Panther Pressure Testers v. Szostak

Citation: 2023 ND 27Docket: 20220134

Court: North Dakota Supreme Court; February 15, 2023; North Dakota; State Supreme Court

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Panther Pressure Testers, Inc. and Craig R. Chamberlain, as Personal Representative of the Estate of Kirk R. Wold, filed a lawsuit against Brian Szostak and April Szostak, claiming they formed Szostak Services, LLC, and breached a contract by failing to recognize Wold as a member. The plaintiffs also alleged unjust enrichment after mistakenly depositing funds into Szostak Services’ account, which the Szostaks refused to return. The Szostaks did not adequately respond to discovery requests, leading the court to grant a motion to compel. Following non-compliance, the plaintiffs filed a motion for sanctions, which the court granted, imposing penalties and requiring the Szostaks to comply with discovery. The Szostaks still failed to produce necessary documents, prompting a second motion for sanctions, which resulted in the court entering a default judgment against them and dismissing their counterclaims. The Szostaks appealed, arguing that the court abused its discretion in granting the sanctions and entering default judgment, specifically claiming the court misapplied the law by not considering culpability, prejudice, or alternative sanctions. The Supreme Court of North Dakota affirmed the district court’s decision.

Rule 37, N.D.R.Civ. P. allows a district court to impose various sanctions, including default judgment, against a party that fails to comply with discovery orders. The court has broad discretion in determining appropriate sanctions, which should be reserved for cases of deliberate or bad faith non-compliance that show a flagrant disregard for discovery rules. The burden of proof lies with the party challenging the sanctions to demonstrate an abuse of discretion, which occurs when the court acts arbitrarily or unreasonably, misinterprets the law, or lacks a rational basis for its decision.

In this case, the district court found that the Szostaks engaged in deliberate and bad faith non-compliance with discovery requirements, noting their actions were egregious. Despite multiple requests for discovery from Panther and Wold between 2019 and 2022, the Szostaks either failed to respond or provided vague responses without producing the required documents. When subpoenaed, they revealed the existence of 12 boxes of documents that had not been disclosed in earlier discovery requests. 

Following several motions to compel, the Szostaks continued to disregard court orders, prompting the court to impose sanctions including a requirement to produce documents by a certain date. Their subsequent attempts to assert new objections and produce minimal additional documentation were deemed insufficient. The court upheld its sanctions, including default judgment, finding no evidence that it acted in an unreasonable or arbitrary manner. The Szostaks contested the damage award but could not establish that the district court's decision was unsupported by the record.

Rule 55 of the North Dakota Rules of Civil Procedure outlines the process for obtaining a default judgment. A default judgment may be entered when a party fails to plead or appear, as verified by declaration or other means. For claims involving a specific amount or a calculable sum, the court can issue a judgment based on the plaintiff's declaration of the amount due, alongside any relevant written instruments, allowing for costs and disbursements. In cases where the claim is not for a specific sum, the court must obtain sufficient proof to determine relief, which may involve hearing evidence, ordering an accounting, or submitting factual issues to a jury.

Historically, North Dakota courts have exercised broad discretion regarding the proof needed for default judgments. Courts are required to seek proof sufficient for determining the plaintiff's entitlement to relief, as established in previous rulings. Proof can be presented through testimony, depositions, or affidavits, particularly when the defendant is in default. Although affidavits should ideally come from individuals with personal knowledge of the facts, courts maintain flexibility in the quality of evidence required.

The abuse of discretion standard applies when reviewing evidence supporting damages from a default judgment, with courts acting unreasonably if their decisions are arbitrary or unconscionable. In the case referenced, the district court calculated damages awarded to Panther and Wold based on the Member Control Agreement, which entitled Wold to 25% of distributions from Szostak Services. The court determined that Szostak Services had improperly withdrawn $1,461,509.91, resulting in a calculated award of $365,377.47 for Panther and Wold. The court's judgment and damage determination were upheld as reasonable.