In February 2020, Ben E. Keith Company, a Texas citizen, brought state-law claims in Federal Court against “Dining Alliance Inc.” Prior to the suit, Dining Alliance Inc. had converted into Dining Alliance LLC, whose citizenship may include both Texas and Delaware. The potential jurisdictional defect was not recognized, however, because Dining Alliance originally answered under the name Dining Alliance Inc. and represented itself as a Massachusetts citizen. In December 2020, Dining Alliance asserted third-party state-law claims against Foodbuy LLC — a citizen of Delaware, Georgia, and North Carolina — under the name Dining Alliance Inc. Yet in that same pleading, it changed the case caption to Dining Alliance LLC. Four months later, Dining Alliance first revealed in a footnote within a Motion to Continue that Ben E. Keith named the wrong entity. Though it assured the Court that the parties would file a stipulation to correct the record, it never did. Only in October 2021 did Dining Alliance correct its pleadings; and even then, it failed to plead the LLC’s complete citizenship. Throughout the suit, Foodbuy maintained that it was without knowledge or information sufficient to form a belief regarding the truth of Dining Alliance’s allegations as they related to its proper corporate identity or residence, as Dining Alliance had filed multiple pleadings interchangeably referring to themselves as “Dining Alliance Inc.” and/or “Dining Alliance LLC.” Dining Alliance resisted jurisdictional discovery, and Foodbuy moved to dismiss for lack of jurisdiction. In response, the District Court ordered each party to file a document establishing its citizenship for diversity purposes, supported by affidavit or declaration. The Court warned that failure to comply could result in dismissal. Dining Alliance’s response conceded lack of diversity of citizenship with Foodbuy, but it assured the District Court that diversity existed between it and Ben E. Keith. The District Court held that Dining Alliance failed to comply with its order because the company did not list its corporate members’ principal places of business or the individual LLC members’ citizenship. It ordered Dining Alliance to file an amended response providing all of the information required for the Court to determine the citizenship of its members, and again warned that failure to comply could result in sanctions. Dining Alliance’s next filing did not identify higher-level members, and it claimed anonymity for some members but purported to provide those members’ current residences. One of the anonymous members allegedly resided in Texas, placing in doubt Dining Alliance’s previous assertion of diversity with Ben E. Keith. The Court once again held that Dining Alliance had not complied with its order and requested legal authorities bearing on sanctions and its subject-matter jurisdiction. The Court also set a show-cause hearing to ascertain why Dining Alliance and its attorneys should not be sanctioned. Before that hearing, Ben E. Keith and Dining Alliance settled and dismissed their claims against one another, leaving only the third-party state-law claims between Dining Alliance and Foodbuy. Dining Alliance then offered additional, though still incomplete, information to the Court and for the third time amended its citizenship. Dining Alliance’s attorneys and in-house counsel appeared at the show-cause hearing. They disclaimed any intentional deception and asserted that their representation was merely inept. They also claimed they were unable to obtain the information necessary to comply fully with the Court’s orders. Characterizing Dining Alliance’s overall conduct as a “cover-up”, the District Court found that Dining Alliance and its attorneys violated various Federal and Local Rules, the most important being their duty of candor to the Court. The District Court then invoked its inherent authority to dismiss Dining Alliance’s claims against Foodbuy as a sanction.
The U.S. Fifth Circuit affirmed:
Initially the Court of Appeal rejected Dining Alliance’s argument that the District Court must find that the sanctioned litigant’s conduct prejudiced the opposing party. The cases cited by Defendant, however, “belong to a line of cases involving dismissals for discovery order violations. Precedent concerning sanctions issued pursuant to the court’s inherent power does not require a showing that the opposing litigant was prejudiced. For good reason: A court invokes its inherent power to vindicate its own interests, not the interests of the opposing litigant.”
In sum, the Court described the standards as follows: “A district court may invoke its inherent power to dismiss claims with prejudice in order to protect the integrity of the judicial process. It must find that the litigant acted in bad faith or willfully abused the judicial process. It must also find that lesser sanctions would not serve the best interests of justice. It should go without saying that the district court must articulate its reasons for imposing sanctions under its inherent power sufficiently to enable appellate review.”
In this particular case, the District Court found that Dining Alliance willfully abused the judicial process based on the totality of its litigation misconduct, which culminated in its refusal to obey the court’s orders. With respect to the issue of lesser sanctions, the Fifth Circuit held that “the district court warned Dining Alliance on two separate occasions that its failure to comply with the court’s orders may lead to sanctions, including dismissal. The failure of such express warnings permitted the court to infer that less onerous sanctions would not address the offensive conduct. The district court also provided Dining Alliance with two opportunities to produce complete information about its citizenship, which itself is a lesser sanction. Moreover, the district court ultimately found that no lesser sanction than dismissal with prejudice is appropriate. The district court did not err in finding that lesser sanctions would not serve the best interests of justice.”
Ben E. Keith Co. v. Dining Alliance, Inc., No.22-10340, 2023 U.S.App.LEXIS 24114 (5th Cir. Sept. 12, 2023).