Plastech Holding Corp. v. WM GreenTech Automotive Corp.

Citation: 257 F. Supp. 3d 867Docket: Case No. 14-cv-14049

Court: District Court, E.D. Michigan; June 30, 2017; Federal District Court

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The Court, presided over by Judge Mark A. Goldsmith, issued an opinion granting Defendants' motions for sanctions and dismissing Plastech Holding Corporation's (PHC) claims with prejudice due to PHC's bad-faith conduct, specifically the fabrication of evidence. A hearing on the sanctions occurred on March 17, 2017. PHC, which imports and distributes automotive products, had alleged an exclusive distribution agreement with JAC Motors, a Chinese automobile manufacturer, established through a Framework Agreement dated October 27, 2010. PHC submitted purported signed versions of this agreement in its first and second amended complaints, claiming they were "true and correct" copies. However, in its third amended complaint filed on September 22, 2016, PHC removed the Framework Agreement as an exhibit, alleging that JAC Motors retained the signed copy and that PHC no longer had access to it. The Court noted that prior to this filing, PHC's counsel had contacted Defendants' counsel regarding the third amended complaint but did not clarify the removal of the Framework Agreement. Consequently, the Court found PHC's actions warranted sanctions, leading to the dismissal of its claims.

The signed version of the Framework Agreement submitted by PHC was found to be fabricated, as revealed after depositions of key individuals associated with PHC. This allegation is central to the Defendants' motions for summary judgment and sanctions. Evidence includes an email from PHC's office manager, Judy Hayes, to Kerrie Mitchell, PHC’s former CIO, containing a document with copied signatures from another agreement, which Mitchell testified was done at the request of Ms. Brown to create a polished document. This fabricated document was subsequently shared with third parties to bolster PHC’s credibility and secure financing and dealer relationships, forming a basis for claims of bad faith against PHC.

The court will evaluate if this conduct meets the legal definition of bad faith, which encompasses intentional or reckless actions, including fraudulent activities. Sanctions for bad faith may range from attorney’s fees to dismissal of claims, with the court advised to exercise its sanctioning authority judiciously, especially when the misconduct impacts litigation integrity. There is a legal debate regarding the burden of proof required to establish fraud on the court, but generally, a preponderance of the evidence is sufficient unless otherwise specified. The court must assess whether PHC's actions constitute bad faith and determine suitable sanctions while adhering to due process, which requires fair notice and an opportunity for a hearing but does not mandate a full evidentiary hearing.

Defendants’ motions for sanctions informed PHC that the Court might impose sanctions based on its inherent authority. PHC was given the opportunity to respond to allegations of bad faith and participate in hearings, thus preserving its due process rights. The Court found PHC's actions in creating and attaching a fabricated Framework Agreement to its amended complaints as constituting bad faith and fraud on the court. This conduct is defined as actions that disrupt the judicial process by misleading the court and opposing parties. It is well-established that fabricating evidence undermines the integrity of the judicial system, and PHC's submission of false evidence was deemed willful and in bad faith. The Court noted that the version of the Framework Agreement attached to PHC’s complaints was not authentic, as PHC had copied signatures from another agreement and incorporated them into a new document. This fabrication was directed by Ms. Brown and acknowledged by PHC's current counsel as a "forged document." PHC claimed that attaching the fabricated agreement was a mistake due to a misunderstanding, but the Court found this explanation unconvincing. PHC did not provide any sworn testimony to support its assertion that the attachment was unintentional, rendering its defense merely a lawyer's unsworn conclusion.

Ms. Brown, as CEO of PHC during the filing of the first and second amended complaints, was the sole individual interfacing with the lawyers responsible for these filings. Evidence indicates she commissioned the creation of a fabricated Framework Agreement in August 2011. PHC's claims of a mistaken belief regarding the authenticity of the attached agreement lack support from the record. Mr. Brown's deposition did not affirm any belief by Ms. Brown or other PHC representatives that the attached agreement was authentic; he was uncertain about the existence of a signed copy. Furthermore, a December 2014 instant message from Ms. Brown does not substantiate PHC’s argument of mistake, instead indicating awareness of a signed contract. The Court concludes that PHC's attachment of the fabricated agreement was intentional or recklessly negligent, constituting bad faith. Although PHC later corrected the issue by removing the fabricated document in its third amended complaint filed in September 2016, nearly two years after the initial filing, it failed to inform the Defendants or the Court about the fabrication or the circumstances leading to its discovery.

PHC relied on a fabricated Framework Agreement, which it emailed to GreenTech on November 12, 2014, to demonstrate an exclusive relationship with JAC Motors. This action resulted in GreenTech terminating its business relationship with JAC Motors, indicating that PHC's use of the fabrication was not innocent. The Court concluded that PHC engaged in bad-faith conduct, which justified the dismissal of its claims as a sanction. The court emphasized that sanctions serve to remedy prejudice, reprimand offenders, and deter future misconduct. Although dismissal is a severe sanction, it is justified in cases of fraud upon the court. The court has the inherent power to dismiss actions when parties deceive the court, particularly in extreme situations. The precedent supports dismissing cases where evidence is fabricated. Consequently, the Court granted Defendants’ motions for sanctions and dismissed PHC's claims with prejudice, rejecting PHC's argument that it had a meritorious case despite its misconduct.

JAC Motors, also known as Anhui Jian-ghuai Automobile Co. Ltd., is referred to simply as JAC Motors for this opinion. The Cooperation Agreement between the parties lacks exclusivity provisions. GreenTech has stated that WM GreenTech Automotive Corporation is now WM Industries Corporation and that GreenTech Automotive Corporation ceased to exist following its merger with Advanced Composite Technology, Inc. A stipulation was filed on September 26, 2016, extending the fact discovery period to December 7, 2016. The two signature pages of relevant documents differ significantly: one document refers to PHC as "PHC" and is a single-paragraph document titled "18. Execution," while the other refers to it as "Plastech" and contains two paragraphs, the first titled "17. Address and contact information."

The Court has noted the differences in standards for vacating judgments under Federal Rule of Civil Procedure 60(b)(6) and the inherent power of the court to sanction misconduct. The Sixth Circuit has clarified that the analysis typically used in cases of bad faith is not applicable to situations involving sanctions for litigation misconduct. JAC Motors argues for the dismissal of PHC's claims based on frivolousness, but the Court determines that PHC's bad-faith conduct, specifically committing fraud on the court, justifies dismissal without needing to assess the frivolousness argument.

In December 2014, PHC filed an amended complaint including what it believed to be a valid signed Framework Agreement with JAC, allegedly returned by JAC in January 2011. PHC has not provided supporting affidavits despite Mr. Brown’s history of rebutting factual claims with affidavits. Additionally, PHC's reliance on deposition testimony regarding the signed Framework Agreement conflicts with their claim that JAC Motors retained the signed copy. Notably, a communication indicated that Ms. Brown initially affirmed having the original signed agreement but later contradicted herself.

Ms. Brown indicated that JAC Motors could present a case of forgery in arbitration, asserting she possesses the original signed supplement and questioned how it could be forged since it bears two signatures. However, her credibility is compromised by a prior email where she stated that documents were given to her and another individual during a meeting, which included a PDF attachment with both a Supplementary Agreement and a purportedly fabricated Framework Agreement. Additionally, she acknowledged not having the original signed agreement from 2010. PHC argued that the defendants' motions for sanctions should be treated as dispositive motions seeking to dismiss PHC's claims, claiming they were filed past the deadline without justification. The Court dismissed these arguments, noting no local rule governs sanction motions, and any delay must be assessed for reasonableness rather than strict adherence to deadlines. The Court found no unfair surprise or prejudice to PHC, as they were aware of the allegations of fabrication prior to the motions. Furthermore, the motions did not seek dismissal under Federal Rule of Civil Procedure 41(b) for failure to prosecute but were aimed at sanctioning PHC for bad faith. The Court reiterated its discretion to impose sanctions at any time and to adjust scheduling orders as necessary, ultimately rejecting PHC’s objections to the timing of the motions.