Sanctions — $5.4 Million Default Judgment for Discovery Abuse Affirmed

The Sixth Circuit affirmed one of the largest sanctions awards in history — a default judgment in the amount of approximately $5.4 million in favor of Allstate Insurance Company — for rampant discovery abuse in Grange Mut. Cas. Co. v. Mack, 270 F. App’x 372 (6th Cir. 2008). The four-part test applied by the Court in assessing the propriety of a default judgment is:

1) whether the disobedient party acted in willful bad faith; 2) whether the opposing party suffered prejudice; 3) whether the court warned the disobedient party that failure to cooperate could result in a default judgment; and 4) whether less drastic sanctions were imposed or considered.

The plaintiff implied that, for some reason, it should be treated with some leniency because the subject matter of the case was RICO. In rejecting that notion, the Sixth Circuit stressed that the misconduct continued for more than a year after a default judgment as to liability had been entered:

Mack implies that the court should have been more hesitant to strike his answers given that the case was a RICO case and the combined damages topped $ 8 million. But courts have previously issued default judgments, or dismissed complaints with prejudice, in high-stakes civil RICO cases where a party was less obstructive than Mack. See, e.g., Harmon, 110 F.3d at 369 (dismissing complaint in civil RICO case); Wanderer, 910 F.2d at 657 (affirming $ 25 million default judgment in civil RICO case). Finally, the fact that Mack continued to obstruct discovery with respect to damages for fourteen months after the district judge had entered a default as to liability shatters any illusion that Mack would have responded to lesser sanctions.

Quote of note:

Our civil legal system hinges on voluntary discovery. Discovery abusers must be sanctioned, because "[w]ithout adequate sanctions, the procedures for discovery would be ineffectual." 8A Wright, Miller & Kane, Federal Practice and Procedure § 2281 (2d ed. 1994).... We affirm, both to punish Mack for his egregious conduct and to deter other litigants who might be tempted to make a mockery of the discovery process. See Nat'l Hockey League v. Metro. Hockey Club, 427 U.S. 639, 643, 96 S. Ct. 2778, 49 L. Ed. 2d 747 (1976) (per curiam).

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