Commercial Litigation and Arbitration

Rule 37 Sanctions — Purposes — Factors — Prejudice as Prerequisite to Obtaining Sanctions More Severe Than Fees — Categories of Prejudice

Paice, LLC v. Hyundai Motor Co., 2014 U.S. Dist. LEXIS 95043 (D. Md. June 27, 2014):

B. Sanctions

The Court now turns to consider whether discovery sanctions are appropriate for Defendants' discovery conduct to-date.Courts have broad discretion to impose punitive measures on any party who fails to obey a discovery order. Fed R. Civ. P. 37(b)(2)(A); Mut. Fed. Sav. & Loan Ass'n v. Richards & Assocs., 872 F.2d 88, 92 (4th Cir. 1989); 8B Charles Alan Wright, et al., Federal Practice & Procedure § 2289 (3d ed. 2010). It is generally recognized that Rule 37 sanctions are intended to: (1) penalize culpable parties; (2) deter others from engaging in similar conduct; (3) compensate the court and other parties for expense caused, and (4) compel discovery. Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse, § 49 (2013)(citing Carlucci v. Piper Aircraft Corp., 775 F.2d 1440, 1453 (11th Cir. 1985)). As such, Rule 37 sanctions are both punitive and/or remedial, and may be used to discourage bad behavior or make the aggrieved party whole.

5 A centerpiece of Plaintiffs' motion for sanctions was three of the nine disputed documents, which were the subject of Defendants' motion to strike (ECF No. 190). These were technical documents — remarkable as few technical documents had been produced. Moreover, on their face, some of the documents suggested that they had been in defense counsel's possession for considerable time before their production. Since the Court has granted Defendants' motion to strike, the Court does not consider Defendants' treatment of these documents in discovery as evidence of misconduct. Thus, any mention of the documents  [*39] subject in Defendants' motion to strike was not considered by the Court in the context of Plaintiffs' motion for sanctions.

Courts in the Fourth Circuit must consider four factors in determining what sanctions to impose: (1) whether the non-complying party acted in bad faith; (2) the amount of prejudice that noncompliance caused the adversary; (3) the need for deterrence of the particular sort of non-compliance; and (4) whether less drastic sanctions would have been effective. Southern States Rack & Fixture, Inc. v. Sherwin-Williams Co., 318 F.3d 592, 597 (4th Cir. 2003);  [*40] Mutual Fed. Sav., 872 F.2d at 92. The presence or absence of any one of these factors is generally not decisive: "[t]he harshest of sanctions" may be imposed "when ... culpability is minimally present, if there is a considerable showing of prejudice, or, alternatively, the prejudice is minimal but the culpability is great." Victor Stanley, Inc. v. Creative Pipe, Inc., 269 F.R.D. 497, 533 (D. Md. 2010). Ultimately, a court must "make whatever disposition is just in the light of the facts of the particular case." Bethesda Softworks LLC v. Interplay Entm't Corp., No. 09-2357, 2011 WL 1559308, at *2 (D. Md. Apr. 25, 2011)(citations omitted).

Rule 37 provides a nonexclusive range of sanctions. The most severe is dismissal or default judgment. Mutual Fed. Sav., 872 F.2d at 92 (quoting Wilson v. Volkswagen of America, Inc., 561 F.2d 494, 503-04 (4th Cir. 1977)); Hathcock v. Navistar Int'l Transp. Corp., 53 F.3d 36, 40 (4th Cir. 1995). Slightly lower in the spectrum are preclusion orders, recognized as "strong sanctions, although not as drastic as dismissals or defaults."6 Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse, § 49 (2013). Adverse inference or rebuttable presumption [*41] instructions are also considered stricter than an award of fees, but more lenient than dismissals or defaults. Courts have accordingly set a high bar for parties seeking penalties beyond fees. Courts in this district generally decline requests for preclusion absent some strong showing of prejudice.7 See Bethesda, 2011 WL 1559308, at *6 (D. Md. Apr. 25, 2011)(preclusion "typically requires some strong evidence of prejudice")(citing Passlogix, Inc. v. F2A Tech., LLC, 708 F. Supp.2d 378, 421 (S.D.N.Y. 2010)) ; Hastings v. OneWest Bank, No. 10-3375, 2013 WL 1502008, at *4 (D. Md. Apr. 11, 2013)(same).

6 There are two types of preclusion order. Gregory P. Joseph, Sanctions: The Federal Law of Litigation Abuse, § 49 (2013). The first precludes a party from asserting a claim or defense. Id. The second bars the introduction of evidence. Id. Plaintiffs here seek both (ECF No. 181, 49-50).

7 Two types of prejudice result from discovery abuses. The first is procedural prejudice resulting from delay. Evasiveness, delay and obfuscation may hinder the opposing party's ability to develop their case. Bethesda Softworks LLC v. Interplay Entm't Corp., No. 09-2357, 2011 WL 1559308, at *5 (D. Md. Apr. 25, 2011)("Indefinite delay, disruption of deadlines, and the continuation of discovery can amount to prejudice."). The second is substantive. If a party refuses to produce requested evidence despite a court order, their opponent is obviously hindered in their ability to present evidence at trial.

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