Opinion ID: 1388652
Heading Depth: 1
Heading Rank: 12

Heading: Dismissal Sanction

Text: We review the district court's imposition of discovery sanctions for abuse of discretion. Int'l Bhd. of Elec. Workers, Local Union No. 545 v. Hope Elec., 380 F.3d 1084, 1105 (8th Cir.2004). We note, however, that the district court's discretion narrows as the severity of the sanction or remedy it elects increases. Wegener v. Johnson, 527 F.3d 687, 692 (8th Cir.2008). The sanction of dismissal is among the harshest of sanctions, and [t]here is a strong policy favoring a trial on the merits and against depriving a party of his day in court. Fox v. Studebaker-Worthington, Inc., 516 F.2d 989, 995-96 (8th Cir.1975). Accordingly, [a]lthough we review the district court's discovery decisions for an abuse of discretion, we more closely scrutinize dismissal imposed as a discovery sanction because `the opportunity to be heard is a litigant's most precious right and should sparingly be denied.' Schoffstall v. Henderson, 223 F.3d 818, 823 (8th Cir. 2000) (quoting Chrysler Corp. v. Carey, 186 F.3d 1016, 1020 (8th Cir.1999)). To the extent a discovery sanction depends upon an interpretation of law, our review of the underlying legal determination is de novo. United States v. Gonzalez-Lopez, 403 F.3d 558, 564 (8th Cir.2005) ([A] district court by definition abuses its discretion when it makes an error of law. (internal quotation and citation omitted)). When a dismissal sanction rests upon purported violations of discovery orders, courts should ensure that the specific requirements of Federal Rule of Civil Procedure 37 are met. Societe Internationale Pour Participations Industrielles Et Commerciales, S.A. v. Rogers, 357 U.S. 197, 207, 78 S.Ct. 1087, 2 L.Ed.2d 1255 (1958) (reversing a sanction of dismissal for failure to satisfy the requirements of Rule 37). To justify a sanction of dismissal, Rule 37 requires: (1) an order compelling discovery, (2) a willful violation of that order, and (3) prejudice to the other party. Schoffstall, 223 F.3d at 823. Further, as per Societe Internationale, a Rule 37 analysis normally should stand alone and not blend together with a less-structured, inherent-authority analysis. There, the Court stated: In our opinion, whether a court has power to dismiss a complaint because of noncompliance with a production order depends exclusively upon Rule 37, which addresses itself with particularity to the consequences of a failure to make discovery by listing a variety of remedies which a court may employ as well as by authorizing any order which is `just.' There is no need to resort to Rule 41(b), which appears in that part of the Rules concerned with trials and which lacks such specific references to discovery. Further, that Rule is on its face appropriate only as a defendant's remedy, while Rule 37 provides more expansive coverage by comprehending disobedience of production orders by any party. Reliance upon Rule 41, which cannot easily be interpreted to afford a court more expansive powers than does Rule 37, or upon `inherent power,' can only obscure analysis of the problem before us. Societe Internationale, 357 U.S. at 207, 78 S.Ct. 1087 (emphasis added). Our court has not treated this guidance from Societe Internationale as creating an absolute rule demanding strict segregation of inherent authority and Rule 37 analyses. Rather, we have affirmed the imposition of a sanction of dismissal in a case where a district court blended a Rule 37 analysis with an inherent-authority analysis. See Chrysler, 186 F.3d at 1019 (The district court imposed the sanction under Rule 37 of the Federal Rules of Civil Procedure and the inherent authority of the court.). Nevertheless, the guidance from the Court is clear, and we emphasize that the better practice is to apply Rule 37 where appropriate and not allow an exercise of inherent power to obscure the Rule 37 analysis. Societe Internationale, 357 U.S. at 207, 78 S.Ct. 1087. That is not to say that inherent powers are insufficient to justify the sanction of dismissal in an appropriate case if a court makes an express finding of bad faith. See Chambers v. NASCO, 501 U.S. 32, 49 n. 14, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) (stating that Societe Internationale would not preclude a sanction of dismissal via a court's inherent power and noting that the Court had held only that where Rule 37 was applied there was `no need' to resort to ... inherent power. (quoting Societe Internationale, 357 U.S. at 207, 78 S.Ct. 1087)). Rather, inherent authority is a broad and powerful tool. As such, it should be used sparingly. Roadway Express, Inc. v. Piper, 447 U.S. 752, 764, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980) (Because inherent powers are shielded from direct democratic controls, they must be exercised with restraint and discretion.). In general, then, courts first should turn to specific rules tailored for the situation at hand, such as Rule 37, to justify sanctions. Then, as an alternative basis for support or in circumstances where specific rules are insufficient, i.e., when there [is] a need, it may be appropriate to invoke their inherent authority. Societe Internationale, 357 U.S. at 207, 78 S.Ct. 1087; see also Chambers, 501 U.S. at 49 and 49 n. 14, 111 S.Ct. 2123 ([P]rior cases have indicated that the inherent power of a court can be invoked even if procedural rules exist which sanction the same conduct, but because individual rules address specific problems, in many instances it might be improper to invoke one when another directly applies.). It follows from this general rule that the best practice is to keep the structured analysis for a particular rule separate from the relatively unstructured analysis associated with inherent authority. In the present case, the district court based its dismissal, in part, on its determination that Plaintiffs had violated five discovery orders: four by failing to produce what it referred to in its order of dismissal as the Walls documents, and one by failing to make Anton appear at the July 2006 hearing. The district court also referred to its inherent authority and cited the email production, the recorded-conversation production, Barazi's purported lies, and the purported attempt to bribe Anton as additional grounds in support of the dismissal sanction. These latter issues may provide insight as to willfulness or bad faith, but they were unrelated to any discovery orders, and as such, appear to support sanctions primarily under the court's inherent authority. As per Societe Internationale, reliance upon such authority seems to have obscure[d] analysis of the problem. 354 U.S. at 207, 77 S.Ct. 1173. Looking first at these non-discovery-order-related issues, we conclude that no weight can be accorded to the alleged attempt to bribe Anton because there was no reliable evidence to support the allegation. See Brooks v. Tri-Systems, Inc., 425 F.3d 1109, 1111-12 (8th Cir.2005) (holding in the context of a dispositive motion that an affidavit containing out-of-court statements offered for the truth of the matter asserted may not be used to support or defeat a motion for final disposition of a case). Here, the district court excused the hearsay nature of the affidavit based upon personal knowledge of Ms. Badger's reputation for truthfulness. Her reputation for truthfulness, however, only partially addresses one of the many layers of hearsay embedded in her affidavit. Even assuming the phone call occurred and was reported accurately by Ms. Badger, there are no indicia of reliability to support the truthfulness or accuracy of the purported facts that: the man on the phone was who he claimed to be; the man on the phone served as Anton's private counsel; the man on the phone had spoken to Anton about an alleged offer; some person had offered Anton money to conceal documents; or the person who allegedly made an offer to Anton was a principal or agent of Plaintiffs. While the Federal Rules of Evidence do not necessarily apply in the context of a motion for sanctions, evidence relied upon must, at a minimum, bear indicia of reliability. See, e.g., Jensen v. Phillips Screw Co., 546 F.3d 59, 66 n. 5 (1st Cir.2008). This is especially true when the sanction imposed is the draconian sanction of dismissal with prejudice. Just as an affidavit containing hearsay and not otherwise bearing indicia of reliability cannot support the final disposition of a case on summary judgment, the present affidavit cannot support the present dismissal. See Brooks, 425 F.3d at 1112. Ms. Badger's allegations are troubling to say the least, and our conclusion that her affidavit was incapable of supporting the district court's judgment of dismissal does not detract from the seriousness of her allegations. If Plaintiffs or their agents actually offered to pay Anton to conceal evidence, the outcome of the sanctions question becomes clear. In fact, it may become necessary to refer this matter for possible prosecution. Allegations standing alone, however, cannot justify dismissal, and it was error to rely upon the allegations in the infirm affidavit without an investigation or an evidentiary hearing. Because we must closely scrutinize the severe sanction of dismissal, and because the present sanction rested on a hybrid analysis under Rule 37 and the court's inherent authority, Schoffstall, 223 F.3d at 823, we cannot affirm the sanction once we have eliminated this substantial basis for support. Whether deemed relevant to the question of willfulness regarding a Rule 37 sanction for willful violation of a discovery order or to the question of bad faith for purposes of a sanction based on the court's inherent authority, the court clearly based its dismissal, at least in part, on the alleged offer to pay Anton. We write further as to the dismissal issue because the other stated grounds for dismissal involved resolution of close questions and interpretations of the record that demand reexamination given our determination, as set forth below, that recusal is merited. To the extent the court on remand might again view a pattern of conduct as evidence of willfulness (as relevant to a possible Rule 37 violation) or, in the alternative, as evidence of bad faith (as relevant to a possible inherent-authority analysis), the court will need to address these issues anew. Regarding the email, it is undisputed that both parties had multiple copies of the email and the attachment, but both parties claimed not to possess an original, unamended version. The district court stated, it was obvious that Barazi was lying. Barazi's purported lie regarding the email, however, amounted to nothing more than his inability to recall the precise location from which he had sent an email three years earlier. [3] To the extent Barazi was not lying, it is not clear why the sender of an email should be held any more accountable than the recipient for failing to produce an original, unamended copy of the email or an attachment three years after it was sent. Ultimately, the questions surrounding the email were close questions that involved credibility assessments of persons who did not testify. In light of our resolution of the recusal issue, the underlying determinations regarding the email issue cannot stand, and we cannot view this issue as offering substantial support for the sanction decision. Similarly, reliance on purported misrepresentations about the taped conversations is problematic and should be reviewed on remand. Barazi actually stated in his deposition that he taped at least three conversations: he answered in the affirmative when asked if he had taped a conversation with a certain officer and if he had taped conversations [plural] with another officer. Plaintiffs provided the tape of the third conversation as an attachment to a motion and claimed later that the initial failure to produce this material was an inadvertent error. While the district court was not required to accept this assertion of inadvertent error, it would seem strange for a party purposefully to conceal the existence of a taped conversation and then rely upon and attach that taped conversation to a motion. Further, the court made no reference to the content of, or possible prejudice related to, the tape in question. In any event, Defendants supported their motion for sanctions with an excerpt of different deposition testimony. In the excerpt that Defendants offered to the court, Defendants' attorney cut-off Barazi's answer after asking him whether he had taped additional conversations: Q. Have you tape recorded any other conversations relating to your MSO operations at Shell? A. No, I mean. Q. And have you videotaped any activities related to Shell, Shell meetings, conversations, conferences. At most, then, the record may contain inconsistencies regarding Barazi's claims about taped conversations. It is not clear that these inconsistencies resulted from lies. Again, in light of our resolution of the recusal issue, we cannot view the current record regarding the dispute over taped conversations as offering substantial support for the sanction decision. Regarding the production of documents generated, considered, or relied upon by Walls, Defendants and the district court characterize the four discovery orders as having called for production of the same documents. They did not. The orders each contained slightly different descriptions of the documents to be produced, and Plaintiffs read each order in a limited fashion to limit production. This behavior was evasive and appears to have been directed toward protecting a claim of privilege. While this behavior may have resulted in technical non-compliance with one or more of the orders, the court's overly broad characterization of the orders demonstrates that the orders were not clear, and it makes the existence of any non-compliance equally unclear. Further, Plaintiffs' apparent gamesmanship, while not admirable, is not necessarily indicative of a willful violation of the orders. We note also that evasiveness related to the production of these documents may be excusable in this case because Plaintiffs presented a non-frivolous argument regarding privilege, and Defendants admit the district court did not address the privilege argument until the third order. Our court held in In re Bieter, 16 F.3d 929, 939-40 (8th Cir.1994), that privilege extended to communications between a non-employee contractor or consultant and a party's lawyer. We stated that a person's technical status as an employee or contractor was not necessarily dispositive as to privilege because oftentimes a party may rely upon and use a consultant in a manner essentially equivalent to an employee. See id. at 938 (There is no principled basis to distinguish [the consultant's] role from that of an employee, and his involvement in the subject of the litigation makes him precisely the sort of person with whom a lawyer would wish to confer confidentially in order to understand Bieter's reasons for seeking representation. As we understand the record, he was in all relevant respects the functional equivalent of an employee. (internal citations omitted)). As such, it is not clear that the district court on remand necessarily will find a willful violation rather than a careful attempt at compliance coupled with an attempt to preserve privilege. Finally, given the differences between the four orders for production of Walls-related documents, we believe there was a lack of clarity in the orders. It is not clear at this point that Plaintiffs' interpretations of those orders and limited production actually resulted in violations of the orders. Given the severity of the sanction of dismissal, Plaintiffs' substantial production of documents for in camera review merited greater attention or, at a minimum, denial of the motion for in camera review and delivery of the documents from the court to Defendants. Regarding the related issue of purported misrepresentations as to Walls's and Anton's status, the district court found that Plaintiffs made misrepresentations on several occasions. The court deemed this status relevant to more than the question of privilege. The court deemed perceived misrepresentations about Walls's status to be abuses of the judicial process. An example cited in the written order of dismissal was Plaintiffs' characterization of Walls as a non-employee, retained expert in a May 2006 filing. In that document, however, Plaintiffs did not represent that Walls was a retained expert. Rather, they expressly characterized Walls as an employee, stating, This motion arises from Shell's unsupported efforts to limit Plaintiffs' expert testimony by refusing to permit Chris Walls, an employee and expert witness of Plaintiffs, to view certain documents including the MSO Model and historic financial information designated by Shell as `highly confidential.' Regarding Anton, it is not clear that Plaintiffs ever represented to the court that Anton was anything but an outside consultant after early 2005. The court cited the later-filed Missouri liquor-license applications as evidence that Plaintiffs had lied, but it is not clear that any statements on these Missouri documents are inconsistent with Anton being a non-employee. Finally, regarding the issue of prejudice, the court stated: Defendants have suffered prejudice from Plaintiff's conduct. After months of litigation, Defendants, and this Court, have still not had the ability to gain a clear picture of the discovery available and the roles of the parties involved in this case. Defendants ability to conduct discovery and counter Plaintiffs' arguments has been destroyed by Plaintiffs' actions in this case. We agree that Plaintiffs have not been forthcoming with their production, and as noted above, they have been particularly evasive as to documents related to Walls. It appears from the record on appeal, however, that everything that might be produced has been produced to the court or to Defendants. Because the court had ordered Plaintiffs to produce materials to Defendants, Plaintiffs' election to produce the materials for in camera review would seem to be a technical violation of the discovery order. It is difficult, however, to call such a violation willful or to find prejudice where it would have been a simple matter for the court to permit Defendants to view or retrieve the documents. Regarding the inability to obtain data from Anton, Defendants voluntarily terminated Anton's deposition and chose to pursue sanctions rather than pursue discovery as to the payroll journal they deemed critical to their case. In sum, the question of prejudice is, like the other questions presented below, a close question that a new judge need not resolve in the same manner. We emphasize that, on remand, the district court need not find Plaintiffs' actions excusable, non-prejudicial, nor innocuous. We note only that the present record contains several close questions as to Plaintiffs' willfulness, Plaintiffs' violation of one or more discovery orders, the existence of prejudice, and the appropriateness of the overall sanction of dismissal. Given the appearance of partiality and the close scrutiny applicable to the severe sanction of dismissal, these questions demand further examination.