The opinion of the court was delivered by: Judge Virginia M. Kendall
MEMORANDUM OPINION AND ORDER
Two Dodge dealerships, Ridge Jeep of Midlothian, Illinois (hereafter "Midlothian") and Marquette Jeep of Chicago, Illinois (hereafter "Marquette" and together with Midlothian, the "Dealerships"), filed a verified complaint on February 3, 2003 against DaimlerChrysler Services North America LLC (hereafter "Chrysler" or "Defendant"). See Verified Cmplt., Docket No. 1. The Dealerships alleged that Chrysler persisted in a "shocking corporate policy of blatant racial discrimination and redlining" by refusing to provide financing for African-American customers purchasing cars at the Dealerships. Id. at ¶¶ 1, 4. The Dealerships alleged violation of the Automobile Dealers' Day in Court Act, as well as state law violations of the Illinois Motor Vehicle Franchise Act, tortious interference with prospective business advantage, and breach of contract. On the same day, class action plaintiffs filed a related suit against Chrysler for discrimination in lending, Coburn v. Daimler Chrysler Services North America, 03 C 759. The Coburn matter was assigned to a different judge in this district. The attorneys representing the Dealerships in the matter before this Court also represented the Coburn plaintiffs.
Mr. Gerald Gorman (hereafter "Gorman") is the president and owner of both Dealerships. See Verified Cmplt. at Verification. Gorman purchased Marquette in 1999 and Midlothian in 2000. Id. at ¶¶ 15-16. The basis for the allegations set forth in the Verified Complaint are numerous conversations between Gorman and various Chrysler representatives, portions of which are set forth in quotes in the Verified Complaint. See, e.g., id. at ¶¶ 28-39, 59, 62, 73, 106. Gorman personally verified the facts included in the Verified Complaint. The attorneys representing the Dealerships also represented Gorman (the Dealerships and Gorman together "Plaintiffs").
On March 24, 2003, Chrysler filed a verified Counterclaim against the Dealerships, and added Gorman and his wife, Elizabeth Gorman, as counterclaim defendants. See Verified Counterclaim, Docket No. 13. Chrysler alleged that Plaintiffs defaulted on the terms of the original loan and security agreements between Chrysler and Midlothian through misleading statements, incomplete records, and payments from Midlothian to Gorman personally. Id. at ¶ 36-45. Chrysler alleged that these defaults jeopardized Chrysler's first-priority security interest in Midlothian's collateral. Chrysler also alleged that Marquette made misleading representations to Chrysler over the course of several retail financing contracts between Marquette and Chrysler, which statements caused Chrysler to enter into agreements with Marquette and Marquette customers that it would not have entered but for the misrepresentations. Id. at ¶¶ 52-58. Chrysler sought replevin against Midlothian, damages as against the Gormans for their personal guarantees of the Midlothian loan documents, and damages for breach of contract against both Dealerships.
The Temporary Restraining Order
On April 4, 2003, the Dealershipsfiled an emergency request for a Temporary Restraining Order ("TRO") against Chrysler. The Dealerships alleged that starting in the spring and summer of 2002, Chrysler had refused to finance vehicle purchases from the Dealerships. Motion for TRO, Docket No. 23 at 5-6. By September 2002, Chrysler had ceased all vehicle financing for the Dealership and started audits of the Dealerships' financials. Id. at 6-7. The TRO request also alleged that by December 2002, after completing the audits, Chrysler threatened to stop all pending vehicle orders unless Gorman infused capital into the Dealerships and signed a release of claims against Chrysler, which Gorman refused to sign. Id. at 8-9. The TRO request alleged that by early 2003, Chrysler retaliated by restricting factory orders, terminating lines of credit and sending notice of repossession of the floor plan. Id. at 10. The Dealerships requested a TRO to reinstate the lines of credit, lift the factory order restrictions, and cease the floor plan repossession. The Dealerships alleged that without the TRO, they would be "forced out of business within days." Id. at 14.
On April 11, 2003, the Court granted a stipulated TRO, but only after Plaintiffs met certain conditions set by the Court. Gorman testified via supporting affidavit, filed with Plaintiffs' April 9, 2003 reply brief in support of the TRO, that he had: (i) tried to obtain alternate financing, but had been unable to due so due to the pending litigation, and (ii) put $925,000 of personal, unencumbered funds back into the dealership as working capital. See Affidavit of Gerald Gorman, April 9, 2003 at ¶¶ 2, 12, Docket No. 29. Gorman's affidavit specifically stated that the $925,000 "was an investment of personal money and is wholly unencumbered" and that the investment funds came from "sale of stock certificates and a direct investment from a long time business associate." Id. at ¶ 2. The Court commented during the hearings on the TRO that the equity infusion was "essential" because the Court did not believe that "Chrysler Financial should be put in a position where it is in effect writing blank checks for Midlothian and does not have complete assurance that its position is not going to erode if it continues to be a floor plan lender." Tr. of April 8, 2003 Hearing at 16-18, Ex. C to Pltf.'s Objections to June 14, 2005 Ruling, Docket No. 262.
The Court granted a Stipulated Order on April 11, 2003 which, among other provisions, committed Chrysler to restore Midlothian's floor-plan financing for 180 days. The stipulated order stated, "Midlothian represents and warrants that a $925,000 equity capital infusion has been made, which is unencumbered and not to [sic] subject to repayment by Midlothian to the investment source." April 11, 2003 Stipulated Order at ¶ 9, Docket No. 80. Kevin Spivey, Senior Dealer Credit Manager of Chrysler, testified that Chrysler suffered losses of at least $585,464 as a result of the requirements placed on Chrylser by the April 11, 2003 Stipulated TRO. Spivey Aff., Sanctions Ex. S1 at ¶ 10.*fn1
After granting the stipulated TRO, the Court referred all discovery matters to the Magistrate Judge. Discovery proceeded, with regular motions to compel, from April 2003 through December 2004. During the discovery period, the Magistrate Judge granted a motion by Chrysler for monetary sanctions against the Dealerships because Plaintiffs caused the delay by failing to comply with damages discovery requests. See Docket No. 139.
In December 2003, on motion from Chrysler, the Magistrate Judge recommended that the Court disqualify the lead attorney for Plaintiffs, Edward Vrdolyak. See Report and Recommendation of December 2, 2003, Docket No. 102. Vrdolyak had already been disqualified by the judge handling the Coburn matter due to communications between Vrdolyak and a potential Coburn plaintiff whom Vrdolyak knew was an employee in the general counsel's office of Chrysler. Id. at 5-7. The Magistrate Judge agreed that disqualification would be appropriate in this matter as well, because the potential Coburn plaintiff by virtue of her position at Chrysler had access to confidential materials concerning this litigation, and Vrdolyak could have received confidential information about this matter through contact with her. Id. at 13-14.*fn2
As an additional and supplemental reason for disqualification, the Magistrate Judge noted that Vrdolyak revealed during his deposition that he had signed a $2.5 million note securing financing for Gorman's business operations, and that Vrdolyak received $10,000 per month from Gorman without explanation. Id. at 18-19.
On March 2, 2004, Chrysler moved to compel discovery from Vrdolyak concerning an alleged loan of $750,000 made from Vrdolyak to Gorman, which loan formed the majority of the $925,000 capital infusion into Midlothian used to fulfill the Court's requirement for the April 2003 TRO. See Docket No. 115. The Magistrate Judge granted Chrysler's motion to compel discovery about the loan. See Docket No. 122. Discovery on the loan revealed that Vrdolyak was the "business associate" referenced in Gorman's April 9, 2003 affidavit.
The Motions for Sanctions
In October 2004, the Dealerships filed a partial motion for summary judgment, which the Court took under advisement. See Docket Nos. 136, 151. On January 12, 2005, the Magistrate terminated his appointment because discovery matters had closed. See Docket No. 171.
On January 26, 2005, Defendant moved for sanctions against Plaintiff via two motions: one for false statements by Gorman in connection with the April 2003 TRO, and a second for deliberate efforts by Plaintiffs to conceal discoverable material. See Docket Nos. 180-182.*fn3 The Court entered an order on February 9, 2005 reopening the referral to the Magistrate, who set a briefing schedule on the sanctions motions. See Docket No. 192-93.
Chrysler raised five separate issues of allegedly inappropriate conduct that it believed merited sanctions:
(i) false testimony by Gorman in his affidavit of April 9, 2003, regarding the source of a $750,000 equity infusion;
(ii) false testimony by Gorman in the affidavit of April 9, 2003 regarding Gorman's attempts to obtain alternate financing to that provided by Chrysler;
(iii) false testimony by Gorman in the affidavit of April 9, 2003 and in deposition testimony concerning the Subordination Agreement between Midlothian, Gorman, and Chrysler;
(iv) willful (or at least grossly negligent) failure to turn over to Chrysler a computer containing materially relevant data from Midlothian that could not be obtained elsewhere, as well as ...