Field v. Exponential Wealth Inc.

Background

Dr. David S. Field and Holly Field alleged that the defendants fraudulently induced them to transfer $1,420,800 for rare coins that were never delivered. Plaintiffs sought approximately $2.9 million, including the investment, alleged profits, and other damages. The motion addressed here sought default judgment against Ryan Murnane, Ryan Michaels, and Krystalynne Murnane, whom the opinion collectively calls the Murnanes, based primarily on alleged failures to comply with discovery orders.

The court had ordered production of bank statements concerning transactions involving the Murnanes, Exponential Wealth Inc., Plaintiffs’ transferred funds, and the coins. Plaintiffs argued that the Murnanes had willfully failed to comply and had delayed the case. Ryan and Krystalynne were representing themselves. Ryan later produced additional bank statements, although Plaintiffs said the production was incomplete, and both Murnanes filed answers to the second amended complaint.

Rule 37 Request

Federal Rule of Civil Procedure 37(b)(2) permits sanctions when a party disobeys a discovery order, including the possibility of default judgment. The court considered the alleged noncompliance, the Murnanes’ later participation in the case, the production of additional bank statements, their self-represented status, and the preference for deciding cases on their merits rather than imposing the extreme sanction of default.

The court found that the Murnanes had not fully responded to discovery or fully complied with discovery orders. It nevertheless concluded that their conduct did not yet rise to the level warranting default judgment as a discovery sanction. The court also found Plaintiffs’ claimed prejudice overstated because it depended on Plaintiffs ultimately prevailing, and the legal sufficiency of the second amended complaint had not yet been determined.

The court therefore denied Plaintiffs’ request for Rule 37 sanctions without prejudice. It gave the Murnanes one final opportunity to comply. The court deemed waived all objections to written discovery that had not already been served, except privilege objections, and stated that Plaintiffs could renew the motion if the Murnanes failed to provide discovery or attend depositions as required. The court stated that it would, absent extraordinary circumstances, recommend sanctions at that point, potentially including striking the Murnanes’ answers, entering default judgment, and awarding reasonable attorneys’ fees.

Rule 55 Request

Rule 55 requires two steps before a court may enter default judgment: the clerk must first enter a certificate of default against a party who failed to plead or otherwise defend, and the court may then consider default judgment. Plaintiffs had not requested or obtained certificates of default against the Murnanes. In addition, after Plaintiffs filed the second amended complaint, Ryan and Krystalynne answered it. The court concluded that the Murnanes’ conduct did not show that they had failed to defend the action.

The court therefore denied Plaintiffs’ request for default judgment under Rule 55 without prejudice. The court did not decide whether the allegations in the second amended complaint established the Murnanes’ liability as a matter of law.

Disposition

The court denied the Motion without prejudice and ordered the Murnanes to produce the required bank statements by March 14, 2023. It directed Plaintiffs and the Murnanes to meet and confer and file a proposed schedule for remaining discovery by March 21, 2023, and scheduled a telephone status conference for March 29, 2023. The Clerk was directed to close the motion docket entry.