UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

FORT WAYNE DIVISION

SARATOGA POTATO CHIP )

COMPANY, INC., a/k/a Olde York )

Potato Chips, et al., )

)

Plaintiffs, )

)

v. ) CAUSE NO. 1:12-cv-00452-JVB-SLC

)

CLASSIC FOODS, INC., et al., )

)

Defendants. )

REPORT AND RECOMMENDATION

Before the Court is a motion for sanctions (DE 91) under Federal Rule of Civil Procedure

37(b)(2) filed by Plaintiffs Saratoga Potato Chip Company, Inc., also known as Olde York Potato

Chips, and Saratoga Potato Chips, LLC (together, “Saratoga”), against Defendants Classic

Foods, Inc. (“Classic”), and Cuetara Holdings, Inc. (“Cuetara”), and their president and

principal, Florencio Cuetara (“Florencio”). Defendants failed to respond to the motion for

sanctions, and their time to do so has now passed. The motion was referred to the undersigned

Magistrate Judge by District Judge Joseph Van Bokkelen for a Report and Recommendation. 

(DE 94). Having reviewed the record, and pursuant to 28 U.S.C. § 636(b)(1)(B), Federal

Rule of Civil Procedure 72(b), and Local Rule 72-1, the undersigned Magistrate Judge

recommends that Saratoga’s motion be GRANTED IN PART and that certain sanctions be

imposed against Classic and Cuetara. This Report and Recommendation is based on the

following facts and principles of law.
A. Factual and Procedural Background

 This breach of contract action filed by Saratoga against Classic and Cuetara in October

2012 stems from Classic’s and Cuetara’s purported failure to pay approximately $368,646.56 for

snack foods ordered from Saratoga from July 2011 to January 2012, and failure to make

payments under an August 2012 agreement settling a prior lawsuit filed by Saratoga on the

matter. (DE 1). At a preliminary pretrial conference in February 2013, the Court set a discovery

deadline of September 1, 2013. (DE 17). 

In April 2013, Saratoga filed a motion for partial summary judgment with respect to

Classic’s purported breach of the settlement agreement (DE 18), which the Court granted in

March 2014 (DE 45). In April 2014, the parties stipulated to a judgment against Classic in the

amount of $368,646.56, which the Court granted. (DE 57). 

In June 2014, Saratoga filed a supplemental pleading, seeking to add Balance Foods, Inc.

(“Balance”), as a defendant liable for Classic’s debt under theories of alter ego and successor

liability. (DE 63). Saratoga asserted that it had recently discovered that in April 2014—after the

partial summary judgment was granted—Classic transferred, without notice to Saratoga, all of its

assets to Balance, a corporation also controlled by Florencio, in an effort to render Classic

judgment proof in this suit. (DE 64). The Court granted Saratoga’s motion to amend (DE 68),

and Saratoga filed its supplemental complaint adding Balance as a Defendant (DE 69).

Also in June 2014, Saratoga served its First Set of Interrogatories and Requests for

Production on Classic and Cuetara. (DE 91 ¶ 1; DE 92-1; DE 92-2). When Classic and Cuetara

failed to respond after being afforded several extensions, Saratoga filed a motion to compel in

September 2014. (DE 71). Neither Classic nor Cuetara responded to the motion to compel, and

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thus, the Court granted it, ordering Cuetara and Classic to fully respond to the discovery requests

on or before October 14, 2014. (DE 79). On October 15, 2014, Cuetara served Saratoga with

answers to its interrogatories (DE 86); Classic never did respond to the discovery requests. 

On October 29, 2014, Saratoga filed the instant motion for sanctions on the basis that 

Cuetara’s discovery responses are “woefully inadequate” and that Classic never responded at all. 

(DE 91 ¶¶ 5, 7). Prior to filing the motion, counsel for Saratoga conferred with counsel for

Cuetara and Classic, who stated that he simply forwarded the discovery responses that his client

provided to him. (DE 91 ¶ 8). Counsel to Cuetara and Classic agreed to check with his clients

and provide any supplemental information by October 27, 2014. (DE 91 ¶ 8). He later informed

counsel to Saratoga that no further discovery responses would be forthcoming. (DE 91 ¶ 9). To

date, Cuetara and Classic have not provided any supplemental discovery responses (DE 91 ¶ 9),

nor have they responded to the instant motion for sanctions. 

B. Applicable Legal Standard

Federal Rule of Civil Procedure 37(b)(2)(A) provides that “[i]f a party or a party’s

officer, director, or managing agent . . . fails to obey an order to provide or permit discovery . . .

the court where the action is pending may issue further just orders.” These orders may include

“directing that the matters embraced in the order or other designated facts be taken as established

for purposes of the action, as the prevailing party claims” or “prohibiting the disobedient party

from supporting or opposing designated claims or defenses, or from introducing designated

matters in evidence.” Fed. R. Civ. P. 37(b)(2)(A). Instead of or in addition to the orders above,

“the court must order the disobedient party, the attorney advising that party, or both to pay the

reasonable expenses, including attorney’s fees, caused by the failure, unless the failure was

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substantially justified or other circumstances make an award of expenses unjust.” Fed. R. Civ. P.

37(b)(2)(C). 

“The simple failure to comply is enough [to warrant sanctions], notwithstanding a

complete lack of culpability on [the defendants’] part.” Halas v. Consumer Servs., Inc., 16 F.3d

161, 164 (7th Cir. 1994). That is, “the culpability of a party who fails to comply with a court

order determines only which sanctions the court should impose and not whether any sanctions

are appropriate at all.” Id. (citations omitted). “[A]n award of sanctions must be proportionate

to the circumstances surrounding the failure to comply with discovery.” Crown Life Ins. Co. v.

Craig, 995 F.2d 1376, 1382 (7th Cir. 1993). 

C. Analysis

As stated above, Classic has not attempted to comply with the Court’s discovery order or

explain why it has not responded. Although Cuetara did provide discovery responses after the

Court’s order, its answers to Saratoga’s 17 interrogatories are, as Saratoga suggests, woefully

inadequate. (See DE 92-2 at 1-7). 

To eight of the interrogatories, which inquired about communications and relationships

among the Defendants, employees of each entity, secured creditors, customers, sales

transactions, and sales proceeds, Cuetara simply answered with “N/A,” providing no further

explanation. (DE 92-2 at 3-6). In response to several other interrogatories inquiring about the

assets of Defendants, loans, and bank accounts, Cuetara responded that there were no assets or

transfer of assets, loans, bank accounts, or employees of Defendants, that Cuetara is a “holding

company,” and that “[n]o affiliates or subsidiaries are left.” (DE 92-2 at 6). 

Nor did Cuetara produce any responsive documents to Saratoga’s document requests. 

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(See DE 92-2 at 10-13). In response to Saratoga’s request for production of bank account

statements, tax returns, accounting records, credit applications, and contracts and

communications between Defendants, Cuetara responded that no documents were available, that

“[n]o financials were kept,” and that Cuetara “is just a holding company.” (DE 92-2 at 12). 

However, in response to one document request seeking Defendants’ corporate books, Cuetara

did state that it would make its own corporate books available to Saratoga’s attorney for

inspection at an agreed upon time and place. (DE 92-2 at 11).

 Federal Rule of Civil Procedure 37(a)(4) provides that “an evasive or incomplete

disclosure, answer, or response [to a discovery request] must be treated as a failure to disclose,

answer, or respond.” Here, Classic never responded to the discovery requests, and Cuetara’s

discovery responses are, for the most part, so evasive and incomplete that they must be treated as

a failure to answer or disclose. When Saratoga requested supplemental responses, Cuetara stated

that it would not provide any further responses. As such, the Court can only conclude that

Cuetara willfully failed to comply with the Court’s order to “fully respond” to Saratoga’s

discovery requests. As a result, sanctions are appropriate against Classic and Cuetara. 

Both the decision to sanction and the choice of an appropriate sanction are within the

broad discretion of the Court. See Melendez v. Ill. Bell Tel. Co., 79 F.3d 661, 670 (7th Cir.

1996). “An award of sanctions under Rule 37 should effectuate its three purposes: (1) ensuring

the disobedient party does not benefit from non-compliance; (2) obtaining compliance with

discovery orders; and (3) providing a general deterrent in the particular case and litigation in

general.” United Consumers Club, Inc. v. Prime Time Mktg. Mgmt., Inc., 271 F.R.D. 487, 501

(N.D. Ind. 2010) (citations omitted). “There are two limitations upon a court’s discretion to

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impose sanctions under Rule 37(b)(2): the sanctions must be ‘just’ and they must ‘relate to the

particular claims to which the discovery order was addressed.’” Id. (quoting Morris v. United

States, 37 Fed. Cl. 207, 213 (1997)).

Here, Saratoga contends that a financial sanction against Classic and Cuetara, standing

alone, would not provide adequate relief, as Saratoga already owns a substantial judgment

against Classic, which Classic refuses to pay. And if one credits Cuetara’s discovery responses,

Cuetara is merely a holding company with no assets or bank accounts. Therefore, Cuetara too

may disregard any monetary sanction.

As explained earlier, under Rule 37(b)(2)(A)(i) and (ii), the Court has the power to

“direct[] that the matters embraced in the order or other designated facts be taken as established

for purposes of the action, as the prevailing party claims” and “prohibit[] the disobedient party

from supporting, or opposing designated claims or defenses, or from introducing designated

matters in evidence . . . .” Here, Saratoga argues that its discovery requests were designed to

gather facts and documents supporting its claim that Cuetara and Balance are alter egos of

Classic, and that Balance is a successor of Classic. As such, Saratoga asserts that the Court

should find that Cuetara and Balance are, for purposes of this litigation, alter egos of Classic, and

that Balance is, for purposes of this litigation, a successor of Classic. 

But such a sanction would be wholly inappropriate against Balance. Saratoga’s

discovery requests were served to Classic and Cuetara before Balance was added as a Defendant;

thus, there is no indication that Balance was ever served these discovery requests or a motion to

compel. The Court cannot sanction a party that has not been served with discovery and has not

defied a court order. See, e.g., Morris v. Ley, No. 05-C-0458, 2006 WL 2585029, at *3 (E.D.

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Wis. Sept. 7, 2006) (denying plaintiff’s motion for sanctions because he filed them when his

motion to compel was still pending). 

 However, in light of Classic’s failure to respond to discovery; Cuetara’s woefully

inadequate answers to Saratoga’s interrogatories, its refusal to supplement, and failure to

produce responsive documents; and Classic’s and Cuetara’s failure to object or otherwise

respond to the instant motion for sanctions, the Court can only conclude that Classic’s and

Cuetara’s noncompliance was willful and that they do not oppose a finding that Cuetara is the

alter ego of Classic. As such, the undersigned will recommend that the Court, as a sanction,

make a finding that Cuetara is the alter ego of Classic for purposes of this action, as alleged in

Count VI of the amended complaint. 

 Saratoga also requests pursuant to Rule 37(b)(2)(C) that Classic, Cuetara, and Florencio,

jointly and severally, be ordered to pay the reasonable expenses, including attorney’s fees, that

Saratoga incurred in filing the instant motion. These expenses total $3,420 and are detailed in an

affidavit attached to Saratoga’s motion. (DE 92-4). Rule 37(b)(2)(C) states that “the court must

order the disobedient party, the attorney advising that party, or both to pay the reasonable

expenses, including attorney’s fees, caused by the failure, unless the failure was substantially

justified or other circumstances made an award of expenses unjust.” (Emphasis added). Here,

there is no argument from Classic or Cuetara suggesting that their failure to respond was

substantially justified. Therefore, the undersigned Magistrate Judge will recommend that

Saratoga’s request for expenses and fees in the amount of $3,420 be granted against Classic and

Cuetara, jointly and severally. Saratoga, however, fails to cite legal authority for extending this

sanction of expenses and fees to Florencio individually, and thus, the Court declines to do so.

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Finally, Saratoga asks that the Court impose a $25,000 fine, payable to Saratoga, against

Florencio as the principal and president of each Defendant. Saratoga emphasizes that Florencio

signed the inadequate answers to the interrogatories on behalf of Cuetara and made the decision

not to supplement the answers. Although a fine is not included in the specific sanctions

identified in Rule 37(b)(2)(A), courts have at times imposed fines against parties for a failure to

obey a discovery order, “especially where they are ‘remedial’ and correspond to some real cost .

. . .” Maynard v. Nygren, 332 F.3d 462, 466-67 (7th Cir. 2003) (citation omitted). Such fines,

however, are typically paid to the court, not the moving party. See Classic Amenities, Inc. v.

Verbeke, No. 00 C 3326, 2001 WL 630709, at *2 (N.D. Ill. June 4, 2001) (collecting cases

assessing court fines for Rule 37 violations). 

Here, Saratoga has not cited any legal authority for its request that it be paid $25,000 as a

fine, nor has it shown that such a fine is remedial or corresponds to some actual cost. As stated

above, Saratoga has also not provided legal authority for its assertion that a fine should be

imposed against Florencio individually. As such, the undersigned Magistrate will recommend

that Saratoga’s request for a $25,000 fine against Florencio be denied. 

D. Conclusion

For the foregoing reasons, the undersigned Magistrate Judge recommends that the

Saratoga’s motion for sanctions (DE 91) be GRANTED IN PART in that:

(a) a finding that Cuetara is the alter ego of Classic, as alleged in Count VI of the

amended complaint, should be taken as established for purposes of this action;

and

(b) Saratoga is awarded expenses and fees in the amount of $3,420 against Classic

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and Cuetara, jointly and severally;

and that the motion be OTHERWISE DENIED.

The Clerk is directed to send a copy of this Report and Recommendation to counsel for

the parties. NOTICE IS HEREBY GIVEN that within 14 days after being served with a copy of

this recommended disposition, a party may serve and file specific, written objections to the

proposed findings or recommendations. Fed. R. Civ. P. 72(b). FAILURE TO FILE

OBJECTIONS WITHIN THE SPECIFIED TIME WAIVES THE RIGHT TO APPEAL THE

DISTRICT COURT’S ORDER. 

SO ORDERED.

Enter for this 29th day of October 2015.

/s/ Susan Collins 

Susan Collins

United States Magistrate Judge 

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