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KNM Holdings, Inc. v. James

Court of Appeals of Illinois, First District, Second Division

August 9, 2016

KNM HOLDINGS, INC., as Assignee of Building Maintenance Systems, Inc., Plaintiff-Appellee,

         Appeal from the Circuit Court of Cook County. No. 08 CH 37329 & 08 L 51015 The Honorable Kathleen M. Pantle, Judge, presiding.

          JUSTICE HYMAN delivered the judgment of the court, with opinion. Presiding Justice Pierce and Justice Neville concurred in the judgment and opinion.


          HYMAN, JUSTICE

         ¶ 1 Intentionally ignoring or flouting numerous discovery orders can lead to the entry of severe sanctions, including a default judgment. Here, repeated failures to comply with discovery ultimately led the trial court to enter an order of default judgment against defendants in the amount of about $1.2 million. Not until nearly two years later did defendants seek to vacate the default judgment under section 2-1401 of the Code of Civil Procedure (Code) (735 ILCS 5/2-1401 (West 2014)). That petition, however, was dismissed on the grounds defendants did not exercise due diligence in the underlying proceeding or in filing the section 2-1401 petition.

         ¶ 2 Defendants appeal, arguing (i) the default judgment was not an appropriate sanction for their failure to comply with the court's discovery orders; (ii) their failure to exercise due diligence was their attorney's fault; and, (iii) at minimum, they should be allowed to challenge the award of damages.

         ¶ 3 According to an ancient maxim, the law helps those who are watchful and not those that are sleepy, negligent, or (we add) derelict in regard to discovery. For over two years, defendants repeatedly failed to comply with discovery requests. Then, after learning of the default judgment, they waited nearly another two years before filing a motion to vacate. Defendants were responsible for following their case's progress, and any alleged misconduct by their attorney was not a reasonable excuse for a lack of due diligence in the original action or in filing the section 2-1401 petition. We affirm.

         ¶ 4 Background

         ¶ 5 In September 2008, David James sued his former employer, Building Maintenance Systems, Inc. (BMS), alleging wage violations and conversion of property. A few weeks later, BMS sued James, alleging he breached his fiduciary duties by forming competing companies that diverted business away from BMS and used BMS property and employees for his personal use. The complaint also named James's wife, two of his companies, and his residence as defendants. (BMS employee, Ed Jurczak, also named as a defendant, is not a party to this appeal.) The cases were consolidated, and the parties began discovery proceedings.

         ¶ 6 On November 18, 2009, the circuit court ordered that written discovery be completed by February 22, 2010. Defendants did not comply. On February 25, the circuit court entered an agreed order extending the cut-off date for written discovery until May 24. Discovery was again continued. On June 22, 2010, the circuit court ordered defendants to respond to outstanding discovery by July 20. Nearly a month later, on August 17, 2010, defendants filed a "joint response" to the document requests. The circuit court deemed this response inadequate because it (i) was a group response rather than individual responses for each defendant, (ii) was not properly labeled, (iii) did not identify which requests the documents corresponded to, and (iv) failed to provide substantive information. On September 9, 2010, the circuit court ordered defendants to individually answer the interrogatories and document production requests by September 30 and to hold a conference under Illinois Supreme Court Rule 201(k) (eff. July 1, 2014) if outstanding discovery issues remained.

         ¶ 7 On October 5, 2010, after the court-ordered deadline, BMS received revised responses to its document requests. The responses, identical to those provided in the August 17 "joint response, " consisted of multiple copies with different titles to account for each defendant. On October 25, the court again ordered the parties to have a Rule 201(k) conference. The Rule 201(k) conference was never held.

         ¶ 8 In November, BMS filed a motion for sanctions under Illinois Supreme Court Rule 219(c) (eff. July 1, 2002) against defendants for failing to comply with the circuit court's September 9, 2010, order regarding their discovery requests and its order to hold a Rule 201(k) conference. BMS asked the circuit court to sanction defendants by striking James's claims and defendants' affirmative defenses, entering a default judgment, and awarding attorney fees and costs. On the same day, defendants' attorney withdrew, and defendants were given three weeks to retain new counsel. Meanwhile, the motion for sanctions was continued.

         ¶ 9 Defendants' new attorney appeared, and, at the next status hearing, on January 14, 2011, the circuit court ordered defendants to correct the deficiencies in the document production and submit the additional responsive documents by February 11. The court also gave defendants until February 11, to respond to BMS's motion for sanctions and set the matter for a hearing.

         ¶ 10 On March 25, 2011, after a hearing of BMS's motion for sanctions, the circuit court awarded BMS attorney fees but denied its request for default judgment. The court stated that "[d]ismissal of a cause of action or sanction which result in a default should only be employed when it appears that all other enforcement efforts of the court have failed to advance the litigation. *** Furthermore, dismissal of a cause of action for failure to comply with court orders is only justified when the dilatory party has shown a deliberate and contumacious disregard for the court's authority." The court concluded that "[d]efendants have not shown a deliberate and contumacious disregard for the court's authority thus far." The court ordered defendants to comply with all outstanding discovery requests within 14 days and warned that their failure to do so "will warrant additional sanctions."

         ¶ 11 Despite the admonition, defendants again failed to comply with BMS's discovery requests, and, on May 17, 2011, BMS filed another motion for sanctions. The motion stated that despite the circuit court's March 25 order requiring defendants to produce outstanding discovery by April 12, defendants had not produced the documents or communicated with BMS. The motion sought dismissal of James's counterclaims with prejudice, dismissal of defendants' affirmative defenses, and the entry of a default ...

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