Opinion
Civil Action 20-cv-02857-PAB-KAS
02-13-2024
AMG NATIONAL CORP., a Colorado corporation, AMG NATIONAL TRUST BANK, Plaintiffs, v. DAVID M. WRIGHT, and KELLY L. WRIGHT, Defendants.
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
KATHRYN A. STARNELLA UNITED STATES MAGISTRATE JUDGE.
This matter is before the Court on Plaintiffs' Motion for Sanctions [#51] (the “Motion”). Defendant Kelly Wright (“K. Wright”) did not file a response, despite being ordered to do so. Minute Order [#56] at 2. Plaintiffs seek entry of default judgment, a permanent injunction, and an award of costs and fees against Defendant K. Wright as a sanction pursuant to Fed.R.Civ.P. 16(f) and 37(b)(2) for her noncompliance with court orders and general non-participation in these proceedings. Motion [#51] at 1. The Court has reviewed the brief, the entire case file, and the applicable law. Based on the following, the undersigned RECOMMENDS the Motion [#51] be GRANTED.
I. Background
Plaintiffs' complaint raises six causes of action: (1) breach of contract against Defendant David Wright (“D. Wright”) for breach of an employee agreement; (2) breach of contract against Defendant D. Wright for breach of a director agreement; (3) defamation against both Defendants; (4) commercial/product disparagement against D. Wright; (5) intentional interference with business relations against D. Wright; and (6) civil conspiracy against both Defendants. Compl. [#1] at ¶¶ 59-97. Plaintiffs seek injunctive relief and money damages.
D. Wright was employed by Plaintiff AMG National Corp. from 2002 to April 25, 2016, when he retired. Id. at ¶¶ 8, 22. Plaintiffs allege that following D. Wright's retirement, he:
egregiously and repeatedly violated the Confidentiality Clause and Nondisparagement Clause within the Agreement and the Confidentiality Clause in the Director Agreement. D. Wright did so in at least four ways: (a) posting content on webpages he created on a website he and/or K. Wright produced at the URL https://ouranosdatum.com (the “D. Wright Website”); (b) posting content on his personal page on the LinkedIn social network; (c) sending AMG officials, employees, and former employees electronic messages and calling them on the telephone; (d) sending AMG customers, vendors, and affiliates electronic messages and calling them on the telephone.Id. at ¶ 23. The posts allegedly created by D. Wright contained inflammatory allegations such as “[Plaintiff AMG National Trust Bank] was ‘associated with the deaths of [D. Wright's] mother and eldest brother;' ‘stole' and ‘inflated the market;' ‘neglected standards of fiduciary care;' and ‘stole [D. Wright's] gold and other funds.'” Id. at ¶ 24.
Defendant K. Wright is purportedly D. Wright's spouse and allegedly “assists D. Wright in maintaining the content on the D. Wright Website.” Id. at ¶ 31. Both Defendants allegedly contacted bank employees or business affiliates and demanded large sums of money. Id. at ¶¶ 45, 47, 55.
Plaintiffs initiated this action on September 21, 2020; however, they did not serve K. Wright until a year later, on September 29, 2021. Compl. [#1]; Proof of Service [#30], [#30-2]. On October 19, 2021, K. Wright timely filed an Answer [#31]. Less than three months later, on February 10, 2023, with the Court's permission, counsel for Defendants withdrew. Minute Order [#41]. The Court simultaneously ordered Defendants to file a Notice of Contact Information within seven days of the Minute Order. Id. at 2. Since then, K. Wright repeatedly ignored the Court's orders and defense counsel's various communications and attempts to jointly prepare a proposed scheduling order. Minute Order [#41] at 2; Minute Order [#45] at 1-2; Minute Order [#48] at 1-2; Minute Order [#56] at 1-3. On April 25, 2023, after two failed attempts to hold a scheduling conference, the Court authorized Plaintiffs to file a motion for sanctions, Minute Order [#50], and Plaintiffs filed the instant Motion.
Throughout this case, Defendant D. Wright has engaged in similar conduct. Accordingly, on September 14, 2021, on Plaintiffs' motion and following entry of default, the Chief District Judge entered default judgment against D. Wright pursuant to Fed.R.Civ.P. 55. See Order [#25] at 30; Plaintiffs' Motion for Default Judgment [#18]. While Plaintiffs also sought entry of default judgment against K. Wright, the Chief District Judge denied that request upon finding that service of process on K. Wright was insufficient. See Order [#25] at 8-9.
II. Legal Standards
Pursuant to Fed.R.Civ.P. 37, a court may impose sanctions on a non-compliant litigant for failure to obey court orders, failure to make certain disclosures, or for evasive disclosures. Courts can impose a broad range of sanctions under Rule 37, including striking pleadings, dismissing the action, rendering a default judgment, treating the disobedience as contempt of court, and ordering payment of reasonable expenses and attorney's fees. Fed.R.Civ.P. 37(b)(2)(A)(i)-(vii), (2)(C). Additionally, if a party “fails to obey a scheduling or other pretrial order,” a court “may issue any just orders, including those authorized by Rule 37(b)(2)(A)(ii)-(vii)[.]” Fed.R.Civ.P. 16(f)(1)(C).
Additionally, courts “have broad inherent power to sanction misconduct and abuse of the judicial process,” including the power to enter default judgment. Klein v. Harper, 777 F.3d 1144, 1147 (10th Cir. 2015); see also LaFleur v. Teen Help, 342 F.3d 1145, 1149 (10th Cir. 2003) (“[F]ederal district courts have the inherent power to manage their business ‘so as to achieve the orderly and expeditious disposition of cases.'”) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991))).
“Default judgment is ‘a harsh sanction that should be used only' if the failure to comply with court orders is the result of ‘willfulness, bad faith, or any fault of the disobedient party' rather than inability to comply.” Klein, 777 F.3d at 1147-48 (quoting Klein-Becker USA, LLC v. Englert, 711 F.3d 1153, 1159 (10th Cir. 2013)). This Circuit has defined a willful failure as “any intentional failure as distinguished from involuntary noncompliance. No wrongful intent need be shown.” Patterson v. C.I.T. Corp., 352 F.2d 333, 336 (10th Cir. 1965); see also M.E.N. Co. v. Control Fluidics, Inc., 834 F.2d 869, 872-73 (10th Cir. 1987).
Before entering default judgment as a sanction, the Court must consider (1) “the degree of actual prejudice to the [opposing party],” (2) “the amount of interference with the judicial process,” (3) “the culpability of the litigant,” (4) “whether the court warned the party in advance that dismissal of the action would be a likely sanction for noncompliance,” and (5) “the efficacy of lesser sanctions.” Ehrenhaus v. Reynolds, 965 F.2d 916, 921 (10th Cir. 1992) (applying factors before imposing sanction of dismissal); see also Baxter Constr. Co., LLC v. SF Constr., Inc., No. 22-cv-01117, 2023 WL 5822502, at **3-5 (D. Colo. Sept. 8, 2023) (finding entry of default judgment appropriate upon application of Ehrenhaus factors).
III. Analysis
For the reasons discussed below, the Court finds that the five Ehrenhaus factors weigh in favor of entry of default judgment against Defendant K. Wright. The Court addresses each factor in turn.
A. Ehrenhaus Factors
1. Degree of Actual Prejudice to Plaintiff
The Court finds that Plaintiffs have been greatly prejudiced by Defendant K. Wright's noncompliance with the Court's orders and her refusal to participate in this case. This case has been pending for nearly three-and-a-half years. See Compl. [#1]. Since September 29, 2021, when K. Wright was properly served, see Proof of Service [#30-2], K. Wright has done nothing to defend herself in this case beyond filing an Answer [#31] on October 19, 2021, when she was represented by counsel. Counsel was permitted to withdraw on February 10, 2023, however, and K. Wright has not participated in these proceedings since then-despite the Court's repeated advisements that she must comply with the Federal Rules of Civil Procedure, this District's Local Rules, and all orders of this Court. See Minute Order [#41] at 1-2; Minute Order [#45] at 1-2; Minute Order [#48] at 12; Minute Order [#56] at 1-3.
Plaintiffs have incurred attorney's fees as a result of their attorney's repeated attempts to move this case into the discovery phase. On February 22, 2023, Plaintiffs' counsel sent K. Wright correspondence seeking her availability for a scheduling conference. See Motion [#51] at ¶ 12; February 22, 2023 Letter [#42-1] at 2. K. Wright did not respond. Motion [#51] at ¶ 12. On March 20, 2023, Plaintiffs' counsel sent K. Wright correspondence with a draft proposed scheduling order. See March 20, 2023 Letter [#47-2]; see also Motion [#51] at ¶ 6. The correspondence advised that the Court had set a Scheduling Conference for April 11, 2023, at 10 a.m. and the parties' proposed scheduling order was due by April 4, 2023. March 20, 2023 Letter [#47-2] at 1. The letter requested a response by April 3, 2023, at 5 p.m. Id. at 1. K. Wright did not respond, however, and Plaintiffs' counsel filed a proposed scheduling order without K. Wright's contributions. See Motion [#51] at ¶ 6. Because the proposed scheduling order lacked K. Wright's input, the Court vacated the Scheduling Conference and reset it for April 27, 2023, with the proposed scheduling order due on April 20, 2023. See Minute Order [#48] at 1-2; see also Motion [#51] at ¶ 7. The Court emphasized that “both parties” must submit the proposed scheduling order. Minute Order [#48] at 2. Additionally, the Court warned K. Wright that her failure to comply with the Minute Order and with her obligations in connection with the Scheduling Conference “will result in a recommendation for sanctions to be imposed, including up to and including issuance of a default judgment” against her. Id. (emphasis original).
On April 12, 2023, Plaintiffs' counsel again sent K. Wright correspondence, which summarized the Court's order resetting the previously set Scheduling Conference and included a copy of an updated draft proposed scheduling order for K. Wright's review and input. Motion [#51] at ¶ 8; see also April 12, 2023 Letter [#49-2] at 1. The correspondence requested K. Wright's response by April 18, 2023, at 5 p.m. Id. Once again, K. Wright did not respond, and Plaintiffs' counsel submitted the proposed scheduling order without her contributions. See Motion [#51] at ¶ 8.
On April 25, 2023, the Court vacated the scheduling conference and authorized Plaintiffs to file a motion for sanctions by May 8, 2023. Minute Order [#50]. Plaintiffs filed the instant Motion in accordance with that Order.
Without question, Plaintiffs have been prejudiced by K. Wright's failure to participate in this litigation. This case has been at a standstill since defense counsel withdrew, and Plaintiffs have an interest in expeditiously proceeding with their claims. Moreover, Plaintiffs have incurred unnecessary costs and attorney's fees from their efforts to collaborate with an uncooperative party. In support of their Motion, Plaintiffs submitted an affidavit from their attorney, Jonathan P. Fero, which identifies $4,735 in attorney's fees and $255.34 in courier fees incurred. J. Fero Affidavit [#51-1] at ¶¶ 11-13. Because of K. Wright's noncompliance and non-participation, Plaintiffs' counsel spent time drafting letters to K. Wright and sending those letters via courier, conferring internally regarding litigation strategy, and preparing the at-issue Motion. Id. at ¶ 11. “[A] workable system of justice requires that litigants not be free to appear at their pleasure,” Cessna Fin. Corp. v. Bielenberg Masonry Contracting, Inc., 715 F.2d 1442, 1444 (10th Cir. 1983), and “defendants cannot escape liability merely by refusing to participate” in a case. Pleitez v. Carney, 594 F.Supp.2d 47, 48-49 (D.D.C. 2009). For these reasons, the first Ehrenhaus factor weighs in favor of default judgment.
2. Interference with the Judicial Process.
Defendant K. Wright's noncompliance and non-participation-which began after her attorneys withdrew on February 10, 2023-has interfered with the judicial process by requiring the Court to issue multiple orders and by placing this case at a standstill. K. Wright failed to comply with and otherwise ignored the following court orders:
• February 10, 2023 Minute Order to confirm mailing address, email address, and telephone number by filing a Notice of Contact Information by February 17, 2023. [#41].
• February 28, 2023 Minute Order setting April 11, 2023 Scheduling Conference, April 4, 2023 deadline for proposed scheduling order, and March 10, 2023 deadline for K. Wright to file a Notice of Contact Information. [#45].
• April 7, 2023 Minute Order vacating and resetting Scheduling Conference for April 27, 2023, and setting April 20, 2023 deadline for proposed scheduling order, and April 17, 2023 deadline for K. Wright to file a Notice of Contact Information. [#48].
• December 15, 2023 Minute Order directing K. Wright to respond to Plaintiff's Motion [#51] by January 8, 2024, and to file a Notice of Contact Information by January 5, 2024. [#56].
Because of K. Wright's inactions, the Court has been unable to hold a Scheduling Conference to set discovery limitations and deadlines. Thus, the second Ehrenhaus factor weighs in favor of default judgment. See Hall v. Wal-Mart, No. 09-cv-01410-WYD-CBS, 2009 WL 6337957, at *3 (D. Colo. Dec. 18, 2009) (concluding that the plaintiff's “continuing noncompliance with the court's orders . . . increased the workload of the court and interfered with the administration of justice”), aff'd and adopted, 2010 WL 1416785 (D. Colo. Apr. 7, 2010).
3. Defendant K. Wright's Culpability and Warnings of the Consequences of Noncompliance
The third and fourth Ehrenhaus factors-culpability and warnings-also weigh in favor of default judgment. The Court finds that K. Wright's culpability is clear and blatant given her repeated violations of the Court's Orders and her disregard for Plaintiffs' efforts to move this matter forward. Prior to withdrawal, K. Wright's former counsel informed her that she will have the burden of keeping the Court and other parties informed where notices, pleadings and other papers may be served; and, if she failed to comply with all court orders and deadlines, she may suffer possible default or other sanctions. See Motion to Withdraw [#37] at 2. Additionally, the Court warned her on at least four occasions that noncompliance will result in a recommendation for sanctions to be imposed, including issuance of a default judgment. See Minute Orders [##41, 45, and 56] (warning of sanctions); [#48] (warning of sanctions, including default judgment). Further, the Court mailed copies of all the pertinent orders to an address provided by K. Wright's attorney at the time of his withdrawal, and that mail was not returned as undeliverable. See Cert. of Svc. [#57]. Therefore, the Court presumes that K. Wright received those orders and has chosen to ignore them and willfully noncomply. See M.E.N. Co., 834 F.2d 872-73 (discussing willful noncompliance).
4. Efficacy of Lesser Sanctions
Given K. Wright's willful noncompliance and apparent abandonment of her defense, the Court sees no value in imposing lesser sanctions. Further, nothing indicates that a lesser sanction of monetary damages, for example, would induce K. Wright's participation in this case or otherwise have any material effect on her. Logisys, Inc. v. Williams, No. 20-cv-00559-EFM, 2023 WL 2450176, at *3 (N.D. Okla. Feb. 16, 2023) (finding efficacy of no lesser sanction than default and default judgment where the defendant's inaction brought the case to a standstill); Trs. of Colo. Laborers' Health & Welfare Fund v. Adams Excavating, Inc., No. 05-cv-01695-MSK-MJW, 2008 WL 659646, at *2 (D. Colo. Mar. 6, 2008) (same).
Having evaluated the Ehrenhaus factors, the Court concludes that the sanction of default judgment against Defendant K. Wright, pursuant to Fed.R.Civ.P. 16(f) and 37(b)(2), for her failures to comply with court orders is warranted. Accordingly, the Court recommends that Plaintiffs' Motion be granted to the extent it seeks default judgment on the claims asserted against K. Wright; namely, defamation (Claim 3) and civil conspiracy (Claim 6). See Motion [#51] at 6; Compl. [#1] at 12, 13.
Because default judgment is entered pursuant to Rules 16(f) and 37(b)(2) rather than Rule 55, “it is not necessary to direct an entry of default prior to the default judgment[.]” Colo. Satellite Broad., Inc. v. Ciphermax, Inc., No. 07-cv-01285-REB-MJW, 2008 WL 4080041, at *2 (D. Colo. Sept. 2, 2008). Relatedly, the Court notes that the Clerk entered default against both Defendants on January 13, 2021. See Clerk's Entry of Default [#16]. However, as the Chief District Judge later determined, the Court did not have jurisdiction over K. Wright at that time because of inadequate service of process. See Order [#25] at 28 (noting, “the Court does not have jurisdiction over Ms. Wright and therefore cannot enter an injunction against her.”). Therefore, because the Court lacked jurisdiction over Ms. Wright, default was improperly entered. Further, entry of default is also improper because K. Wright filed an Answer [#31] after she was properly served (and before her attorneys withdrew). See Shaw v. Hunter, No. 19-cv-358-TCK-CDL, 2021 WL 6066662, at *2 (N.D. Okla. Mar. 1, 2021) (reasoning that the Clerk of Court properly refused to enter default under Rule 55(a) because the defendant had filed an answer). Thus, the Court recommends that the Clerk of Court be ordered to vacate the default entered against Ms. Wright.
B. Request for Permanent Injunction
Having determined that a default judgment is an appropriate sanction, the Court next considers remedies. Plaintiffs argue that the scope of a default judgment is determined by the relief requested in the complaint and rely on Fed.R.Civ.P. 54(c) in support of this argument. Motion [#51] at 7. Because the Complaint [#1] requests injunctive relief, Plaintiffs ask the Court to enter a permanent injunction against Defendant K. Wright in connection with the entry of default judgment. Id.
Fed. R. Civ. P. 54(c) states in pertinent part: “[a] default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” Fed.R.Civ.P. 54(c).
Plaintiffs' Complaint requests an order:
A. Enjoining D. Wright and K. Wright from further publication or disclosure of any type of AMG's confidential information as defined by the Employee Agreement and the Director Agreement;
B. Enjoining D. Wright and K. Wright from further disparagement of AMG, its officials, its directors, its employees, and its affiliates, in any forum;
C. Requiring D. Wright and K. Wright to remove all mention of AMG, and its officers, directors, employees, and affiliates from the D. Wright Website, his personal LinkedIn social network site, and any posts he made to the LinkedIn social network to which he has access, and enjoining D. Wright and K. Wright from making any further posts about AMG, its officers, directors, employees, and affiliates[.]Compl. [#1] at 14. Plaintiffs' Motion indicates they seek a permanent injunction.
Plaintiffs seek injunctive relief against K. Wright “[c]onsistent with the Court's permanent injunction against D. Wright[.]” Motion [#51] at ¶ 16. Specifically, they “seek[ ] a permanent injunction against K. Wright that prohibits her from assisting D. Wright in further publication or disclosure of AMG's confidential information as defined by the Employee Agreement and the Director Agreement and from disparagement of AMG, its officials, its directors, its employees, and its affiliates.” Motion [#51] at 8 (emphasis in the original). They argue the requested “injunction is narrowly tailored to” the allegations that K. Wright “‘assist[ed] D. Wright in maintaining the content on the D. Wright Website' and ‘left a voicemail for a Bank employee in which she indicated the amount due to her and D. Wright was $30,000,000, in part because AMG caused her to have a miscarriage.'” Id. (quoting Compl. [#1] at 7, 9, ¶¶ 31, 47).
To obtain a permanent injunction, a party must prove: “(1) actual success on the merits; (2) irreparable harm unless the injunction is issued; (3) the threatened injury outweighs the harm that the injunction may cause the opposing party; and (4) the injunction, if issued, will not adversely affect the public interest.” Sw. Stainless, LP v. Sappington, 582 F.3d 1176, 1191 (10th Cir. 2009). A court may enter an injunction with a default judgment. See Patagonia, Inc. v. Hunt, No. 15-cv-02545-REB-STV, 2016 WL 11384337, at *3 (D. Colo. Nov. 2, 2016), aff'd and adopted, 2016 WL 6956635 (D. Colo. Nov. 29, 2016).
The Court must first consider whether Plaintiffs have shown “actual success on the merits,” i.e., whether Plaintiffs have pled each element of a defamation claim (Claim 3) and a civil conspiracy claim (Claim 6) against K. Wright. Sw. Stainless, LP v. Sappington, 582 F.3d at 1191.
Plaintiffs contend that “[a]ctual success on the merits is shown upon entitlement to default judgment[.]” Motion [#51] at 8-9. While that principle holds true for default judgments under Fed.R.Civ.P. 55(b), Plaintiffs have cited to no authority in the Fed.R.Civ.P. 37 context. See Marche Design, LLC v. TwinPro Int'l Holdings Ltd., No. 08-cv-2108, 2009 WL 37386, at *3 (D. Kan. Jan. 6, 2009) (finding success on the merits where the plaintiff was entitled to Rule 55(b) default judgment on the claim) (cited in Wendell H. Stone Co., Inc. v. Five Star Advertising, LLC, No. 19-cv-03157, 2022 WL 4094067, at *5 (D. Colo. Sept. 7, 2022) (entering default judgment under Rule 55(b)).
Courts in this Circuit are split on how factual allegations are properly treated when default judgment is entered as a sanction for noncompliance under Rule 37. Scant authority addresses default judgment in the Rule 37 context.
Approximately half of courts hold that where the “entry of default judgment is to sanction defendants for failure to comply with court orders,” as opposed to failing to answer or otherwise defend, “the Court does not take plaintiff's well-pleaded complaint as true for the purpose of determining damages.” Gentle Giant Moving Co., Inc. v. Gentle Giant Moving and Storage Inc., No. 17-cv-02762, 2019 WL 4200397, at *4 (D. Colo. Sept. 4, 2019) (citing Supragenix LLC v. Garrity, No. 2:13-cv-142, 2016 WL 1171525, at *1 (D. Utah Mar. 24, 2016)). Other courts hold that where “noncompliance warrants entry of judgment under Rule 37, the court follows ‘the procedure for entry of a default judgment as set forth in Rule 55'” and the well-pleaded factual allegations of the complaint are treated as true. Purjes v. DigiNext, LLC, No. 2:19-cv-00309, 2020 WL 1276970, at *3 (D. Utah Mar. 17, 2020) (citing Stampin' Up!, Inc. v. Hurst, No. 2:16-cv-00886, 2018 WL 2018066, at *3 (D. Utah May 1, 2018)).
The Court finds the approach taken in Days Inns Worldwide, Inc. v. Al Noor Corp., No. 10-479(ES)(CLW), 2011 WL 5513189 (D.N.J. Nov. 10, 2011) instructive. Like the instant case, the Days Inns court addressed a scenario where the defendants failed to participate in the litigation following the answer's filing. 2011 WL 5513189 at **1-2. After months of the defendants' non-participation in the case, the plaintiff filed a motion to strike the answer and for entry of default. Id. at *1. The court applied the Third Circuit's Poulis factors, which are similar to the Tenth Circuit's Ehrenhaus factors, but include consideration of “the meritoriousness of the claim or defense.” Id. at *2 (citing and discussing Poulis v. State Farm & Cas. Co., 747 F.2d 863, 868 (3d Cir. 1984)). Like this Court, the Days Inns court found that the defendants were culpable, their nonparticipation caused delays that prejudiced the plaintiff, the non-compliance was willful, and alternative sanctions would be ineffective. Id. at **2-3. On the final Poulis factor concerning the merits of the claim or defense, the court compared the complaint's allegations with the answer's denials and determined that it could not “conclude for purposes of the [pending] motion that [the] [d]efendants' defenses are without merit.” Id. at *3. Consequently, the court took no position as to the final Poulis factor. Nevertheless, the Days Inns court determined that no lesser sanction than striking the answer and entering default was warranted, despite that action's extreme nature, because the “[d]efendants have consistently failed to cooperate in discovery and to comply with several court orders.” Id. at *4 (citing Nat'l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639, 643 (1976) (noting that dismissals with prejudice or defaults are “extreme” sanctions)), aff'd and adopted by 2012 WL 715252 (D.N.J. Mar. 5, 2012).
Here, drawing on the Days Inns court's reasoning, the Court finds that no lesser sanction than striking K. Wright's Answer [#31] is warranted. Therefore, the Court takes as true the well pleaded allegations in the Complaint. K. Wright's Answer, and the denials contained therein, do not prevent the Court from imposing relief where default judgment has been entered as a sanction pursuant to Rule 37. The Court addresses each claim against K. Wright in turn.
1. Defamation (Claim 3)
To state an actionable defamation claim, a plaintiff must plausibly allege: “(1) a defamatory statement concerning another; (2) published to a third party; (3) with fault amounting to at least negligence on the part of the publisher; and (4) either actionability of the statement irrespective of special damages [defamation per se] or the existence of special damages to the plaintiff caused by the publication [defamation per quod].” McIntyre v. Jones, 194 P.3d 519, 523-24 (Colo.App. 2008) (quoting Williams v. Dist. Ct., 866 P.2d 908, 911 n.4 (Colo. 1993)). A statement is defamation per se if it imputes, inter alia, a criminal offense or “a matter incompatible with the individual's business, trade, profession, or office.” Gordon v. Boyles, 99 P.3d 75, 79 (Colo.App. 2004). “Special damages” means the “specific monetary losses” incurred “because of the defamatory publication.” Stump v. Gates, 777 F.Supp. 808, 826 (D. Colo. 1991) (citing Lind v. O'Reilly, 636 P.2d 1319, 1321 (D. Colo. 1991)). “Special damages do not include injuries to a plaintiff's reputation[.]” Lind, 636 P.2d at 1321. Additionally, the special damages “must result from the conduct of a person other than the defamer or the one defamed and must be legally caused by the defamation.” Id. (quoting RESTATEMENT (SECOND) OF TORTS § 575, cmt. 6).
In general, “a statement of opinion, as opposed to a statement of fact, will be protected expression under the First Amendment.” Teilhaber Mfg. Co. v. Unarco Materials Storage, a Div. of Unarco Indus., Inc., 791 P.2d 1164, 1167 (Colo.App. 1989). However, an opinion may still support a defamation claim if “the language is defamatory and the underlying defamatory facts which provide a basis for the opinion are false and are not disclosed in context.” Id. (citing Burns v. McGraw-Hill Broad. Co., Inc., 659 P.2d 1351 (Colo. 1983)).
As mentioned, to obtain a permanent injunction, a party must show actual success on the merits and “[t]he Court applies an actual burden of proof to the claims rather than speculating about the movant's ultimate ability to meet that burden.” Villanueva v. Carere, 873 F.Supp. 434, 446 (D. Colo. 1994), aff'd, 85 F.3d 481 (10th Cir. 1996). Here, the Complaint's allegations against K. Wright, unlike those against D. Wright, do not adequately allege “either action ability of the statement irrespective of special damages or the existence of special damages to the plaintiff caused by the publication.” McIntyre, 194 P.3d at 523-24. The Chief District Judge determined that D. Wright's statements were defamatory per se because they accused Plaintiffs of criminal offenses. Order [#25] at 20. The only statement attributed to K. Wright is that “On March 6, 2020, K. Wright left a voicemail for a Bank employee in which she indicated the amount due to her and D. Wright was $30,000,000, in part because AMG caused her to have a miscarriage.” Compl. [#1] at ¶ 47.
The Court is not convinced that Plaintiffs have stated an actionable claim for defamation against K. Wright and, therefore, Plaintiffs have not shown actual success on the merits. The statement attributed to K. Wright is not defamatory per se because it does not fall within any of the specified categories that are intrinsically defamatory. Additionally, the Complaint does not adequately quantify or specify the special damages suffered to state a claim for defamation per quod. The Complaint alleges that “D. Wright and K. Wright's publication of false statements about AMG has caused special damages, including lost business opportunities, waste of time and resources, and heightened security costs.” Compl. [#1] at ¶ 83. The Complaint contains no allegations that these “special damages” resulted from the conduct of a person other than K. Wright (the alleged defamer) or Plaintiffs (the alleged defamed) or that the special damages were legally caused by the defamation. Lind, 636 P.2d at 1321. In other words, the Complaint contains no allegations that “as a result of the alleged defamation any third person refused to deal with [Plaintiffs] or dealt with [Plaintiffs] in any different manner.” Id. The “special damages” allegations are threadbare and conclusory. A party in default “does not admit mere conclusions of law.” Bixler v. Foster, 596 F.3d 751, 762 (10th Cir. 2010). Therefore, Plaintiffs' damages are not “‘special damage[s]' as that term is used in the law of defamation.” Lind, 636 P.2d at 1321 (affirming summary judgment dismissal of libel claim due to insufficient special damages allegations). Because Plaintiffs have not shown an actual success on the merits of their defamation claim against K. Wright, they are not entitled to injunctive relief on that claim. Therefore, the Court recommends that Plaintiff's request for entry of a permanent injunction on that claim be denied.
2. Civil Conspiracy (Claim 6)
To establish a claim for civil conspiracy, a plaintiff must show by a preponderance of the evidence that there exists:
(1) an object to be accomplished; (2) an agreement by two or more persons on a course of action to accomplish that object; (3) in furtherance of that course of action, one or more unlawful acts which were performed to accomplish a lawful or unlawful goal, or one or more lawful acts which were performed to accomplish an unlawful goal; and (4) damages to the plaintiff as a proximate result.Fifth Third Bank v. Morales, No. 16-cv-01302-CMA-STV, 2017 WL 6492108, at *6 (D. Colo. Dec. 19, 2017) (citing Magin v. DVCO Fuel Sys., Inc., 981 P.2d 673 (Colo.App. 1999)).
The Complaint alleges that D. Wright and K. Wright had an agreement to try to obtain tens of millions of dollars from Plaintiffs through:
[e]ngag[ing] in at least one unlawful overt act, to wit, engaging in criminal extortion by making substantial threats to cause economic hardship to AMG's officials and employees, attempting bank robbery by trying to obtain substantial sums of money from AMG through a campaign of intimidation of its officials and employees, violating the Hobbs Act by obstructing or otherwise affecting AMG's interstate commercial financial services, and/or defaming AMG in violation of the criminal laws of at least one state in which AMG conducts business.Compl. [#1] at 13, ¶¶ 95-96.
“It is well-established that a claim of civil conspiracy provides a means by which liability can be imputed to individuals who did not personally perform the overt act which constitutes the statutory violation.” Zinna v. Cook, No. 06-cv-01733-CMA-CBS, 2010 WL 3604170, at *11 (D. Colo. June 2, 2010). The Chief District Judge already determined that Plaintiffs have pleaded sufficient facts, accepted as true, to find that D. Wright defamed plaintiffs and that D. and K. Wright had an agreement to defame Plaintiffs in order to obtain money and that this damaged Plaintiffs. Order [#25] at 24. Therefore, Plaintiffs have satisfied the “actual success on the merits” prong of their request for a permanent injunction.
For the same reasons articulated by the Chief Judge in his Order regarding D. Wright, this Court finds that: (a) Plaintiffs will be irreparably harmed unless K. Wright is barred from releasing confidential client information on D. Wright's behalf; (b) the injuries from these harms outweigh any interest K. Wright has in furthering the conspiracy to defame; and (c) a permanent injunction will not harm the public interest. See Order [#25] at 25-26 (citing Wagner Equip. Co. v. Wood, 893 F.Supp.2d 1157, 1161 (D.N.M. 2012); Guidance Endodontics, LLC v. Dentsply Int'l, Inc., 633 F.Supp.2d 1257, 1270 (D.N.M. 2008)).
Accordingly, the Court recommends that Plaintiffs' request for injunctive relief against Kelly Wright be granted. The undersigned further recommends that K. Wright be enjoined from assisting D. Wright in further publication or disclosure of Plaintiffs' confidential information as defined by the Employee Agreement and the Director Agreement and from assisting D. Wright in the disparagement of Plaintiffs, its officials, its directors, its employees, and its affiliates.
C. The Imposition of Costs and Fees
As a final sanction, consistent with Fed.R.Civ.P. 16(f)(2) and 37(b)(2)(c), Plaintiffs ask the Court to order K. Wright to pay Plaintiffs' costs and fees incurred from litigating this Motion and from efforts to move this case into the discovery phase. Motion [#51] at 9.
Under Rule 37(b), the court “must” impose monetary sanctions on a disobedient party, its counsel, or both to reimburse the moving party for its costs and fees. Fed.R.Civ.P. 37(b)(2)(C) . To avoid expenses, the disobedient party bears the burden of showing that its failure to obey was “justified or that special circumstances make an award of expenses unjust.” Fed.R.Civ.P. 37(b)(2), Advisory Committee Notes (1970 Amendment).
Plaintiffs indicate they have incurred $4,735.00 in attorney's fees in the preparation of the instant Motion and in attempting to confer with Kelly Wright after she failed to comply with the Court's Orders to file updated contact information and to participate in preparation of a proposed scheduling order. Motion [#51] at 9. They assert the fees are based on the same hourly billing rate that the Chief District Judge determined were reasonable in granting costs against David Wright. Id.; see also Minute Order [#32] (granting Amended Renewed Motion for Attorneys' Fees [#29]); J. Fero Affidavit [#29-10]).
Having reviewed the detailed billing records submitted by Plaintiffs' attorney, Jonathan P. Fero, [#51-1], the Court finds that the hourly rates for attorneys Fero, Martin Semple and Brent Case, are reasonable given the prevailing market rates for attorneys with similar experience and the attorneys have not engaged in duplicative billing. See J. Fero Affidavit [#51-1] at 3-6. Additionally, the Court finds that the hourly rates for paralegal Elaine Montoya and paralegal assistant Kathleen Schmidt are reasonable.
As to costs, Plaintiffs assert that they incurred $255.34 in courier fees related to the hand delivery of the second and third conferral letters to Kelly Wright. Motion [#51] at 9. Plaintiffs hand-delivered those letters to ensure Kelly Wright's receipt. Id. The Court finds these costs are reasonable.
As the fees and costs are reasonable and Kelly Wright has raised no arguments that the imposition of expenses would be unjust or that her failures to comply with court orders was justified, the recommends that Motion [#51] be granted as to the imposition of fees and costs.
IV. Conclusion
For the foregoing reasons, this Court respectfully RECOMMENDS that:
(1) Plaintiffs' Motion [#51] be GRANTED IN PART and DENIED IN PART;
(2) Pursuant to Rule 37(b), DEFAULT JUDGMENT BE ENTERED in favor of Plaintiffs and against Defendant Kelly Wright on Claims 3 (defamation) and 6 (civil conspiracy) the Complaint [#1];
(3) Plaintiffs' request for a permanent injunction against Kelly Wright be DENIED with respect to Claim 3 (defamation) and GRANTED with respect to Claim 6 (civil conspiracy) and that K. Wright be enjoined from: (a) assisting D. Wright in further publication or disclosure of Plaintiffs' confidential information as defined by the Employee Agreement and the Director Agreement; and (b) from assisting D. Wright in the disparagement of Plaintiffs, its officials, its directors, its employees, and its affiliates; and
(4) Plaintiffs' request for fees and costs against Kelly Wright be GRANTED and Kelly Wright be DIRECTED to pay the Plaintiffs' reasonable attorney fees ($4,735.00) and costs ($255.34) resulting from her failure to comply and to participate in this matter.
IT IS FURTHER ORDERED that any party may file objections within 14 days of service of this Recommendation. In relevant part, Fed.R.Civ.P. 72(b)(2) provides that, “within 14 days after being served with a copy of the recommended disposition, a party may serve and file specific written objections to the proposed findings and recommendations. A party may respond to another party's objections within 14 days after being served with a copy.” “[A] party's objections to the magistrate judge's report and recommendation must be both timely and specific to preserve an issue for de novo review by the district court or for appellate review.” United States v. 2121 E. 30th St., 73 F.3d 1057, 1060 (10th Cir. 1996). The objection must be “sufficiently specific to focus the district court's attention on the factual and legal issues that are truly in dispute.” Id. “[A] party who fails to make a timely objection to the magistrate judge's findings and recommendations waives appellate review of both factual and legal questions.” Morales-Fernandez v. I.N.S., 418 F.3d 1116, 1119 (10th Cir. 2005).