Opinion ID: 2819741
Heading Depth: 3
Heading Rank: 1

Heading: Sanctions Were Appropriate

Text: ¶15 Here the first inquiry is not quite satisfied. The district court based its sanction on the petitioners’ “continued failures to comply with timely discovery, their failure to comply with the Court’s previously entered Order to Compel, and their failure to comply with the Case Management Orders.” It did not, as Kilpatrick required, make a factual finding that the petitioners’ discovery violations were “the result of willfulness, bad faith, fault or persistent dilatory tactics.” Id. ¶ 26; see also Morton v. Cont’l Baking Co., 938 P.2d 271, 276 (Utah 1997) (“[Discovery sanctions are warranted if] (1) the party’s behavior was willful; (2) the party has acted in bad faith; (3) the court can attribute some fault to the party; or (4) the party has engaged in persistent dilatory tactics tending to frustrate the judicial process.”). ¶16 But “[a] failure to make factual findings regarding willfulness is not always grounds for reversal.” Kilpatrick, 2008 UT 82, ¶ 29. We can still affirm sanctions if the record and the court’s factual findings demonstrate a basis for them, id., and we find that to be the case here. Although we do not believe that the petitioners’ repeated disregard of discovery deadlines was tactical or the product of bad faith, neither are we persuaded that the petitioners ever took the court’s deadlines as seriously as they should have. We find it particularly offensive that in August 2010—two months after the final discovery deadline, with the threat of default judgment imminent—the petitioners’ counsel still did not know exactly what records had been produced, or even what records existed. This seems to us to manifest an unwillingness to do the work involved in responding adequately to discovery, as well as a careless disregard for the court’s time and the plaintiff’s right to prosecute his case. ¶17 Under such circumstances, some sort of sanction was clearly appropriate. We must therefore determine whether the district court abused its discretion by choosing default judgment as the appropriate sanction. B. The Court Did Not Abuse Its Discretion by Entering Default Judgment ¶18 One of the situations in which a court can appropriately enter default judgment is when “there has been a frustration of the judicial process, viz., where the failure to respond to discovery impedes trial on the merits and makes it impossible to ascertain whether the allegations of the answer have any factual merit.” W. W. & W. B. Gardner, Inc. v. Park W. Vill., Inc., 568 P.2d 734, 738 (Utah 1977). This is essentially the situation Mr. Fu complained of to the court below: “We’ve alleged fraud [in the complaint] . . . . We believe 5 FU v. RHODES ET AL. Opinion of the Court there’s absolute fraud, and we need these books and records to prove it. They have not provided them.” ¶19 Examining the record, we believe there was an adequate basis for the trial court to agree with Mr. Fu that the petitioners’ discovery failures had rendered further litigation pointless. To begin with, there is the sheer magnitude of the delay. The petitioners failed to comply with their discovery deadline no fewer than four times, twice in the face of court orders threatening default judgment. In May 2009, the court ordered the petitioners to finish discovery in ten days or have their answer stricken. Yet some requested records remained outstanding a full fifteen months later. ¶20 In addition to the magnitude of the delay, we are also struck by the petitioners’ apparent unreliability in explaining their discovery difficulties to Mr. Fu and the court. As we already noted, the petitioners’ counsel was still unsure about the status of important discovery requests more than two months after the final deadline. We also note that, although petitioners’ counsel has claimed that none of the requested tax returns existed at the time of the final discovery deadline on May 31, 2010, the record demonstrates that he himself thought they existed as late as May 5 of that year. In other words, sixteen months after Fu requested the petitioners’ tax returns, the petitioners had still not informed their lawyer that they had no tax returns. Under such circumstances, it is unsurprising that Mr. Fu claimed he had received conflicting reports from petitioners’ counsel about the availability of various documents, and likewise unsurprising that the district court apparently believed him. ¶21 It is possible, as the petitioners now argue, that lesser sanctions would have been sufficient to allow justice to be done in this case. Further, we do encourage district courts imposing sanctions to consider alternative sanctions carefully before entering a default. But the question on appeal is not whether some other sanction would have been more appropriate; it is whether the party challenging the trial court’s decision can demonstrate that default judgment was inappropriate. And where, as appears to be the case here, a party’s conduct during discovery has destroyed its credibility with opposing parties and with the court, we cannot conclude that the court’s decision to enter default judgment was an abuse of discretion. II. THE PRESERVATION RULE BARS CONSIDERATION OF THE PETITIONERS’ LEGAL INSUFFICIENCY ARGUMENTS ¶22 Before the court of appeals, the petitioners argued for the first time that the factual allegations of Mr. Fu’s complaint did not legally support the relief that the district court had granted. Fu v. 6 Cite as: 2015 UT 59 Opinion of the Court Rhodes, 2013 UT App 120, ¶ 9, 304 P.3d 80. They acknowledged that this issue was not preserved, id., and the court of appeals declined to consider it, id. ¶ 19. ¶23 On certiorari, the petitioners argue that the court of appeals erred by not acknowledging an exception to the preservation rule for parties who challenge the legal sufficiency of the complaint on appeal from a default judgment. To support this argument, they appeal to the principle that a default judgment may not be entered on the basis of a legally insufficient complaint. Further, they point to our decision in Skanchy v. Calcados Ortope SA, 952 P.2d 1071 (Utah 1998), which they claim held “that, on appeal from a default judgment, a defendant may, for the first time, contest the complaint’s sufficiency to support the judgment.” The court of appeals rejected this interpretation of Skanchy, concluding that the Skanchy court did not decide “whether a claim that a complaint was insufficient to support a default judgment could be raised for the first time on appeal, but whether it could be raised at all.” Fu, 2013 UT App 120, ¶ 16. ¶24 We find these arguments to be somewhat beside the point. Skanchy concerned a default judgment entered for failure to appear, Skanchy, 952 P.2d at 1074, and the difference between that situation and this one is obvious. A defaulting party who has failed to appear will typically have learned of the lawsuit very recently, and will have had little time to assess the lawsuit’s merits before the deadline passes for filing a notice of appeal or a rule 60(b) motion. The same cannot be said of a party facing default because of discovery sanctions, whose situation more closely resembles that of a party that has lost at summary judgment or even after trial. ¶25 The petitioners’ circumstances are illustrative. They had already been litigating this case for over two years when the court granted Mr. Fu’s motion for entry of judgment. Even after the court granted Fu’s motion, the petitioners still had time to file objections to the proposed default judgment order, and they did so, leading the district court to hold a second hearing on the issue three months after it granted the motion. The petitioners had ample opportunity to contest the legal sufficiency of Mr. Fu’s complaint before the district court, and they failed to take advantage of it. We see no reason to protect them from the consequences of that failure. ¶26 We therefore hold that where default judgment has been entered as a discovery sanction, a party appealing from that judgment may challenge the legal sufficiency of the complaint only if it has preserved the issue before the district court or if one of the normal exceptions to the preservation rule applies. The petitioners 7 FU v. RHODES ET AL. Opinion of the Court have identified no such exception here, and so we find no fault with the court of appeals’ decision not to consider this issue.