800 COOPER FINANCE, LLC v. LIU

District Court, D. New Jersey·Decided December 7, 2022·No. 1:16-cv-00736·Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

800 COOPER FINANCE, LLC, : Civil Action No. 16-736 : (JHR/SAK) Plaintiff, : v. : SHU-LIN LIU, et al., : Defendants. :

KL HOLDINGS, INC., SHU-LIN LIU : Civil Action No. 17-456 AND JOLIN CHIAOLIN TSAO, : (JHR/SAK) Plaintiffs, : : OPINION Vv. : 800 COOPER FINANCE, LLC, JIMMY : KWONG, KATHARINA M. GREGORIO, : and John Does 1-5, : Defendants,

Counterclaim Plaintiffs KL Holdings, Inc., Shu-Lin Liu, and Jolin Chiaolin Tsao (“Counterclaim Plaintiffs”) move for sanctions and civil contempt [Dkt. 177] based on the failure of Counterclaim Defendant 800 Cooper Finance, LLC (“800 Cooper”) and former Counterclaim Defendants Jimmy Kwong (“Kwong”); and Katharina M. Gregorio (“Gregorio”) (collectively “Counterclaim Defendants”) to comply with Judge King’s November 10, 2021 discovery order [Dkt. 148] and this Court’s March 1, 2022 order

[Dkt. 159] (collectively “the Orders”) upholding Judge King’s order. For the reasons set forth below, the Court will grant this motion. I. Background The Court has recited much of the relevant factual background in a prior opinion, jsee Dkt, 164-65], and largely repeats that background here. On September 3, 2021, Judge King ordered Counterclaim Defendants to produce the operating agreement (the “Operating Agreement”) of KVest Camden, LLC (“KVest”) (the “September 3 Order”). [Dkt. 135]. KVest was the sole member of Defendant 800 Cooper Finance, LLC (“800 Cooper”), which Counterclaim Plaintiffs believe to be implicated in the alleged unlawful conduct committed by Counterclaim Defendants. [Dkt. 135 at 2]. In ordering Counterclaim Defendants to produce the Operating Agreement, Judge King found: The Operating Agreement for Kvest—admittedly, the sole member of 800 Cooper Finance—is therefore relevant to Counterclaim Plaintiffs’ conversion claims. The operating agreement may shed light on the relationship between 800 Cooper Finance, Kvest and other persons/entities knowledgeable about and/or involved in the alleged improper conduct, and who may have improperly received distributions from 800 Cooper Finance. [Id.]. There is no doubt that Judge King intended this production to include the names and addresses of KVest’s members because she denied a separate discovery request for “documents evidencing the names and addresses of members of Kvest Camden” as “moot and unnecessarily cumulative, The Court ordered the production of Kvests’s Operating Agreement, which should contain the information sought.” [/d. at 3].

' Although Counterclaim Plaintiffs filed this motion in connection with the 17-456 matter, the motion was docketed m the related 16-736 matter. Thus, record citations refer to docket entries in the 16-736 matter.

Counterclaim Defendants produced the ordered documents, but with significant redactions, including the redacted last names, addresses, and tax identifiers of KVest’s members. [Dkt. 152 at 9]. Counterclaim Defendants then filed a motion for reconsideration, asking Judge King to permit them to permanently withhold this redacted information, [Dkt. 138-1 at 6~7]. On November 10, 2021, Judge King granted the motion for reconsideration in part and denied the motion in part (the “November 10 Order”), [See Dkt. 146]. Judge King permitted Counterclaim Defendants to redact the social security numbers of KVest’s members. [Id. at 4-5]. But Judge King otherwise denied Counterclaim Defendants’ motion for reconsideration after finding that it repeated “the same facts and arguments” that she rejected or accommodated in issuing the September 3 order. [/d. at 5]. Judge King ordered that “Counterclaim Defendants shall produce the full names and addresses of Kvest members contained in the limited documents Ordered in the Court’s September 3, 2021 Opinion and Order [ECF No. 135] within five (5) days of this Order.” [fd.]. November 15, 2021 came and went, but Counterclaim Defendants did not produce information as the November 10 Order required. On November 23, 2021, Counterclaim Defendants appealed the November 10 Order. [Dkt. 148]. This appeal was timely because it was filed within fourteen days of the November to Order. See L. Civ. R. 72(c)(@)(A). However, Counterclaim Defendants did not ask Judge King to stay her November 10 Order when filing this appeal. See L. Civ. R. 72(c)(@)(B). The next day, Counterclaim Plaintiffs filed a motion for sanctions under Federal Rule of Civil Procedure 37 for Counterclaim Defendants’ failure to comply with the November 10 Order. [Dkt. 149].

Since then, there has been substantive motion practice and the Court has decided three motions that touch on Judge King’s November 10 Order. First, on March 1, 2022, the Court considered and denied Counterclaim Defendants’ appeal of the November 10 Order (the “March 1 Order”). [Dkt. 159]. Counterclaim Defendants argued, among other things, that Judge King clearly erred in ordering Counterclaim Defendants to produce KVest member information because Counterclaim Plaintiffs had not alleged any claims against the members. Counterclaim Defendants further argued that the claims alleged against Counterclaim Defendants cannot result in liability against the KVest members under Delaware LLC law. [Dkt. 138-1 at 7-8]. The Court rejected these arguments, finding that they did “not address Judge King’s core finding that KVest’s members may be ‘knowledgeable’ about the conduct at issue in this case” and, therefore, that the members may have relevant information concerning this conduct. [Dkt. 159 at 2|.2 Thus, while the Court took no position on whether the KVest members could be liable under Delaware law based on the claims pending against Counterclaim Defendants, the Court found no error in Judge King’s conclusion that the members may have relevant information about these claims. [See id.]. The Court ordered Counterclaim Defendants to produce the outstanding information, including the unredacted operating agreement, by March 7, 2022. [Dkt. 159]. At this juncture, there is no dispute that 800 Cooper, Kwong, and Gregorio remained in the case, and therefore, were obliged to comply with the Orders. They did not. Three weeks later, on March 22, 2022, the Court granted Counterclaim Defendants’ motion for partial summary judgment. [Dkt. 161, 162]. The Court ruled that

? The Court rejected Counterclaim Defendants’ other arguments on procedura! grounds, finding that Counterclaim Defendants repeated the same facts and arguments which Judge King twice denied. [Id.].

Counterclaim Plaintiffs could not sustain certain claims against Defendants Kwong and Gregorio as a matter of Delaware law. [See Dkt. 162]. This Order dismissed Kwong and Gregorio as individual defendants, Significantly, when explaining the procedural history for that motion, the Opinion included language indicating the Court’s assumption that Counterclaim Defendants had complied with the March 1 Order and produced the outstanding discovery items because the Court had not received any notification that Counterclaim Defendants failed, refused to comply, or sought a stay. [See Dkt. 164-65]. Then, on March 30, 2022, the Court denied Counterclaim Plaintiffs’ motion seeking Rule 37 sanctions for Counterclaim Defendants’ failure to comply with Judge King’s November 10 Order, [See Dkt. 162]. The Court found that Counterclaim Defendants’ decision to seek reconsideration of the November 10 Order and to appeal Judge King’s denial of that reconsideration was grounded in a colorable argument and, therefore, did not warrant sanctions at that time, even though Counterclaim Defendants never sought a stay of the discovery Order pending appeal. [See Dkt. 164]. 800 Cooper filed a motion challenging the Court’s jurisdiction over the remaining claims on May 4, 2022. [Dkt. 171].

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