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