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Avitus, Inc. v. Nea Delivery, LLC

United States District Court, D. Montana, Billings Division

September 10, 2018

AVITUS, INC., Plaintiff/Counter-Defendant,
NEA DELIVERY, LLC and NICHOLAS BULCAO, individually, Defendants/Counter-Claimants, AVITUS, INC., Third-Party Plaintiff,



         Before the Court are two motions filed by plaintiff/counter-defendant/third-party plaintiff Avitus, Inc. (“Avitus”): (1) Motion to Deem Facts Admitted, for Sanctions, for Dismissal of Counterclaims, and for Entry of Default Judgment or for Summary Judgment (Doc. 47) (the “Sanctions Motion”); and (2) Motion to Enforce Settlement Agreement (Doc. 58) (the “Settlement Motion”). Defendants/counter-claimants NEA Delivery, LLC (“NEA”) and Nicholas Bulcao (“Bulcao”), (collectively, “Defendants”) oppose both motions. Third-party defendant American Zurich Insurance Company (“Zurich”) has joined in the Settlement Motion, but has not expressed a position as to the Sanctions Motion. (See Doc. 62.) For the reasons that follow, the Sanctions Motion and the Settlement Motions are DENIED.

         I. Pertinent Facts

         The following facts are taken from the parties' briefing and other pleadings contained in the case docket, and are assumed to be true for the purposes of ruling on the instant Motions. The facts are undisputed unless otherwise noted.

         A. Background

         In October 2014, NEA and Avitus entered into a Professional Employment Agreement (the “PEA”), “whereby Avitus would provide various services to NEA, including payroll processing, as well as insurance coverage under a Worker's Compensation Insurance policy and an EPLI policy.” (Doc. 59 at 2-3.) Bulcao personally guaranteed NEA's performance of the terms and conditions of the PEA. (Id. at 3; see also Doc. 34 at ¶ 3.)

         In April 2017, Avitus filed suit against Defendants in Montana state court alleging that NEA had failed to pay for services Avitus provided pursuant to the PEA. (Doc. 5.) Defendants timely removed Avitus's suit to this Court, and counterclaimed against Avitus for claims also related to the PEA. (Docs. 1, 2.) The Court will discuss below the precise nature of each party's claims as necessary.

         On August 22, 2017, Defendants filed a Motion for a Mandatory Preliminary Injunction, claiming NEA inadvertently wired roughly $350, 000.00 to Avitus. NEA alleged that despite its prompt notice to Avitus that the transfer was inadvertent, Avitus inappropriately retained $172, 524.26 of the transfer. (See Docs. 21, 22.) Avitus responded that it was entitled to that sum, due to the very claims that form the basis of this lawsuit. (Doc. 25.)

         B. Facts Relating Primarily to the Sanctions Motion

         On September 22, 2017, Avitus sent its First Discovery Requests to NEA Delivery, LLC (Doc. 49-1.) The discovery requests contain nine requests for admission (the “RFAs”) that directly reach the merits of the parties' claims. (Id. at 3-5.) For example, NEA was asked to admit “that as of August 2, 2017, NEA owed Avitus $172, 524.26, ” representing the amount Avitus retained from the inadvertent wire transfer. (Id. at 3.) NEA was also asked to admit that “Avitus's alleged breaches of the PEA are (1) unproven and (2) unliquidated.” (Id. at 4.) It is undisputed that NEA did not timely respond to Avitus's discovery requests, including to the RFAs.

         On October 25, 2017, Defendants' counsel filed a Motion to Withdraw as Counsel of Record. (Doc. 37.) Counsel represented in the motion that Avitus had agreed to allow Defendants an additional 30 days to respond to Plaintiff's first combined set of discovery requests. (Doc. 37 at 2.) Defendants' responses were therefore due on or about November 22, 2017. Id. After first denying their motion on procedural grounds, the Court granted their Amended Motion to Withdraw as Counsel of Record on December 18, 2017. (Doc. 41.)

         As discussed more fully below, counsel for Avitus was then contacted on January 23, 2018 by a California attorney who had been retained to represent Defendants to discuss settlement of this case. Settlement discussions ensued between January 23 and February 22, 2018. (Doc. 67-1 at 12.) At that time, settlement efforts broke down, and Avitus's counsel was advised that Defendants intended to secure counsel to represent them in this action.

         In the meantime, Avitus filed the Sanctions Motion on February 2, 2018. (Doc. 47.) Defendants failed to respond to the motion in the time set forth in D. Mont. L.R. 7.1(d)(1)(B). Therefore, on March 2, 2018, the Court addressed both Defendants' failure to respond to the Sanctions Motion and their lack of counsel since withdrawal, ordering as follows:

(1) on or before March 16[, ] 2018, NEA shall either (a) retain new counsel and such counsel shall enter a notice of appearance on its behalf, or (b) show cause, if any, why it is unable to retain counsel;
(2) on or before March 16, 2018, Bulcao shall either (a) retain new counsel and such counsel shall enter a notice of appearance on his behalf, (b) show cause, if any, why he is unable to retain counsel, or (c) file a notice with the Court of his intent to proceed pro se; and
(3) on or before March 16, 2018, Defendants shall show cause, if any, why the Court should not deem Avitus's Motion to be well-taken in accordance with L.R. 7.1(d)(1)(B)(ii).

(Doc. 54.)

         Defendants' present counsel entered a notice of appearance on March 15, 2018. (Doc. 55.) After a series of time-extensions, Defendants responded to the Sanctions Motion on April 11, 2018. (Doc. 68.) In conjunction with their response to the Sanctions Motion, Defendants submitted an Affidavit of Nicholas Bulcao. (Doc. 68-1.) In his affidavit, Bulcao admits NEA did not respond to the discovery requests “in a timely fashion.” (Id. at ¶ 2.) He stated the discovery was extensive, and “we do not and did not have the resources to answer.” (Id. at ¶ 4.) Bulcao explained that NEA “anticipated settlement and transferred the few resources we had to not focus on the discovery requests.” (Id. at ¶ 7.) Bulcao also stated that the Defendants do not have access to some of the information requested. (Id. at ¶ 5.) Defendants do not make any representation that they have responded to Avitus's RFAs, or to its other discovery requests.

         C. Facts Relating Primarily to the Settlement Motion

         Concurrent to this litigation, NEA is defending three actions in California. (Docs. 59 at 3, 59-3.) Avitus represents that it “is a named co-defendant in some, but not all of those California actions.” Id. NEA and Avitus have competing indemnification claims in each case. (Id. at 3-4.)

         As noted above, counsel for Avitus, T. Thomas Singer, was contacted on January 23, 2018, by Richard Mooney, who purportedly represented to Singer that he is a California attorney who had been engaged to represent Defendants. (Doc. 59 at 3.) Avitus claims - and Mooney confirms - that the purpose of the January 23 phone call was to discuss settlement of the case. (Id.; see also Doc. 67-1 at 4.)

         On January 26, 2018, Mooney sent a letter to Singer thanking him for “taking the time to update me on and discuss the potential resolution of the Avitus v. NEA Delivery litigation.” (Doc. 67-1 at 9.) A series of letters and emails followed, discussing various settlement proposals. Most pertinent are the following excerpts:

• On February 7, 2018, Mooney sent an email to Singer indicating “I have spoken with my client and been authorized to propose that the parties settle the dispute on a walk away basis.” (Doc. 67-1 at 11.)
• On February 8, 2018, Singer responded, “[i]f NEA and Mr. Bulcao are proposing a mutual release of all claims, including Avitus's claim for attorneys' fees and any claims where NEA is seeking or could seek contribution or indemnity, and any other claims arising from or relating to the co-employment relationship that formerly existed between NEA and Avitus, then Avitus will accept the proposal.” (Id.)
• On February 8, 2018, Mooney responded, “[t]hat is indeed our proposal, and I am pleased your client will agree.” (Doc. 59-2.)
• On February 15, 2018, following receipt on February 12, 2018, of Singer's propose release and proposed stipulation to dismiss, Mooney wrote that the release and stipulation “[b]asically seems fine to me…with the possible exception of the material re N & E / California actions, about which I was not aware.” (Doc. 67-1 at 13.)
• On February, 20, 2018, Singer asked, “[a]re we going to get this wrapped up?” (Id.)
• On February 20, 2018, Mooney told Singer that Defendants “will not waive their rights with respect to [the California] actions.” Mooney stated to Singer, “[y]ou and I were only discussing the Montana action, and indeed I had no knowledge of or involvement with the California actions.” (Id. at 12.)
• On February 20, 2018, Singer responded that he assumed Mooney knew about the California actions because he (Mooney) practices in California, and Mooney's clients knew about the actions at any rate. Singer explained that he would move the Court to enforce settlement if Defendants did ...

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