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

Background

Vista sold pork to Lawson. After learning that Lawson had exported pork certified only for domestic consumption to China, Vista required Lawson to promise that it would not export non-certified Smithfield pork to China, directly or through another party. Simon Law, Lawson’s managing member and CEO, signed that agreement.

Vista alleged that Lawson later used Fortress Foods as a shell company or intermediary to continue selling pork to China in violation of the agreement. Vista sought, among other relief, lost profits connected to Smithfield’s termination of its relationship with Vista.

Earlier Contempt Proceedings

During discovery, Lawson initially represented that it had not exported or shipped pork to China and submitted a declaration that did not answer the court’s questions about shipments or identify involved third parties. Lawson later submitted a corrected declaration admitting that it had shipped products to China through Fortress and had arranged and paid for shipping.

Fortress did not respond to a subpoena for documents. After an evidentiary hearing, the court issued a November 1, 2019 contempt order against Fortress, Lawson, and Simon Law. The order imposed a daily fine of $100 beginning October 15, 2018, made Fortress and Lawson jointly and severally liable for that fine, and gave them 14 days to comply with the subpoena. The order stated that compliance could support a motion to set aside the contempt finding and fine, and warned that continued failure to produce responsive documents could lead to default against Lawson.

Lawson did not comply with the subpoena or pay the fine. Lawson sought a stay pending an interlocutory appeal, but the stay was denied. The Second Circuit dismissed Lawson’s appeal for lack of jurisdiction.

Motion for Further Sanctions

Vista moved for additional sanctions, requesting default judgment against Lawson, further contempt sanctions against Lawson, Simon Law, and Fortress, and attorney’s fees and costs. Magistrate Judge Netburn recommended that the motion be granted in part and denied in part.

The recommendation called for striking Lawson’s answer, entering default against Lawson, and sending the matter back to Judge Netburn for a damages hearing. It also recommended that any judgment and attorney’s-fee award be imposed against Lawson, Fortress, and Simon Law jointly and severally. The recommended fee award covered fees incurred as of April 2018 and caused by Lawson’s misconduct, including fees for the sanctions motion, subject to a later fee review. The recommendation further called for including the contempt fine from October 15, 2018, through the date of the district court’s action, while declining to impose additional monetary sanctions or imprison Simon Law.

Objections and Review

Lawson objected that its noncompliance was not willful, that the requested documents had been provided or did not exist or were in Fortress’s possession, and that the recommendation did not adequately consider lesser sanctions. Lawson also argued that its efforts to challenge the contempt order should reduce the significance of the delay and objected to attorney’s fees based on alleged bad faith.

Judge Carter held that many of these objections improperly attempted to relitigate conclusions already made in the contempt order, including the conclusion that Lawson controlled Fortress and was responsible for the requested records. Applying the law-of-the-case doctrine, the court declined to reconsider those issues. The court separately reviewed Lawson’s argument about lesser sanctions without deference.

Ruling

Judge Carter concluded that default was an appropriate sanction. The earlier contempt order had already provided Lawson a lesser opportunity to cure the discovery violation, but Lawson did not comply during the 14-day period and still had not complied or paid the fine. The court stated that a court need not try every lesser sanction before imposing default when default is appropriate on the overall record.

The court deemed Vista’s request for escalating fines that could lead to Simon Law’s confinement unnecessary at that time. After reviewing the remaining portions of the recommendation for clear error, the court found no clear error and adopted the Report and Recommendation in full. Thus, Vista’s sanctions motion was granted in part and denied in part as recommended; Lawson’s answer was struck, default was entered against Lawson, the damages and fee issues were referred for further proceedings, and the recommended additional monetary sanctions and imprisonment were not imposed.