Commercial Litigation and Arbitration

Requirements for Case-Ending Sanctions (Fifth Circuit) — Lesser Sanctions Must Be Inadequate — Disregard of Prior Orders Shows Inadequacy, Permits Inference of Willfulness — Due Process Requirements That Sanction Be Just and Tied to Misconduct

Keybank N.A. v. Perkins Rowe Assocs., LLC, 2013 U.S. App. LEXIS 17544 (5th Cir. Aug. 21, 2013):

Plaintiff-Appellee KeyBank National Association ("KeyBank") provided Defendants-Appellants, collectively referred to as "Perkins Rowe," with a loan for $170 million to construct a mixed-use development in Baton Rouge, Louisiana. When Perkins Rowe defaulted on its loan obligations, Keybank began this mortgage foreclosure suit. During the course of the litigation, the district court ordered that Perkins Rowe's counterclaims and defenses to the foreclosure be dismissed as a sanction for discovery abuses, and it subsequently granted KeyBank summary judgment. Perkins Rowe appeals both of those orders and also challenges the district court's diversity jurisdiction. We AFFIRM. ***

District courts may impose sanctions on a party who fails to obey a discovery order, including striking pleadings or dismissing an action in whole or in part. See Fed. R. Civ. P. 37(b)(2)(A)(iii) & (v). The sanction of dismissal is "authorized only when the failure to comply with the court's order results from willfulness or bad faith . . . [and] where the deterrent value of Rule 37 cannot be substantially achieved by the use of less drastic sanctions." Smith v. Smith, 145 F.3d 335, 344 (5th Cir. 1998) (internal quotation marks and citation omitted). "The reviewing court may also consider whether the discovery violation prejudiced the opposing party's preparation for trial, and whether the client was blameless in the violation." United States v. $49,000 Currency, 330 F.3d 371, 376 (5th Cir. 2003).***

Although Perkins Rowe contends that its conduct was not willful and that lesser sanctions should have been considered by the district court before dismissal, we conclude that the continuing nature of Perkins Rowe's discovery conduct supported the willfulness finding. See, e.g., Bell v. Texaco, Inc., 493 F. App'x 587, 593 (5th Cir. 2012) (holding that willfulness may be found by repeated failures to comply with discovery orders); see also Smith, 145 F.3d at 344 (holding that in finding willfulness or bad faith, the district court "was entitled to rely on its complete understanding of the parties' motivations"). Furthermore, because the district court had imposed costs on four prior occasions, it was not required to impose lesser sanctions before ordering dismissal. See Hornbuckle v. Arco Oil & Gas Co., 732 F.2d 1233, 1237 (5th Cir. 1984) ("When lesser sanctions have proved futile, a district court may properly dismiss a suit with prejudice."); Bell, 493 F. App'x at 593 (holding that a Rule 37 dismissal was not erroneous where the district court had ordered monetary reimbursement prior to dismissing the case). In light of its findings that Perkins Rowe had filed numerous meritless or unsupported motions and objections and then violated a court order, which we do not find to be clearly erroneous, the district court's sanction order was not an abuse of discretion.***

Perkins Rowe's claim that the dismissal sanction was a violation of due process is similarly without merit. A district court's Rule 37(b)(2) sanction order generally must meet two standards: "[f]irst, any sanction must be 'just'; second, the sanction must be specifically related to the particular 'claim' which was at issue in the order to provide discovery." Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707, 102 S. Ct. 2099, 2107 (1982). Perkins Rowe characterizes the sanction order as unjust and resulting solely from the failure to obey the magistrate judge's February 25 order. But the district court dismissed the counterclaims and defenses because of Perkins Rowe's history and pattern of dilatory tactics, filing frivolous discovery motions and meritless objections, and then, as a final straw, failing to follow the clear directive of the February 25 order. We conclude that the district court properly exercised its discretion under Rule 37, and we find no due process violation.

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