Category: Discovery Sanctions

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.

Conclusion

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.

www.clintonlaw.net

District Court Sanctions Pharmaceutical Company For Discovery Abuses

IN RE PRADAXA DABIGATRAN ETEXILATE PRODUCTS LIABILITY LITIGATION, Dist. Court, SD Illinois 2013 – Google Scholar.

This is an opinion of Judge Herndon of the Southern District of Illinois sanctioning the defendant pharmaceutical company for a long litany of discovery abuses. The order is significant because the pharmaceutical company filed a writ of mandamus to the Seventh Circuit. The Seventh Circuit affirmed the monetary sanctions but reversed a portion of the district judge’s order requiring certain depositions to be moved from the Netherlands to the United States. The Seventh Circuit explained (on January 24, 2014) in an opinion by Judge Posner as follows:

“This is one of those rare “safety valve” cases  for  mandamus  because  of  the  risk  of international complications  arising  from  a  U.S.  judge’s  having  ordered foreigners to be brought to the United States to be deposed, when there is no legal authority for such an order; because alternative  sanctions are readily available; and because the particular sanction punishes innocents—the inventors whom the order requires Boehringer to fly to the United States to be deposed, rather than their being deposed in nearby Amsterdam as the parties had agreed. We therefore  direct that the  order  be rescinded;  in  all other respects the petition for a writ of mandamus is denied. ”

Judge Hamilton filed a lengthy dissent, arguing that the district court’s proposed remedy (moving the depositions from Amsterdam to the United States) was properly tailored to remedy the misconduct. Judge Hamilton argued that the district judge had authority to move the depositions.

Edward X. Clinton, Jr.

Lawyer Escapes Rule 37 Sanctions

Sutton v. Singh, Dist. Court, MD Florida 2013 – Google Scholar.

This is a routine Rule 37 sanctions case where a party refused to participate in a Rule 30(b)(6) deposition. The court awarded costs and a modest amount of attorney fees against the client.

The more interesting issue in this case, however, is whether a party’s former lawyer can be sanctioned for discovery noncompliance.

Here, the court denied the sanction request against the former lawyer. According to the lawyer, the day before the noticed deposition the client terminated him. He was then required to file a motion to withdraw.

The court held that the lawyer was in an impossible situation in that he could not obtain compliance from the client even though he was still counsel of record.

Edward X. Clinton, Jr.

Discovery Sanctions Awarded Against LG Electronics

Slabaugh v. State Farm Fire & Casualty Co., Dist. Court, SD Indiana 2013 – Google Scholar.

This is a case involving a defective washing machine that allegedly caused water damage to the plaintiff’s home. Plaintiff served discovery requests on the U.S. subsidiary of LG Electronics. The subsidiary answered that it did not have the information because the machine was produced by its Korean parent company.

The district court imposed Rule 37 sanctions and ordered LG to produce the information. The court explained:

“nstead, in a case where the subsidiary is requested to produce information or documents that are in the possession of its parent company, the rule is that “a subsidiary `need only be able to obtain the documents in question to “control” them, and need not “control” the parent that possesses the documents.'” Ingeteam, 2011 WL 36084 (quoting In re Subpoena to Huawei Tech. Co., Ltd., 720 F.Supp.2d 969 (N.D.Ill.2010)). This ability to obtain the requested information can be difficult to estimate in advance of production, so courts employ various factors to determine the “closeness of the relationship between the entities.” Id. (using five factors to measure “whether a subsidiary has control over documents held by its foreign parent corporation”); In re Subpoena to Huawei Tech. Co., Ltd., 720 F.Supp.2d 969 (N.D.Ill.2010) (using seven factors to measure “the closeness of the relationship between the parties”)….

The Defendant has demonstrated its ability to obtain the requested information and documents, and the Court so finds the Defendant to be in “control” of the materials requested by the Plaintiffs pursuant to Rule 34.“

The court described the actions of the defendant as “recalcitrant” and “inexcusable.”

Edward X. Clinton, Jr.

Long Delay In Responding to Discovery Waives Objections

Slabaugh v. State Farm Fire & Casualty Co., Dist. Court, SD Indiana 2013 – Google Scholar.

In this case the defendant electronics company took three months to respond to discovery requests, instead of responding in the required 30 days. The court held that the long delay forfeited the objections to the discovery requests. These waivers are rarely enforced.

The court also disregarded the formal objections that are often put in discovery responses:

“When an objection generally asserts that the interrogatory or request is “vague, ambiguous, overly broad, unduly burdensome or that it is neither relevant nor reasonably calculated to lead to the discovery of admissible evidence” without demonstrating its vagueness with specificity, the objecting party has not met its burden.BASF Catalysts LLC v. Aristo, Inc., 2:07-CV-222, 2009 WL 187808 (N.D. Ind. Jan. 23, 2009) (quoting Burkybile v. Mitsubishi Motors Corp., 04 C 4932, 2006 WL 2325506 (N.D. Ill. Aug. 2, 2006)).”

Edward X. Clinton, Jr.

www.clintonlaw.net

District Court Sanctions Party For Poor Preparation By Rule 30(b)(6) Witness

CITGO PETROLEUM CORPORATION v. SEACHEM, Dist. Court, SD Texas 2013 – Google Scholar.

Rule 30(b)(6) allows a litigant to depose an organization through a representative. The notice asks the other party to provide a witness who can testify on certain topics. Here, the District Court granted sanctions because the witness was poorly prepared and the other party, Citgo, had to incur expense to find the answers to the questions it asked. The court found that the parent company, YPF, was “intentionally shielding itself” from certain knowledge about the affairs of an affiliate.

The issue here – how much work you have to do to prepare the 30(b)(6) witness comes up frequently. The rule is designed to allow the company to propose one witness who can testify on many topics. The company can also use several deponents to answer the questions. The idea is to reduce the number of depositions and reduce litigation costs.

Here sanctions issued not because of poor preparation, but because the court concluded that the company prepared the witness poorly to avoid disclosing information.

Edward X. Clinton, Jr.

District Court Blocks Discovery of Plaintiff’s Tax Returns

Hastings v. ONEWEST BANK, FSB, Dist. Court, D. Maryland 2013 – Google Scholar.

This is a modification case. The plaintiff, Brian Hastings, thought he had an agreement with OneWest Bank to modify his mortgage. He alleges that OneWest reneged on the modification.

These cases are not unique. Getting banks to agree to modifications can take years of work and patience. It is common for the bank to change its mind about the modification, even after paperwork has been issued.

The unusual part of this case is that the Bank requested Hasting’s tax returns in discovery.

The court denied the motion to compel on the ground that the tax returns were not relevant. The Court allowed other discovery as to Hastings’ financial condition.

Edward X. Clinton, Jr.

www.clintonlaw.net

Defendant’s Failure To Engage In Discovery Causes Defendant To Lose Motion To Dismiss

I PLAY. INC. v. D. CATTON ENTERPRISE, LLC, Dist. Court, WD North Carolina 2013 – Google Scholar.

This is a case where the sanction for the Rule 37 violations was appropriate and proportional. This is an intellectual property dispute. Plaintiff sued the Defendant and sought a declaration that it was not infringing Defendant’s patent or trademark rights.

This move – suing for a declaration that there was no infringement – is often done to win the race to the courthouse. The dispute starts when the defendant sends the plaintiff a letter demanding that the plaintiff cease infringing the patent or trademark. The plaintiff reasons that he will get sued anyway so he might as well start the litigation in a forum that the defendant (the party alleging infringement) does not want. I have worked with two veteran intellectual property lawyers who used this strategy in cases they litigated, with some success.

Here the Defendant moved to dismiss the case for lack of jurisdiction or to move the case to another venue. The plaintiff sought discovery from the defendant concerning the personal jurisdiction issues. The defendant refused to provide the information and was sanctioned by the District Court. The Court ruled that, by failing to provide the information, the Defendant had essentially waived its objections to jurisdiction and venue.

This is a fair and equitable solution in a case of this type. It sends the defendant the message that it is required to comply with discovery orders or it will face sanctions.

Edward X. Clinton, Jr.

www.clintonlaw.net
www.clintonlegalmalpractice.net

Second Circuit Refuses To Review Orders Sanctioning Arab Bank

Linde v. Arab Bank, PLC, Court of Appeals, 2nd Circuit 2013 – Google Scholar.

This is a decision of the Second Circuit Court of Appeals. Plaintiffs sued the Arab Bank, PLC, under the Anti-terrorism Act 18 USC 2333 and the Alien Tort Claims Act 28 USC 1350. The plaintiffs, who were victims of international terrorism, alleged that the bank provided support to terrorist organizations. The bank was sanctioned under Federal Rule 37(b), which provides for discovery sanctions, for failing to produce documents relevant to plaintiffs’ claims. The bank argued that it could not reveal the documents due to foreign banking secrecy laws.

The sanctions were jury instructions. The court explains: “The sanctions order takes the form of a jury instruction that would permit — but not require — the jury to infer from the Bank’s failure to produce these documents that the Bank provided financial services to designated foreign terrorist organizations, and did so knowingly. The order also precludes the Bank from introducing for the jury’s consideration certain evidence related to the undisclosed materials.”

The Second Circuit dismissed the appeal on the ground that the sanctions orders were not final and appealable. Why not? Because the orders were pre-trial. The case had not gone to trial. The bank argued that the orders were essentially final because it would pre-determine the outcome of the litigation. The court disagreed and refused to consider the appeal.

The Second Circuit also denied the bank’s writ of mandamus. A writ of mandamus is an effort to take an appeal before trial of a decision of the district judge. The court found that the issues presented, discovery sanctions, were not novel or significant.

Edward X. Clinton, Jr.