismissed HPM as a defendant, having been assured that HPM was "merely a division of Taylor's Industrial Services," and thus had no separate legal existence. (Defendants' Brief in Support of Motion for Summary Judgment, Doc. No. 20, at 6.) 1 For further details concerning the underlying dispute between the parties, see the Memorandum Opinion, Doc. No. 29, August 7, 2008. 1 Dockets.Justia.com Following unsuccessful subsequently scheduled a Several 2008. weeks attempts pretrial before at mediation, conference the for the Court December conference, 28, Defendants' attorneys moved to withdraw their appearances for non-payment of fees. The motion was granted on December 9, pretrial conference was continued to January 20, and 2008, the to give 2009, Taylor's and Sandretto the opportunity to obtain new counsel. No one entered an appearance on Defendants' appeared defaul t at the conference. IPEC then behalf, requested and no one entry of against Defendants and moved for default judgment. A conference on the motion was scheduled for February 19, copy of the notice was sent by the Court to a 2009i Sandretto and Taylor's in care of the president and chief executive officer of both Defendants, Christopher Filos,2 at (Doc. No. address in Mount Gilead, Ohio. the companies' 45 at 2.) joint Again, no one appeared at the conference for Defendants and no excuse was offered for the failure to appear. amount of 11, 2009. 3 $351,653.00 A default judgment in the was entered against Defendants on March Neither Defendant moved to have the default judgment set aside. Because there are three persons with the family name of "Filos" involved in this matter, each of them is referred to by his full name. 2 Under Fed. R. Civ. P. 55{b) (2), a court may enter default judgment against a properly served defendant who fails to appear or otherwise 2 According for Taylor's Franklin to evidence was County, submitted by Plaintiff, appointed Ohio, on by the July Court 31, 2009, against that Defendant was stayed. proceedings and, of a Common and all receiver Pleas of litigation IPEC was unaware of these in an attempt to recover the judgment from a bank account in which Taylor's was believed to have an interest, initiated garnishment transferred America" ), judgment. proceedings A new on the entity, account based HPM America, LLC on a ("HPM filed a motion to quash the subpoena issued by IPEC in its efforts to get bank records, stating that the account was not owned by Taylor's but by HPM America, which had not been a party to the underlying proceeding in which default judgment had been entered supported by against an Taylor's. affidavit from The motion Christopher to quash was Filos as sole shareholder and president of HPM America. 4 As the receiver and the bank attempted to sort out whether Taylor's or HPM America actually owned the bank account in defend an action. See E. Armata, Inc. v. 27 Farmers Mkt., Inc., CA No. 08-5212, 2009 U.S. Dist. LEXIS 67090, *5 (D. N.J. July 31, 2009), citing Anchorage Assoc. v. Virgin Is. Bd. of Tax Rev., 922 F.2d 168, 177 n.9 (3d Cir. 1990). 4 After Taylor's and Christopher Filos purchased Sandretto in 2005, he became president of that corporation as well; Taylor's and Christopher Filos were the sole shareholders of the company. (Defendants' Concise Statement of Material Facts in Support of the Motion for Summary Judgment, Doc. No. 19, at ,'2-3.) This is contradicted by Sandretto's 2008 federal income tax return which shows Taylor's as owning 100% of Sandretto. (See Plaintiff's Hearing Exh. M.) 3 question, it receiver became that clear at Christopher least Filos in and the his mind of the companies had attempted to dispose of assets that were rightfully part of the Taylor's receivership estate and that Taylor's and HPM America were "alter ego entities." When IPEC became aware of this information, it concluded that certain individuals, and companies controlled by them, have participated, both before and after judgment in this case, in fraudulent conveyances of money, property and assets of the judgment debtor to their own use or the use of entities controlled by them in order to intentionally render Judgment Debtor Sandretto USA, Inc., insolvent and/or unable to pay the judgment entered against it in this action. (Motion to Amend/Correct Judgment and Motion for Sanctions, Doc. No. 50, "Motion to Amend," at 5-6.) IPEC then served Sandretto and Taylor's with discovery in aid of execution on October 9, requests for admission 2009. asked Among other things, Defendants to identify the money, property and assets which had been transferred to the control of HPM America, Edward Finley, Francis, ("the Christopher Filos, Joseph Filos, Douglas E. Richard and William Individuals") Eichler, Purcell. had employees of Taylor's, all Gerard The been J. last Sposato, Filos, Dean M. seven named persons officers HPM, and/or Sandretto. or key managerial Although service of the discovery was also made (or attempted to be made) on each of the Individuals, none of them, Christopher Filos, Taylor's or 4 Sandretto, responded as of November 9, 2009, the date on which the responses were due. On March 9, 2010, Plaintiff filed the now-pending motion to amend the judgment with the goal of naming the eight individuals identified above as judgment debtors,S based on their fraudulent conveyances of Sandretto al ternative, IPEC seeks and/or sanctions Taylor's in the assets. In the form of an order of court subjecting Christopher Filos and the Individuals to arrest and imprisonment in the event the outstanding judgment is not paid in full within 30 days of that order. The Court ordered IPEC to file a brief in support of the Motion setting forth the authority for entry of judgment against Christopher Filos and the Individuals and to further elaborate on the sanctions it was seeking for Sandretto's respond to the discovery in aid of execution. IPEC filed attempted the requested brief on March 16, service Individuals by u. S. on Christopher Filos Messrs. (Doc. 2010, and No. to 51.) then again each of Postal Service at their home addresses, Sandretto headquarters in Mount Gilead, of failure Christopher Filos, Joseph Ohio, Filos, and, the at in the case Eichler, Finley, 5 IPEC later agreed, based on an affidavit from Edward Finley, that he had not been employed by either Defendant at the time suit was brought and the judgment entered against Taylor's and Sandretto. Therefore, IPEC no longer seeks to modify the judgment to include Mr. Finley and he is not included among the "Individuals" referred to herein. 5 Sposato and Francis, by electronic mail at what was believed to be yet another new organization controlled by Christopher Filos, Polaris America, Filos, Edward undeliverable, Inc. While electronic mail messages to Joseph Finley, the and Dean messages to Francis Messrs. were returned Christopher as Filos, Eichler and Sposato were not. When no Christopher one Filos, entered or any IPEC's Motion to Amend, hearing for April 28, any individual. of this Order an of appearance the for Individuals in Defendants, response to the Court entered an order setting a 2010, and directing that "the failure of who has been personally served with a copy and who is shown to be an officer managerial employee of Defendant Sandretto USA, Inc., or key to appear at the hearing, unless excused from appearing by the Court, may result in the entry of a judgment against said individual in the amount of sanctions." $351,653.00 and/or (Doc. 53.) No. Taylor's and Sandretto Esq., of Brennan, to Robins the imposition This seek legal & Daley, order finally counsel entered of appropriate motivated and John Daley, hi s appearance on their behalf on April 14, 2010. Sandretto and Taylor's filed a brief in opposition to the Motion to Amend on April 23, 2010, arguing somewhat ambiguously that Christopher Filos had approached Mr. Daley to oppose IPEC's 6 motion on behalf of the Individuals even though Mr. Daley had entered an appearance only on behalf of Sandretto and Taylor's. (Doc. No. 55.) The Court directed Christopher Filos to appear in person as a witness at the continuation of the hearing on the Motion to Amend, scheduled for May 11, 2010. 6 (Doc. No. 60.) Following the Court the hearing and Christopher entered an order directing Filos's to once again serve counsel for Defendants Taylor's and Sandretto, as well as Christopher execution; Filos the directly, responses to with the Plaintiff testimony, the discovery requests for in aid admission of and interrogatories were to be provided within seven days of being served. The recipients were directed to respond to requests for production of documents within the same seven days, recognizing that the certain documents were in the possession of Morrow County prosecutor; these were to be provided not later than June 1, 2010. June 4, Christopher Filos was to be deposed not 2010, later than and a second hearing was held on June 15, 2010. (Doc. No. 67.) On May 7, Sandretto moved for a continuance of that hearing, stating to the Court that Christopher Filos had retained a criminal defense attorney to represent him in an on-going investigation in Morrow County, Ohio. Because his counsel, Keith Schneider, was not licensed to practice in Pennsylvania or admitted to the bar of the united States District Court for the Western District of Pennsylvania, Mr. Schneider had suggested other counsel to represent Christopher Filos before this Court. (Doc. No. 61.) However, Bradley D. Barbin, Esq., entered his limited appearance to assist Mr. Daley one day before the scheduled hearing, Mr. Daley withdrew the motion to continue, and the hearing took place as originally scheduled. 6 7 The Court having received testimony, oral written briefs from the parties on the subject, arguments and the question of amending the judgment to include Christopher Filos and the other Individuals, or alternatively, to hold them in contempt, is now ripe for decision. B. SANDRETTO SHALL BE HELD IN CONTEMPT OF COURT IPEC argues managerial that Sandretto, employees "have its amply this Court's processes by failing the conferences 2009, and February 19, for 2009 1 directors, demonstrated" for scheduled officers, their Doc. No. 52, at IPEC proposes that (1) the aid discovery admitted respond in December 18, January 2008 1 to the 20, and by collectively refusing to (Plaintiff/s As sanctions for this contempt, the requests for admissions contained in of by Sandretto, fully 6-7.) contempt to respond to or attend participate in the discovery in aid of execution. Brief l and execution and that (2) discovery, the be deemed to have should Sandretto judgment be been fail to increased by $1,000 per day and that such an increase be equally applicable to the Individuals held liable for contempt. IPEC subsequently Individuals were aid of execution, addi tional argued served the after Id. at 8.) Defendants and the second time with the discovery in that because their responses were inadequate, sanctions should be imposed under 8 Federal Rules of Civil Procedure 28 U.S.C. 1L 1927. § 16, and 37(a) (4), or alternatively, under (Doc. No. 76 at 8.) There is no question that a court has the authority to hold a party who fails criminal L.L.C. , to obey its valid order in either civil or See contempt. CA No. Eros 99-1157, (E.D. N.Y. Oct. 11, 2005) 2005 i Entm't, U. S. Inc. Dist. v. LEXIS Melody 43227, Spot, *10-*11 United States v. United Mine Workers, 330 U.S. 258, 298-299 (1947) ("Common sense would recognize that conduct can amount to both civil and criminal contempt. The same acts may justify punitive measures. a II) court in resorting to coercive and to The goal of a civil contempt sanction is to "coerce the contemnor into compliance with the court's order and/or to compensate the complaining party for losses incurred as a result of the contemnor's conduct. Rio, 587 F. Supp.2d 429, 433 omitted. ) SD Prot., /I (E.D. N.Y. 2008) Inc. v. Del (internal citation As the United States Court of Appeals for the Third Circuit recently affirmed, to avoid the consequences of a civil contempt order, "the contemnor need only comply with the order to avoid being jailed. Auth., No. 10-1055, 29, Cir. 2010), 2002), /I Egnotovich v. Greenfield Twp. 2010 U.S. App. LEXIS 8923, citing Chadwick v. and Gompers v. Janecka, Bucks Stove 418, 441 442 (1911). 9 312 & Sewer *6 (3d Cir. Apr. F.3d 597, Range Co., 608 (3d 221 U.S. The party seeking an order of court holding another party in civil contempt has guilt. Robin Woods, 1994) . Here, the burden of Inc. v. Woods, (2) that Sandretto (1) knew Sandretto disobeyed that order. F.2d. 857, 28 F.3d 296, non-movant's 299 (3d Cir. IPEC must establish three elements of proof clear and convincing evidence: order; proving the 871 (3d Cir. by that there was a val id court of the Roe v. 1990). While orderi and (3) Operation Rescue, the validity of that 919 the Court's order is not subject to question, any ambiguities in the order should be resolved in favor of the alleged contemnor and if there is any reason to doubt the wrongfulness of that party's conduct, the contempt citation should not be granted. Harris v. City of Philadelphia, 47 F.3d 1311, 1326 (3d Cir. 1995). It is irrefutable that Sandretto and Taylor's have repeatedly failed to comply with Orders of this Court, the first two instances being when they failed to appear - or to engage counsel to appear on their behalf - at the pretrial conference initially set for January 20, and at the case management 2009, conference set for February 19, 2009. The sanction imposed for those failures was the entry of default and a default judgment and therefore disobedience to any order prior to the entry of default is no longer at issue. Their failure to respond to the discovery in aid of execution in October-November 2009 10 led to IPEC being compelled to file this Motion to Amend the judgment and for further sanctions. In the interim, neither Sandretto nor Taylor's took any affirmative action to satisfy the default judgment. In fact, it appears to the Court, evidence presented by Plaintiff at the hearings, report of the Ohio receiver, based on the including the that Defendants have taken every step possible to make themselves judgment-proof. Moreover, least, Sandretto has not been forthcoming, with Plaintiff and the Court. to For example, say the the answers to the interrogatories posed as part of the discovery in aid of execution to which Defendants finally responded on May 18, 2010, indicate that Sandretto "shut down" Hearing Exh. L, at 15.) testimony at the hearing, also hint that Plaintiff's Sandretto had no the Court declines as late as November when the parties engaged in mediation, there was no in the record that Sandretto was no longer in operation. Christopher Filos testified vaguely went out of business in 2008, never filed documents corporation. in stating For example, to accept this as truthful. 2008, (See Christopher Filos confirmed this in his Based on more persuasive evidence, assets. 18, in 2008. aid of with in although Sandretto's he did not know why its attorneys the Most importantly, execution that State of Ohio to dissolve the when served with the discovery October 11 2009, not one employee of Taylor's or Sandretto, including Christopher Filos, responded to Plaintiff with a simple statement that Sandretto was no longer in business. In fact, when Mr. Daley entered his appearance on behalf of Sandretto, he gave no indication to the Court that he was acting on behalf of a non-existent corporation which had "shut down" two years earlier. On May 11, serve counsel the 2010, for Court Defendants and Sandretto IPEC to Christopher repeatedly denied once again Filos (Doc. No. 67.) discovery in aid of execution. thereto, directed with the In the responses that it or Taylor's transferred any assets directly or indirectly to other parties (including HPM America and the was begun. However, Mr. Individuals) Shawn Fabry, after this action IPEC's chief officer who testified at the hearing on June 15, financial 2010, pointed out that Sandretto's 2008 federal income tax return shows that a shareholder loan of some $292,000 was identified as receivable from the (presumably to Taylor's which sole shareholder of Taylor's of the approximately written off that year without explanation. company) $1,947,000 and a were The response to each of some 28 requests for production of documents in May was that production was brief filed on "pending, June II 29, but according to IPEC's supplemental 2010, 12 no documents had yet been To date, provided. no party has advised the Court that these requests have been satisfied. The Court notes order is a defense that substantial to Woods, 28 F.3d at 399. should not be held an action for compliance with a civil contempt. court Robin Wisely, Sandretto has not argued that it in contempt because it complied with the Court's order to respond to the discovery in aid of execution after it was served for the second time, because by no stretch of the imagination could the Court agree with such an argument. Christopher Filos testified that many of the documents being sought are being held by the Morrow County Prosecutor's Office, but a letter from that office to his attorney, the Court, confirms that the documents not seized until February 25, the initial Although he discovery was in its possession were 2010, more than four months after served on testified that neither he served with that initial request, presented at the hearing, with a copy to Sandretto and Taylor's. nor Sandretto was ever in light of all the evidence we find this testimony not credible. The alleged contemnor has the burden of showing that it took all reasonable steps to comply with the court's order but must show ·categorically impossible. and in detail" that such compliance was Elec. Workers Pension Trust Fund of Local Union 58 v. Gary's Elec. Servo Co., 340 F.3d 373,379 13 (6 th Cir. 2003) ("Elec. Workers ll (citation omitted.) ) We find no evidence that Christopher Filos -- the person identified in the responses to the discovery request as the person completing the companyt s responses -- made any such attempt to substantially comply. We conclude Sandretto should be held in contempt for failing to cooperate in discovery and for providing false and incomplete information to IPEC and the Court in its inadequate responses to 37(b) (2) (A) the discovery in aid of execution. Rule of the Federal Rules of Civil Procedure provides a number of options for the court when a party fails to obey an order to provide discovery t including treating as court the that failure to obey order. In contempt of addition t Rule 37(b) (2) (C) allows the Court to order the disobedient party, the attorney advising expenses t unless that including the failure party, or both attorney's was fees, to pay caused substantially by the reasonable the justified failure, or other circumstances make an award of expenses unjust. As set forth in more detail in the Order entered simultaneously herewith, a hearing shall be held on October 13, 2010, at which time the Court shall hear argument from the parties regarding the sanction(s} to be imposed upon Sandretto. 14 C. CHRISTOPHER FILOS SHALL BE HELD IN CONTEMPT Almost one hundred years ago, the Supreme Court of the United States held that an officer of a corporation may be held liable for the corporation's failure to comply with a court order. A command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs. If they, apprised of the writ directed to the corporation, prevent compliance or fail to take appropriate action within their power for the performance of the corporate duty, they, no less than the corporation itself, are guilty of diso bedience, and may be punished for contempt. Wilson v. United States, 221 U.S. 361, 376 (1911). This practice of holding the officers liable for the contempt of the corporation has been repeatedly applied by the federal courts. v. Quinteros, See, e.g., Max's Seafood Cafe by Lou-Ann, 176 F.3d 669, 587 F. Supp.2d at 435, CA No. 02-208, (3d Cir. 1999) i SD Prot. Inc., Rousseau v. 3 Eagles Aviation, Inc., n.2i 2004 U.S. 676 Inc. Dist. LEXIS 1262, *6, n.3 (E.D. La. Jan. 28, 2004). Christopher Filos is or was the controlling power, if not the sole shareholder, of Sandretto, Taylor's, HPM, HPM America, and Polaris America, as well as numerous other Taylor-related companies. It is clear from the evidence that he continues to believe can he Sandretto and ignore Taylor's. the order Since 15 of at default least judgment January against 2009, when Sandretto and conference Taylor's and failed failed to appear offer any business heart, have been in contempt of court. that he, their conduct, Corp. v. Rx as of which the person for excuse those no doubt entities, to for Inc., pre-trial that Christopher absence, Filos Under Wilson, is CA No. the there is "off icially responsible" may be punished for contempt. USA Int'l the for See Amerisource 02-2514, 2010 U.S. Dist. LEXIS 67108, *16-*17 (E.D N.Y. July 6, 2010), imposing sanctions on a nonparty who was the majority shareholder and chief executive of the corporate defendant, and the only party through whom the defendant actedi see also Elec. Workers, 340 F.3d at 383, holding that "if a corporate officer avoids a court's order to the corporation it compliance. by is failing to take action fully appropriate to or attempt impose judicial sanctions on the nonparty corporate officer." The Court therefore finds Christopher Filos in contempt of Court and, as set forth in the Order of Court entered below, shall entertain argument of the parties on October 13, 2010, as to the sanctions which should be imposed. D. CONTEMPT BY THE INDIVIDUALS At this point, the responsibilities Sandretto and Taylor's officers are unclear. and roles of other Unlike Mr. Finley who provided an affidavit attesting to the fact that he was not 16 an officer of either company at any time between July 2007 when IPEC filed suit and March 2009 when the default judgment was entered, Joseph Filos, Douglas Filos, Richard Eichler, Gerard J. Sposato, with Dean M. one Francis, company or and William Purcell were associated the other at the time, and Christopher Filos testified that employees and officers moved back and forth between those two companies as needed. 2010, an article industry published indicated associated with America. 7 Joseph another website Recovery, that in Mr. Christopher Filos as and vice an affiliate of a As recently as January newsletter Sposato and Filos's new Douglas Filos presidents Taylor's, of for the Mr. plastics Eichler enterprise, are were Polaris identified on Taylor's Towing and Christopher and Filos is listed as the president. s It strains credulity to believe that although IPEC served or attempted to serve each of the Individuals at multiple addresses with the discovery in aid of execution, not one of them he was actually served or, if he was served, did not immediately consult with Christopher Filos about the situation. To the best of the Court's knowledge, none of them took any 7 See http://plasticsnews.com/head1ines2.html?id=17641, last visited September 13, 2010. See http://www.taylorstowing.com/2003/home/management/management.php, last visited September 13, 2010. 8 17 steps to requests. assure However, Sandretto's compliance because the role, with if any, time, hold them in contempt. Court on October 13, are judgment against the Court will not, Instead, Joseph A. Filos E. Filos, Richard A. Eichler, Gerard J. Sposato and William Purcell discovery these Individuals played in the decision to ignore the default Sandretto and Taylor's is unclear, the l at this Douglas l Dean M. Francis hereby ordered to appear before 2010 I this to show cause why they should not also be held in contempt of court. E. MOTION TO AMEND THE DEFAULT JUDGMENT The Court shall hold in abeyance its ruling on that portion of IPEC's pending motion which seeks Christopher Filos or the Individuals to as include HPM America, additional judgment debtors until after the hearing on October 13, 2010. September 28, 2010 illiam L. Standlsh United States District Judge 18
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