Memphis Scale Works, Inc. v. David McNorton and Accurate Superior Scale Southwest, LLC

2020 Ark. App. 77, 595 S.W.3d 412

• Court: Court of Appeals of Arkansas
• Decided: February 5, 2020
• Status: Published

Opinion

Cite as 2020 Ark. App. 77 ARKANSAS COURT OF APPEALS Reason: I attest to the accuracy and integrity of this document Date: 2021-06-29 16:39:06 DIVISION IV Foxit PhantomPDF Version: No. CV-19-212 9.7.5

Opinion Delivered February 5, 2020 MEMPHIS SCALE WORKS, INC. APPELLANT APPEAL FROM THE WASHINGTON COUNTY CIRCUIT COURT V. [NO. 72CV-16-234]

DAVID MCNORTON AND HONORABLE DOUG MARTIN, ACCURATE SUPERIOR SCALE JUDGE SOUTHWEST, LLC APPELLEES AFFIRMED

N. MARK KLAPPENBACH, Judge

Memphis Scale Works, Inc. (Memphis), appeals from the order of the Washington

County Circuit Court striking its complaint against appellees David McNorton and

Accurate Superior Scale Southwest, LLC (Accurate), as a sanction for discovery violations.

On appeal, Memphis argues that the circuit court abused its discretion in compelling

Memphis to respond to discovery prematurely; finding that Memphis had not complied

with the court’s order; finding that striking the complaint was the appropriate sanction; and

striking its claims against McNorton. We find no abuse of discretion and affirm.

Memphis filed suit against its former employee, McNorton, for breach of a

nonsolicitation and nondisclosure agreement. The complaint was amended in October

2016 to add a claim for tortious interference with contract against McNorton’s subsequent

employer, Accurate. In July 2018, Accurate filed a motion to compel discovery that had

originally been served in November 2017. Accurate alleged that Memphis’s original responses were deficient, including an evasive response to Interrogatory No. 3 and

objections to each request for the production of financial records and business documents.

Accurate had sent letters to Memphis to attempt to resolve the issues but claimed that

Memphis was unwilling to supplement its responses or produce the requested documents.

Memphis responded to the motion to compel, arguing that it had valid objections to

Accurate’s discovery requests and that it could not provide complete responses until

Accurate supplied documents Memphis had requested.

A hearing on Accurate’s motion to compel was held on September 4, 2018.

Memphis had filed its own motion to compel at this point, but it was agreed that it would

be heard later to give Accurate time to respond to the motion. Much of the discussion at

the hearing involved Interrogatory No. 3, which provided as follows:

State specifically the amount of damages that Memphis Scale Works, Inc. is seeking from David McNorton and/or Accurate Superior Scale Southwest, LLC and specifically delineate the following:

(a) The manner and method of calculation of such damages;

(b) The name, current address and telephone number of any person or entity performing damage calculations on behalf of Memphis Scale Works, Inc.; and

(c) Describe each and every document supporting your claim for damages.

Memphis’s December 2017 response to the interrogatory stated the following:

The Plaintiff is still in the process of calculating damages. The Plaintiff cannot sufficiently quantify damages at this point due to ongoing discovery and outstanding discovery owed to the Plaintiff by the Defendant. The response to this Interrogatory will [be] supplemented after the Plaintiff has quantified the damages.

Memphis argued at the hearing that it had retained a forensic economist to calculate

damages, but he could not do so until he received unredacted invoices from Accurate that 2 showed the sales McNorton had made to former Memphis customers. Accurate had

previously supplied Memphis the invoices with the pricing information redacted. Memphis

maintained that it needed more time for its forensic economist to determine what he was

going to rely on, and then it could identify the documents that supported its claim for

damages. In light of those arguments, the court ultimately ruled that

it sounds like you have, to an extent, identified what you’re going to rely on or what you intend to rely on but say you don’t know what that is yet because one of these accountants is going to tell us what’s relevant. In the meantime, if you have documents that you’re going to rely on or you know what documents you’re going to be providing to the forensic accountant, those fit within the parameters of the question that was asked of you and I think you need to go ahead and identify them.

The requests for production sought up to eight years’ worth of numerous financial

documents, tax returns, and minutes of director and shareholder meetings from both

Memphis and K-Systems, Inc., a business Memphis had acquired. Memphis had objected

to each request as seeking irrelevant information and being overly broad and burdensome.

At the hearing, the court agreed with Accurate that it had a right to the documents to

prepare its defense because it was not yet clear what damages were sought; however, the

court found that Accurate was entitled to documents going back only two years before

McNorton left Memphis. The court denied Accurate relief on one request it found too

oppressive and limited the scope of the meeting minutes Memphis had to provide on the

basis of a previous concession by Accurate. The circuit court entered an order on September

13, 2018, incorporating its rulings from the bench and ordering Memphis to supplement its

responses and produce the documents within thirty days.1

1 A stipulated protective order was also entered. 3 On October 19, 2018, Accurate filed a motion for sanctions and to strike the

complaint. Memphis had served Accurate with supplemental responses on October 11 but

had provided no response to Interrogatory No. 3. Further, Accurate alleged that Memphis

had failed to fully produce all the requested documents, including complete tax returns and

all the requested minutes. Accurate argued that Memphis blatantly violated the court’s order

and requested that the court strike Memphis’s complaint and dismiss its lawsuit with

prejudice.

In response, Memphis denied that it had been evasive or unresponsive. In response

to the matters raised in Accurate’s motion for sanctions, Memphis had since provided the

schedules and attachments for the tax returns, more meeting minutes, and its “calculations

to date” in response to Interrogatory No. 3, noting it had recently received the unredacted

invoices from Accurate. Memphis argued that it had complied with the court’s order to the

extent that it could and would continue to supplement its responses. Accurate reiterated

that Memphis had provided no response to Interrogatory No. 3 by the court’s deadline

despite having received Accurate’s invoices nearly three weeks before.

The circuit court found that Memphis had failed to comply with the court’s order

regarding Interrogatory No. 3, failed to fully and timely produce all the documents, and

made no effort to seek an extension of time. The court struck the complaint and dismissed

the lawsuit with prejudice. Memphis now appeals pursuant to Rule 2(a)(4) of the Arkansas

Rules of Appellate Procedure–Civil.

If a party fails to answer an interrogatory or fails to respond to a request for inspection

or to permit inspection, the discovering party may move for an order compelling an answer

4 or inspection. Ark. R. Civ. P. 37(a)(2). If a party fails to obey an order to provide or permit

discovery, the circuit court may make such orders as are just, including prohibiting the

disobedient party from introducing the designated matters into evidence; striking out

pleadings or parts thereof; dismissing the action; rendering judgment by default against the

disobedient party; treating the disobedience as contempt of court; and requiring the

disobedient party or his attorney to pay the reasonable expenses and attorney’s fees caused

by the failure to comply. Ark. R. Civ. P. 37(b)(2). There is no requirement that the circuit

court make a finding of willful or deliberate disregard under the circumstances before

sanctions may be imposed for the failure to comply with discovery requirements. Ramsey

v. Dodd, 2015 Ark. App. 122, 456 S.W.3d 790. The imposition of sanctions for the failure

to provide discovery rests in the circuit court’s discretion, and our courts have repeatedly

upheld the circuit court’s exercise of such discretion in fashioning severe sanctions for

flagrant discovery violations. Id.

Memphis first argues that the circuit court abused its discretion in expanding the

scope of Interrogatory No. 3 and compelling it to respond before Memphis was ready.

When the court ordered Memphis to identify the documents it would give its economist,

however, Memphis did not argue that this was an improper expansion of the interrogatory.

Accordingly, such argument is not preserved for our review. Brown v. Lee, 2012 Ark. 417,

424 S.W.3d 817. While Memphis did argue that it did not know what documents it would

ultimately rely on to calculate damages, the court’s order was for it to identify the documents

it would be supplying the economist. This was an order with which Memphis could

comply, as indicated by its attorney’s statement later in the hearing that “the documents that

5 I’m going to express in the response that we will rely upon will be the financial records

related to the operation out of Springdale, Arkansas.” We find no abuse of discretion in the

circuit court’s order.

Despite arguing that it could not yet respond to Interrogatory No. 3, Memphis next

claims that it did comply with the order compelling discovery. The discovery responses

provided by the deadline, however, contained no response to the interrogatory. Even the

name of the economist, whom Memphis stated had been hired at the time of the hearing,

was not supplied until after Accurate moved for sanctions. Memphis now argues that it did

not have enough time to respond because the unredacted invoices had been received less

than three weeks before the deadline, but it did not seek extra time from the circuit court.

While Memphis supplied some preliminary calculations of its damages after the deadline,

the response remained incomplete as it still did not identify the relied upon documents.

Furthermore, while Memphis did provide many of the requested documents by the

deadline, the tax returns were provided without schedules and attachments, and the meeting

minutes provided did not comply with the scope that was established at the hearing. It is

clear that Memphis’s responses were, at best, incomplete, and incomplete responses are

treated as a failure to respond. See Ross Sys., Inc. v. Advanced Envt’l Recycling Techs., Inc.,

2011 Ark. 473.

In arguing that striking the complaint was not warranted, Memphis focuses on the

fact that it had produced numerous requested documents, that it agreed to provide Accurate

other information once it was available, and that there was no prejudice caused by a looming

trial date. It contends that it did not engage in a “pattern of actions” or the type of flagrant

6 violations that our courts have held warrant striking pleadings. We disagree. Memphis did

not respond to Accurate’s good-faith letters to attempt to resolve the discovery dispute. At

the hearing on the motion to compel, extensive discussions were had regarding

Interrogatory No. 3, but Memphis provided absolutely no response by the court’s deadline,

which was nearly eleven months after the interrogatory was first served on Memphis. The

response it provided after the deadline with the motion for sanctions pending remained

incomplete. The failure to undertake adequate steps to provide complete discovery

responses supports the severe sanction. See Ross Sys., supra.

Rule 37 has not been so narrowly construed as to mandate an affirmative showing

of bad faith or willfulness or resulting prejudice before the sanction of dismissal can be

imposed. Graham v. Sledge, 28 Ark. App. 122, 771 S.W.2d 296 (1989). The circuit court

was in a superior position to judge the actions or motives of the litigants, and we will not

second-guess its ruling. Calandro v. Parkerson, 333 Ark. 603, 970 S.W.2d 796. While the

dismissal of a complaint with prejudice is obviously a severe sanction, dismissal is a sanction

expressly provided for under Rule 37 when a party fails to comply with an order to provide

discovery, and it is crucial to our judicial system that circuit courts retain the discretion to

control their dockets. Ramsey, supra. Memphis was the plaintiff in this case, and as such, it

chose to utilize the court system to attempt to redress alleged wrongs. To allow it to bog

down the judicial system through delay and willful noncompliance with the circuit court’s

order would be imprudent. Calandro, supra.

For its last point, Memphis argues that its claims against separate defendant

McNorton should not have been struck. Memphis contends that because Accurate was the

7 only party that moved to compel discovery and moved for sanctions, only the claims against

Accurate could be stuck. We disagree. Memphis cites Entergy Arkansas, Inc. v. Francis, 2018

Ark. App. 250, 549 S.W.3d 362, in support of its argument, but that case stands only for

the proposition that a party who has not made his own requests for discovery lacks standing

to join another party’s motion to compel. The issue of sanctions was not addressed in

Entergy. Rule 37(b)(2)(c) provides that if a party fails to obey an order to provide discovery,

the court may make such orders as are just, including an order striking out pleadings or

dismissing the action.

In Graham, supra, this court rejected the argument that for pleadings to be struck they

must bear a direct relationship to the requested discovery. Graham argued that it was error

to strike his answer to the counterclaim in addition to his complaint when none of the

interrogatories related to the counterclaim. We disagreed, stating that the circuit court must

have the discretion to control the conduct of litigation.

Here, although the requested discovery was not propounded by McNorton, it was

related to the claims against him. The amended complaint alleged that Accurate had

tortiously interfered with the nonsolicitation and nondisclosure agreement between

Memphis and McNorton, and Memphis sought unspecified monetary damages against the

defendants collectively. McNorton and Accurate filed a joint answer to the amended

complaint. The discovery sought by Accurate for its defense would have been used in the

defense of McNorton as well. Accordingly, we do not find the dismissal of the claims against

McNorton to be unduly harsh. The sanctions that the court imposed were within the range

of those authorized under the rule. We find no abuse of discretion and affirm.

8 Affirmed.

VAUGHT and HIXSON, JJ., agree.

Brett D. Watson, Attorney at Law, PLLC, by: Brett D. Watson, for appellant.

Davis, Clark, Butt, Carithers & Taylor, PLC, by: Constance G. Clark and Don A. Taylor;

and Wilson & Associates, by: H. Keith Morrison, for appellees.