Douglas Costello and Profit Search, Inc. v. Gersh Zavodnik , 55 N.E.3d 348 ( 2016 )

FILED
May 23 2016, 8:37 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEY FOR APPELLANT APPELLEE PRO SE
Chad D. Wuertz Gersh Zavodnik
Wuertz Law Office, LLC Indianapolis, Indiana
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Douglas Costello and Profit May 23, 2016
Search, Inc., Court of Appeals Case No.
Appellants-Defendants, 49A04-1504-PL-163
Appeal from the Marion Superior
v. Court
The Honorable J. Jeffrey Edens,
Gersh Zavodnik, Special Judge
Appellee-Plaintiff. Trial Court Cause No.
49D10-1011-PL-49972
Vaidik, Chief Judge.
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 1 of 13
Case Summary
[1] When Massachusetts resident Douglas Costello posted a used printer on
Craigslist in 2009, he could not have predicted that he would spend much of the
next seven years locked in a legal battle in Indiana. But he sold the printer—for
less than $75—to Gersh Zavodnik, who has a penchant for suing after entering
into online transactions. Zavodnik, claiming the printer was defective, sued
Costello in small-claims court. He asked for the small-claims maximum of
$6000, but Costello defended the case and prevailed, based on the fact that
Zavodnik had prematurely disposed of the printer. Unfazed, Zavodnik
appealed the matter to superior court, where he was allowed to conduct
discovery. Zavodnik sent Costello requests for discovery pursuant to Indiana
Trial Rule 36(A), asking Costello to admit, among other things, that he is liable
for $30,044.07. Costello, who remained unrepresented following his victory in
small-claims court, failed to respond (he later said he never received the
requests). When Costello learned that his failure to respond rendered the
matters admitted under Rule 36(A), he hired an attorney and moved to
withdraw the admissions under subsection (B) of the rule. The trial court,
believing itself constrained by our Supreme Court’s interpretation of Rule 36,
denied Costello’s motion and awarded Zavodnik a judgment of $30,044.07. In
light of Zavodnik’s abuse of Rule 36, we conclude that the trial court should
have granted Costello’s motion.
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 2 of 13
Facts and Procedural History
[2] As our Supreme Court has recognized, Zavodnik is a “prolific, abusive
litigant.” Zavodnik v. Harper, 17 N.E.3d 259, 261 (Ind. 2012). He spends much
of his life prosecuting lawsuits against individuals and businesses with whom he
has entered into online transactions. See Zavodnik v. Richards, 984 N.E.2d 699,
701 n.2 (Ind. Ct. App. 2013), aff’d on reh’g, 988 N.E.2d 806 (Ind. Ct. App.
2013). This is the second time this particular case has been before us. The first
time, it had been dismissed, along with twenty-six other cases Zavodnik had
filed, pursuant to Indiana Trial Rule 41(E), which provides for dismissal when a
plaintiff fails to diligently prosecute the case or comply with court rules.
Zavodnik v. Gehrt, No. 49A02–1105–CT–393, slip op. at 10-11 (Ind. Ct. App.
Mar. 1, 2012) (memorandum decision). We affirmed the dismissal of most of
the cases but reversed the dismissal of this case because there was no indication
in the record that the trial court had held the formal hearing required by Rule
41(E). Id. at 21-22.
[3] The transaction underlying this case occurred in late 2009, when Zavodnik
purchased a used printer from Costello, a resident of Massachusetts, on
Craigslist. The exact price is not clear from the record, but it is undisputed that
Zavodnik paid Costello less than $75. A few months after Zavodnik received
the printer, he sued Costello in small-claims court, alleging that it was defective
and seeking $6000 in damages (at the time, the maximum recovery in Marion
County small-claims courts). After holding a hearing at which both parties
appeared without counsel, the small-claims court entered judgment in favor of
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 3 of 13
Costello, having found that Zavodnik had disposed of the printer with an
“intent to suppress evidence.” Appellee’s App. p. 240-42.
[4] In November 2010, Zavodnik appealed the matter to the superior court to be
tried de novo. On December 14, 2010, he sent Costello a set of requests for
admission pursuant to Indiana Trial Rule 36. Among other things, Zavodnik
asked Costello to admit that “you” and “your Corporation” (presumably a
reference to Profit Search Inc., which Zavodnik later added as a defendant) (1)
entered into a contract with Zavodnik, (2) breached the contract, and (3) are
liable to Zavodnik for $30,044.07 “for breaching the legally binding contract[.]”
Appellants’ App. p. 63-68. In accordance with Rule 36, Zavodnik instructed
Costello to respond to the requests within thirty days.
[5] As of March 2, 2011, Costello, who was still proceeding without counsel after
prevailing in small-claims court, had not responded to Zavodnik’s requests.
That was the day, however, that the trial court dismissed this case and twenty-
six others pursuant to Rule 41(E). As indicated above, Zavodnik appealed all
of those dismissals, and it was not until a year later, on March 1, 2012, that we
revived his action against Costello and remanded the case to the trial court for
further proceedings. Gehrt, slip op. at 21-22.
[6] On remand, the case lingered for nine months with no substantive action until a
pre-trial conference on December 13, 2012. A few days later, Zavodnik sent
Costello a second set of requests for admission, asking Costello to admit that he
and the judge “conspir[ed]” and “plotted” against Zavodnik and that he is liable
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 4 of 13
to Zavodnik for more than $300,000. Appellants’ App. p. 72, 77. The next
month, Zavodnik sent a third set of requests, this time asking Costello to admit,
among other things, that he is liable to Zavodnik for more than $600,000. Id. at
83. Costello did not respond to Zavodnik’s second and third sets of requests.
[7] In early 2013, Zavodnik also started filing requests to have the judge removed
from the case. The Indiana Supreme Court eventually appointed a different
judge. In May 2013, after the case had been transferred to the new judge,
Zavodnik filed a motion to have all of the matters set forth in his three sets of
requests for admission deemed admitted, based on Costello’s failure to respond.
While Rule 36 does not require either a motion or a hearing—matters set forth
in requests that are not responded to are deemed admitted by the rule itself—the
trial court held a hearing on Zavodnik’s motion on July 5, 2013. Zavodnik
appeared but Costello did not. On July 10, 2013, the trial court issued an order
acknowledging that all of the matters set forth in Zavodnik’s requests were
admitted by operation of Rule 36.
[8] After receiving the court’s order, Costello contacted the court and was told to
file any response to the order in writing. Costello then filed a motion to have
the order vacated, claiming that he had never received (1) Zavodnik’s requests
for admission or (2) notice that a hearing would be held on July 5, 2013.1
Meanwhile, Zavodnik, armed with Costello’s admissions, filed a motion for
1
Costello’s claims in this regard may have merit, but our resolution of this matter in his favor makes it
unnecessary for us to address them.
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 5 of 13
summary judgment and a 75-page memorandum in support. On November 15,
2013—the trial court having made no decision on Costello’s motion to vacate—
an attorney entered an appearance on behalf of Costello and filed a motion
under Rule 36(B) formally seeking permission to withdraw the admissions.
[9] The parties’ motions remained pending for the next fifteen months, during
which Zavodnik made multiple requests to have the new judge removed from
the case and filed numerous lengthy motions. One motion Zavodnik filed had
a caption that was more than a page long and accused Costello of perpetrating
“wishy-washy wiggly deceptions.” Appellants’ App. p. 422-23. Zavodnik also
filed a federal lawsuit against the judge, which was immediately dismissed.
[10] On September 30, 2014, our Supreme Court issued an opinion in another of
Zavodnik’s cases. See Zavodnik v. Harper, 17 N.E.3d 259. The Court actually
denied Zavodnik’s petition to transfer in that case, but it issued an opinion that
“gives guidance to this state’s courts on some options when confronted with
abusive and vexatious litigation practices.” Id. at 261-62. The Court noted:
Nothing Mr. Zavodnik has filed or done in this case shows any
desire to litigate this case expeditiously to resolution on the
merits. Rather, he has burdened the opposing party and the
courts of this state at every level with massive, confusing,
disorganized, defective, repetitive, and often meritless filings.
And this Court has previously warned Mr. Zavodnik against
continuing such abusive and burdensome litigation tactics.
Id. at 263. The Court identified several measures that judges can take in dealing
with abusive litigants, such as putting limits on the nature and size of future
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 6 of 13
filings. Id. at 268-269. Finally, while the Court refrained from imposing any
specific sanctions or restrictions on Zavodnik, it warned him that he “can
expect any further abusive litigation practices in any judicial forum in this state
to be met with appropriate sanctions and restrictions.” Id. at 270. Taking
notice, the trial court in this case quickly issued an order subjecting Zavodnik to
many of the filing restrictions that the Supreme Court had identified in its
Zavodnik v. Harper opinion.
[11] Zavodnik laid low for the next few months. However, on February 19, 2015,
the day the trial court was finally able to hold a hearing on Zavodnik’s motion
for summary judgment and Costello’s motion to withdraw admissions,
Zavodnik came prepared with a new 53-page motion to disqualify the judge. In
the motion, which began with a seven-line, 65-word title, Zavodnik
characterized the Supreme Court’s opinion as follows: “Zavodnik-character-
assassinating-September 30th, 2014-biased-and-prejudiced-based-on-falsified-
and-fabricated-capricious opinion issued by the Indiana Supreme Court, who
will be held responsible for the said lies, the very same Supreme Court, which
had no jurisdiction to issue that opinion[.]” Appellants’ App. p. 443. The trial
court forged ahead with the scheduled hearing.
[12] In a written order issued a month later, the trial court granted Costello
permission to withdraw some of the admissions but not others. Most relevant
to our decision, Costello was permitted to withdraw his admissions that he is
liable to Zavodnik for more than $300,000 and $600,000, but not the admission
that he is liable for $30,044.07. In explaining this result, the trial court noted
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 7 of 13
that Zavodnik asserted damages of $30,044.07 in relation to “a specific liability
for breach of contract” (Zavodnik’s request said “$30,044.07 for breaching the
legally binding contract” (emphasis added)) but asserted the higher amounts
“without specifically identifying the basis for the damages.” Appellants’ App.
p. 37, 43-44.
[13] Based on the surviving admissions, the trial court granted summary judgment
in favor of Zavodnik in the amount of $30,044.07. The court acknowledged
that this amount is “seemingly high” and that the judgment “may seem extreme
for the breach of contract for the purchase of a printer,” but it concluded that
the judgment “reflects the limited discretion the Court feels that it has in the
matter pursuant to Trial Rule 36(B) and the Indiana Supreme Court’s
interpretation of Trial Rule 36(B) pursuant to General Motors Corp., Chevrolet
Motor Div. v. Aetna Casualty & Surety Co.[, 573 N.E.2d 885 (Ind. 1991), reh’g
denied].” Appellants’ App. p. 43, 55.
[14] Costello now appeals, and Zavodnik cross-appeals. The CCS for this matter
indicates that since the trial court entered its judgment, Zavodnik has obtained
yet another change of judge and has made many additional filings.
Discussion and Decision
[15] Costello contends that the trial court should have (1) allowed him to withdraw
all—not just some—of his Rule 36 admissions and (2) denied Zavodnik’s
motion for summary judgment, which was based on the admissions. Zavodnik
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 8 of 13
makes the converse arguments in his cross-appeal: that the trial court should
have (1) denied Costello’s motion to withdraw in its entirety and (2) awarded
Zavodnik a much higher judgment. Because both appeals turn on the propriety
of the trial court’s decision on Costello’s motion to withdraw admissions, we
need not address the two appeals separately.
[16] The withdrawal of admissions is governed by Indiana Trial Rule 36(B), which
provides, in part:
Any matter admitted under this rule is conclusively established
unless the court on motion permits withdrawal or amendment of
the admission. Subject to the provisions of Rule 16 governing
amendment of a pre-trial order, the court may permit withdrawal
or amendment when the presentation of the merits of the action
will be subserved thereby and the party who obtained the
admission fails to satisfy the court that withdrawal or
amendment will prejudice him in maintaining his action or
defense on the merits.
This provision grants our trial courts discretion in deciding whether to allow the
withdrawal of admissions, and we will reverse only for an abuse of that
discretion. City of Muncie v. Peters, 709 N.E.2d 50, 54 (Ind. Ct. App. 1999), reh’g
denied, trans. denied.
[17] Here, we must conclude that the trial court abused its discretion when it denied
part of Costello’s motion to withdraw his admissions. There is no question that
presentation of the merits of the action will be subserved by allowing the
withdrawal. As demonstrated by the trial court’s grant of summary judgment
in favor of Zavodnik, Costello’s admissions, if allowed to stand, would bring
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 9 of 13
this litigation to an end without any presentation of the merits. Requiring
Zavodnik to prove the merits of his case is particularly appropriate in light of
the fact that he already lost on the merits in the small-claims court based on his
decision to dispose of the printer not long after he purchased it. With regard to
damages, Zavodnik did not ask Costello to admit any facts that would justify an
award of damages in excess of the purchase price. His failure in this regard
strongly indicates that his requests asserting more than $30,000 in damages (at
least 400 times more than the purchase price) had no basis in reality.
[18] Furthermore, allowing Costello to withdraw his admissions would not
prejudice Zavodnik in maintaining his action on the merits. As used in Rule
36(B), the word “‘prejudice’ does not mean that the party who has obtained the
admissions will lose the benefit of the admissions; rather, it means that the party
has suffered a detriment in the preparation of his case.” Corby v. Swank, 670
N.E.2d 1322, 1326 (Ind. Ct. App. 1996). Here, Zavodnik would suffer no such
detriment. The matter has not yet been set for trial, Zavodnik still has time to
prepare his case, and there is no evidence that he has relied on Costello’s
admissions in a way that would impair his ability to prepare his case. The fact
that Zavodnik would have to spend time and money preparing his case does not
constitute “prejudice”; he would simply be in the same position as most other
civil plaintiffs in Indiana, having to marshal the evidence in his favor and prove
his case in court.
[19] As the trial court noted, our Supreme Court held in General Motors Corp. that
even if both of the conditions stated in Rule 36(B) are satisfied, the rule’s use of
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 10 of 13
the word “may” means that the trial court retains discretion to deny a motion to
withdraw. 573 N.E.2d at 889. But that discretion should be reserved for close
calls like that presented in General Motors Corp. There, the requests for
admission that were at issue were narrowly tailored to the actual facts and law
of the case, id. at 886 n.1, the motion to withdraw was not filed until two
months before the scheduled trial, id. at 889, and there had been no prior
indication that the moving party intended to contest the admitted matters, id.
Under those circumstances, it made sense for our Supreme Court to yield to the
discretion of the trial court.
[20] This case is nothing like General Motors Corp. Far from crafting narrow requests
aimed at the actual merits of the case, Zavodnik asked Costello to admit that he
was liable for $30,000, $300,000, or even $600,000 without also asking him to
admit facts that would justify such an extraordinary award in a case involving a
used printer sold for less than $75. Furthermore, as already mentioned, there
was no trial date set, let alone a date that was just two months away. And
Zavodnik certainly knew that Costello contested the matters at issue: Costello
had already defended the case on the merits—and won—at the small-claims
level.
[21] More fundamentally, the plaintiff in General Motors Corp. did not ask the
defendant to admit liability 400, 4000, or 8000 times greater than the amount
originally in dispute, as Zavodnik did here. Zavodnik’s misuse of Rule 36 is
plain. He did not send requests claiming $30,000 and $300,000 and $600,000 in
damages because he believes those figures are legally justified and thought
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 11 of 13
Costello might agree; he sent them because he hoped Costello would not
respond, rendering the matters admitted by operation of Rule 36. An important
purpose of the rule is to more quickly and efficiently reach a resolution based on
the actual facts; Zavodnik used the rule as a way to avoid such a resolution. The
trial court’s partial denial of Costello’s motion to withdraw served to ratify
Zavodnik’s blatant abuse of the rule. See, e.g., Wilcox v. Birtwhistle, 987 P.2d
727, 733 (Cal. 1999) (explaining that permitting withdrawal of admissions
eliminates “undeserved windfalls and the resulting subversion of the policy
favoring the resolution of lawsuits on the merits”); St. Mary v. Superior Court,
223 Cal. App. 4th 762, 783 (2014) (“The purpose of the RFA procedure is to
expedite trials and to eliminate the need for proof when matters are not
legitimately contested. The RFA device is not intended to provide a windfall to
litigants. Nor is the RFA procedure a ‘gotcha’ device[.]”); Lucas v. Clark, 347
S.W.3d 800, 803 (Tex. Ct. App. 2011) (“The rule regarding requests for
admissions was designed, not as a trap to prevent the presentation of the truth
in a full hearing but as a tool for the fair disposition of litigation with a
minimum of delay.”), reh’g overruled, rev. denied.
[22] And things could have been worse. As noted above, the trial court reaffirmed
Costello’s admission to $30,044.07 in damages because Zavodnik’s assertion of
that amount “relates directly to a specific liability for breach of contract,” that
is, his assertion of $30,044.07 included the phrase “for breaching the legally
binding contract.” Appellants’ App. p. 37, 43. However, the trial court
allowed Costello to withdraw his admissions that he owes $300,000 and
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 12 of 13
$600,000 because the underlying requests did not “specifically identify[] the
basis for the damages.” Id. at 38, 44. Following this logic, the trial court would
have granted Zavodnik a judgment for $600,000, or $6,000,000, or $60,000,000,
if Zavodnik had simply linked such an amount to the phrase “for breaching the
legally binding contract.” We believe the withdrawal provisions of Rule 36(B)
require a more probing inquiry than that.
[23] The trial court abused its discretion by partially denying Costello’s motion to
withdraw admissions; it should have granted the motion in full. Because the
trial court granted summary judgment in favor of Zavodnik based on the
unwithdrawn admissions, we reverse the judgment and remand this matter to
the trial court. Before conducting any further proceedings, the trial court shall
hold a hearing for purposes of determining whether this case should be
dismissed pursuant to Trial Rule 41(E), based on Zavodnik’s repeated, flagrant,
and continuing failure to comply with Indiana’s rules of procedure.
[24] Reversed and remanded.
Barnes, J., and Mathias, J., concur.
Court of Appeals of Indiana | Opinion 49A04-1504-PL-163 | May 23, 2016 Page 13 of 13