Warren Diamond v. Scott Diamond ( 2022 )


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  • USCA11 Case: 21-11985     Date Filed: 09/28/2022   Page: 1 of 12
    [DO NOT PUBLISH]
    In the
    United States Court of Appeals
    For the Eleventh Circuit
    ____________________
    No. 21-11985
    Non-Argument Calendar
    ____________________
    In Re:
    THE DIAMOND TRUST
    u/a/d 10/28/2005
    WARREN DIAMOND,
    as Trustee of the Diamond Trust u/a/d October 28, 2005,
    FAITH DIAMOND,
    as Trustee of the Diamond Trust u/a/d October 28, 2005,
    Plaintiffs-Counter Defendant-Appellees
    Cross Appellants,
    versus
    SCOTT DIAMOND,
    USCA11 Case: 21-11985            Date Filed: 09/28/2022        Page: 2 of 12
    2                         Opinion of the Court                      21-11985
    Defendant-Counter Claimant-Appellant
    Cross Appellee.
    ____________________
    Appeals from the United States District Court
    for the Southern District of Florida
    D.C. Docket No. 9:16-cv-81923-BER
    ____________________
    Before ROSENBAUM, GRANT, and BLACK, Circuit Judges.
    PER CURIAM:
    Scott Diamond appeals the district court’s 1 Order of Default
    Judgment against him in an action alleging breach of fiduciary duty,
    accounting of the trust, unjust enrichment, conversion, fraud, and
    unlawful interception of oral communication brought by Warren
    and Faith Diamond. 2 Scott asserts the district court abused its dis-
    cretion in entering a total default judgment as a sanction for dis-
    covery violations. Warren and Faith cross appeal the district
    court’s denial of punitive damages, alleging the district court
    1 The parties consented to a magistrate judge conducting all proceedings pur-
    suant to 
    28 U.S.C. § 636
    (c), and the magistrate judge entered the orders on
    appeal.
    2 Warren is Scott’s father and Faith is Warren’s spouse and Scott’s stepmother.
    USCA11 Case: 21-11985            Date Filed: 09/28/2022        Page: 3 of 12
    21-11985                  Opinion of the Court                               3
    abused its discretion by applying the wrong legal standard. After
    review, 3 we affirm the district court.
    I. BACKGROUND
    On October 28, 2005, Warren and Scott executed the Dia-
    mond Trust and appointed Scott as the trustee. The Trust gave
    Warren the right to amend or revoke the Trust without the con-
    sent of the trustee. On July 7, 2015, Warren executed an amend-
    ment to the Trust, appointing Faith as co-trustee with Scott. One
    month later, Warren executed another amendment, removing
    Scott as a trustee and leaving Faith as the sole trustee. On October
    10, 2016, Warren filed suit in Florida state court against Scott for
    actions related to Scott’s role as trustee. Scott then removed the
    action to federal court in the Southern District of Florida.
    The Second Amended Complaint includes the following
    claims against Scott : (1) breach of fiduciary duty, (2) demand for
    accounting, (3) unjust enrichment, (4) conversion, (5) fraud, and
    (6) violation of Florida Statute § 943.03. Warren alleges that in No-
    vember 2015, after Scott was removed as trustee, Scott unilaterally
    3 We review both the district court’s sanction of default judgment and the
    decision to deny punitive damages for abuse of discretion. Winn-Dixie Stores,
    Inc. v. Dolgencorp, LLC , 
    746 F.3d 1008
    , 1035 (11th Cir. 2014); Adolph Coors
    Co. v. Movement Against Racism & the Klan, 
    777 F.2d 1538
    , 1542 (11th Cir.
    1985). “A district court abuses its discretion if it applies an incorrect legal
    standard, follows improper procedures in making the determination, or makes
    findings of fact that are clearly erroneous.” Vega v. T-Mobile USA, Inc., 
    564 F.3d 1256
    , 1264 (11th Cir. 2009) (quotation marks omitted).
    USCA11 Case: 21-11985             Date Filed: 09/28/2022         Page: 4 of 12
    4                          Opinion of the Court                        21-11985
    entered into a refinancing agreement for property held by the
    Trust, and on behalf of the Trust, and personally received approxi-
    mately $500,000 as a result of the unauthorized transaction. In
    turn, Scott asserted six affirmative defenses and counterclaims for
    entitlement to trustee’s fees and unjust enrichment.
    During discovery, Warren served requests for production
    on Scott, seeking Scott’s audio recordings of Warren and others in-
    volved in the refinancing agreement at issue. On January 25, 2018,
    Scott objected that this request was unduly burdensome but stated
    he would produce any relevant audio recordings that existed. In
    both his amended response served on March 1, 2018 4 and second
    amended response served on April 5, 2018, Scott claimed that he
    was not aware of any audio recordings relevant to the claims or
    defenses in the action, but if he became aware such recordings ex-
    isted, he would produce them.
    Despite Scott claiming no such recordings existed, Warren’s
    counsel became aware the recordings existed and were in Scott’s
    possession because they were produced in another case in another
    jurisdiction. 5 After an evidentiary hearing held on September 18,
    4 We GRANT Appellees’ unopposed motion to supplement the record on ap-
    peal with a copy of the September 18, 2018 Discovery Memorandum and the
    Amended Responses.
    5 The magistrate judge did not have the parties submit on the record every-
    thing that was obtained during discovery. However, Scott is not challenging
    the facts as stated by the district court, only whether the sanction of dismissing
    the whole case was appropriate.
    USCA11 Case: 21-11985       Date Filed: 09/28/2022   Page: 5 of 12
    21-11985              Opinion of the Court                       5
    2018, the magistrate judge entered a written order on September
    24, 2018, ordering Scott to produce all recordings of Warren and
    confirm his previous answers as to recordings of other people in-
    volved in the refinancing. The magistrate judge ordered that if
    there were recordings, they should be produced within five days of
    the order, and that if any of the recordings no longer existed or
    were no longer in Scott’s possession, Scott must provide a report
    under seal identifying who made the recordings, the location of the
    participants, the location where the recording was made, which
    participants, if any, had knowledge of the recording, and the date
    and time of the recording.
    On October 15, 2018, Scott served his Third Amended Re-
    sponses to the requests for production. In that response, Scott as-
    serted “that he has produced all audio recordings of Warren Dia-
    mond in his possession, custody, or control which may concern the
    Trust and/or issue related to this lawsuit.” He also claimed that
    despite being able to extract recordings of Warren from two
    iPhones and a hard drive, a third iPhone had been disabled due to
    multiple password attempts and to the extent such audio record-
    ings existed on the third iPhone, no recordings could be extracted.
    As to others involved in the refinancing, Scott asserted he had no
    recordings in his possession, however it was possible there were
    recordings on the third iPhone he was unable to unlock.
    However, more recordings of Warren and recordings of
    others involved in the refinancing existed, and in October and No-
    vember of 2019—over a year after the magistrate judge’s order—
    USCA11 Case: 21-11985        Date Filed: 09/28/2022     Page: 6 of 12
    6                      Opinion of the Court                 21-11985
    Scott produced at least 20 more recordings. His reason for the late
    production was that he “did not look for these . . . calls.” Addition-
    ally, Scott did not produce the report of recordings in response to
    the September 24, 2018 order until November 22, 2019.
    Moreover, on January 28, 2019, the magistrate judge or-
    dered Scott to turn over “the subject cellular phones, hard drives,
    and storage or backup facilities or devices” to Warren’s expert for
    inspection. Scott failed to fully comply and later testified that he
    had two computers in Red Bank, New Jersey and backups of his
    locked iPhone that were not turned over pursuant to the order.
    After Scott turned over certain devices to Warren pursuant to the
    January 28, 2019, order, Warren found other recordings on the de-
    vices that had not been produced nor detailed pursuant to the Sep-
    tember 24, 2018, order.
    Based on the violations and discovery abuses, Warren and
    Faith filed a motion for sanctions, requesting the magistrate judge
    strike Scott’s counterclaim and enter a default judgment in their
    favor. The magistrate judge granted the motion and dismissed
    Scott’s counterclaim. Warren then filed a motion for Final Default
    Judgment, and the court held an evidentiary hearing on monetary
    damages. The magistrate judge entered default judgment against
    Scott as to liability on all six counts and awarded $711,288.51 in
    compensatory damages plus pre- and post-judgment interest. The
    magistrate judge denied Warren and Faith’s request for punitive
    damages, finding that Scott’s misconduct did not meet the required
    level of reprehensibility as this was a private dispute between a
    USCA11 Case: 21-11985       Date Filed: 09/28/2022     Page: 7 of 12
    21-11985               Opinion of the Court                        7
    father and son that did not affect anyone’s health or safety, the
    harm was economic, and Warren has extreme wealth and is not
    financially vulnerable. The court found Scott’s actions “wrongful,”
    but found they “lack[ed] the reprehensibility required for a punitive
    damages award. The Court views many of Scott’s actions as a mis-
    guided approach to protect himself from the actions and inactions
    of his father, and a flawed attempt to strike a balance as a manager
    of certain entities, trustee, and son to Warren.”
    II. DISCUSSION
    A. Total Default Judgment as Sanction
    Scott contends the district court abused its discretion in en-
    tering a total default judgment as a sanction for discovery viola-
    tions where the violations pertained to only one count of the six-
    count complaint and the remaining counts did not depend on the
    recorded conversations.
    Under Federal Rule of Civil Procedure 37(b)(2)(A), a district
    court may sanction a party who fails to obey an order to provide
    or permit discovery. Possible sanctions include striking pleadings,
    dismissing the action in whole or part, or rendering a default judg-
    ment against the disobedient party. Fed. R. Civ. P. 37(b)(2)(A). A
    sanction of default judgment requires a finding of willfulness or bad
    faith—simple negligence, misunderstanding or inability to comply
    is not sufficient. Malautea v. Suzuki Motor Co., Ltd., 
    987 F.2d 1536
    ,
    1542 (11th Cir. 1993). Moreover, a default judgment is appropriate
    USCA11 Case: 21-11985        Date Filed: 09/28/2022     Page: 8 of 12
    8                      Opinion of the Court                 21-11985
    only as a “last resort, when less drastic sanctions would not ensure
    compliance with the court’s orders.” 
    Id.
    The district court did not abuse its discretion when it im-
    posed the sanction of default judgment against Scott for his re-
    peated misrepresentations. The magistrate judge correctly found
    that Scott’s failure to comply with the discovery orders was willful.
    Scott knew he possessed recordings of Warren because he pro-
    duced them in another case. Scott repeatedly represented that he
    had no recordings of Warren when he would later produce over
    100 recordings. Even after amending his discovery responses and
    stating those 112 recordings were all that existed, Warren discov-
    ered even more recordings after inspecting Scott’s devices pursuant
    to court order.
    Scott also repeatedly asserted he had no recordings of the
    others who were expressly named in the discovery requests and
    were involved in the refinancing transaction. Despite requests for
    these recordings and orders from the court to produce them, Scott
    testified he “did not look for these . . . calls.” Moreover, Scott did
    not comply with the court’s order to turn over his devices to War-
    ren’s expert for inspection, specifically two computers in Red Bank,
    New Jersey and backups of his locked iPhone. These devices were
    encompassed in the court’s order to turn over “the subject cellular
    phones, hard drives, and storage or backup facilities or devices” to
    Warren’s expert. The magistrate judge’s willfulness finding was
    supported by Scott’s repeated false claims that the recordings and
    devices did not exist.
    USCA11 Case: 21-11985       Date Filed: 09/28/2022     Page: 9 of 12
    21-11985               Opinion of the Court                        9
    Additionally, despite Scott’s argument the recordings were
    only relevant to Count Six alleging unlawful recording under Flor-
    ida law, the magistrate judge determined the recordings contained
    evidence relevant to the 2015 refinancing, the structure of the refi-
    nancing, Scott’s role as trustee, and his role as manager of entities
    with the ability to consent to the refinancing. Our review of the
    recordings shows they were related to the refinancing. The mag-
    istrate judge determined if the evidence had been timely disclosed,
    Warren would have conducted further discovery on the issues.
    However, the trial date on the case had already been pushed back
    many times and discovery was closed. Trial was set for only one
    month past the magistrate judge’s order on sanctions. Thus, the
    magistrate judge’s finding that Warren was prejudiced by Scott’s
    violations was supported as those violations affected Warren’s abil-
    ity to prepare effectively for trial.
    Finally, the magistrate judge found that lesser sanctions
    would not serve the interests of justice as another continuance in
    the case would potentially be futile as Scott had not yet fully pro-
    duced the devices and recordings. The magistrate judge did not
    abuse his discretion in finding “no sanction short of dismissal
    would adequately punish Scott for his disregard for the Court’s
    multiple orders.” Although Scott contends his affirmative defenses
    had merit, “the probable merit of a litigant’s case does not preclude
    the imposition of a default judgment sanction against that litigant.”
    Malautea, 
    987 F.2d at 1544
    .
    USCA11 Case: 21-11985        Date Filed: 09/28/2022     Page: 10 of 12
    10                      Opinion of the Court                 21-11985
    In sum, the district court did not abuse its discretion in or-
    dering a total default judgment because of Scott’s “clear pattern of
    repeated, willful disobedience of Court orders.”
    B. Denial of Punitive Damages
    In their cross appeal, Warren and Faith assert the district
    court abused its discretion when it applied the wrong legal standard
    to deny them punitive damages. They assert the district court
    committed legal error by conflating whether punitive damages
    should be awarded at all with the factors to evaluate whether the
    amount of an award is excessive. They assert they were entitled to
    an award of punitive damages under Florida law.
    In a diversity case, we apply state substantive law to deter-
    mine whether there was sufficient evidence of conduct warranting
    punitive damages. Toole v. Baxter Healthcare Corp., 
    235 F.3d 1307
    , 1317 (11th Cir. 2000). Florida law provides a “defendant may
    be held liable for punitive damages only if the trier of fact, based on
    clear and convincing evidence, finds the defendant was personally
    guilty of intentional misconduct or gross negligence.” 
    Fla. Stat. § 768.72
    (2). “‘Intentional misconduct’ means that the defendant
    had actual knowledge of the wrongfulness of the conduct and the
    high probability that injury or damage to the claimant would result
    and, despite that knowledge, intentionally pursued that course of
    conduct, resulting in injury or damage.” 
    Id.
     § 768.72(2)(a). “‘Gross
    negligence’ means that the defendant’s conduct was so reckless or
    wanting in care that it constituted a conscious disregard or indiffer-
    ence to the life, safety, or rights of persons exposed to such
    USCA11 Case: 21-11985      Date Filed: 09/28/2022    Page: 11 of 12
    21-11985               Opinion of the Court                      11
    conduct.” Id. § 768.72(2)(b). “Under Florida law, the purpose of
    punitive damages is not to further compensate the plaintiff, but to
    punish the defendant for its wrongful conduct and to deter similar
    misconduct by it and other actors in the future.” Myers v. Central
    Fla. Inv., Inc., 
    592 F.3d 1201
    , 1216 (11th Cir. 2010).
    Three considerations guide whether an award of punitive
    damages is unconstitutionally excessive: “(1) the degree of repre-
    hensibility of the defendant’s misconduct; (2) the disparity between
    the actual or potential harm suffered by the plaintiff and the puni-
    tive damages award; and (3) the difference between the punitive
    damages awarded by the jury and the civil penalties authorized or
    imposed in comparable cases.” Engle v. Liggett Grp., Inc., 
    945 So. 2d 1246
    , 1264 (Fla. 2006) (quoting State Farm Mut. Auto. Ins. Co.
    v. Campbell, 
    538 U.S. 408
    , 418 (2003)).
    The district court did not abuse its discretion in denying
    Warren and Faith punitive damages. The district court cited the
    Florida law regarding intentional misconduct or gross negligence.
    Although the magistrate judge did not make an explicit finding that
    Scott’s misconduct was intentional or grossly negligent in his dis-
    cussion of punitive damages, the finding that Scott’s misconduct
    was intentional or grossly negligent can be inferred by the magis-
    trate judge’s determination that Scott’s misconduct was “wrongful
    USCA11 Case: 21-11985            Date Filed: 09/28/2022         Page: 12 of 12
    12                         Opinion of the Court                       21-11985
    but lack[ed] the reprehensibility required for a punitive damages
    award.” 6
    Warren and Faith essentially argue that because they are en-
    titled to punitive damages under Florida law, it was error for the
    district court not to award them. But Florida’s statute regarding
    entitlement to punitive damages is permissive, not mandatory. See
    
    Fla. Stat. § 768.72
    (2) (stating a “defendant may be held liable for
    punitive damages only if the trier of fact, based on clear and con-
    vincing evidence, finds the defendant was personally guilty of in-
    tentional misconduct or gross negligence” (emphasis added)). The
    statute does not say punitive damages must be awarded.
    Warren and Faith’s arguments regarding the denial of puni-
    tive damages fail. The district court did not abuse its discretion in
    denying punitive damages.
    AFFIRMED.
    6 Warren and Faith do not argue the district court’s reprehensibility analysis
    was incorrect, only that the district court should have explicitly found entitle-
    ment and that this entitlement mandates some amount of punitive damages.
    Thus, we do not review the district court’s finding that the requisite level of
    reprehensibility was not present in this case. See Access Now, Inc. v. South-
    west Airlines Co., 
    385 F.3d 1324
    , 1330 (11th Cir. 2004) (explaining “the law is
    by now well settled in this Circuit that a legal claim or argument that has not
    been briefed before the court is deemed abandoned and its merits will not be
    addressed”).