Douglas Costello and Profit Search, Inc. v. Gersh Zavodnik

FILED
May 23 2016, 8:37 am

CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court

ATTORNEY FOR APPELLANT APPELLEE PRO SE
Chad D. Wuertz Gersh Zavodnik
Wuertz Law Office, LLC Indianapolis, Indiana
Indianapolis, Indiana

IN THE
COURT OF APPEALS OF INDIANA

Douglas Costello and Profit May 23, 2016
Search, Inc., Court of Appeals Case No.
Appellants-Defendants, 49A04-1504-PL-163
Appeal from the Marion Superior
v. Court
The Honorable J. Jeffrey Edens,
Gersh Zavodnik, Special Judge
Appellee-Plaintiff. Trial Court Cause No.
49D10-1011-PL-49972

Vaidik, Chief Judge.

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 Case Summary
[1] When Massachusetts resident Douglas Costello posted a used printer on

Craigslist in 2009, he could not have predicted that he would spend much of the

next seven years locked in a legal battle in Indiana. But he sold the printer—for

less than $75—to Gersh Zavodnik, who has a penchant for suing after entering

into online transactions. Zavodnik, claiming the printer was defective, sued

Costello in small-claims court. He asked for the small-claims maximum of

$6000, but Costello defended the case and prevailed, based on the fact that

Zavodnik had prematurely disposed of the printer. Unfazed, Zavodnik

appealed the matter to superior court, where he was allowed to conduct

discovery. Zavodnik sent Costello requests for discovery pursuant to Indiana

Trial Rule 36(A), asking Costello to admit, among other things, that he is liable

for $30,044.07. Costello, who remained unrepresented following his victory in

small-claims court, failed to respond (he later said he never received the

requests). When Costello learned that his failure to respond rendered the

matters admitted under Rule 36(A), he hired an attorney and moved to

withdraw the admissions under subsection (B) of the rule. The trial court,

believing itself constrained by our Supreme Court’s interpretation of Rule 36,

denied Costello’s motion and awarded Zavodnik a judgment of $30,044.07. In

light of Zavodnik’s abuse of Rule 36, we conclude that the trial court should

have granted Costello’s motion.

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 Facts and Procedural History
[2] As our Supreme Court has recognized, Zavodnik is a “prolific, abusive

litigant.” Zavodnik v. Harper, 17 N.E.3d 259, 261 (Ind. 2012). He spends much

of his life prosecuting lawsuits against individuals and businesses with whom he

has entered into online transactions. See Zavodnik v. Richards, 984 N.E.2d 699,

701 n.2 (Ind. Ct. App. 2013), aff’d on reh’g, 988 N.E.2d 806 (Ind. Ct. App.

2013). This is the second time this particular case has been before us. The first

time, it had been dismissed, along with twenty-six other cases Zavodnik had

filed, pursuant to Indiana Trial Rule 41(E), which provides for dismissal when a

plaintiff fails to diligently prosecute the case or comply with court rules.

Zavodnik v. Gehrt, No. 49A02–1105–CT–393, slip op. at 10-11 (Ind. Ct. App.

Mar. 1, 2012) (memorandum decision). We affirmed the dismissal of most of

the cases but reversed the dismissal of this case because there was no indication

in the record that the trial court had held the formal hearing required by Rule

41(E). Id. at 21-22.

[3] The transaction underlying this case occurred in late 2009, when Zavodnik

purchased a used printer from Costello, a resident of Massachusetts, on

Craigslist. The exact price is not clear from the record, but it is undisputed that

Zavodnik paid Costello less than $75. A few months after Zavodnik received

the printer, he sued Costello in small-claims court, alleging that it was defective

and seeking $6000 in damages (at the time, the maximum recovery in Marion

County small-claims courts). After holding a hearing at which both parties

appeared without counsel, the small-claims court entered judgment in favor of

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 Costello, having found that Zavodnik had disposed of the printer with an

“intent to suppress evidence.” Appellee’s App. p. 240-42.

[4] In November 2010, Zavodnik appealed the matter to the superior court to be

tried de novo. On December 14, 2010, he sent Costello a set of requests for

admission pursuant to Indiana Trial Rule 36. Among other things, Zavodnik

asked Costello to admit that “you” and “your Corporation” (presumably a

reference to Profit Search Inc., which Zavodnik later added as a defendant) (1)

entered into a contract with Zavodnik, (2) breached the contract, and (3) are

liable to Zavodnik for $30,044.07 “for breaching the legally binding contract[.]”

Appellants’ App. p. 63-68. In accordance with Rule 36, Zavodnik instructed

Costello to respond to the requests within thirty days.

[5] As of March 2, 2011, Costello, who was still proceeding without counsel after

prevailing in small-claims court, had not responded to Zavodnik’s requests.

That was the day, however, that the trial court dismissed this case and twenty-

six others pursuant to Rule 41(E). As indicated above, Zavodnik appealed all

of those dismissals, and it was not until a year later, on March 1, 2012, that we

revived his action against Costello and remanded the case to the trial court for

further proceedings. Gehrt, slip op. at 21-22.

[6] On remand, the case lingered for nine months with no substantive action until a

pre-trial conference on December 13, 2012. A few days later, Zavodnik sent

Costello a second set of requests for admission, asking Costello to admit that he

and the judge “conspir[ed]” and “plotted” against Zavodnik and that he is liable

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 to Zavodnik for more than $300,000. Appellants’ App. p. 72, 77. The next

month, Zavodnik sent a third set of requests, this time asking Costello to admit,

among other things, that he is liable to Zavodnik for more than $600,000. Id. at

83. Costello did not respond to Zavodnik’s second and third sets of requests.

[7] In early 2013, Zavodnik also started filing requests to have the judge removed

from the case. The Indiana Supreme Court eventually appointed a different

judge. In May 2013, after the case had been transferred to the new judge,

Zavodnik filed a motion to have all of the matters set forth in his three sets of

requests for admission deemed admitted, based on Costello’s failure to respond.

While Rule 36 does not require either a motion or a hearing—matters set forth

in requests that are not responded to are deemed admitted by the rule itself—the

trial court held a hearing on Zavodnik’s motion on July 5, 2013. Zavodnik

appeared but Costello did not. On July 10, 2013, the trial court issued an order

acknowledging that all of the matters set forth in Zavodnik’s requests were

admitted by operation of Rule 36.

[8] After receiving the court’s order, Costello contacted the court and was told to

file any response to the order in writing. Costello then filed a motion to have

the order vacated, claiming that he had never received (1) Zavodnik’s requests

for admission or (2) notice that a hearing would be held on July 5, 2013.1

Meanwhile, Zavodnik, armed with Costello’s admissions, filed a motion for

1
Costello’s claims in this regard may have merit, but our resolution of this matter in his favor makes it
unnecessary for us to address them.

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 summary judgment and a 75-page memorandum in support. On November 15,

2013—the trial court having made no decision on Costello’s motion to vacate—

an attorney entered an appearance on behalf of Costello and filed a motion

under Rule 36(B) formally seeking permission to withdraw the admissions.

[9] The parties’ motions remained pending for the next fifteen months, during

which Zavodnik made multiple requests to have the new judge removed from

the case and filed numerous lengthy motions. One motion Zavodnik filed had

a caption that was more than a page long and accused Costello of perpetrating

“wishy-washy wiggly deceptions.” Appellants’ App. p. 422-23. Zavodnik also

filed a federal lawsuit against the judge, which was immediately dismissed.

[10] On September 30, 2014, our Supreme Court issued an opinion in another of

Zavodnik’s cases. See Zavodnik v. Harper, 17 N.E.3d 259. The Court actually

denied Zavodnik’s petition to transfer in that case, but it issued an opinion that

“gives guidance to this state’s courts on some options when confronted with

abusive and vexatious litigation practices.” Id. at 261-62. The Court noted:

Nothing Mr. Zavodnik has filed or done in this case shows any
desire to litigate this case expeditiously to resolution on the
merits. Rather, he has burdened the opposing party and the
courts of this state at every level with massive, confusing,
disorganized, defective, repetitive, and often meritless filings.
And this Court has previously warned Mr. Zavodnik against
continuing such abusive and burdensome litigation tactics.

Id. at 263. The Court identified several measures that judges can take in dealing

with abusive litigants, such as putting limits on the nature and size of future

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 filings. Id. at 268-269. Finally, while the Court refrained from imposing any

specific sanctions or restrictions on Zavodnik, it warned him that he “can

expect any further abusive litigation practices in any judicial forum in this state

to be met with appropriate sanctions and restrictions.” Id. at 270. Taking

notice, the trial court in this case quickly issued an order subjecting Zavodnik to

many of the filing restrictions that the Supreme Court had identified in its

Zavodnik v. Harper opinion.

[11] Zavodnik laid low for the next few months. However, on February 19, 2015,

the day the trial court was finally able to hold a hearing on Zavodnik’s motion

for summary judgment and Costello’s motion to withdraw admissions,

Zavodnik came prepared with a new 53-page motion to disqualify the judge. In

the motion, which began with a seven-line, 65-word title, Zavodnik

characterized the Supreme Court’s opinion as follows: “Zavodnik-character-

assassinating-September 30th, 2014-biased-and-prejudiced-based-on-falsified-

and-fabricated-capricious opinion issued by the Indiana Supreme Court, who

will be held responsible for the said lies, the very same Supreme Court, which

had no jurisdiction to issue that opinion[.]” Appellants’ App. p. 443. The trial

court forged ahead with the scheduled hearing.

[12] In a written order issued a month later, the trial court granted Costello

permission to withdraw some of the admissions but not others. Most relevant

to our decision, Costello was permitted to withdraw his admissions that he is

liable to Zavodnik for more than $300,000 and $600,000, but not the admission

that he is liable for $30,044.07. In explaining this result, the trial court noted

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 that Zavodnik asserted damages of $30,044.07 in relation to “a specific liability

for breach of contract” (Zavodnik’s request said “$30,044.07 for breaching the

legally binding contract” (emphasis added)) but asserted the higher amounts

“without specifically identifying the basis for the damages.” Appellants’ App.

p. 37, 43-44.

[13] Based on the surviving admissions, the trial court granted summary judgment

in favor of Zavodnik in the amount of $30,044.07. The court acknowledged

that this amount is “seemingly high” and that the judgment “may seem extreme

for the breach of contract for the purchase of a printer,” but it concluded that

the judgment “reflects the limited discretion the Court feels that it has in the

matter pursuant to Trial Rule 36(B) and the Indiana Supreme Court’s

interpretation of Trial Rule 36(B) pursuant to General Motors Corp., Chevrolet

Motor Div. v. Aetna Casualty & Surety Co.[, 573 N.E.2d 885 (Ind. 1991), reh’g

denied].” Appellants’ App. p. 43, 55.

[14] Costello now appeals, and Zavodnik cross-appeals. The CCS for this matter

indicates that since the trial court entered its judgment, Zavodnik has obtained

yet another change of judge and has made many additional filings.

Discussion and Decision
[15] Costello contends that the trial court should have (1) allowed him to withdraw

all—not just some—of his Rule 36 admissions and (2) denied Zavodnik’s

motion for summary judgment, which was based on the admissions. Zavodnik

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 makes the converse arguments in his cross-appeal: that the trial court should

have (1) denied Costello’s motion to withdraw in its entirety and (2) awarded

Zavodnik a much higher judgment. Because both appeals turn on the propriety

of the trial court’s decision on Costello’s motion to withdraw admissions, we

need not address the two appeals separately.

[16] The withdrawal of admissions is governed by Indiana Trial Rule 36(B), which

provides, in part:

Any matter admitted under this rule is conclusively established
unless the court on motion permits withdrawal or amendment of
the admission. Subject to the provisions of Rule 16 governing
amendment of a pre-trial order, the court may permit withdrawal
or amendment when the presentation of the merits of the action
will be subserved thereby and the party who obtained the
admission fails to satisfy the court that withdrawal or
amendment will prejudice him in maintaining his action or
defense on the merits.

This provision grants our trial courts discretion in deciding whether to allow the

withdrawal of admissions, and we will reverse only for an abuse of that

discretion. City of Muncie v. Peters, 709 N.E.2d 50, 54 (Ind. Ct. App. 1999), reh’g

denied, trans. denied.

[17] Here, we must conclude that the trial court abused its discretion when it denied

part of Costello’s motion to withdraw his admissions. There is no question that

presentation of the merits of the action will be subserved by allowing the

withdrawal. As demonstrated by the trial court’s grant of summary judgment

in favor of Zavodnik, Costello’s admissions, if allowed to stand, would bring

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 this litigation to an end without any presentation of the merits. Requiring

Zavodnik to prove the merits of his case is particularly appropriate in light of

the fact that he already lost on the merits in the small-claims court based on his

decision to dispose of the printer not long after he purchased it. With regard to

damages, Zavodnik did not ask Costello to admit any facts that would justify an

award of damages in excess of the purchase price. His failure in this regard

strongly indicates that his requests asserting more than $30,000 in damages (at

least 400 times more than the purchase price) had no basis in reality.

[18] Furthermore, allowing Costello to withdraw his admissions would not

prejudice Zavodnik in maintaining his action on the merits. As used in Rule

36(B), the word “‘prejudice’ does not mean that the party who has obtained the

admissions will lose the benefit of the admissions; rather, it means that the party

has suffered a detriment in the preparation of his case.” Corby v. Swank, 670

N.E.2d 1322, 1326 (Ind. Ct. App. 1996). Here, Zavodnik would suffer no such

detriment. The matter has not yet been set for trial, Zavodnik still has time to

prepare his case, and there is no evidence that he has relied on Costello’s

admissions in a way that would impair his ability to prepare his case. The fact

that Zavodnik would have to spend time and money preparing his case does not

constitute “prejudice”; he would simply be in the same position as most other

civil plaintiffs in Indiana, having to marshal the evidence in his favor and prove

his case in court.

[19] As the trial court noted, our Supreme Court held in General Motors Corp. that

even if both of the conditions stated in Rule 36(B) are satisfied, the rule’s use of

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 the word “may” means that the trial court retains discretion to deny a motion to

withdraw. 573 N.E.2d at 889. But that discretion should be reserved for close

calls like that presented in General Motors Corp. There, the requests for

admission that were at issue were narrowly tailored to the actual facts and law

of the case, id. at 886 n.1, the motion to withdraw was not filed until two

months before the scheduled trial, id. at 889, and there had been no prior

indication that the moving party intended to contest the admitted matters, id.

Under those circumstances, it made sense for our Supreme Court to yield to the

discretion of the trial court.

[20] This case is nothing like General Motors Corp. Far from crafting narrow requests

aimed at the actual merits of the case, Zavodnik asked Costello to admit that he

was liable for $30,000, $300,000, or even $600,000 without also asking him to

admit facts that would justify such an extraordinary award in a case involving a

used printer sold for less than $75. Furthermore, as already mentioned, there

was no trial date set, let alone a date that was just two months away. And

Zavodnik certainly knew that Costello contested the matters at issue: Costello

had already defended the case on the merits—and won—at the small-claims

level.

[21] More fundamentally, the plaintiff in General Motors Corp. did not ask the

defendant to admit liability 400, 4000, or 8000 times greater than the amount

originally in dispute, as Zavodnik did here. Zavodnik’s misuse of Rule 36 is

plain. He did not send requests claiming $30,000 and $300,000 and $600,000 in

damages because he believes those figures are legally justified and thought

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 Costello might agree; he sent them because he hoped Costello would not

respond, rendering the matters admitted by operation of Rule 36. An important

purpose of the rule is to more quickly and efficiently reach a resolution based on

the actual facts; Zavodnik used the rule as a way to avoid such a resolution. The

trial court’s partial denial of Costello’s motion to withdraw served to ratify

Zavodnik’s blatant abuse of the rule. See, e.g., Wilcox v. Birtwhistle, 987 P.2d

727, 733 (Cal. 1999) (explaining that permitting withdrawal of admissions

eliminates “undeserved windfalls and the resulting subversion of the policy

favoring the resolution of lawsuits on the merits”); St. Mary v. Superior Court,

223 Cal. App. 4th 762, 783 (2014) (“The purpose of the RFA procedure is to

expedite trials and to eliminate the need for proof when matters are not

legitimately contested. The RFA device is not intended to provide a windfall to

litigants. Nor is the RFA procedure a ‘gotcha’ device[.]”); Lucas v. Clark, 347

S.W.3d 800, 803 (Tex. Ct. App. 2011) (“The rule regarding requests for

admissions was designed, not as a trap to prevent the presentation of the truth

in a full hearing but as a tool for the fair disposition of litigation with a

minimum of delay.”), reh’g overruled, rev. denied.

[22] And things could have been worse. As noted above, the trial court reaffirmed

Costello’s admission to $30,044.07 in damages because Zavodnik’s assertion of

that amount “relates directly to a specific liability for breach of contract,” that

is, his assertion of $30,044.07 included the phrase “for breaching the legally

binding contract.” Appellants’ App. p. 37, 43. However, the trial court

allowed Costello to withdraw his admissions that he owes $300,000 and

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 $600,000 because the underlying requests did not “specifically identify[] the

basis for the damages.” Id. at 38, 44. Following this logic, the trial court would

have granted Zavodnik a judgment for $600,000, or $6,000,000, or $60,000,000,

if Zavodnik had simply linked such an amount to the phrase “for breaching the

legally binding contract.” We believe the withdrawal provisions of Rule 36(B)

require a more probing inquiry than that.

[23] The trial court abused its discretion by partially denying Costello’s motion to

withdraw admissions; it should have granted the motion in full. Because the

trial court granted summary judgment in favor of Zavodnik based on the

unwithdrawn admissions, we reverse the judgment and remand this matter to

the trial court. Before conducting any further proceedings, the trial court shall

hold a hearing for purposes of determining whether this case should be

dismissed pursuant to Trial Rule 41(E), based on Zavodnik’s repeated, flagrant,

and continuing failure to comply with Indiana’s rules of procedure.

[24] Reversed and remanded.

Barnes, J., and Mathias, J., concur.

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