UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

DMTS, Inc.,

Petitioner, 

Case No. 14-51001

v. Hon. Victoria A. Roberts

DMC, Inc.,

Respondent.

_________________________________/

ORDER GRANTING DMTS’ MOTION FOR SANCTIONS [ECF No. 24]

 I. Introduction

 DMTS, Inc., filed a Motion for Sanctions. It argues that DMC, Inc., failed to

produce documents despite repeated orders by this Court. DMC has not complied with

the Court’s third and most recent order; there, the Court explicitly said such failure could

result in sanctions up to and including the entry of a default judgment. The Motion is

fully briefed. The Court held a telephone conference on June 30, 2016 with Frederick

Acomb representing DMTS and Kevin Stoops representing DMC. Both parties had an

opportunity to be heard. 

DMTS’ Motion for Sanctions is GRANTED.

 II. Background

 On July 24, 2014, DMTS filed a Petition to Confirm the April 10, 2014 Arbitral

Award (“Arbitration Award”) resulting from proceedings conducted in the Republic of

Korea. The relationship between the parties developed in 2006; they signed a sales

agreement giving DMTS the exclusive right to sell rubber parts for cars to customers in

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the United States and Canada. In 2008, the parties modified the contract to expand the

territory. In April 2011, the parties entered a sales markup agreement which said the

sales markup payable to DMTS is tentatively ten percent of all sales but the parties

would determine the average markup in April of each year. 

In May 2011 the parties entered into an escrow agreement with a bank for

customer payments. The bank was supposed to automatically transfer to DMTS, the

amount of its sales markup, and then transfer the remainder to DMC. A dispute arose

when DMC said it could cancel the agreements and decrease or cease paying DMTS

the sales markup. 

On October 4, 2012 DMC requested arbitration. DMTS says the Arbitration

Award found DMC obligated to pay 11% sales markup to DMTS and ordered DMC to

pay it for past sales and going forward. DMC says the Arbitration Award was entirely in

its favor. 

In order to calculate what it believes it is owed under the Arbitration Award,

DMTS served DMC with six document requests. An early DMC Motion to Quash was

denied. The Court ordered DMC to answer the discovery requests by October 8, 2015. 

DMTS says DMC failed to do so. On November 6, 2015, the Court entered a second

Order directing DMC to produce discovery by December 1, 2015. On December 12,

2015, the Court entered a third Order directing DMC to: (1) produce all discovery

requested by February 19, 2016; and (2) file an affidavit swearing it has produced all of

the discovery requested. The Court finds that DMC did not comply with that Order.

While DMC produced more documents, DMTS says DMC missed the February

deadline to file an affidavit. Instead, five days later DMC filed two unsworn declarations. 

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Furthermore, the declarations do not swear that all requested discovery has been

produced, but instead say that DMC has turned over “responsive” documents, including

corresponding spreadsheets. DMTS says it remains unable to calculate the amount it is

owed because DMC refuses to turn over the underlying sales documents and records. 

DMTS says DMC failed to turn over other documents, such as bank records and emails,

despite evidence that relevant other documents exist. 

 III. Legal Standard

 Under Fed. R. Civ. P. 37, the Court has authority to impose sanctions for abuse

of the discovery process or for failure to obey a discovery order. There is a four factor

test to determine whether sanctions are warranted. Freeland v. Amigo, 103 F.3d 1271,

1277 (6th Cir. 1997). “The first factor is whether the party's failure to cooperate in

discovery is due to willfulness, bad faith, or fault; the second factor is whether the

adversary was prejudiced by the party's failure to cooperate in discovery; the third factor

is whether the party was warned that failure to cooperate could lead to the sanction; and

the fourth factor in regard to a dismissal is whether less drastic sanctions were first

imposed or considered.” Brown v. Tellermate Holdings Ltd., No. 11-1122, 2015 WL

4742686, at *6 (S.D. Ohio Aug. 11, 2015) (Citing Freeland v. Amigo, 103 F.3d at 1277). 

In addition to the remedies available under the Federal Rules of Civil Procedure,

“[a] district court has the inherent power to sanction a party when that party exhibits bad

faith, including the party's refusal to comply with the court's orders.” Youn v. Track, Inc.,

324 F.3d 409, 420 (6th Cir. 2003).

 IV. Discussion

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DMTS says sanctions are necessary because DMC refused to comply with

multiple orders by the Court. It says DMC: (1) failed to produce all requested discovery

and provide a sworn affidavit; (2) did not provide sufficient reasons to justify its nonproduction; (3) represented that emails are deleted after ninety days but does not say

whether it halted document destruction once the action commenced; and (4) refuses to

acknowledge the scope of its noncompliance and suggests that production was merely

delayed and that any oversights are not wilful or prejudicial. 

 The Court finds DMC failed to cooperate in discovery and the four factor test

weighs in favor of sanctions. The first factor is whether the party's failure to cooperate

in discovery is due to willfulness, bad faith, or fault. DMC’s failure to produce appears

to be wilful. During the phone conference, counsel for DMC said it disagrees with the

premise that the April 10, 2016 Arbitration Award granted any relief to DMTS and since

it believes DMTS’ claim is without merit, the documents DMTS seeks are irrelevant. 

The second factor, whether the adversary was prejudiced by the party's failure to

cooperate, also weighs in favor of sanctions. DMTS says the arbitration panel awarded

it a monetary amount on a percentage basis and it needs sales information in order to

calculate its damage award. 

The remaining factors, whether the party was warned that failure to cooperate

could lead to the sanction; and whether less drastic sanctions were first imposed or

considered, also favor sanctions; DMC was repeatedly instructed to produce these

documents. DMC was also warned in the Court’s last discovery Order that failure to

fully comply could lead to sanctions, including imposition of default judgment. 

As one of four potential sanctions, DMTS requests $5,000 a day for each day

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that DMC fails to produce the documents. The Court believes this is a reasonable

sanction. And, it is far less drastic than the sanction the Court will impose if DMC

continues to ignore the Court’s Orders: default judgment.

 V. Conclusion

 DMC is ORDERED to pay DMTS, through counsel, five thousand dollars

($5,000) a day beginning July 5, 2016 and continuing until the following conditions are

met:

1. DMC must produce all relevant documents corresponding to DMTS’

discovery requests.

2. DMC must file an affidavit swearing that it has produced all of the

discovery requested by DMTS.

IT IS ORDERED. 

S/Victoria A. Roberts 

Victoria A. Roberts

United States District Judge

Dated: July 1, 2016

The undersigned certifies that a copy

of this document was served on the

attorneys of record by electronic

means or U.S. Mail on July 1, 2016.

S/Carol A. Pinegar 

Deputy Clerk

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