Vista Food Exchange, Inc. v. Lawson Foods, LLC

Background

Vista Food Exchange, Inc. sued Lawson Foods, LLC over a May 20, 2016, letter agreement in which Simon Law, on Lawson’s behalf, promised not to ship Smithfield Farmland pork to China. Vista alleged that Lawson breached that promise.

The opinion concerns discovery misconduct and contempt, not the ultimate merits of Vista’s contract claim. Vista had repeatedly complained that Lawson failed to produce responsive records. The court previously found Lawson’s production inadequate and ordered it to produce records concerning its purchase and export of Smithfield-Vista pork to China. The court also warned that Lawson’s failure to maintain records could support an adverse inference at trial.

The court described evidence that Fortress Foods was created shortly after the letter agreement and operated from a facility leased by Lawson. Fortress Foods used contact information associated with Lawson, did not pay rent to Lawson, and was listed as the exporter on some shipping documents even though Lawson paid shipping expenses and used its agricultural certification. The court also relied on testimony and documents indicating that Lawson controlled or operated through Fortress Foods.

Legal Standards

Under Federal Rule of Civil Procedure 37, a court may impose sanctions when a party fails to obey a discovery order. The court considered factors including whether the noncompliance was willful, whether lesser sanctions would work, how long the noncompliance lasted, and whether the party had been warned about the consequences.

Under Federal Rule of Civil Procedure 45, a court may hold a person in contempt for failing without an adequate excuse to obey a subpoena or related order. The party seeking contempt must show by clear and convincing evidence that the order was clear, the failure to comply was established, and the responding party did not make a reasonable effort to comply.

The court also considered an alter-ego theory. An alter ego is a legally separate entity that a court treats as the same as another entity or person when the entity was dominated and used to cause fraud or injustice. For Simon Law, the court applied New Jersey law on piercing the corporate veil, which allows an owner to be held responsible when the corporation and individual lack a genuine separate identity and ignoring that separation is necessary to prevent fraud or injustice.

Rulings

The court found that Fortress Foods failed to comply with a subpoena and a court order. Fortress Foods had been served through its registered agent, the subpoena clearly identified the documents to be produced, and Fortress Foods did not comply. The court therefore found contempt appropriate.

The court also held that Lawson could be liable for Fortress Foods’ conduct because the evidence showed that Fortress Foods was not a genuine independent business in the relevant transactions. The court concluded that “Fortress Foods is Lawson” for purposes of the misconduct at issue. It separately found that Fortress Foods was Simon Law’s alter ego and that the corporate veil should be pierced, allowing Law to be held liable for Fortress Foods’ conduct.

The court declined to sanction Hong Lin. Lin had not appeared before the court, and the court found that Vista had not shown by clear and convincing evidence that Lin was responsible for Fortress Foods’ conduct.

The court held Fortress Foods and Lawson in contempt. It imposed a $100-per-day fine beginning October 15, 2018, jointly and severally against Fortress Foods, Lawson, and Simon Law. “Jointly and severally” means that the obligation was imposed on each of them for the full amount, subject to their rights among themselves. Fortress Foods and Lawson were given 14 days from the order to comply with the subpoena and the court’s prior orders. If they complied fully, Lawson could move to set aside the contempt finding and fine.

The court did not enter the default judgment Vista requested. It found that doing so immediately would be unfair because Lawson had not specifically been warned that its conduct could result in a default. The court warned that, if Lawson again failed to produce responsive documents, it could enter a default upon Vista’s application and proceed to determine the judgment amount.

The court also ordered Lawson to pay Vista’s attorney’s fees for work on Vista’s February 4, 2019, motion and the July 16, 2019, evidentiary hearing. The parties were ordered to meet and confer about the amount; if they could not agree within 30 days, Vista could submit a fee application.

Disposition

The order finds Fortress Foods and Lawson in contempt; imposes a $100-per-day fine jointly and severally against Fortress Foods, Lawson, and Simon Law; enters no contempt order against Hong Lin; orders Lawson to pay specified attorney’s fees; and allows Lawson to seek to set aside the contempt finding and fine if the required compliance occurs.