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INTERNET LAW LIBRARY v. SOUTHRIDGE CAPITAL MANGT.

December 8, 2005.

INTERNET LAW LIBRARY, INC. and HUNTER M.A. CARR, Plaintiffs,
v.
SOUTHRIDGE CAPITAL MANAGEMENT, LLC, et al., Defendants. COOTES DRIVE, LLC., Defendant, Counterclaim-Plaintiff, v. INTERNET LAW LIBRARY, INC., Plaintiff, Counterclaim-Defendant. JACK TOMPKINS, KERWIN DROUET, et al., Plaintiffs, v. SOUTHRIDGE CAPITAL MANAGEMENT, et al.,: Defendants.



The opinion of the court was delivered by: ROBERT CARTER, Senior District Judge

OPINION

BACKGROUND

This case is the result of several actions arising out of a set of related financing transactions.*fn1 The court consolidated these cases and named ITIS Holdings Inc. ("INL") (f/k/a ITIS Inc. and Internet Law Library), Hunter Carr, Kerwin Drouet, and Jack Tompkins the plaintiffs. Internet Law Library, Inc. v. South Ridge Capital Mgmt., LLC, 208 F.R.D. 59 (S.D.N.Y. 2002) (Carter, J). Accordingly, Southridge Capital Management LLC, Stephen Hicks, Daniel Pickett, Christy Constabile, David Sims, Navigator Management Ltd., The Citco Group Limited, Citco Trustees (Cayman) Limited and Cootes Drive, LLC ("Cootes Drive") were named defendants and Cootes Drive's claims against INL became counterclaims. Id.

  Over the years the court has dealt with various issues, (see e.g., Internet Law Library Inc. v. South Ridge Capital Mgmt., LLC, 223 F.Supp.2d 474 (S.D.N.Y. 2002) (Carter, J) (hereinafter "Internet Law I")) with which familiarity is assumed. Most importantly, the court dismissed the plaintiffs' claims with prejudice in Internet Law Library Inc. v. South Ridge Capital Mgmt., LLC, 2003 WL 21537782 (S.D.N.Y. 2003) (Carter, J.) (hereinafter Internet Law II).

  In the instant matter, defendant Cootes Drive moves for partial summary judgment against INL on its third counterclaim for breach of contract for failure to redeem preferred stock pursuant to a stock purchase agreement. Defendant Cootes Drive also seeks partial summary judgment against INL on its fourth counterclaim for breach of contract for failure to honor a promissory note. The plaintiffs cross move to dismiss defendants' counterclaims pursuant to Rule 37(b)(2)(C), F.R. Civ. P., due to alleged abuses of discovery procedures, and move for the court to reconsider its judgment entered July 8, 2005 dismissing plaintiffs' claims with prejudice. Under separate covers, plaintiffs have twice moved to supplement the record of the aforementioned motions and defendants have moved to strike some of plaintiffs' supporting affidavits. We consolidate the former motions with the latter and resolve them all in this opinion. Because of the nature of the issues raised in plaintiffs' motions, we reach them first.

  DISCUSSION

  I PLAINTIFFS' MOTION FOR RECONSIDERATION

  Plaintiffs' motion for reconsideration brought pursuant to U.S. Dist. Ct. S.D.N.Y. Local Civil Rule 6.3 is based on the court's possible oversight of two matters: (a) the res judiciata effect of its June 8, 2003 decision, specifically whether plaintiffs' affirmative defenses are barred, and (b) because Rule 37(b)(2)(C), Fed.R.Civ.P ("Rule 37") allegedly does not authorize sanctions. The parties have also made a request for the to court clarify these two issues, especially as they pertain to the order entered on July 8, 2003.

  Under Rule 37, if a party "fails to obey an order entered under Rule 26(f) . . . the court in which the action is pending may . . . (C) . . . strike[] out pleadings or parts thereof . . . or dismiss[] the action or proceeding or any part thereof, or render judgment by default against the disobedient party." Plaintiffs' attempt to read the rule as only being applicable to parties who fail to participate in discovery is inapposite to the plain meaning of the statute. Moreover, the court has the inherent authority to dismiss a case when a party disobeys any of its orders. See Chambers v. Nasco, Inc., 501 U.S. 32, 45 (1991). Plaintiffs flagrantly disregarded the discovery instructions of this court. As a result the court, acting well within its explicit and implicit authority, dismissed the plaintiffs' complaint. The court did not, however, dismiss the defendants' counterclaims or the plaintiffs' affirmative defenses to those counterclaims.

  Cootes Drive argues that because the claims in plaintiffs' dismissed complaint form the basis for their affirmative defenses, plaintiffs' affirmative defenses are not barred by claim preclusion. Under the doctrine of claim preclusion, once a judgment has been made on the merits, the parties are prohibited from bringing a second suit based upon the same claims. Hough v. Merrill Lynch, Pierce, Fenner & Smith, Inc. 757 F. Supp. 283, 291 (S.D.N.Y. 1991) (Conner, J.). Cootes Drive would be correct to assert that plaintiffs are precluded from bringing another complaint based upon the same claims found in their dismissed complaint.*fn2 However, that issue is not before the court. The court mindfully chose not to dismiss the plaintiffs' affirmative defenses. Thus, these affirmative defenses have not been adjudicated and there is no logic or fairness to treating them as if they have.

  We confirm that the court was within its authority in dismissing plaintiffs' complaint and that plaintiffs' affirmative defenses still stand. The court did not overlook these subjects. Accordingly, the motion for reconsideration is denied.

  II PLAINTIFFS' MOTION TO DISMISS DEFENDANTS' COUNTERCLAIMS

  While arguing that the court lacked the authority to dismiss their claims pursuant to Rule 37, the plaintiffs have the audacity to request that we now dismiss Cootes Drive's counterclaims pursuant to the same rule and for the same alleged conduct. Without delving into the sophistical reasoning that allows them to entertain these contradictory propositions, it bears repeating that plaintiffs flagrantly defied the court's order. The plaintiffs and not Cootes Drive disrespected ...


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