Morgan Art Foundation Limited v. Michael McKenzie d/b/a American Image Art

Background

Morgan Art Foundation Limited (MAF) sued Michael McKenzie d/b/a American Image Art over legal rights involving Robert Indiana’s artwork. MAF asserted claims for copyright infringement, trademark infringement, tortious interference with contract, violations of the Visual Artists Rights Act, unfair competition, and defamation. McKenzie denied unlawful conduct and asserted counterclaims against MAF. Four counterclaims remained: claims seeking declarations about McKenzie’s authority to produce, market, and sell certain Indiana artworks and whether those artworks were forgeries, as well as claims for defamation and slander of title.

MAF sought terminating sanctions under Federal Rule of Civil Procedure 37. Terminating sanctions are penalties that dispose of claims or defenses because of serious discovery violations. MAF argued that McKenzie repeatedly and intentionally failed to comply with discovery orders and concealed evidence.

Discovery Conduct

The court adopted the magistrate judge’s findings concerning McKenzie’s discovery conduct. Discovery began in 2018 and closed on November 19, 2021. McKenzie did not produce the Art Archive, paper records concerning the Indiana artwork, or communications with Gregory Allen, despite discovery requests and court orders requiring searches and production.

The court found that McKenzie made misleading representations about his records and discovery efforts, failed to produce responsive materials for more than three years, and continued to resist disclosure after repeated court involvement. During a planned 2021 inspection, MAF discovered thousands of pages of relevant documents that had not been produced. Shortly after McKenzie was informed about a court-ordered inspection, he and staff members moved approximately 2,500 Indiana artworks to an off-site storage facility. The court found that he did not tell MAF or his own lawyers about the move before the inspection and that the circumstances supported a finding that he intended to conceal the artworks.

McKenzie argued that his conduct was not willful, that his former lawyers were responsible for some discovery failures, that moving the artwork made inspection easier, and that his later production of documents corrected the deficiencies. He also argued that his failure to produce the Art Archive was substantially justified. The court rejected each argument. It concluded that McKenzie understood the discovery orders, repeatedly disobeyed them, had been warned about noncompliance, and had not shown a sufficient justification for withholding the Art Archive.

Court’s Analysis

The court reviewed the magistrate judge’s recommended terminating sanctions under the standard that required an independent review of properly challenged recommendations. It reviewed the other discovery sanctions under the more deferential standard applicable to nondispositive matters. The court overruled McKenzie’s objections and adopted the Report and Recommendation in full.

The court applied factors concerning whether the discovery violations were willful, whether lesser sanctions would work, how long the violations lasted, and whether McKenzie had been warned about the consequences. It determined that the violations were willful and egregious, lasted more than three years, prejudiced MAF, and justified terminating sanctions. The court also ruled that McKenzie remained responsible for the acts of his lawyers in the litigation, even if some discovery failures were attributable to former counsel.

Relief Granted

The court granted in part MAF’s motion for terminating sanctions and other relief. Specifically, it:

The court did not set the amount of fees in this order. It directed MAF to submit an affidavit of its reasonable expenses within 30 days, allowed McKenzie 30 days to respond on the amount, and stated that it would then determine the appropriate amount.