Default judgment affirmed based on discovery violations

A default judgment could be entered against corporate defendants as a sanction for engaging in a deliberate pattern of discovery noncompliance, the 1st U.S. Circuit Court of Appeals has decided.

A U.S. District Court judge had awarded the plaintiff $75 million in damages after the defendants repeatedly resisted the plaintiff’s efforts to depose key witnesses, including the president and chief executive officer of one of the defendant corporations.

“Given the severity of Defendants’ discovery violations, the district court acted well within its discretion in entering default judgment, a sanction that can play a ‘constructive role in maintaining the orderly and efficient administration of justice,’” Judge Norman H. Stahl wrote for the unanimous 1st Circuit panel.

The 15-page decision is AngioDynamics, Inc. v. Biolitec AG, et al., Lawyers Weekly No. 01-057-15. The full text of the ruling can be found by clicking here.

William E. Reynolds of New York argued the appeal on behalf of the plaintiff. The defendants were represented by Edward Griffith, also of New York.

International litigation

Plaintiff AngioDynamics Inc. obtained a $23 million judgment in New York against defendant Biolitec Inc. based on an indemnification clause in the supply and distribution agreement governing Biolitec’s sale of medical equipment to AngioDynamics.

The plaintiff sought to secure payment on that judgment by bringing suit in federal court against Biolitec’s president and CEO, Wolfgang Neuberger, and its corporate parents, Biomed Technology Holdings and Biolitec AG. The plaintiff alleged that those defendants had looted Biolitec of more than $18 million in assets in order to render it judgment-proof.

The plaintiff served Neuberger with a notice of deposition in July 2012, but he indicated he would not attend. After the plaintiff filed a motion to compel his attendance at the deposition, Neuberger agreed to attend the first day of the deposition, but the parties were forced to postpone the remainder of the deposition until the defendants produced various court-ordered documents for the plaintiff’s review.

In July 2013, the defendants filed a motion for a protective order to stay Neuberger’s deposition. The motion was denied, but the defendants refused to produce Neuberger and ultimately filed a second motion for a protective order seeking to continue the deposition by videolink. That motion was denied as well.

Similar issues arose in relation to the depositions of three key Biolitec corporate officers; the parties agreed to suspend their depositions until the defendants produced various court-ordered documents. Subsequently, the defendants refused to produce any of the documents or the three witnesses.

The plaintiff then moved for sanctions based on the defendants’ failure to turn over the key documents and their refusal to produce either Neuberger or the three managing agents. The motion was denied, but the defendants were ordered to produce Neuberger to testify. The defendants responded with a status report stating definitively that they had no intention of complying.

On Jan. 14, 2014, U.S. District Court Judge Michael A. Ponsor entered default judgment for the plaintiff.

Stonewalling

Rule 37 of the Federal Rules of Civil Procedure authorizes a judge to impose sanctions “with an eye both to penalize the particular noncompliance and to deter others from engaging in the same tactics,” Stahl noted.

“[W]e have called on district courts to weigh the severity of the discovery violations, legitimacy of the party’s excuse for failing to comply, repetition of violations, deliberateness of the misconduct, mitigating excuses, prejudice to the other party and to the operations of the court, and adequacy of lesser sanctions,” Stahl added.

Ponsor reviewed and discussed each of those factors, the 1st Circuit found.

“As the district court ably and convincingly described, Defendants’ conduct here was severe, repeated, and deliberate, with no legitimate or mitigating explanation for noncompliance,” Stahl said. “Their discovery violations frustrated [AngioDynamics’] ability to prosecute this lawsuit and the district court’s ability to manage its docket.”

The defendants did not contend that they were subjected to any procedural inadequacies in the imposition of default judgment. In fact, Ponsor gave the defendants repeated opportunities “to explain themselves, both on paper and in person,” and had warned them of the possibility of a default judgment if they continued to ignore discovery orders, Stahl said.

“Despite the admonitions, Defendants continued to engage in a ‘deliberate pattern of stonewalling with the aim of frustrating effective discovery and the progress of the case,’” Stahl wrote. “Facing repeated recalcitrance almost five years after [AngioDynamics] filed the instant action, the district court acted well within its discretion when it concluded that no lesser sanction could address the twin goals of penalty and deterrence.”

CASE: AngioDynamics, Inc. v. Biolitec AG, et al., Lawyers Weekly No. 01-057-15

COURT: 1st U.S. Circuit Court of Appeals

ISSUE: Could a default judgment be entered based on discovery violations by the defendants?

DECISION: Yes