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The Hanover Insurance Company v. Harding Enterprises, LLC

United States District Court, E.D. Missouri, Southeastern Division

February 21, 2018

THE HANOVER INSURANCE COMPANY, Plaintiff,
v.
HARDING ENTERPRISES, LLC, et al., Defendants.

          MEMORANDUM AND ORDER

          ABBIE CRITES-LEONI, UNITED STATES MAGISTRATE JUDGE.

         This matter is before the Court on the Second Motion to Strike Pleadings and for Default Judgment of Plaintiff The Hanover Insurance Company (“Hanover”). (Doc. 32.)

         I. Background

         A. The Complaint

         On July 11, 2017, Hanover filed a Complaint against Defendants Harding Enterprises, LLC; Diamond H Ranch, LLC; Greggory Harding; and Andrea Dawn Harding. (Doc. 1.) Plaintiff alleges that Hanover issued bonds on behalf of Defendant Harding Enterprises, LLC (“Harding”), to guarantee Harding's performance obligations on various government contracts and to ensure the payment obligations to Harding's subcontractors and material suppliers that it engaged for such public projects. As consideration, Defendants executed a General Agreement of Indemnity (“GAI”), requiring Defendants to indemnify and hold Plaintiff harmless from any and all liability under the bonds. The GAI provided that all funds due and collected on the bonded projects were to be held in trust for the benefit of Hanover and for payment to the subcontractors and suppliers engaged by Harding to complete the bonded projects.

         Subsequent to the execution of the bonds and GAI, and after multiple claims by unpaid subcontractors and suppliers had been made and some paid by Hanover, Defendants informed Hanover that Harding was experiencing financial difficulty and requested that Hanover provide Harding with financial assistance to meet its obligations under the bonds. In response to Defendants' request and pursuant to its authority under the GAI, Hanover entered into a certain Financial and Special Account Agreement with Harding, as Principal, and Harding, Andrea Harding, and Greggory Harding, as Indemnitors, dated August 26, 2016 (“Financing Agreement”). Pursuant to the terms of the Financing Agreement, Hanover paid claims and advanced a total of $3, 807, 673.03 to Harding, which funds were to be used by Harding for the sole purpose of paying labor and material costs incurred by Harding to perform work on the bonded contracts and for which Hanover may become liable under the bonds.

         Plaintiff alleges that Harding failed to pay its subcontractors and suppliers on all of the contracts to which the bonds relate, which constituted a default under the GAI. Plaintiff was therefore called upon to pay for and perform the bonded contract obligations related to the applicable projects. After performing Harding's obligations on the applicable projects and giving credit for all amounts received by Plaintiff on such projects, Plaintiff alleges that its total loss, not including legal and consultant expenses and costs, is at least $4, 976, 855. Plaintiff states that it demanded collateral and reimbursement to Defendants in the amount of $4, 975, 000 on June 23, 2017, but Defendants have failed to post any collateral or reimburse Plaintiff in any amount. Plaintiff alleges that Defendants have therefore breached the GAI and Financing Agreement. Plaintiff further contends that Defendants Greggory Harding, Andrea Harding, and Diamond H fraudulently diverted at least $3, 529.055 in bonded contract trust fund proceeds through their false representations, false pretenses, and actual fraud.

         B. Discovery Disputes

         On December 12, 2017, Plaintiff filed a Motion to Strike Pleadings and for Default Judgment. (Doc. 23.) Plaintiff argued that Defendants failed to timely respond to Plaintiff's interrogatories in accordance with Federal Rule of Civil Procedure 33(b)(2), and failed to comply with Rule 26 disclosures by not producing any documents with their initial disclosures. Plaintiff requested that the Court strike Defendants' pleadings and grant default judgment for Hanover and against Defendants, jointly and severally, in the amount of $4, 976, 855, under Rule 37(d).

         Defendants did not file a Response to Plaintiff's Motion. Following a status conference held with the parties, the Court issued an Order to Show Cause, directing Defendants to show cause no later than January 10, 2018, why Plaintiff's Motion to Strike Pleadings and for Default Judgment should not be granted. (Doc. 27.) On January 10, 2018, Defendants filed a Response to the Court's Show Cause Order in which they cited the following facts as cause for their failure to comply with discovery requests: Defendant Andrea Harding was recently diagnosed with breast cancer, Defendants plan to file bankruptcy, and defense counsel went on a two-week vacation in December 2017. (Doc. 28.) They requested five business days to “either answer Plaintiff's improperly served written discovery or file bankruptcy.” (Doc. 28 at p. 3.) Plaintiffs filed a Reply, arguing that Defendants are ignoring or delaying legitimate lawsuits against them while they hide their assets through bankruptcy or otherwise. (Doc. 29.) Plaintiff noted that the United States District Court for the District of Alabama entered a default judgment against Harding Enterprises, LLC and Gregory A. Harding in the amount of $5, 884, 577.48. Plaintiffs filed an Additional Reply on January 22, 2018, stating that Defendants still had not answered any discovery requests, nor had they filed for bankruptcy. (Doc. 30.)

         In a Memorandum and Order dated January 22, 208, the Court denied Plaintiff's request for a default judgment, but granted Plaintiff's alternate request for an order compelling production of discovery. (Doc. 31.) The Court found that Defendants' failure to respond to Plaintiff's discovery requests was inexcusable, yet noted that Plaintiff had not previously sought an order from the Court compelling discovery and there was no evidence in the record that Defendants were hiding their assets. Defendants were given “one opportunity to comply with discovery rules, ” and were directed to “provide complete, accurate, and nonprivileged information responsive to Plaintiff's First Interrogatories and Requests for Production; and provide documents in connection with their Rule 26 disclosures” no later than January 29, 2018. Id. at p. 8-10. Defendants were cautioned that “[f]ailure to fully comply will result in further sanctions, including the entry of default judgment.” Id. Additionally, the Court directed Defendants to pay Plaintiff $1, 180 as reasonable fees for bringing the Motion.

         On February 1, 2018, Plaintiff filed the instant Second Motion to Strike Pleadings and for Default Judgment, in which Plaintiff argues that Defendants have willfully violated the Court's order compelling discovery. (Doc. 32.) Plaintiff contends that Defendants did not fully respond to Plaintiff's Interrogatories or Requests for Production, and did not pay the fee imposed by the Court. On February 9 and 19, 2018, Plaintiff filed additional suggestions in support of its Motion. (Docs. 39, 40.) Plaintiff states that Defendants have not filed a memorandum in opposition to Plaintiff's Motion; Plaintiff has not received any additional discovery responses or communication from Defendants; and Defendants have not filed for bankruptcy. Plaintiff therefore requests that the Court grant its Motion to Strike Pleadings and for Default Judgment as unopposed.

         II. Standard

         Rule 37(b)(2), Federal Rules of Civil Procedure, allows the Court to impose sanctions upon those parties who fail to comply with discovery Orders, but a Default Judgment may only be considered as a sanction if there is: (1) an order compelling discovery; (2) a willful violation of that Order; and (3) prejudice to the other party. See, Keefer v. Provident Life and Acc. Ins. Co.,238 F.3d 937, 940 (8th Cir. 2000), citing Schoffstall v. Henderson, 223 F.3d 818, 823 (8th Cir. 2000); see also, Mems v. City of St. Paul, Dep't of Fire and Safety Servs.,327 F.3d 771, 779 (8th Cir. 2003). Further, “a district court has wide discretion to impose sanctions for a party's failure to comply with discovery requests.” United States v. Big D Enterprises, Inc., 184 F.3d 924, 936 (8th Cir. 1999); see also, Collins v. Burg,169 F.3d 563, 565 (8th Cir. 1999)(Rule 37 “gives a district court broad authority to impose sanctions for failure to respond to discovery requests.”); Boogaerts v. Bank of ...


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