COA upholds $10,000 fine for failure to cooperate with discovery

A trial court that slapped a transportation company with a $10,000 sanction and ordered its president jailed if the fine was not paid did not commit an error, the Indiana Court of Appeals has ruled.

The sanction arose from a tangled dispute between shareholders in Distinctive Transportation Services, Inc. In 2012, Michael Cassady alleged that Stuart Reed and Michael Reed diverted profits from DTS to other businesses and unlawfully used the transporter’s assets for the benefit of other companies in which the Reeds had an ownership interest.      

On March 4, 2014, the Marion Superior Court granted Cassady’s motion to impose a $30,000 sanction on the defendants for failing to cooperate in the discovery. The defense argued Michael Reed had not been served with discovery and that the only interrogatories sent to Stuart Reed were not the subject of any motions to compel.

At a hearing on April 22, 2014, the court indicated it would grant Cassady’s motion to enforce the $30,000 sanction. It also found DTS in contempt and ordered the company to pay $10,000 within 30 days or it would issue a warrant for Stuart Reed’s arrest.

The trial court ordered a stay for the enforcement of the $30,000 sanction but denied a stay for the $10,000 fine on May 29, 2014. Twelve days later, the defendants paid the $10,000 but appealed the court’s April 22 order, claiming the court had erred.

A unanimous Court of Appeals affirmed the trial court’s April 22 order in Stuart Reed and Michael Reed v. Michael Cassady, 49A05-1405-PL-220. The appellate court ruled a reversal was not warranted on either the discovery sanction or the contempt for failure to pay.

“In light of DTS’s continued refusal to pay the ordered sanction, the information available to the court that Stuart Reed was the controlling officer and shareholder of DTS, the length of time provided by the court for DTS to pay the sanction or show cause why it was unable to make the ordered payment, and the allegations that DTS, at the direction of the Reeds, distributed DTS’s assets to other companies controlled by the Reeds, we cannot say under the particular facts and circumstances of this case that the trial court abused its discretion or erred in finding DTS in contempt and ordering that a warrant for the arrest of DTS’s primary officer would be issued if DTS did not comply with the $10,000 sanction order,” Judge Elaine Brown wrote for the court.