Discovery Abuse Warrants Informing Jury of Misconduct
By Ian S. Clement, Litigation News Contributing Editor – April 18, 2014

A Maryland federal court found that a defendant law firm’s repeated discovery abuses warranted ordering monetary sanctions. First Mariner Bank v. The Resolution Law Group. The district court also employed a little-used sanction of advising the jury about the defendant’s recalcitrant discovery conduct. The decision may signal a trend that courts are more willing to employ sanctions that include disclosing misconduct to jurors.

Mortgage Scam Claims
The plaintiff, a local bank, filed suit alleging that the defendant’s mail advertisements to bank customers falsely stated that the bank was engaging in illegal and improper banking practices. The defendant, a law firm, urged the recipients of the advertisements to contact it immediately because it claimed that the government would seek monetary damages for individuals and reductions in home loans, principal balance, and interest rates. The bank claimed that the law firm was operating a scam since the advertisements were false and intended to scare recipients into retaining the firm.

Defendant’s Discovery Abuses
Three times the bank moved to compel the law firm to answer discovery. Three times the district court granted the bank’s motion, finding the law firm’s discovery responses boilerplate and unresponsive and ordering the firm to pay monetary sanctions and provide detailed responses. Each time the defendant failed to comply with the district court’s order.

For example, the law firm objected, without providing any substantive information, to an interrogatory requiring it to describe the manner by which it obtained each recipient’s mailing address. The defendant ultimately identified a marketing firm that obtained the addresses but limited the response explaining that they were obtained through a search of unidentified “public records.” In another instance, the defendant resisted the production of the list of recipients of the mailed advertisements, yet, during the middle of a subsequent discovery hearing, the defendant suddenly produced a list, but without any association to particular mailings.

Court Weighs Imposing Further Sanctions
The bank demanded an additional $23,221 in documented attorney fees, an order prohibiting certain defenses, and an adverse inference order as sanctions. The district court considered imposing the requested sanctions by weighing the four factors under Federal Rule of Civil Procedure 37. The court characterized the abuses as “discovery tomfoolery.”

In finding the previous monetary sanctions ineffective, the district court noted that the law firm failed to provide complete answers to discovery. Instead, the firm chose to stonewall, obfuscate, and finally provide only marginally satisfactory answers to the majority of discovery requests. The district court noted that the defendant’s seriatim answers would be comical if they were not defiant of the ordered and essential precepts of discovery.

The district court also examined the nature and extent of the prejudice that the bank suffered, and this determination helped to shape the form of sanctions the court ultimately granted. The court found that since the law firm eventually produced much of the requested discovery or swore that it did not exist, the non-monetary sanctions of adverse inference, loss of the affirmative defense of absolute privilege, and a bar from asserting the truthfulness of the advertisements were too severe.

Court Wary of Becoming Fact-Finder
The district court found that the most appropriate sanction was an instruction to the jury informing the jurors of this misconduct, following Network Computing Services, Corp. v. Cisco Systems Inc. In that case, the plaintiff delayed production of material documents for several months despite multiple motions to compel and court orders.

The court declined to allow an adverse inference, holding that to do so would inappropriately turn the court into the fact-finder. The court also pointed out that the adverse inference instruction might have been appropriate if the law firm destroyed or withheld material evidence entirely. Although the court found the firm’s incomplete and haphazard production of calling scripts highly suspect and suggestive that the firm was withholding documents, the court further declined to act on those suspicions. Instead, the court opted to permit the bank to serve a subpoena duces tecum regarding the law firm’s failure to provide viable information regarding its marketing firm and its past employees.

Finally, the district court prevented the law firm from presenting evidence regarding itemized costs for advertising, but allowed the firm to present per piece cost of advertising that it provided in discovery. The court found that preventing the firm from rebutting the bank’s cost for advertising at all was also too severe.

“The discovery abuses committed by defendant are some of the more egregious violations that I have seen, specifically given that the defendant itself is a law firm,” says C. Pierce Campbell, Florence, SC, cochair of the ABA Section of Litigation’s Business Torts and Unfair Competition Litigation Committee. “Though practitioners tend not to involve the courts in discovery disputes, this case showed that in a particularly egregious case it behooves counsel to go to the court early and often to create a record of the abuse,” says Campbell.

The district court found “the history of discovery misconduct overwhelmingly demonstrated the defendant’s bad faith” says Elizabeth Fenton, West Conshohocken, PA, cochair of the Section of Litigation’s Business Torts and Unfair Competition Litigation Committee. But “the court found the need to deter defendant’s form of non-compliance weighed heaviest in favor of imposing sanctions,” notes Fenton. Specifically, “the ‘death by a thousand cuts’ form of piecemeal, incomplete, and slow production of the defendant,” says Fenton.

“It is hard to say if the court’s jury instruction sanction will be effective; it depends on other evidence of defendant’s lack of veracity that plaintiff develops at trial,” says Campbell. “If plaintiff develops other evidence of defendant’s untruthfulness, the court’s sanction could be a killer,” Campbell continues.

Campbell and Fenton agree that the court did not set a bright-line test for the imposition of sanctions and that it’s not possible to establish such a standard because of the fact-specific nature of the inquiry. In response to a motion for reconsideration, the district court subsequently amended its order imposing the monetary sanction against the defendant solely and not the lawyers representing it. First Mariner Bank v. Resolution Law Group, P.C. [II].

Disclosure of Discovery Misconduct to the Jury a Trend?
After Network Computing but before First Mariner, an Idaho federal court granted a plaintiff’s motion in limine to inform the jury of defendant’s discovery misconduct. Staley v. United States Bank N.A. In Staley, a wrongful termination suit, the defendant employer withheld that it had merely warned other employees who had violated its corporate credit card policy instead of terminating them as it had the plaintiff. The court found that the withheld evidence went to the heart of the plaintiff’s case. The court ruled that it would permit the jury to make any reasonable inference from the defendant’s discovery abuse.

Keywords: discovery, sanctions, adverse inference, jury instruction, attorney fees, motion to compel

 
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