Johnson Marcraft, Inc. v. Western Surety Company, 3:15-cv-01482

Background

JMI sued Western Surety Company and third-party Alexander Mechanical Contractors (Alexander) for breach of contract and brought state-law claims for vexatious refusal to pay (Count II — Missouri law) and bad faith (Count III — Tennessee law).
The court compelled Western to answer a contention interrogatory identifying every ground for its defense that the complaint failed to state a claim; Western’s amended response identified only one ground (no money owed because of fabrication issues).
Despite that, Western later filed a Rule 12(b)(6) motion to dismiss Count II, asserting a choice-of-law defense (that Tennessee law applies and precludes recovery), which JMI had not been forewarned of in discovery.
JMI moved for sanctions under Rules 16/37 for Western’s failure to disclose the choice-of-law contention; the court found willful noncompliance and prejudice because the dismissal motion raised issues that would require additional discovery after the discovery deadline.
Separately, JMI and Alexander exchanged emails and draft settlement agreements in September 2017; JMI added language expressly reserving its claims against Western, Alexander’s counsel responded “no problem,” JMI executed the agreement, and Alexander later refused to sign claiming no mutual assent and legal misunderstanding.
The magistrate judge concluded (1) Western is barred from asserting the choice-of-law defense as to Count II and JMI may proceed solely under Missouri law for that count, (2) sanctions against Western are warranted (but no attorneys’ fees awarded), and (3) the settlement between JMI and Alexander is enforceable and should be enforced despite lack of Alexander’s signature.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Western may raise a choice-of-law failure-to-state-a-claim defense after discovery responses failed to disclose it	Western violated the court’s discovery order by not identifying the choice-of-law ground; it prejudiced JMI	The choice-of-law defense was not novel, JMI should have expected it, and discovery can be reopened	Western is sanctioned under Rule 37 and prohibited from asserting the choice-of-law defense as to Count II; motion to dismiss denied
Whether sanctions (preclusion) are appropriate for discovery noncompliance	Sanctions are appropriate because Western willfully disregarded a court order and prejudiced JMI	Western argues lack of prejudice and offers to reopen discovery	Sanctions granted: preclusion of the choice-of-law defense; no fee award; court found willfulness and prejudice
Whether a binding settlement was formed between JMI and Alexander (despite no fully executed document)	JMI contends the parties reached mutual assent via counsel emails and JMI’s signed counterpart; reservation of rights as to Western was accepted	Alexander claims no mutual assent, attorneys misunderstood legal effect, statute of frauds or lack of signature defeats enforcement	Settlement enforceable; emails and draft agreement evidence objective mutual assent; Alexander’s defenses (mistake of law, statute of frauds, lack of signature) rejected
Whether the reservation preserving JMI’s claims against Western converted the agreement into a promise to pay another’s debt (invoking statute of frauds)	Reservation preserves JMI’s claims vs Western and does not make Alexander a surety for another’s debt; main-purpose exception applies if needed	Alexander argues reservation makes it responsible for another’s debt and triggers statute of frauds, requiring a signed writing	Court rejects Alexander’s novel application; statute of frauds inapplicable or satisfied (emails and parties’ conduct); main-purpose exception and electronic communications support enforceability

Key Cases Cited

Clarksville-Montgomery Sch. Sys. v. U.S. Gypsum Co., 925 F.2d 993 (6th Cir. 1991) (district court discretion to impose sanctions under Rule 16/37)
Doe v. Lexington–Fayette Urban Cty. Gov’t, 407 F.3d 755 (6th Cir. 2005) (four-factor test for dismissal or other sanctions for discovery violations)
Freeland v. Amigo, 103 F.3d 1271 (6th Cir. 1997) (discussing discovery-sanction standards applied in Sixth Circuit)
United States v. Reyes, 307 F.3d 451 (6th Cir. 2002) (burden on party to show inability rather than willfulness for discovery noncompliance)
Universal Health Grp. v. Allstate Ins. Co., 703 F.3d 953 (6th Cir. 2013) (affirming severe sanctions for discovery violations that prejudice opposing party)
Bowater N. Am. Corp. v. Murray Mach., 773 F.2d 71 (6th Cir. 1985) (district court’s inherent power to enforce settlements, even without a writing)
Bamerliease Capital Corp. v. Nearburg, 958 F.2d 150 (6th Cir. 1992) (district court authority to enforce settlement agreements)
Brock v. Scheuner Corp., 841 F.2d 151 (6th Cir. 1988) (same)
Kukla v. Nat’l Distillers Prods. Co., 483 F.2d 619 (6th Cir. 1973) (policy favoring settlement enforcement)
Fidelity & Deposit Co. of Maryland v. F.D.I.C., 54 F.3d 507 (8th Cir.) (mistake of law generally not grounds for rescinding contracts)
Waddle v. Elrod, 367 S.W.3d 217 (Tenn. 2012) (attorney emails may satisfy statute of frauds under UETA in settlement contexts)