Pantheon Properties, Inc. v. Houston

Background

Pantheon Properties, Inc. and Lucalex Corp. moved under Federal Rule of Civil Procedure 37 for sanctions against Johnathen Houston. The plaintiffs sought attorney’s fees for the costs of Houston’s first deposition, preparation for his second deposition, and the sanctions motion. The other defendants identified in the opinion were JH Consulting Firm LLC, Martin Love, and M & M Lightning Strikes.

The plaintiffs had requested documents and communications, including communications between Houston and Love and filed copies of tax returns. The defendants initially responded with objections and said they would produce responsive, non-privileged documents. The plaintiffs reported that they had not received the requested communications and had received only a preview copy of certain tax returns. After further exchanges, defendants continued to state that all responsive, non-privileged documents had been identified and produced to the extent they existed.

During Houston’s first deposition, he showed plaintiffs’ counsel text messages with Love that had not been produced and declined to provide his accountant’s phone number so counsel could request an as-filed tax return. The opinion describes Houston as increasingly uncooperative, including responding “I don’t know” or “I don’t recall” more than 230 times during a two-hour period. The deposition ended after five hours and 20 minutes. Houston also sent Love a text referring to plaintiffs’ attorney as “dumb” using an insulting term.

After a court hearing, the court determined that the communications were discoverable and directed defendants’ counsel to obtain and produce text messages. The court also ordered production of tax returns or releases allowing plaintiffs’ counsel to seek them from Houston’s accountant and the Internal Revenue Service. Houston later sat for a second deposition. The parties disagreed about his conduct, but the plaintiffs contended that he again failed to provide basic information about his business, taxes, and financial activities. Defense counsel argued that Houston’s answers were truthful and that he said he could not recall an answer only seven times during the second deposition.

Legal standard

Rule 37 provides procedures for compelling discovery and imposing sanctions for discovery misconduct. Under Rule 37(a), a court may require payment of reasonable expenses, including attorney’s fees, when a motion to compel is granted or requested discovery is provided after the motion is filed, subject to exceptions such as a good-faith effort to obtain discovery without court action or substantial justification for the nondisclosure.

The court explained that Rule 37(d) generally does not apply when a deponent physically appears but gives uncooperative answers. The court also declined to treat its warning about potentially perjurious testimony as a discovery order that Houston violated. Separately, a federal court has inherent power—the authority to manage its proceedings and address abusive litigation conduct—to impose compensatory sanctions when a party acts in bad faith or willfully obstructs discovery.

Analysis and ruling

The court declined to impose sanctions under Rule 37 because Houston’s tax returns and text messages were produced after a court pre-motion conference, rather than after the sanctions motion itself had been filed. The court also concluded that Rule 37 did not clearly authorize sanctions for Houston’s deposition conduct because he had appeared and the court had not found that he violated a specific discovery order.

The court nevertheless found that Houston obstructed the discovery process and acted in bad faith. It found that he refused to answer basic questions and lied in at least some responses, including denying that he had other personal bank accounts despite having recently opened a personal checking account with BBVA. The court also cited his refusal to answer questions about JH Consulting Firm’s clients, the use of Paycheck Protection Funds, and whether he had an Amazon.com account. The court concluded that this willful noncompliance justified sanctions under its inherent power.

The plaintiffs’ motion for sanctions was GRANTED. The court awarded the plaintiffs fees associated with Houston’s deposition and the time spent filing the sanctions motion. The plaintiffs were ordered by April 4, 2022, either to file a motion documenting their fees or to submit proof of counsel’s regular hourly rate. Under the court’s alternative calculation, counsel could receive payment for seven hours for the deposition and three hours for the fee motion. Defendants could oppose the fee submission by April 11, 2022. The opinion does not state a final dollar amount.