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Chancery Rules that Multiple Egregious Discovery Abuses Lead to the Ultimate Sanction

DG BF, LLC v. Ray, C.A. No. 2020-0459-MTZ (Del. Ch. Nov. 19, 2021)
Delaware courts may impose sanctions on parties that refuse to comply with court orders or neglect their own discovery obligations. Possible sanctions may include, among other things, monetary penalties, an instruction of adverse inference, or the ultimate sanction of default judgment against the offending party. These sanctions are imposed to remedy the wrongs at-issue and to deter abusive discovery conduct.

In the instant case, the Court held that the Plaintiffs’ failure to honor their discovery obligations warranted dismissal. Plaintiffs had previously drawn out discovery by failing to produce relevant sources of data, failing to produce acceptable privilege logs, and claiming ignorance about their preservation obligations (e.g., by deleting responsive texts) and the structure of their own data systems. Rather than fulfill discovery obligations or remedy potential spoliation, Plaintiffs’ counsel engaged in motion practice, served additional discovery requests upon Defendants, and was “extremely obstructive” at the 30(b)(6) deposition of Plaintiffs’ witness on document retention practices.

The Court eventually held Plaintiffs in contempt and ordered the full production of server and laptop images to Defendants for attorneys’ eyes only (“AEO”) review. Plaintiffs were to simultaneously review and log the material, and to claw back any privileged communications or work product. Plaintiffs delayed in transmitting this material. When Defendants’ technology vendor received the machines for imaging, they were accompanied by a letter from Plaintiffs’ counsel attempting to restrict vendor access to certain folders and communications.

As trial was scheduled to begin in two weeks, the Court ruled that the matter was dismissed, and that default judgment be entered in favor of Defendants. The Court acknowledged that while this remedy is extreme, it was nonetheless warranted based on Plaintiffs’ actions. The Court found that Plaintiffs had violated multiple discovery orders and did not honor basic discovery obligations. The Court was particularly concerned by the last-ditch attempt to restrict vendor access to files after the Court-ordered AEO review. The Court found that Plaintiffs had intentionally spoliated evidence, and that their actions were in bad faith. The Court also reasoned that this result should not unduly prejudice any meritorious claims, because Plaintiffs were pursuing similar claims in a parallel foreign action. In addition, all attorneys’ fees and costs arising from the discovery misconduct were shifted to Plaintiffs.

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