Panther Pressure Testers v. Szostak , 2023 ND 27 ( 2023 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
FEBRUARY 16, 2023
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2023 ND 27Panther Pressure Testers, Inc. and
Craig R. Chamberlain as Personal Representative
of the Estate of Kirk R. Wold, Plaintiffs and Appellees
v.
Brian Szostak and April Szostak, Defendants and Appellants
No. 20220134
Appeal from the District Court of McKenzie County, Northwest Judicial
District, the Honorable Robin A. Schmidt, Judge.
AFFIRMED.
Opinion of the Court by Crothers, Justice.
Kasey D. McNary, Fargo, ND, for plaintiffs and appellees.
James A. Teigland, Fargo, ND, for defendants and appellants.
Panther Pressure Testers, et al. v. Szostak
No. 20220134
Crothers, Justice.
[¶1] Brian and April Szostak appeal from the district court’s order granting a
second motion for sanctions, and the court’s finding of facts, conclusions of law,
and order for judgment and judgment. The Szostaks argue the court abused its
discretion by granting Panther Pressure Testers Inc., and Kirk Wold’s second
motion for sanctions and entering default judgment. The Szostaks also argue
the court erred in its determination of damages. We affirm.
I
[¶2] On August 19, 2019, Panther Pressure Testers Inc., and Kirk Wold sued
the Szostaks alleging the Szostaks and Wold formed a company named Szostak
Services, LLC. Panther and Wold alleged Wold was a member of Szostak
Services and the company breached their contract by failing to recognize him
as a member. Panther and Wold claim the Szostaks were unjustly enriched
after Panther and Wold erroneously deposited funds into a Szostak Services’
bank account and the Szostaks refused to return the funds. The Szostaks
answered and counterclaimed.
[¶3] On November 5, 2019, Panther and Wold served requests for production
of documents, interrogatories, and requests for admissions. There is no record
of a response from the Szostaks. On July 20, 2020, Panther and Wold served
their second set of requests for production, interrogatories, and requests for
admissions. In the Szostaks’ answers to the second set of discovery, they
objected to every request, gave vague responses to each interrogatory, denied
every admission, and did not produce any documents. Panther and Wold moved
to compel discovery. On October 19, 2020, the district court granted Panther
and Wold’s motion to compel. On October 29, 2020, the Szostaks served
amended discovery responses, but again did not provide requested documents.
[¶4] On May 25, 2021, Panther and Wold filed their first motion for sanctions
due to Szostaks’ non-compliance with the district court’s October 19, 2020 order
compelling discovery. A hearing was held on July 9, 2021. On July 12, 2021,
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the court granted Panther and Wold’s first motion for sanctions, required the
Szostaks produce all discovery documents by July 14, 2021, and awarded
Panther and Wold attorney’s fees. On July 14, 2021, the Szostaks re-produced
a few documents and one new document.
[¶5] On July 30, 2021, Panther and Wold served a N.D.R.Civ.P. 30(b)(6)
deposition notice and a subpoena dues tecum on Szostak Services. Szostak
Services did not bring any documents to the deposition. During the deposition,
April Szostak revealed she and her husband had 12 boxes of documents
pertaining to Szostak Services. On September 14, 2021, Panther and Wold filed
their second motion for sanctions due to the Szostaks’ failure to produce the
boxes as previously stated. Panther and Wold requested that the district court
enter default judgment against the Szostaks and dismiss their counterclaims.
A hearing was held on October 26, 2021. On November 19, 2021, the court
granted Panther and Wold’s motion for default judgment by striking Szostaks’
answer and dismissing their counterclaims with prejudice. The court received
evidence of damages and on March 11, 2022, entered default judgment
awarding Panther and Wold damages. The Szostaks’ timely appealed.
II
[¶6] The Szostaks argue the district court abused its discretion by granting
Panther and Wold’s second motion for sanctions and entering a default
judgment. Specifically, the Szostaks argue the court abused its discretion by
misapplying the law because it did not consider culpability, prejudice, or
alternative sanctions.
[¶7] Rule 37, N.D.R.Civ.P., provides: if a party fails to obey an order to provide
discovery the district court may issue further just orders including a default
judgment against the disobedient party. “Rule 37, N.D.R.Civ.P., vests the
district court with a ‘wide spectrum’ of sanctions for discovery abuses,
including entry of default judgment.” State ex rel. Stenehjem v. Maras, 2021
ND 68, ¶ 13, 958 N.W.2d 475. “The court has ‘broad discretion’ when applying
a sanction for a discovery violation.” Id.
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[¶8] “Dismissal of an action or entry of a default judgment as a sanction for
discovery abuse should be imposed only if there is a deliberate or bad faith non-
compliance which constitutes a flagrant abuse of or disregard for the discovery
rules.” State ex rel. Stenehjem, 2021 ND 68, ¶ 13. “A party challenging the
court’s sanctions has the burden of showing an abuse of discretion.” Id. at ¶ 14.
“A court abuses its discretion when it acts in an arbitrary, unreasonable, or
unconscionable manner, if it misinterprets the law, or when its decision is not
the product of a rational mental process leading to a reasoned determination.”
Id. “A party challenging the imposition of sanctions meets his or her burden
only when it is clear that no reasonable person would agree with the trial
court’s assessment of what sanctions are appropriate.” Id.
[¶9] The district court found the Szostaks “engaged in deliberate and bad
faith non-compliance with discovery, which constitutes a flagrant abuse of or
disregard for the discovery rules.” The court found the Szostaks’ “discovery
violations in this case are unlike any the Court has seen before and the relief
sought by [Panther and Wold] is warranted here.” Panther and Wold requested
discovery from the Szostaks multiple times between 2019 and 2022. In
violation of the court’s orders, the Szostaks either never responded or vaguely
responded without providing documents. When subpoenaed to produce
documents at the Rule 30(b)(6) deposition, Szoztak Services did not bring any
documents but revealed that 12 boxes of documents existed that the Szostaks
did not produce in response to previous discovery requests and orders.
[¶10] Under N.D.R.Civ.P. 37(b)(2), the district court has broad discretion to
impose sanctions, including default judgment. Rule 37, N.D.R.Civ.P., does not
require the court to review discovery violations for culpability or prejudice
when imposing sanctions. The court did consider and offer alternative
sanctions short of default judgment. Panther and Wold served their first set of
discovery requests on November 5, 2019. The Szostaks did not respond.
Panther and Wold served their second set of discovery requests on July 20,
2020. The Szostaks answered but gave vague responses and did not produce
the requested documents. After a motion to compel, the court ordered the
Szostaks to more fully respond. The Szostaks did not comply with the district
court’s order. The court then imposed sanctions requiring the Szostaks produce
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all documents by a specified date. The Szostaks attempted to assert new
objections and produced one additional document. At the Rule 30(b)(6)
deposition April Szostak admitted 12 boxes of relevant documents existed that
had not been produced to Panther and Wold. The second motion for sanctions
was filed after this disclosure.
[¶11] These facts establish the Szostaks failed to timely respond to two sets of
discovery, and failed to comply with two orders compelling discovery. The
Szostaks have not shown the district court acted in an arbitrary, unreasonable,
or unconscionable manner, misapplied the law, or its decisions were based on
the product of an irrational mental process. Therefore, the court did not abuse
its discretion in compelling discovery, granting sanctions, and entering a
default judgment against the Szostaks.
III
[¶12] The Szostaks argue the district court abused its discretion because the
amount awarded to Panther and Wold was not supported in the record.
Panther and Wold respond by claiming the district court’s damage award was
supported by evidence.
[¶13] Rule 55, N.D.R.Civ.P., provides the procedures and requirements for
default judgment. Damages under this rule are available as follows:
“If a party against whom a judgment for affirmative relief is sought
has failed to plead or otherwise appear and the failure is shown by
declaration or otherwise, the court may direct the clerk to enter an
appropriate default judgment in favor of the plaintiff and against
the defendant as follows:
(1) If the plaintiff's claim against a defendant is for a
sum certain or a sum that can be made certain by
computation, the court, on a declaration of the amount
due and on production of the written instrument, if any,
on which the claim is based, may direct the entry of
judgment for the amount due plus costs and
disbursements.
(2) In all other cases, the court, before directing the
entry of judgment, must require the necessary proof to
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enable it to determine and grant any relief to the
plaintiff. To this end, the court may:
(A) Hear evidence and assess damages;
(B) Direct a reference for an accounting or
for taking testimony or for a
determination of the facts; or
(C) Submit any issue of fact to a jury.
N.D.R.Civ.P. 55(a).
[¶14] The lineage of default judgment was explained in an earlier North
Dakota Supreme Court decision. There, we addressed the quality of proof
required before damages on default could be awarded:
“Traditionally, a trial court in North Dakota has had broad
discretion in the quality of proof necessary for entering a default
judgment. See ND Rev.Code § 28-0904 (1943) (‘. . . the court, before
rendering judgment upon default, shall require such proof as may
be necessary to enable it to determine the relief, if any, to which
the plaintiff may be entitled.’). This was the precursor of the
standard in N.D.R.Civ.P. 55(a)(2). See also Kelm v. Loiland, 59
N.D. 18, 228 N.W. 420, 422 (1929) (‘. . . while it is necessary for the
plaintiff to offer proof showing the default, and proof supporting
his demand, if the record is silent on the matter of proof, it will be
presumed that the court heard and considered the necessary
evidence to enable it to give judgment.’); Naderhoff v. Geo. Benz &
Sons, 25 N.D. 165, 141 N.W. 501, 510 (1913) (‘[S]uch proof may be
made by testimony, by deposition or by affidavit showing the facts,
inasmuch as where the defendant is in default the court may in its
discretion consider an affidavit as proof.’). Ordinarily, it would be
preferable for a trial court to require the affidavit of proof for a
default judgment to be made by someone competent to testify on
personal knowledge about facts or records that would be
admissible in evidence. But, as in all evidentiary matters, the trial
court has broad discretion in the quality of evidence that it may
require before ordering entry of a default judgment.”
Overboe v. Odegaard, 496 N.W.2d 574, 578 (N.D. 1993).
[¶15] “[I]n situations where a court has entered default, it is necessary for the
nondefaulting party to submit an affidavit in support of a sum certain or, in all
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other cases, such proof as may be necessary to enable the court to determine
and grant the relief[.]” Overboe, 496 N.W.2d at 578. We review the evidence
supporting the relief or damages granted from a default judgment under the
abuse of discretion standard. Id. at 579. A trial court abuses its discretion if it
acts in an arbitrary, unconscionable, or unreasonable manner. Id. at 579-80.
[¶16] Here, the district court determined the damages awarded to Panther and
Wold based on the Szostak Services’ Member Control Agreement. The
agreement states Wold receives 25% of the distributions of profits or losses.
The amount of Szostak Services’ lost distributions was calculated from
multiple transaction summary reports. Based on those summaries the court
found the Szostaks took out $1,461,509.91 between July 2012 and May 2020
and put that money in their personal account. Twenty-five percent of
$1,461,509.91 is $365,377.47. Based on this evidence we conclude the district
court did not act unreasonably in awarding $365,377.47 to Panther and Wold.
IV
[¶17] We affirm the district court’s order granting a motion for sanctions and
entering default judgment. We also affirm the court’s determination of
damages.
[¶18] Jon J. Jensen, C.J.
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
Douglas A. Bahr
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