Plasticsource Workers Committee v. Coburn , 283 F. App'x 181 ( 2008 )

REVISED FEBRUARY 7, 2008
IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT Fifth Circuit
FILED
February 1, 2008
No. 07-50399 Charles R. Fulbruge III
Clerk
PLASTICSOURCE WORKERS COMMITTEE; IGNACIO PEREZ; BRENDA
ABURTO; BRENDA AGUILAR; MARY ALMONTE; et al.,
Plaintiffs-Appellees,
v.
DAVID G. COBURN, doing business as Plasticsource Inc.,
Defendant-Appellant.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 3:05-cv-00434-DB
Before GARZA, STEWART, and OWEN, Circuit Judges.
PER CURIAM:*
Plaintiffs-Appellees, 64 former Plasticsource, Inc. (“Plasticsource”)
employees, brought suit against David G. Coburn alleging that Coburn failed to
give employees any notice of the closure of the Plasticsource, Inc. factory and the
employees’ impending termination, in violation of the Worker Adjustment and
Retraining Notification Act (“WARN Act”), 29 U.S.C. § 2101, et seq. Plaintiffs
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 07-50399
sought to hold Coburn, Plasticsource, and International Manufacturing
Solutions Corp. (“IMS”) jointly and severally liable for statutory damages under
the WARN Act. Coburn moved for judgment on the pleadings under Federal
Rule of Civil Procedure 12(c), arguing that an individual may not be held liable
for WARN Act violations. The district court denied his motion. Subsequently,
after a dispute over Coburn’s deposition, the district court struck Coburn’s
answer and granted Plaintiffs a default judgment against Coburn under Federal
Rule of Civil Procedure 37. Coburn appeals the denial of his motion for
judgment on the pleadings and the district court’s striking of his answer and
entry of a default judgment against him. We affirm.
I.
Plaintiffs are 64 individual factory workers who were employed by
Plasticsource at its El Paso, Texas plant. The workers earned an average hourly
wage of $8.97, manufacturing plastic parts for companies such as Eureka,
Electrolux, and Toro. On January 26, 2005, Plasticsource’s factory closed
without warning, and workers were terminated. IMS, another company
allegedly controlled by Coburn, attempted to remove Plasticsource’s valuable
plastic injection molding equipment, but this removal was stopped by an
emergency injunction preventing removal of the equipment until the workers
were paid their final paychecks.
On November 17, 2006, the Plasticsource Workers Committee, on behalf
of the 64 individual employees, filed suit against Coburn in his individual
capacity, Plasticsource, and IMS under the WARN Act.
Coburn is a Canadian citizen, who, at times, resides in Scottsdale, Arizona.
From the record, the nature of Coburn’s involvement in Plasticsource and IMS
is not exactly clear. Apparently, in 2002, Plasticsource filed for Chapter 11
bankruptcy and a reorganization plan was developed. Thereafter, Coburn was
hired by a creditors’ committee to evaluate whether Plasticsource could be made
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No. 07-50399
solvent and return to profitability. Coburn alleges that after determining that
Plasticsource was viable, he became involved in the company, but only as an
investor. He denies ever having been an officer, employee or shareholder of
Plasticsource. Plaintiffs contest this assertion, and state that in 2003 Coburn
held a 75% controlling interest in Plasticsource, that he transferred this interest
to another one of his companies, and that Coburn served as Plasticsource’s sole
director from May 2003 through the January 2005 plant closing.
To clarify the extent of Coburn’s relationship with Plasticsource and IMS,
Plaintiffs sought discovery from Coburn. This discovery was especially relevant
to Plaintiffs’ claim that Coburn operated Plasticsource as his alter ego, and
therefore should be liable for Plasticsource’s WARN Act damages. However, it
appears that Coburn resisted discovery throughout the litigation. Plaintiffs also
sought documents and responses to interrogatories, but Coburn refused
production. Plaintiffs moved to compel production, and on September 1, 2006,
the district court filed an order compelling the document production and fining
Coburn $1,600.00. Plaintiffs also sought to depose Coburn, but Coburn’s
attorneys refused, stating that: “Unfortunately, due to immigration laws, David
Coburn cannot spend any more time in the USA this year. Please let me know
what you would like to do about his deposition.” Plaintiffs moved to compel
Coburn’s deposition, and on August 29, 2006, the district court granted this
motion. The district court gave Coburn three options for the deposition: (1)
appearing at the offices of Texas RioGrande Legal Aid in El Paso, Texas in
September 2006; (2) if Coburn could not appear in El Paso, filing a deposition
explaining why and then appearing at a deposition in Juarez, Mexico; or (3) if
Coburn could not appear in Juarez, filing an affidavit explaining why, appearing
at a deposition in Canada, and paying the travel expenses of Plaintiffs’ counsel.
This notice also states that:
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No. 07-50399
If Defendant Coburn fails to appear for his deposition
under the terms of the preceding Part (A), Plaintiffs
may move for an order imposing the sanctions stated by
Rule 37 (A), (B), and (C). If the Court grants such a
motion, it MAY RESULT IN A FINAL JUDGMENT
AGAINST DAVID Coburn, RENDERING HIM
PERSONALLY LIABLE FOR ALL OF PLAINTIFFS’
CLAIMS IN THE ABOVE MATTER, CLAIMS WHICH
AMOUNT TO ROUGHLY $500,000.
Plaintiffs then attempted to schedule Coburn’s deposition, but Coburn
refused to appear on any date in September 2006. On September 29, 2006
Coburn filed an affidavit indicating that because of his immigration status, he
would not be permitted to enter the United States until 2007,1 and that he could
be deposed in either Juarez, Mexico or Canada in December 2006. Coburn also
indicated that his brother was terminally ill, and that he would prefer the
deposition be held off for a few months. On October 19, 2006, Plaintiffs sought
to amend the September 1, 2006 discovery order to permit the taking of Coburn’s
deposition in Juarez on December 4 and 5, 2006. In that request, Plaintiffs
indicated that they would “seek[] the sanctions already described to him by the
Court if he fails to comply.” On October 26, 2006, the district court issued an
amended scheduling order, which ordered Coburn “to appear for his deposition
to be taken in Juarez, Mexico during the month of December, 2006.” The order
further stated that “[i]f Mr. Coburn fails to obey this second order directing his
deposition, sanctions permitted by Rule 37(b)(2)(A) will be imposed.”
Plaintiffs noticed Mr. Coburn that his deposition would take place in
Juarez, Mexico on December 4 and 5, 2006, beginning at 9:30 a.m. each day. On
December 1, 2006, the Friday prior to the scheduled deposition, Coburn’s
attorney notified Plaintiffs that delays prevented Coburn from attending the
1
Coburn asserted that because he is Canadian citizen who is not a “permanent
resident” of the United States, he is only allowed to spend 180 days in the United States. He
claimed that for 2006, he had already exhausted these 180 days.
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No. 07-50399
deposition until 1:00 p.m. on December 4. Coburn appeared for the deposition
on December 4. During the deposition, Coburn indicated that he had spent the
previous night at his home in Scottsdale, Arizona, in apparent contravention of
his earlier statements to the Court that was not permitted in the United States.
After about two hours of questioning, and against the advice of his counsel,
Coburn decided to leave the deposition. On the record, Coburn’s counsel stated
that Plaintiffs had told Coburn during the break that they would continue the
deposition on December 5th only if it was taken in El Paso, rather than Juarez,
and that Coburn was unwilling to do this. Plaintiffs indicated to Coburn that
they would seek a default judgment against him, but Coburn responded that he
did not care. Coburn then left the deposition, and notified Plaintiffs that he
would not appear on December 5th in El Paso to continue the deposition.
Subsequently, Plaintiffs moved for a default judgement, under Rule 37,
against Coburn on the basis that his noncompliance with the discovery order
compelling his deposition was “deliberate” and “willful.” On February 8, 2007,
the district court granted this motion, striking Coburn’s answer and accepting
all Plaintiffs’ allegations as true against him. The Court imposed $196,708.60
in total WARN Act damages, as well as costs and attorney’s fees. Coburn
appealed.
II.
Coburn first argues that the district court abused its discretion in striking
his answer and entering a default judgment against him. We review the
imposition of Rule 37 sanctions for abuse of discretion. Smith v. Smith, 145 F.3d
335, 344 (5th Cir. 1998). Generally, in the context of Rule 37 sanctions, a district
court abuses its discretion when it makes a mistake of fact or law. Tollett v. City
of Kemah, 285 F.3d 357 (5th Cir. 2002)
Rule 37(b)(2) authorizes the district court to strike pleadings or render a
default judgment against a party as a sanction for failure to comply with a
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No. 07-50399
discovery order.2 FED. R. CIV. P. 37(b)(2)(iii), (vi). When a district court awards
default judgment as a discovery sanction, two criteria must be met. Smith, 145
F.3d at 344. First, the penalized party’s discovery violation must be willful. Id.
Second, the drastic measure is only to be employed where a lesser sanction
would not substantially achieve the desired deterrent effect. Id. The reviewing
court may also consider whether the discovery violation prejudiced the opposing
party’s preparation for trial, and whether the client was blameless in the
violation. Batson v. Neal Spelce Assocs., 765 F.2d 511, 514 (5th Cir. 2002).
Coburn does not argue that a lesser sanction would have sufficed, rather
he argues that his failure to continue to attend the deposition was not willful or
in bad faith. First, he argues that he did attend the deposition in Juarez, Mexico
and gave over 64 pages of deposition testimony. Second, Coburn contends that
based on Plaintiffs’ questions during the deposition related to his presence in the
United States, as well as Plaintiffs’ insistence that the deposition continue in the
United States, he reasonably believed Plaintiffs might attempt to report his
immigration violations to the authorities and that his attendance at the
deposition in El Paso, Texas would result in criminal prosecution because of his
2
In relevant part, Rule 37 provides:
(b) Failure to Comply with a Court Order.
...
(2) Sanctions in the District Where the Action Is Pending.
(A) For Not Obeying a Discovery Order. If a party or a party's
officer, director, or managing agent--or a witness designated
under Rule 30(b)(6) or 31(a)(4)--fails to obey an order to provide
or permit discovery, including an order under Rule 26(f), 35, or
37(a), the court where the action is pending may issue further
just orders. They may include the following:
(i) directing that the matters embraced in the order or other
designated facts be taken as established for purposes of the
action, as the prevailing party claims;
...
(iii) striking pleadings in whole or in part;
...
(vi) rendering a default judgment against the disobedient
party.
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No. 07-50399
immigration status. Therefore, he says that he was unable to comply with the
district court’s order regarding the deposition. In reply, Plaintiffs argue that it
is not only Coburn’s failure to show up in El Paso on December 5, 2006 that is
it at issue, it is also his refusal to complete the first day of depositions in Juarez,
Mexico. In addition, Plaintiffs argue that if Coburn really had any fear of arrest,
he could have remained in Mexico to complete the deposition on December 4,
2006. Plaintiffs deny threatening to report Coburn to the immigration
authorities, and reject his fear of arrest as illusory, pointing to Coburn’s return
to the United States the evening of December 4, 2006.
The record contradicts Coburn’s claims and indicates that Coburn willfully
violated the district court’s order by leaving the deposition in Juarez on
December 4 after only two hours of questioning in a deposition that was
scheduled to last 12 hours. The district court’s order required Coburn to “appear
for his deposition” and indicated that the deposition would “continue on these
dates until completed for twelve hours total.” Coburn’s refusal to continue the
deposition after two hours was violative of this order, especially given that
Plaintiffs’ counsel clearly indicated their intention to continue the deposition
“right here, right now.” This is true regardless of whether Coburn’s fears of
prosecution justified his non-attendance on December 5. Further, Coburn’s non-
compliance was willful and knowing. Coburn had fair warning that his non-
compliance with the deposition would result in sanctions. The district court had
stated as much in its orders, and Plaintiffs’ counsel indicated its intention to
seek Rule 37 sanctions if Coburn left the deposition. Indeed, Coburn’s decision
to leave the deposition was even made against the advice of counsel. “In making
its ‘bad faith’ determination, the district court was entitled to rely on its
complete understanding of the parties’ motivations.” Smith, 145 F.3d at 344.
In this case, Coburn had previously refused to comply with both written
discovery demands and the district court’s orders regarding his deposition.
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No. 07-50399
Coburn’s prior dilatory and obstructive conduct was well-documented and the
extreme sanction of default judgment was warranted by his actions. The district
court did not abuse its discretion by striking his answer and entering a default
judgment against him. See id. (parties’ repeated refusal to appear for
depositions and comply with discovery justified dismissal); Bonaventure v.
Butler, 593 F.2d 625, 626 (5th Cir. 1979) (“Deliberate, repeated refusals to
comply with discovery orders have been held to justify the use of this ultimate
sanction.”).
III.
Second, Coburn argues that, as a matter of law, he cannot be held liable
for WARN Act violations because the WARN Act is applicable only to corporate
entities, not individuals. Therefore, he contends, this Court should reverse the
default judgment entered against him. Whether a natural person may be liable
for statutory damages under the WARN Act is a question of statutory
interpretation that we review de novo. See Dial One of the Mid-South, Inc. v.
BellSouth Telecomms., Inc., 269 F.3d 523, 525 (5th Cir. 2001).
The WARN Act prohibits employers from ordering a “plant closing or mass
layoff until the end of a 60-day period after the employer serves written notice”
of the closing or layoff to its employees. 29 U.S.C. § 2102(a). An employer who
violates this notice provision is required to provide “back pay for each day of
violation.” 29 U.S.C. § 2104(a)(1). “In short, WARN imposes a statutory duty
on businesses to notify workers of impending large-scale job losses and allows
for limited damages ‘designed to penalize the wrongdoing employer, deter future
violations, and facilitate simplified damages proceedings.’” Staudt v. Glastron,
Inc., 92 F.3d 312, 314 (5th Cir. 1996).
The WARN Act and Department of Labor regulations define an employer
as any business enterprise that employs 100 or more employees. 29 U.S.C. §
2101(a)(1); 20 C.F.R. § 639.3(a)(1). Coburn argues that the use of the term
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No. 07-50399
“business enterprise” indicates that the WARN Act is only applicable to
corporate entities, not individuals. However, this Court has previously found
that natural persons may be held indirectly liable for statutory WARN Act
damages under an alter-ego theory. See Hollowell v. Orleans Reg’l Hosp., 271
F.3d 379, 385 (affirming judgment imposing liability for WARN Act damages on
three natural persons because jury found that the individuals were the alter egos
of the employer under Louisiana law). Under certain circumstances, Texas
recognizes the theory of alter ego liability, permitting a court to hold an
individual liable for corporate obligations. See Castleberry v. Branscum, 721
S.W.2d 270, 271 (Tex. 1986) (holding that although incorporation normally
protects shareholders, officers, and directors from liability for corporate
obligations, “when these individuals abuse the corporate privilege, courts will
disregard the corporate fiction and hold them individually liable.”). Therefore,
we must reject Coburn’s contention that, as a matter of law, an individual can
never be held liable for WARN Act violations.
Under the district court’s order, all claims against Coburn were accepted
as true, including the claim that he is personally liable for the WARN Act
violations because “he operated Plasticsource as his alter-ego, and
Plasticsource’s corporate veil should be pierced as to Defendant Coburn.”3
Because this Court permits individuals to be held liable for WARN Act violations
3
Coburn also alleges that he cannot be held liable for the WARN Act violations because
Plasticsource’s shut down was an unforeseen business circumstance. See 29 U.S.C. § 2102
(B)(2)(A) (“An employer may order a plant closing or mass layoff before the conclusion of the
60-day period if the closing or mass layoff is caused by business circumstances that were not
reasonably foreseeable as of the time that notice would have been required.”); Halkias v. Gen’l
Dynamics Corp., 137 F.3d 333, 335 (5th Cir. 1998) (affirming summary judgment to defendant
corporation because plant’s closure was not reasonably foreseeable). However, under the
district court’s order, Coburn’s answer, including his affirmative defenses, was stricken, and
all allegations in Plaintiffs’ complaint were to be accepted as true against him. Therefore, we
cannot consider Coburn’s fact-based argument that Plasticsource’s shut down was an
unforeseen business circumstance.
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No. 07-50399
under an alter-ego theory of liability, the district court did not err in holding
Coburn personally liable for the WARN Act violations at issue in this case.
IV.
For the foregoing reasons, we affirm the district court’s entry of default
judgment against Coburn.
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