Bridge v. Low-Bid Inc.

Background

The plaintiffs are International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers Union Local 361 and trustees of related benefit funds. They brought claims under the Employee Retirement Income Security Act (ERISA) and Section 301 of the Labor Management Relations Act against Low Bid Inc., Premier Steel Inc., J. McNulty Enterprises, and George T. McNulty. They sought unpaid benefit contributions, interest, liquidated damages, fees, and costs. The plaintiffs alleged that the companies used non-union workers through Premier Steel, failed to report covered work, and failed to make required contributions.

The complaint alleged that McNulty was an owner, was president of Low Bid and Premier Steel, and exercised operational control over the three companies. It also alleged that the companies shared ownership, management, supervision, and business operations. The complaint described Low Bid and Premier Steel as alter egos of each other, but it did not clearly plead that McNulty himself was the alter ego of any company or request a declaration that he was.

Discovery violations

McNulty initially failed to answer the complaint despite multiple deadlines. After answering, he failed to provide required initial disclosures or respond to the plaintiffs’ document requests. The court ordered him to comply and warned that further noncompliance could lead to sanctions, including a default judgment. When he eventually submitted disclosures and discovery responses, he stated that he possessed no responsive documents, including documents relating to the companies’ formation, ownership, finances, tax returns, collective bargaining agreements, and payroll records.

The court had previously found McNulty’s explanation—that he did not understand his discovery obligations—not plausible. In this order, the court found that his disobedience was willful. It also rejected his argument that the plaintiffs suffered no prejudice, noting that the plaintiffs alleged that earlier audits were incomplete and that many requested documents went beyond the records available through those audits.

Plaintiffs’ requested sanction

The plaintiffs sought a sanction under Federal Rule of Civil Procedure 37 that would bar McNulty from offering evidence opposing their alleged alter-ego claim and would allow partial summary judgment on that issue. Rule 37 permits sanctions when a party fails to obey a discovery order, including treating designated facts as established or prohibiting a party from supporting or opposing designated claims or defenses.

The court explained that discovery sanctions must be fair and must relate to the claim connected to the discovery order. Because the plaintiffs had not pleaded an alter-ego claim against McNulty, the court could not use a discovery sanction to allow the plaintiffs to win summary judgment on an unpleaded claim. The court also noted that the allegations did not state facts showing the complete domination and misuse of a corporation generally required to hold an individual liable by piercing the corporate veil.

Ruling

The court granted the plaintiffs’ motion for discovery sanctions in part. It ordered the following allegations to be treated as established for purposes of the action:

- McNulty was an officer of J. McNulty Enterprises and was president of Low Bid and Premier Steel; he exercised operational control over the three companies, controlled significant business functions, determined employee salaries, made hiring and firing decisions, acted for the companies, supervised employees and working conditions, and was primarily responsible for labor relations. - J. McNulty Enterprises, Low Bid, and Premier Steel shared common ownership, management, and supervision involving McNulty and/or his family members. - McNulty frequently negotiated grievances with the Union for the three companies. - McNulty was an owner of J. McNulty Enterprises, Low Bid, and Premier Steel.

The court did not enter summary judgment. It stated that the sanction did not resolve all potential material factual disputes and ordered the parties to complete remaining fact discovery and expert discovery. The court set deadlines for depositions, expert disclosures, and a status conference, and directed the Clerk of Court to close the sanctions motion.