GREAT AMERICAN INSURANCE CO v. TEEL MANAGEMENT GROUP INC (2024)

ORDER

On July 12, 2022, this action was instituted against defendants for failing to satisfy a joint and several contract obligation to deposit collateral with plaintiff, Great American. Doc. 1. The court is satisfied that diversity jurisdiction exists.

The court issued a summons for defendants to respond to the complaint. Doc. 2. Plaintiff served those summons on defendants, attested to by a process server's affidavit of in-person delivery of the summons, the complaint, and its exhibits to the two individual defendants (and to one of those individuals as the president of the corporate defendant, see Doc. 1-1) at 1605 HG Mosely Pkwy., Longview, Texas 75064. Doc. 3 (affidavits of service).

Defendants failed to respond to the complaint and summons, and they have never entered an appearance or filed anything in the case. The clerk of court recorded defendants’ default, and plaintiff applied to the court for a default judgment. Doc. 9. Service of that motion for a default judgment was not required. Fed. R. Civ. P. 5(a)(2), 55(b)(1). On January 9, 2023, the court entered a default judgment that plaintiff is entitled to recover from defendants compensatory damages of $125,502.85, attorney fees of $6,750.00, court costs of $990.40, pre-judgment interest of $4,641.89, and post-judgment interest as specified in the court's opinion and order. Docs. 10 (opinion and order), 11 (final judgment).

On March 25, 2023, plaintiff mailed to defendants several requests for discovery in aid of execution of the judgment. Docs. 13, 13-1. Plaintiff then moved to compel defendants to respond, and the court ordered them to do so by July 14, 2023. Docs. 13, 14.

Defendants did not respond, and plaintiff now moves to hold defendants in contempt of court and to impose coercive, civil monetary penalties for each day that defendants fail to respond to the discovery requests. Doc. 15. The court ordered a hearing on that motion and directed plaintiff to serve that order on defendants. Doc. 16. Defendants did not appear at today's hearing.

Plaintiff is allowed to obtain discovery from defendants (the judgment debtors) pursuant to the federal rules. Fed. R. Civ. P. 69(a)(2) (“In aid of the judgment or execution, the judgment creditor ․ may obtain discovery from any person—including the judgment debtor—as provided in these rules ․”). And this court has authority to sanction a party who fails to comply with a court order compelling responses to discovery requests. Fed. R. Civ. P. 37(a), (b). But the sanctions listed in Rule 37(b)(2)(A) subsections (i) through (vi) are all penalties that either could lead to or themselves are an adverse final judgment. And default judgment has already been entered here.

The final sanction listed in Rule 37(b)(2)(A) is treating the failure to produce court-ordered discovery as contempt of court. But “[d]ue process requires that a potential contemnor be given notice” before contempt sanctions are imposed. Newton v. A.C. & S., Inc., 918 F.2d 1121, 1127 (3d Cir. 1990). Here, the court has not yet been satisfied that defendants have received notice sufficient to afford due process.

First, the record does not yet persuade the court that the service requirements of the federal rules have been met. To be sure, Rule 5(a)(2) provides: “No service is required on a party who is in default for failing to appear.” And defendants are in such default. Yet that rule also provides: “But a pleading that asserts a new claim for relief against such a party must be served on that party under Rule 4.” And plaintiff's motion for coercive, civil-contempt penalties seeks new relief that was not sought in the complaint. So service of that motion under Rule 4 was required.

Plaintiff's motion for contempt penalties did contain a certificate of service stating that it was sent by U.S. mail with a return receipt requested. Doc. 15 at 5. And the motion is accompanied by proof of service constituting (1) a U.S. Postal Service receipt of certified mail to each defendant at the 1605 HG Mosely Parkway address referenced above, return receipt requested; and (2) a U.S. Postal Service tracking report for the mailings showing that each item “was delivered to the front desk, reception area, or mail room.” Doc. 15-1. That is the same proof of service attached to plaintiff's earlier motion to compel defendants to respond to the discovery requests. Doc. 13-1.

But plaintiff has not yet shown that this constitutes service as contemplated by Rule 4:

• No reference to state law is made. See Rule 4(e)(1).

• Unlike with the summons and complaint, plaintiff's post-judgment filings were not served in-person by a process server. See Rule 4(e)(2)(A).

• As to the individual defendants, plaintiff has not offered evidence that the 1605 HG Mosely Parkway address is any defendant's “dwelling or usual place of abode” and that plaintiff's filings were left there with “someone of suitable age and discretion who resides there.” Rule 4(e)(2)(B).

• Plaintiff has not offered proof that it delivered the post-judgment filings “to an agent authorized by appointment or by law to receive service of process.” Rule 4(e)(2)(C).

• As to the corporate defendant, plaintiff has not offered sufficient proof of delivery (as opposed to mailing) of the filings to an officer or agent of the corporation. Rule 4(h).

• Although plaintiff's motion indicates email service to one individual defendant, Doc. 15 at 5, plaintiff has not shown that this defendant “consented in writing to receiving service by electronic means.” E.D. Tex. Civ. R. 5(d).

In sum, the record does not presently allow the court to find that plaintiff served its motion for contempt sanctions as required by Rule 5’s incorporation of Rule 4's service requirements.

Independently, even if the service requirements of the federal rules were met, the record does not yet satisfy the court that notice affording due process has been given. First, the court takes judicial notice that the HG Mosely Parkway address appears on publicly available street-view software and real-estate databases to be a private residence—not an office with a front desk, reception area, or mail room. Yet the proofs of service filed by plaintiff all recite that the relevant post-judgment document “was delivered to the front desk, reception area, or mail room.” Doc. 15-1.

Moreover, each Postal Service receipt filed by plaintiff contains a field in Part C for “Signature” of the addressee or its agent, with instructions to “Complete this section on delivery.” Id. (capitalization altered). Likewise, the Postal Service states that Certified Mail service “Requires a signature from the addressee.” Certified Mail®—The Basics, U.S.P.S., faq.usps.com/s/article/Certified-Mail-The-Basics. But Part C of each receipt filed by plaintiff lacks any signature in that field. And plaintiff has not furnished any other proof of a signature by any defendant or its agent confirming receipt of the post-judgment mailings.

So the record leaves ambiguity about whether any defendant had actual knowledge of plaintiff's post-judgment discovery requests and motion to compel, the court's order on that motion, plaintiff's motion for contempt sanctions, or the court's order to show cause and setting a hearing. The court is thus unable to find on this record that sanctions would comply with due process.

For those reasons, plaintiff's motion for contempt sanctions is denied without prejudice. Plaintiff may move for that relief again, however, if it can offer additional proof of sufficient notice to defendants, such as a process server's affidavit of in-person service of the relevant filings and orders. Cf. United States v. Earl Phillips Coal Co., 66 F.R.D. 101, 102 (E.D. Tenn. 1975) (where the court was not satisfied that the defendant had received actual notice of an order to answer post-judgment discovery in aid of judgment execution, denying a motion for sanctions: “A contempt citation under such circumstances would be a useless act.”).

If plaintiff files a renewed motion for contempt sanctions, plaintiff is also directed to address a proportionality issue: should any sanctions to vindicate the court's authority to compel discovery in aid of judgment execution be colored by limits on the court's authority to aid in ultimate execution of that judgment?

Specifically, plaintiff should address the line of cases holding that, even if a plaintiff shows that a defendant disobeyed a valid court order of which the defendant had knowledge, “factors [may] lead to [a] refusal to order defendant in contempt” when it comes to judgment execution. Ardex Lab'ys, Inc. v. Cooperider, 319 F. Supp. 2d 507, 509 (E.D. Pa. 2004). Namely, where a defendant does not pay a money judgment, the federal rules direct that the process to enforce a money judgment “shall be a writ of execution, unless the court directs otherwise.” Fed. R. Civ. P. 69(a)(1). And courts have held that the “otherwise” clause is construed narrowly to allow equitable relief such as rendition of specific property only if “ ‘established principles so warrant.’ ” Shuffler v. Heritage Bank, 720 F.2d 1141, 1148 (9th Cir. 1983) (quoting 7 J. Moore & J. Lucas, Moore's Federal Practice ¶ 69.03[2] (2d ed. 1982)). That exception has been applied for strong public policy or statutory reasons, but “difficulties in enforcing the judgment due to the location of the assets and the uncooperativeness of the judgment debtor are not the types of extraordinary circumstances which warrant departure from the general rule that money judgments are enforced by means of writs of execution than by resort to the contempt power of the courts.” Bd. of Comm'rs of Stark Cnty. v. Cape Stone Works, Inc., 206 F. Supp. 2d 100, 103 (D. Mass. 2002) (quoting Aetna Cas. & Sur. Co. v. Markarian, 114 F.3d 346, 349 n.4 (1st Cir. 1997)).

It may be that the discovery sought here pertains only to a writ of execution, not to other enforcement means that are potentially subject to the limits just described. But plaintiff is directed to at least address whether (assuming plaintiff can show actual knowledge by defendants of the court's order) any contempt sanctions for failing to provide discovery are properly tailored because the discovery sought would lead to permissible execution of the judgment.

So ordered by the court on January 31, 2024.

J. Campbell Barker, United States District Judge