Category: Discovery Sanctions

Trial Court Denies Motion in Limine To Exclude A Witness Who Was Not Listed On Witness List


This opinion raises an issue that can arise in litigation – a party fails to disclose the identity of a witness and the opposing party moves to bar the witness from testifying. Here the court rejected that argument because the defendant was aware of the identity of the witness (even though he was not on the witness list) and failed to take the appropriate deposition.

The court explains: “Bearing those standards in mind, the Court will deny Defendant’s motion in limine to exclude Chastek from testifying at trial. Where, as here, a party fails to list a potential witness in its initial disclosures, courts have not imposed the harsh sanction of excluding his or her testimony at trial so long as the opposing party knows of that witness well in advance of trial. …

At the first step, Defendants are hard-pressed to claim surprise. As Plaintiffs discuss at length in their brief, Defendants knew of Chastek’s identify and position at Wheeling & Lake Erie during the discovery period and could have easily noticed his deposition. But they apparently chose not to do so. Defendants also questioned Wheeling & Lake Erie’s then-Rule 30(b)(6) designee, Michael Mokodean, its Chairman and CEO, Larry Parsons, and its Director of Real Estate, Taxes and Industrial Development, Clarence Jaeger, about Chastek during their respective depositions and introduced an article quoting Chastek (and identifying his position) as an exhibit in no less than two of those deposition. In addition, Chastek was identified on numerous documents (i.e., various e-mail chains) produced to Defendants by Plaintiffs and third-party Chesapeake throughout the discovery phase of this litigation.”

Thus, the court refused to bar the witness because the defendants could have solved the problem themselves by taking the deposition of the witness.

This case is important because it shows how good lawyering by the plaintiff defeated a motion based on a technicality. While its true that the witness was not listed on the witness list, defendants should have been aware that the witness existed given the volume of discovery materials that were produced concerning the witness. This is a demonstration of good lawyering by plaintiff’s counsel.

Edward X. Clinton, Jr.

Copyright Infringement Case Implodes Due To Rule 37(c) Violations

BWP MEDIA USA INC. v. RICH KIDS CLOTHING COMPANY, LLC, Dist. Court, WD Washington 2015 – Google Scholar.

This is a fairly routine case in which BWP sued Rich Kids alleging that Rich Kids infringed its copyrights on three photographs. To support its claim of copyright infringement, BWP produced three screen shots of Rich Kids’ website allegedly showing that BWP’s photographs were copied without permission.

Rich Kids responded to the motion for summary judgment by arguing that the screen-grab exhibit should be stricken because it was not produced during discovery. Rich Kids also filed its own summary judgment motion in which it argued that BWP failed to produce admissible evidence upon which a reasonable jury could find copyright infringement.

The district court granted Rich Kids’ motion for summary judgment based on its finding that BWP violated Rule 37. That finding was, in turn, based on a finding that BWP had failed to comply with the Rule 26(a)(1)(A) automatic disclosure requirements. The Court explained:

“Federal Rule of Civil Procedure 26(a)(1)(A) requires a party to make certain initial disclosures to other parties “without awaiting a discovery request[.]” Those disclosures include “a copy — or a description by category and location — of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use to support its claims[.]” Fed. R. Civ. P. 26(a)(1)(A)(ii). Parties are further required, under Rule 26(e), to supplement or correct initial disclosures on an ongoing basis.

In this case, BWP indicated in its initial disclosures its “possession of materials relevant to Defendant’s commission of copyright infringement on its website, including digital files of screen shots of the website depicting Defendant’s commission of copyright infringement.” (Dkt. 28-1 at 3.) No materials were included in the disclosures. RKCC submits evidence showing it sought production of the materials identified in plaintiff’s initial disclosures, and that BWP failed to comply with that request. Specifically, in an email dated October 30, 2014, the deadline for filing discovery-related motions and some two weeks prior to the close of discovery, counsel for RKCC reminded counsel for BWP that he had “never received any documents at all from BWP[,]” other than the exhibit attached to the complaint, described above. (Dkt. 24-1 at 2.) Defendant’s counsel indicated he was considering filing a motion to compel, which would be withdrawn when documents were produced. (Id.) In an email later that same day, RKCC’s counsel reiterated:

As to the documents, I’m referring to any documents envisioned by the initial disclosure rules “all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control and may use [sic] to support its claims or defenses, unless the use would be solely for impeachment[.]”

(Dkt. 24-1 at 3.) He added: “Of course, if BWP doesn’t plan to rely on any documents other than the pleadings to support its claims, that’s fine. I guess I would just ask for confirmation.” (Id.) Counsel for RKCC attests that counsel forBWP provided the requested confirmation by telephone that BWP would not rely on any documents other than those included in the pleadings. (Dkt. 24, ¶4.)


In sum, the Court concludes that, pursuant to Rule 37(c), BWP is foreclosed from relying on the evidence attached to its motion for summary judgment and is restricted to relying on the evidence attached to its complaint and/or otherwise properly produced during the course of discovery. Within that framework, the Court proceeds to the pending motions for summary judgment.”

The court held that BWP violated Rule 26 by failing to disclose the screen-grab exhibit and held that, pursuant to Rule 37(c), BWP had no admissible evidence to support its claims of copyright infringement.

Separately, the Court denied Rich Kids’ motion for Rule 11 sanctions because Rich Kids did not comply with the safe harbor (providing the other party 21 days in which to withdraw the claims) and did not file the sanctions motion as a separate motion.

In sum, an excellent opinion on these issues.

Edward X. Clinton, Jr.

Rule 37 Sanctions Awarded Where Defendant Alters An Engineer’s Report

Raimey v. Wright National Flood Insurance (E.D. NY 2014).

The plaintiffs sued the defendant flood insurance carrier for breach of contract. They alleged that their home was damages by flooding during Hurricane Sandy and that the defendant wrongfully denied plaintiffs’ claim.

The defendant was sanctioned because it concealed a report by its engineer who found that the home was damaged beyond repair by Hurricane Sandy. The defendant did not produce the report in discovery. Instead, the defendant altered the report so that it reached the opposite conclusion.  The Magistrate Judge sanctioned the defendant and its counsel and the district court upheld the sanctions.

The district judge held (a) that prior court orders required the defendant to disclose the original unedited engineering report (b) that the failure to produce the report was improper; (c) that the failure to produce the report prejudiced the plaintiffs and made the litigation more costly; and (d) defendant’s counsel attempted to curtail the magistrate’s inquiry concerning the report during a hearing on the issue.

In sum, this is a textbook case of Rule 37 sanctions.

3rd Circuit affirms discovery sanction against foreclosure law firm

McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F. 3d 240 – Court of Appeals, 3rd Circuit 2014 – Google Scholar.

This case arose out of a clerical error by a bank, which erroneously concluded that the plaintiff had defaulted on his mortgage. Plaintiff was not in default. However, the bank then sent the file to the defendant law firm which sent Plaintiff a demand letter.

Plaintiff then filed a putative class action against the law firm for alleged violations of the Fair Debt Collection Practices Act. The district court dismissed the FDCPA claims against the law firm, but it awarded plaintiff Rule 37 sanctions because the law firm violated an order requiring it to produce its legal bills. The defendant law firm did not comply with the order, but attached the bills to its own summary judgment motion. The district court awarded plaintiff Rule 37 sanctions. The third circuit affirmed. “The District Court, however, did find that PHS’s failure to produce the invoices during discovery was sanctionable under Fed.R.Civ.P. 37(b)(2)(A) and sua sponte ordered PHS to pay all expenses, including attorney’s fees, that McLaughlin had incurred in connection with his motion for reconsideration, reasoning that PHS’s action prevented full and timely investigation of the facts and led to additional briefing on the summary judgment motion.”

On appeal, the law firm argued that the sua sponte imposition of sanctions deprived it of an opportunity to be heard on the sanctions issue. The Third Circuit disagreed.  It explained:

“It is true that PHS did not receive notice that sanctions were being considered before the District Court initially imposed them and hence did not immediately have an opportunity to argue that its failure was substantially justified. PHS, however, eventually provided arguments why it believed its conduct was not sanctionable. More specifically, in connection with the briefing on the magnitude of sanctions, PHS explicitly laid out its arguments why its conduct was substantially justified and neither in bad faith nor willful and asked the newly assigned District Court Judge to “reevaluat[e] … the imposition ofsanctions.” ECF No. 111. The District Court considered these arguments, reaffirmed the relevance of the discovery sought and the impact of the tardy production, and, for those reasons “and for all of the reasons previously stated in” her predecessor’s decision, ordered sanctions in the form of attorney’s fees. Thus, PHS had notice of the conduct that the District Court found to be sanctionable, had an opportunity to be heard, and received review and a ruling from a different judge concerning their conduct. Accordingly, we conclude PHS received due process and we will affirm the sanctions order.”

The sanctions award was approximately $15,000.

Edward X. Clinton, Jr.

Jones Day Sanctions Order – Lawyer Sanctioned For Tedious Objections At Deposition – But Eighth Circuit Reverses Sanction

Jones Day Sanctions Order.

This is a lengthy opinion by a federal district court judge, Mark W. Bennett, in which he sanctions a Jones Day lawyer for excessive and tedious objections at a deposition. In writing the opinion, Bennett is clearly out to reform the entire discovery process. He writes: “Discovery-a process intended to facilitate the free flow of information between parties – is now too often mired in obstructionism. Today’s ‘litigators’ are quick to dispute discovery requests, slow to produce documents, and all-too-eager to object at every stage of the process.” He also criticizes judges for ignoring this misconduct and encouraging obstructionist tactics. He argues that the judiciary should step up to the plate and sanction obstructionist lawyers. “Obstructionist litigators, like Ivan Pavlov’s dogs, salivate when they see discovery requests and are conditioned to unleash their treasure chest of obstructive weaponry. Unlike Pavlov’s dogs, their rewards are not food but successfully blocking or impeding the flow of discoverable information. Unless judges impose serious adverse consequences, like court-imposed sanctions, litigators’ conditional reflexes will persist. The point of court-imposed sanctions is to stop reinforcing winning through obstruction.”

As an aside, I agree with Judge Bennett. There are too many objections and delays in the discovery process. That conduct slows down the court system and wastes resources. Judges who urge lawyers to meet and work it out need to remember that some lawyers won’t produce, no matter what happens. In Chicago, the most difficult firms to work with are often the so-called litigation boutiques.

In any event, Judge Bennett sanctioned a Jones Day lawyer for obstructionist conduct during depositions. First, the lawyer used speaking objections when questions were asked to disrupt the flow of questions and answers. Second, the lawyer excessively used what are known as “form” objections. Third, Judge Bennett concluded that the lawyer was using the objections to coach the witness on what to say.

Specifically, Judge Bennett found that the form objections were a waste of time and were not necessary. Furthermore, the form objections did not explain what the problem was so that the questioner could cure the problem. As the court explained, “counsel’s ‘form’ objections, however, amplified two other issues: witness coaching and excessive interruptions.” Page 17.  The court found that certain objections were used to coach the witness not to answer questions. Judge Bennett objected to the use of “vague and ambiguous” as an objection because it was used to coach the witness to refuse to answer on the ground that the question called for speculation.

Judge Bennett objected to objections such as “You can answer if you know.” He is correct to find this conduct sanctionable. Those type of objections are designed to coach witnesses to give certain types of answers.

The sanction ordered is that the lawyer make a video discussing proper deposition conduct. I think the sanction is very odd, given the behavior, but Judge Bennett is on to something – lawyers should not be coaching witnesses during a deposition.

Update: the Eighth Circuit reversed the ruling on the ground that the sanction was inappropriate and out of line.

The court was concerned about (a) the lack of any complaint from the other side’s attorneys (b) the lengthy delay before sanctions were imposed; and (c) the failure to notify Ghezzi that sanctions were being considered.  The Court explained its ruling in this abstract:

“Then, sixteen months after defense counsel participated in the Bottock and Barrett-Reis depositions, one year after fact discovery had closed, and nine months after Abbott had moved for summary judgment based on excerpts of key depositions, the trial judge assumed control of the case for the first time and criticized defense counsel’s deposition conduct. Seven months later she was sanctioned under Rule 30(d)(2)—some two years after she had defended the Bottock and Barrett-Reis depositions without complaint from opposing counsel or inquiry by the magistrate judge. Cf. Manual for Complex Litigation § 11.42; Federal Judicial Center, Civil Litigation Management Manual, Ch. 3 (2d ed. 2010).

With few exceptions, sanctions should be imposed “within a time frame that has a nexus to the behavior sought to be deterred.” Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 881 (5th Cir. 1988); cf. Cooter & Gell, 496 U.S. at 395-96. Rule 30(d)(2) sanctions assessed near the time of violation deter both ongoing and subsequent abuses. See Craig, 384 F. App’x at 533. Prompt action “helps enhance the credibility of the rule,” and by deterring further discovery abuse, “achieve its therapeutic purpose.” Cf. Matter of Yagman, 796 F.2d at 1183-84. This is especially true when sanctions are imposed sua sponte after the fact, for delay allows potential violations to pass unchecked and undeterred. E.g., Thomas, 836 F.3d at 881. The primary purpose of Rule 30(d)(2) was not well served by the post hoc procedures here. See Matter of Yagman, 796 F.2d at 1184 (concluding that “the benefit provided by the policy of deterrence is lost if the [district court] postpones imposition of [discovery sanctions] until the end of the case”); see alsoCraig, 384 F. App’x at 533….”

The court discussed the failure to notify counsel in this passage:

Here, there was no real notice of the nature of the sanction the court had in mind. While the trial judge did provide defense counsel advance notice of his reasons for considering sanctions under Rule 30(d)(2), nothing was mentioned about their unusual nature requiring counsel to produce and distribute an instructional video addressing the impropriety of unspecified form objections, witness coaching, and excessive interruptions. Nor were any “probable consequences” discussed at the subsequent sanctions hearing. See Fisher, 526 F.2d at 1343. The nature of the sanction became apparent only in the court’s final published opinion in the matter. See In re Tutu Wells, 120 F.3d at 380; see also In re Prudential, 278 F.3d at 192-93.

Once information about an unusual sanction appears in public, the damage to the subject’s career, reputation, and future professional opportunities can be difficult if not impossible to repair. See Adams v. Ford Motor Co., 653 F.3d 299, 308-09 (3d Cir. 2011). Defense counsel’s reputation was one of her “most important professional assets,” see id. at 305, and the district court’s unusual sanction might leave an indelible and deleterious “black mark” on her career, see In re Tutu Wells, 120 F.3d at 381 n.10.”

The Eighth Circuit opinion can be found at this link.

Comment: the sanction imposed by the District Court was harsh and unusual punishment. It is noteworthy that the Eighth Circuit did not vindicate the conduct of the attorney who made the tedious objections at the deposition. In my experience tedious objections of this sort are used to coach witnesses on how to answer questions and should be prohibited.

Edward X. Clinton, Jr.

The End of Prenda – Sanctions and Contempt Order Affirmed by Seventh Circuit

Duffy v. Smith :: Seventh Circuit :: US Courts of Appeals Cases :: US Federal Case Law :: US Case Law :: US Law :: Justia.

This ruling, affirming the sanctions and contempt orders against the Prenda Lawyers, was no surprise as the oral argument went poorly for them. See my post of April 8, 2014. The ruling may prove to be a troublesome one for lawyers who are named in sanctions motions after they withdraw form litigation. I have only discussed the issues that are important to the appeal and to lawyers. I have ignored many of the arguments and defenses raised by the Prenda Lawyers.

Prenda Law, according to the Seventh Circuit, consisted of Paul Duffy, John Steele and Paul Hansmeier. All three were Illinois lawyers. Prenda would file a lawsuit against unknown individuals and would then subpoena their internet provider for information identifying particular individuals. Then, Prenda would contact those people and would claim that they had wrongfully downloaded pornographic movies and would extract settlements from them.

In this particular case, Lightspeed Media Corporation, which operates pornography sit, sued Anthony Smith and other defendants. The case began in the State Court, where Lightspeed claimed that one John Doe defendant (identified through his IP address). Lightspeed then identified 6,000 other IP addresses and then served subpoenas on two internet service providers (ISPs) seeking the identity of the owner of each of the 6000 IP addresses. In the state court the ISPs refused to turn over the information. The trial court denied the motion to quash the subpoenas. The ISPs appealed and the Illinois Supreme Court held that the trial court erred by refusing to quash the subpoenas.

On August 3, 2012, Lightspeed amended the complaint and claimed that the ISPs were co-conspirators of those defendants who had wrongfully downloaded the pornographic movie. In the amended complaint the defendant John Doe’s name was revealed to be Anthony Smith.

On August 9, 2012, the ISPs removed the case to the District Court for the Southern District of Illinois. Lightspeed filed emergency motions to require the ISPs to produce personally identifiable information for each of the 6,000 alleged co-conspirators. The district judge denied the motion. The ISP defendants then submitted a motion to dismiss the case and a motion to stay discovery (stop discovery) while the motion to dismiss was pending. See Opinion at 4.

In November 2012, Hansmeier moved to withdraw. In March 2013, Steele moved to withdraw.

In May 2013, a California district court entered a rule to show cause against Duffy, Hansmeier, and Steele. That court also made a finding that Duffy, Hansmeier and Steele controlled Prenda Law. See Seventh Circuit Opinion at 5.

After the show-cause order was entered in California, Prenda moved to voluntarily dismiss the Lightspeed case. After the voluntary dismissal was granted, Smith (within 14 days) moved for sanctions pursuant to 28 U.S.C. Section 1927. Duffy responded but Hansmeier and Steele did not file responses. In October 2013, the district court granted the motion for sanctions. The lawyers moved for reconsideration. The court granted the request for a rehearing.

Then the ISPs became involved. They sought attorney frees from Steele, Hansmeier and Duffy.  After rehearing, the district court upheld its original order of sanctions to Smith and granted the ISP’s motion for sanctions. The district court assessed fees against the lawyers jointly and severally. The district court found that the lawsuit was frivolous and that the litigation “‘smacked of a bully pretense.'” The district court also ruled that the lawyers “were engaged in ‘abusive litigation…simply filing a lawsuit to do discovery to find out if you can sue somebody. That’s just utter nonsense.'” Opinion at 17-18.  The three lawyers then appealed.

Were Steele and Hansmeier given notice and an opportunity to be heard?

Steele and Hansmeier argued that they did not receive notice of the motion for sanctions. The Seventh Circuit disagreed because, first even if they did not have notice of the original motion, “the defect was cured when the district court granted rehearing on the sanctions issue.”  Second, Steele and Hansmeier did have notice of the original motion. The court explained that “[g]iven the close connections among the lawyers, it was reasonable for the court to conclude that service on Duffy would suffice to give notice to Steele and Hansmeier as well.”  This holding is supported by the common address used by the three lawyers and the impression they gave to the outside world that they were a team acting together. The Seventh Circuit also held that Steele received actual notice via email.

Did the Defendants Delay Too Long Before Seeking Section 1927 Sanctions?

Smith’s motion for sanctions was filed 10 days after the case was voluntarily dismissed, which was not too late for the court to lose jurisdiction. However, the ISPs did not seek sanctions until October 2013 (after Smith’s Motion for Sanctions was granted).

Was Joint and Several Liability Appropriate?

The lawyers argued that Section 1927 liability is direct and that it was wrong to hold the lawyers vicariously liable for each others’ actions. Opinion at 24. Here, the Seventh Circuit rejected the argument because the district court held a hearing and held them liable after determining that each one was individually liable.

The Seventh Circuit also affirmed a contempt holding for the failure to pay the sanctions promptly.


This case means the end of the Prenda enterprise and the careers of the lawyers who were involved in this appeal. The case may be more important to future lawyers defending themselves against sanctions motions. Lightspeed means that a lawyer can be sanctioned long after the lawyer withdraws from the litigation. Lightspeed also means that, in the future, there will be requests to sanction both the principal lawyer involved and anyone who helped that lawyer with the case.  The ugly spectre of joint and several liability will be raised again and again in future sanctions proceedings. Most importantly, Lightspeed will probably be read to mean that you can get notice of a sanctions motion by email. (This is also very scary for lawyers).

Thus, the Lightspeed case is a great victory for those who were fighting Prenda Law. They deserve congratulations. However, the case has introduced or reintroduced some scary doctrines into the law of sanctions including (a) sanctions after you withdraw; (b) service by email; and (c) joint and several liability.

Edward X. Clinton, Jr.


Florida District Court Dismisses Case On Its Own Motion Because of Discovery Noncompliance

Martello v. PRODUCT QUEST MANUFACTURING, LLC, Dist. Court, MD Florida 2014 – Google Scholar.

The court explains its decision:

“Plaintiff’s failure to comply with this deadline is the culmination of several months of abusive discovery practices, vexatious tactics, and brazen disregard of Court orders. The Court has considered lesser sanctions, such as striking Plaintiff’s expert report or treating certain facts as admitted, but the level of misconduct present here threatens not only Defendants’ ability to litigate this case, but the integrity of the Court and its Orders. Accordingly, for the reasons stated herein, the Court will dismiss this action as a sanction for Plaintiff’s serious and continuing refusal to obey Court orders….

The facts outlined in Part I of this Order demonstrate a pattern of dilatory and duplicitous litigation tactics as well as blatant disobedience of Court orders. Plaintiff’s ongoing failure to comply with the Court’s orders is intentional and done in bad faith. She has ignored the imposition of one round of sanctions, and multiple threats of further sanctions, stemming from her refusal to produce her tax returns. All the while, Plaintiff knew that this case was advancing inexorably toward a July trial date. The Court gave Plaintiff as many chances to rectify the discovery violations as possible, but her intentional and ongoing refusal to do so leaves the Court with no choice but to impose the ultimate sanction and dismiss this case. No other sanction would adequately address Plaintiff’s bad faith or protect the integrity of the Court and its Orders.”

It is noteworthy that the court dismissed the lawsuit on its own motion. The defendants did not request dismissal. The case was dismissed when the defendants notified the court that the plaintiff had failed to produce tax returns.

Edward X. Clinton, Jr.

Rule 37 Sanctions Awarded To Deter Future Violations

HOY’S, INC. v. EBJ&F, LLC, Dist. Court, D. Nevada 2014 – Google Scholar.

This is a breach of contract case in which the plaintiff moved to compel and for sanctions for failure to produce documents. The Defendants admitted that they had failed to fully respond to document requests and interrogatories. The Court sanctioned the defendants $1000 to deter future discovery abuses. It explained in part:

“The purpose of discovery is to provide the parties with a method “to obtain the fullest possible knowledge of the issues and facts before trial.” Hickman v. Taylor,329 U.S. 495, 501 (1947). For the discovery system to properly function, the costs of resisting discovery must outweigh the benefits of impartial or evasive discovery. “If the only sanction for failing to comply with the discovery rules is having to comply with the discovery rules if you are caught, the diligent are punished and the less than diligent, rewarded.” Poole ex rel. Elliott v. Textron, Inc., 192 F.R.D. 494, 506 (D. Md. 2000). Rewarding noncompliant parties contravenes the rule’s purpose of securing “the just, speedy, and inexpensive determination of every action and proceeding.” FED. R. CIV. P. 1.”

This decision shows the slow but steady trend in favor of sanctioning those who fail to produce documents and answer interrogatories on time.

Edward X. Clinton, Jr.

Domanus v. Lewicki: 7th Circuit Upholds Default Judgment As Discovery Sanction

Seventh Circuit Affirms Default Judgment Against Litigant As Discovery Sanction

Domanus v. Lewicki, 13–2435 (7th Cir. 2014)

This is an appeal from a default judgment entered against the defendants in the litigation. The plaintiff were shareholders in a Polish entity, Krakow Business Park (KBP) that was formed to develop a business park in Krakow Poland. Plaintiffs alleged that the three defendants, Adam Swiech, Richard Swiech and Derek Lewicki caused “KBP to pay out millions of dollars to the defendants for services never performed, and that the defendants stole cash and property from the company.” Plaintiffs alleged that the defendants used the proceeds to acquire cash and property in Chicago, Illinois. Plaintiffs sued under the RICO statute.

Plaintiffs alleged that the defendants did not cooperate with discovery requests and they eventually requested a default judgment from Judge Bucklo. The defendants argued in the district court that it was impossible for them to comply with the court’s discovery orders.

The district judge did not agree with the defendants and imposed a default judgment of $413,000,000. Consistent with a recent trend to sanction litigants who do not cooperate with discovery orders, the Seventh Circuit affirmed the default judgment. It is important to remember that discovery sanctions are reviewed for an abuse of discretion, a more lenient standard. That standard is designed to allow the district judge to manager her caseload and docket.

Procedural History

The document discovery dispute centered on three issues, two bank accounts and one computer hard drive.

The first account was an account at the Julius Baer bank, a Swiss bank. Plaintiffs alleged that Adam Swiech owned this account and that some of the funds wrongfully removed from KBP had ended up in the account. Swiech denied ownership of the account and did not produce any documents in response to the discovery requests. Plaintiffs sought to hold Swiech in contempt for failing to produce documents. The magistrate judge found Swiech’s behavior sanctionable, but did not hold him in contempt. The district judge increased the penalty and held Swiech in contempt. The Seventh Circuit described her decision to do so as “sensible.”

The second bone of contention was the defendants’ failure to produce documents for a Polish HSBC account belonging to Lewicki. Lewicki told the plaintiffs that he was unable to obtain the documents. Again, plaintiffs moved to compel and for sanctions, but the magistrate judge declined to impose them. The district judge again disagreed and held Lewicki in contempt. She found Lewicki’s testimony that he could not gain access to the documents to be “incredible.” The Seventh Circuit agreed that there was clear and convincing evidence necessary to support a contempt finding.

The third issue concerned a computer hard drive. In May 2011, Defendants produced 1800 pages of documents. Plaintiffs suspected that the production was incomplete and the defendants produced another 21 CD-ROM discs. In February 2012, plaintiffs moved for sanctions. They asked the court to order the defendants to produce certain missing emails. The Defendants responded that the hard drive had been destroyed in 2009, which was impossible as they had already produced many documents from 2010 and 2011 from that same hard drive. The magistrate granted a spoliation of evidence instruction as a sanction. The spoliation instruction allows the jury to infer that whatever evidence was withheld was unfavorable to the party that wrongfully withheld it. A spoliation instruction is a traditional, but weak, sanction for discovery misconduct. The district judge again increased the sanction by barring the defendants from using any documents from the hard drive and ordering Richard Swiech and Lewicki to obtain all of their missing emails from the email providers. As the Seventh Circuit concluded “such a sanction appropriately mitigated the harm to the plaintiffs as a result of the defendants’ wrongdoing.”

After additional deposition-related misconduct (failing to show up for depositions), the district judge granted a motion for default judgement against the defendants. The Seventh Circuit affirmed the default finding, holding that the defendants’ discovery misconduct demonstrated “a clear record of delay or contumacious conduct,” and “willfulness, bad faith or fault.” Maynard v. Nygren, 332 F.3d 462 (7th Cir. 2003).

A litigant who obtains a default judgment must still prove damages. The Seventh Circuit upheld the damages calculations of plaintiffs, which were presented by an expert witness.  The damages were then trebled under the RICO Statute.


This case shows that the federal courts are now beginning to enforce significant sanctions, even the use of a default judgment, where one party fails to comply with discovery. One interesting facet of the case is that on two occasions Judge Bucklo increased the sanctions ordered by the magistrate judge, which is unusual. The Seventh Circuit held that Judge Bucklo acted reasonably. The defendants did not help themselves by first producing some documents from a hard drive and then claiming that the hard drive had been destroyed years earlier. Withholding documents has always been against the federal rules of civil procedure, but it has taken many years for the courts to clamp down and consider harsh sanctions for noncompliance.

Edward X. Clinton, Jr.