Commercial Litigation and Arbitration

Rule 37, Default/Dismissal & Contempt Sanctions in the Second Circuit — Inherent Power Defers to Applicable Rule — No Harm, No Foul Rejected

From So. New Eng. Tel. Co. v . Global Naps Inc., 2010 U.S. App. LEXIS 17747 (2d Cir. Aug. 25, 2010) (“Window Washer”evidence-deletion program used, among other things):

We have indicated that "[s]everal factors may be useful in evaluating a district court's exercise of discretion" to impose sanctions pursuant to this rule [Fed. R. Civ. P. 37(b)(2)(A)], including "(1) the willfulness of the non-compliant party or the reason for noncompliance; (2) the efficacy of lesser sanctions; (3) the duration of the period of noncompliance, and (4) whether the non-compliant party had been warned of the consequences of noncompliance." Agiwal v. Mid Island Mortg. Corp., 555 F.3d 298, 302 (2d Cir. 2009)***. Because the text of the rule requires only that the district court's orders be "just," however, and because the district court has "wide discretion in imposing sanctions under Rule 37,"*** these factors are not exclusive, and they need not each be resolved against the party challenging the district court's sanctions for us to conclude that those sanctions were within the court's discretion. ***

With respect to the district court's July 2008 imposition of a default judgment against appellants, dismissal or default imposed pursuant to Rule 37 is a "drastic remedy" generally to be used only when the district judge has considered lesser alternatives. *** Despite the harshness of these measures, however, "discovery orders are meant to be followed," ***, and dismissal or default is justified if the district court finds that the failure to comply with discovery orders was due to "willfulness, bad faith, or any fault" of the party sanctioned," ***. The district court is free to consider "the full record in the case in order to select the appropriate sanction." ***

With respect to the district court's July 2007 order holding Global in civil contempt, the district courts have the inherent power to find a party in contempt for bad faith conduct violating the court's orders "even if procedural rules exist which sanction the same conduct." ***

[Footnote 7] The district court in this case justified the contempt sanction under its inherent power, rather than Rule 37. Although the district courts possess this inherent power, its invocation may be "needless and confusing," *** when a particular rule "directly applies" to the specific problem confronting the district court, Chambers, 501 U.S. at 49 n.14; see also id. at 50 ("[W]hen there is bad-faith conduct in the course of litigation that could be adequately sanctioned under the Rules, the court ordinarily should rely on the Rules rather than the inherent power."); Societe Internationale, 357 U.S. at 207 (reliance on "inherent power" to dismiss an action for failure to comply with discovery orders "can only obscure analysis of the problem" when Rule 37 specifically covers such situations); Indep. Prods. Corp. v. Loew's Inc., 283 F.2d 730, 733 (2d Cir. 1960) (stating, in dicta, that reliance on inherent power to dismiss action was improper when Rule 37 was available***. Global does not take issue with this aspect of the legal basis for the district court's contempt sanction, and we therefore need not address the matter further.

Whether imposed pursuant to Rule 37 or the court's inherent power, a contempt order is, we have recognized, a "potent weapon, to which courts should not resort where there is a fair ground of doubt as to the wrongfulness of the defendant's conduct." *** A court may, however, hold a party in contempt for violation of a court order when "the order violated by the contemnor is clear and unambiguous, the proof of non-compliance is clear and convincing, and the contemnor was not reasonably diligent in attempting to comply." *** "We review a finding of contempt under an abuse of discretion standard that is more rigorous than usual," and we conduct a de novo review of any rulings of law made by the district court. In re Grand Jury Subpoena Issued June 18, 2009, 593 F.3d 155, 157 (2d Cir. 2010) (per curiam) (internal quotation marks omitted). ***

Global contends that SNET was not prejudiced by its inability to attach particular pieces of equipment that Global had disclosed to it, as SNET was (eventually) able to secure sufficient attachments to satisfy the prejudgment remedy ordered by the district court. This argument, however, is beside the point. Civil contempt sanctions may serve "dual purposes": securing "future compliance with court orders" and "compensa[ting] the party that has been wronged." *** Insurance Corp. of Ireland [Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 102 S. Ct. 2099, 72 L. Ed. 2d 492 (1982)] held that it does not violate due process for a district court to impose under Rule 37(b) an order subjecting a party to personal jurisdiction in that court as a sanction for the party's failure to comply with a discovery order seeking to establish facts relating to the court's personal jurisdiction over it. *** Even assuming that Global properly reads the Supreme Court's decision in Insurance Corp. of Ireland to apply to all sanctions imposed pursuant to Rule 37(b) -- a matter on which we express no opinion -- Global's overbreadth argument is nevertheless without merit. This is because Insurance Corp. of Ireland, as Global concedes, permits a court to presume from a party's willful failure to answer a discovery request relating to a particular issue that the facts of that issue are established against the noncompliant party, and makes clear that such a presumption is consistent with due process. ***

Even if SNET had suffered no prejudice from Global's conduct, however, we, along with the Supreme Court, have consistently rejected the "no harm, no foul" standard for evaluating discovery sanctions that Global would have us apply. Although one purpose of Rule 37 sanctions may in some cases be to protect other parties to the litigation from prejudice resulting from a party's noncompliance with discovery obligations, ***, Rule 37 sanctions serve other functions unrelated to the prejudice suffered by individual litigants:

Disciplinary sanctions under Rule 37 are intended to serve three purposes. First, they ensure that a party will not benefit from its own failure to comply. Second, they are specific deterrents and seek to obtain compliance with the particular order issued. Third, they are intended to serve a general deterrent effect on the case at hand and on other litigation, provided that the party against whom they are imposed was in some sense at fault.

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