COKeM International, Ltd. v. MSI Entertainment, LLC

Background

COKeM sued MSI Entertainment, LLC, Moses Sutton, also identified as Morris Sutton, and Joseph Faham. COKeM asserted breach of contract, account stated, unjust enrichment, and conversion claims against MSI, plus a fraud claim against all defendants. COKeM alleged that MSI failed to deliver purchased products, reimburse or refund royalty advances, pay profit sharing, and deliver conforming products. It also alleged that Faham and Sutton made fraudulent statements to induce COKeM to pay for products that were not delivered.

COKeM sought $807,547 in damages. The opinion states that MSI had already been held in default and that the court previously entered a $807,547 default judgment against MSI. COKeM had not collected any amount of that judgment as of the opinion.

Faham’s Motion for Summary Judgment

Faham argued that COKeM could not pursue its fraud claim against him because the $191,171 in fraud damages sought from him was included within the contract damages awarded against MSI. He argued that this would create an impermissible double recovery.

The court recognized that Minnesota law does not allow double recovery from the same defendant for the same harm under both contract and tort theories. But it held that the possible overlap did not entitle Faham to summary judgment. Applying Minnesota’s independent-duty rule, which asks whether the alleged tort duty exists separately from the contract, the court concluded that COKeM had sufficiently distinguished the two theories. COKeM’s contract claims were based on duties MSI owed under the agreements, while its fraud claim against Faham was based on allegedly fraudulent statements that induced additional payments. The court stated that any double-recovery issue could be addressed later in the litigation.

The court therefore DENIED Faham’s Motion for Summary Judgment.

Rule 11 Sanctions

Faham also sought sanctions under Federal Rule of Civil Procedure 11, arguing that COKeM’s continued pursuit of the fraud claim was improper. Rule 11 requires that court filings not be made for an improper purpose and that legal claims be supported by existing law.

The court concluded that COKeM’s fraud claim was not frivolous or unwarranted under existing law. It therefore DENIED Faham’s Motion for Rule 11 Sanctions.

Sutton’s Discovery Noncompliance

COKeM had served discovery requests on Sutton. After finding his responses late and deficient, the court ordered him to provide documents and information, including financial information concerning himself and MSI, and to cooperate with searches for electronically stored information. Sutton did not comply with those orders. He also did not respond to COKeM’s motion seeking an order to show cause and did not appear at the hearing at which he was directed to explain his failure to comply.

The court found that COKeM had shown by clear and convincing evidence that Sutton repeatedly violated the court’s discovery orders. Because Sutton did not appear at the hearing, he did not establish that he was unable to comply. The court therefore held Sutton in civil contempt.

Relief Against Sutton

COKeM’s motion to show cause was GRANTED in part and DENIED in part. The court ruled as follows:

- Sutton was held in civil contempt. - COKeM’s request for daily penalties of $100 for past noncompliance and $200 for future noncompliance was DENIED without prejudice. - COKeM’s request for its reasonable costs and fees incurred in bringing the motion was GRANTED, with the amount to be determined by the court. COKeM was ordered to submit those costs and fees within 30 days. - COKeM’s request to bar Sutton from relying on undisclosed defenses or evidence was GRANTED. Sutton was ordered to respond to COKeM’s outstanding discovery requests within 30 days and was prohibited from relying on anything not disclosed in his responses.

The court declined to impose monetary sanctions at that time, noting that COKeM had acknowledged Sutton indicated he was insolvent and that the effectiveness of monetary sanctions was therefore questionable. The court stated that continued violations could lead to sanctions if a later motion were filed.