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Plastech Holding Corp. v. WM Greentech Automotive Corp.

United States District Court, E.D. Michigan, Southern Division

June 30, 2017

PLASTECH HOLDING CORPORATION, Plaintiff/Counter-Defendant,
v.
WM GREENTECH AUTOMOTIVE CORPORATION, et al., Defendants, & JAC MOTORS, Defendant/Counter-Plaintiff.

          OPINION & ORDER GRANTING DEFENDANTS' MOTIONS FOR SANCTIONS (Dkts. 163, 165) AND DISMISSING PLAINTIFF'S CLAIMS WITH PREJUDICE

          MARK A. GOLDSMITH United States District Judge.

         This matter is before the Court on Defendants' respective motions for sanctions (Dkts.163, 165). Defendants contend that Plaintiff Plastech Holding Corporation (“PHC”) engaged in bad-faith conduct by fabricating evidence and submitting it to this Court as an exhibit to the first and second amended complaints. A hearing on these motions was held on March 17, 2017. For the reasons stated below, the Court grants the motions and dismisses PHC's claims with prejudice.

         I. BACKGROUND

         PHC is a corporation that imports, distributes, and develops products for motor vehicles. 3d Am. Compl. ¶ 20 (Dkt. 113). According to PHC, it began working with Defendant JAC Motors, [1] a Chinese original equipment manufacturer of automobiles, in 2009, to assist JAC Motors in readying passenger vehicles for distribution and sale in the United States. Id. ¶¶ 21, 25.

         PHC alleges that it and JAC Motors executed a Framework Agreement on October 27, 2010, which gave PHC the exclusive right to distribute JAC Motors' passenger vehicles in the United States. Id. ¶¶ 29-31. Along with its first amended complaint (Dkt. 26), which was filed on December 12, 2014, PHC filed a purportedly signed version of that Framework Agreement as an exhibit under seal. See Framework Agreement, Sealed Ex. A to 1st Am. Compl. (Dkt. 27). Shortly thereafter, on February 11, 2015, PHC filed its second amended complaint (Dkt. 35), which attached that signed version of the Framework Agreement again, this time unsealed, see Framework Agreement, Ex. A to 2d Am. Compl. (Dkt. 35-1), asserting that it was a “true and correct copy of the [Framework] Agreement, ” 2d Am. Compl. ¶ 29.

         The parties also executed a Framework of Cooperation Agreement (“Cooperation Agreement”) on the same day as the Framework Agreement, see Cooperation Agreement, Ex. 17 to JAC Motors Mot. for Sanctions (Dkt. 163-18).[2] In January 2011, Julie Brown, PHC's founder and former chief executive officer, traveled to Hefei, China, where the parties executed a Supplementary Agreement. See Supplementary Agreement, Ex. 16 to JAC Motors Mot. (Dkt. 163-17). Later actions by Ms. Brown, who died in January 2016, figure prominently in the disposition of this case.

         PHC initiated this action on October 21, 2014 against only Defendants WM GreenTech Automotive Corporation, GreenTech Automotive Corporation, and GreenTech Automotive, Inc. (collectively referred to as “GreenTech”), [3] asserting claims for tortious interference, civil conspiracy, and unjust enrichment, based on GreenTech allegedly having entered into a distribution agreement with JAC Motors despite knowing that PHC had an exclusive relationship with JAC Motors. See generally Compl. (Dkt. 1). JAC Motors then sought to intervene in this matter and, following a telephonic status conference with the Court, the parties agreed to PHC filing its second amended complaint, which named JAC Motors as a defendant. See Plastech Holding Corp. v. WM GreenTech Auto. Corp., No. 14-cv-14049, 2016 WL 3536749, at *1 (E.D. Mich. June 29, 2016).

         Almost two years after the filing of the initial complaint and nearing the end of discovery, see 6/16/2016 Order at 2 (Dkt. 99) (fact discovery to be completed by September 26, 2016), PHC filed a third amended complaint on September 22, 2016.[4] That pleading removed the Framework Agreement as an exhibit and alleged that JAC Motors “kept the signed copy of the [Framework] Agreement and PHC does not have an executed copy of the Agreement.” 3d Am. Compl. ¶ 29. Prior to that filing, counsel for PHC emailed the proposed third amended complaint to counsel for Defendants, asking them to “please let us know whether you'll consent to PHC's filing the attached complaint, or plan to contest the filing . . . .” 9/9/2016 Email, Ex. 3 to Pl. Resp. to JAC Motors Mot. for Sanctions (Dkt. 194-5). That email did not explain why PHC was removing the Framework Agreement as an exhibit. Nor did it suggest that there were any irregularities with its signed version of the Framework Agreement, which PHC had previously filed.

         In November 2016, following the depositions of James Brown (Ms. Brown's husband and PHC's current chief executive officer) and Kerrie Mitchell (PHC's former chief information officer), Defendants claim they have discovered that the signed Framework Agreement PHC relied on in this case was fabricated. This revelation formed a significant portion of Defendants' motions for summary judgment, as well as their motions for sanctions.

         The fabrication, which PHC acknowledges, is established by the following record evidence in this case. On August 29, 2011, Judy Hayes (PHC's office manager) emailed Mitchell two documents. The first document is the last page of an unknown agreement that contained signatures from JAC Motors and PHC, while the second document was a copy of the last page of the Framework Agreement without signatures. 8/29/2011 Email from Hayes to Mitchell, Ex. 5 to JAC Motors Mot. for Sanctions, at 2 (cm/ecf page) (Dkt. 163-6) (PDF attachments to email are entitled, “JAC Motors.pdf” and “JAC Motors (no signatures).pdf”).[5]During her deposition, Mitchell testified that she electronically copied the signatures from the first document and pasted them into the second document. Mitchell Dep. Tr., Ex. 15 to JAC Motors Mot. for Summ. J., at 30-31 (Dkt. 144-16). According to Mitchell, Ms. Brown asked Mitchell to create this new document with signatures because Ms. Brown “wanted to have a nice, clean document to show the dealers and help increase creditability [sic].” Id. at 26-27.

         Mitchell then emailed the newly created document with the copied signatures to Hayes, see 8/29/2011 Email from Mitchell to Hayes, Ex. 6 to JAC Motors Mot. for Sanctions, at 2 (cm/ecf page) (Dkt. 163-7) (attachment entitled, “JAC Motorsmerged.png, ” and asking Hayes, “Can you print this out - see how it looks?”), who then emailed a copy of the entire Framework Agreement, which incorporated the newly created signature page, to Mr. Brown and Mitchell later that same day, see 8/29/2011 Email from Hayes to Mr. Brown & Mitchell, Ex. 7 to JAC Motors Mot. for Sanctions (Dkt. 163-8) (PDF attachment entitled, “Framework Agreement - JAC Motors & Plastech Holding Co. (Oct. 27, 2010).pdf”).

         JAC Motors states that PHC emailed the fabricated document to third parties as proof of the alleged exclusive relationship and “gain credibility, potential financing, and dealer relationships. . . .” JAC Motors Mot. for Summ. J. at 15 (Dkt. 144) (citing 11/9/2013 Email, Ex. 12 to JAC Motors Mot. for Summ. J. (Dkt. 144-113); 7/2/2014 Email, Ex. 13 to JAC Motors Mot. for Summ. J. (Dkt. 144-14); 8/21/2013 Email, Ex. 14 to JAC Motors Mot. for Summ. J. (Dkt. 144-15)); see also id. at 7 (stating that the purpose of the “prettied-up” document was for PHC “to gain credibility and induce dealers to make investment and distribution decisions regarding the sale of JAC Motors['] vehicles in the United States”). PHC has not denied that. See PHC Resp. to JAC Motors Mot. for Summ. J. at 6 (Dkt. 171).

         It is this fabricated document, later attached to the pleadings in this action, that forms the basis for dismissal of this case.

         II. ANALYSIS

         Federal courts have the inherent authority to sanction bad-faith conduct, as well as conduct that is “tantamount to bad faith.” Metz v. Unizan Bank, 655 F.3d 485, 489 (6th Cir. 2011) (citing Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991); Railway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980)); see also First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 511-512 (6th Cir. 2002). Bad faith, in turn, is associated with conduct that is intentional or reckless. See Schafer v. City of Defiance Police Dep't, 529 F.3d 731, 737 (6th Cir. 2008); United States v. Wheeler, 154 F.Supp.2d 1075, 1078 (E.D. Mich. 2001) (sanctions under court's inherent authority warranted for reckless or bad-faith conduct, and defining “recklessness” as “highly unreasonable conduct which is an extreme departure from the standards of ordinary care, ” such that it is “more than mere negligence but less than intent”); accord Long v. Steepro, 213 F.3d 983, 987 (7th Cir. 2000). A party may act in bad faith, for example, if it files a frivolous suit with an improper motive, or if it commits a fraud on the court. Williamson v. Recovery Ltd. P'ship, 826 F.3d 297, 301-302 (6th Cir. 2016); see also Chambers, 501 U.S. at 45-46 (court may impose sanctions if it finds that “fraud has been practiced upon it, or that the very temple of justice has been defiled”); Murray v. City of Columbus, Ohio, 534 F. App'x 479, 484 (6th Cir. 2013) (Bad faith “includes situations where fraud has been practiced upon the court and where a party shows bad faith by delaying or disrupting the litigation.”).[6]

         If a party has engaged in bad-faith conduct, appropriate sanctions may include the imposition of attorney's fees or the dismissal of the party's claims. Murray, 534 F. App'x at 484. Although the Sixth Circuit has repeatedly emphasized that the court's inherent power to sanction “must be exercised with restraint and discretion, ” the exercise of such authority is “particularly appropriate for impermissible conduct that adversely impacts the entire litigation.” Id.; see also First Bank of Marietta, 307 F.3d at 516 (same). Dismissal of an action may be an appropriate sanction when a party has committed a fraud on the court, even if the party has an otherwise meritorious case. See, e.g., Ramirez v. T&H Lemont, Inc., 845 F.3d 772, 782 (7th Cir. 2016), petition for cert. filed, No. 16-1418 (U.S. May 30, 2017); Vargas v. Peltz, 901 F.Supp. 1572, 1582 (S.D. Fla. 1995).

         There is a split in the circuits concerning whether fraud on the court must be proven by clear and convincing evidence or by a preponderance of the evidence. Compare Ramirez, 845 F.3d at 778 (“[U]nless the governing statute . . . specifies a higher burden, or the Constitution demands a higher burden because of the nature of the individual interests at stake, proof by a preponderance of the evidence will suffice. . . . [T]he inherent authority to impose sanctions for litigation misconduct is judicially derived and specifies no particular standard of proof. . . . [And] [t]he interests implicated by dismissal of a suit as a sanction for misconduct occurring in civil litigation (including discovery) are not so important as to demand that the facts underlying the dismissal be established by clear and convincing evidence.”), with Shepherd v. Am. Broad. Cos., Inc., 62 F.3d 1469, 1476-1478 (D.C. Cir. 1995) (requiring clear and convincing evidence), and Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1118 (1st Cir. 1989) (same).

         Although the Sixth Circuit has not expressly addressed this particular issue, it appears as though it would likely not require the higher burden of clear and convincing proof. See Williamson, 826 F.3d at 302 (holding that the test used to decide whether a judgment should be vacated for fraud on the court under Rule 60, which requires clear and convincing evidence, “is not applicable in this case because this case involves a court's inherent power to sanction” for bad-faith conduct); but see In re Nat'l Century Fin. Enters., Inc. Fin. Inv. Litig., No. 2:03-md-1565, 2009 WL 87618, at *2 (S.D. Ohio Jan. 8, 2009) (Abel, M.J.) (stating, without ...


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