UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1852
BIZPROLINK, LLC,
Plaintiff - Appellant,
versus
AMERICA ONLINE, INCORPORATED,
Defendant - Appellee,
and
AOL-TIME WARNER, INCORPORATED,
Defendant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Leonie M. Brinkema, District
Judge. (CA-04-206-A)
Argued: May 26, 2005 Decided: July 27, 2005
Before TRAXLER and DUNCAN, Circuit Judges, and Eugene E. SILER,
Jr., Senior Circuit Judge of the United States Court of Appeals
for the Sixth Circuit, sitting by designation.
Reversed and remanded by unpublished per curiam opinion.
ARGUED: Robert Joseph Yorio, CARR & FERRELL, L.L.P., Palo Alto,
California, for Appellant. Eugene Frank Assaf, KIRKLAND & ELLIS,
L.L.P., Washington, D.C., for Appellee. ON BRIEF: Adrian R. Wolff,
CARR & FERRELL, L.L.P., Palo Alto, California; Michael Joseph, Alex
Blanton, BLANK ROME, L.L.P., Washington, D.C., for Appellant.
Charles E. Graf, Assistant General Counsel, AMERICA ONLINE, INC.,
Dulles, Virginia; Craig S. Primis, Matthew E. Papez, Michael F.
Williams, KIRKLAND & ELLIS, L.L.P., Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIAM:
On June 8, 2004, the United States District Court for the
Eastern District of Virginia dismissed BizProLink LLC’s
(“BizProLink”) claim against America Online (“AOL”) under Federal
Rule of Civil Procedure 37 as a sanction for failure to comply with
a discovery order. For the reasons that follow, we reverse and
remand for further proceedings.1
I.
BizProLink is a Florida company engaged in the development and
design of Internet content and technology. In April 2001,
BizProlink entered into a written contract with the Internet
provider AOL known as the Netbusiness Integration Agreement
(“Contract”). In the Contract, BizProLink agreed to pay AOL
$500,000 in order to advertise its products on the AOL network.
BizProlink alleges that a subsequent oral agreement was entered
into in which BizProLink agreed to provide AOL with Internet
content, technology, and tools, for which AOL agreed to provide
“fair and reasonable compensation.” (JA 37). Over the next year,
BizProLink contends that it provided content for AOL and performed
all the functions required under the oral agreement. However,
BizProLink alleges that, as of October 2002, AOL had not provided
1
We have reviewed BizProLink’s other claims and find them to
be without merit.
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it any compensation under the oral agreement. BizProLink ceased
providing services to AOL under the oral agreement and suspended
its performance of the Contract.
In October 2003, BizProLink filed a complaint against AOL in
the United States District Court for the Southern District of
Florida. It alleged a host of claims, including violation of an
oral contract, fraud, and quasi-contract claims under Florida law.
On February 20, 2004, the case was transferred to the United States
District Court for the Eastern District of Virginia because of the
forum selection clause in the Contract between the two parties.
The district court in Virginia allowed BizProLink to amend its
complaint to reflect Virginia law. In so doing, BizProLink sought
to add two new claims: fraud in the inducement and rescission of a
written contract, claims that were unavailable under Florida law.
The district court dismissed the two claims, holding that they were
filed without obtaining leave of the court as required by Federal
Rule of Civil Procedure 15(a).
As to the claims that survived dismissal, BizProLink alleged
that it incurred approximately $10.3 million in damages stemming
from the costs associated with its development of content for AOL.
This allegation became the crux of the dispute currently before
this court.
On January 26, 2004, AOL served a number of discovery requests
on BizProLink, including a set of interrogatories asking for
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specific details about the allegations in the complaint. One of
those interrogatories (“Interrogatory 13"), requested an “itemized
statement identifying ‘the millions of dollars [BizProLink]. . .
expended for labor, software, marketing and related costs.’” (JA
106). It further asked that the response include “the basis
(including all supporting data and analysis thereof) for the dollar
amounts” alleged in the complaint. Id. BizProLink initially
objected, but on May 7, 2004, the Magistrate Judge assigned to the
case ordered BizProLink to provide a full and complete response to
all of AOL’s interrogatories.
BizProLink responded to the court’s order on May 12, 2004 by
stating that it was claiming the entirety of its business expenses
after May 3, 2001, as damages for the alleged breach of the oral
agreement.2 It presented a single-page spreadsheet cost analysis
of the company by its hired expert who simply segregated the
expenditures undertaken by BizProLink prior to the entry into the
oral agreement and those after its existence and presenting the
latter as damages. The presentation did not identify the
underlying data used by the expert in making the distinction, but
promised that it would in the future “attempt to recreate the
computation if it is able.”
2
At various points in the litigation, BizProLink claimed
different dates as the starting point for calculating AOL’s
damages. The different dates listed in this opinion reflect the
dates as submitted by BizProLink.
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In response to this cursory proffer, AOL filed a Federal Rule
of Civil Procedure Rule 37 motion to compel production, arguing
that the incomplete response was a violation of the court’s order.
At a hearing held on May 28, 2004, the Magistrate Judge agreed with
AOL that the spreadsheet was an insufficient response to the May
7th order and issued a second order compelling production. The
court ordered BizProLink to provide “all of the documentation and
data and analysis that supports their claim for damages” and a
written interrogatory response detailing how it arrived at the
figures in question. (JA 554C). It made clear that if a response
was not given, BizProLink “will be barred from producing any
further evidence at trial as to damages.” Id. When AOL did not
receive the data that it believed was required, it filed a motion
on June 4, 2004, to dismiss the case under Fed. R. Civ. P. 37(d)
for failure to comply with a discovery order.
At a hearing on AOL’s motion on June 8, 2004, BizProLink
reiterated that it was unable to produce any more documentation
supporting its damages claim. The district court held that
BizProLink had violated the court’s discovery orders. In its oral
decision, the court held that it was “granting the defendant’s
motion for a rule 37 sanction, and the sanction is that the
plaintiff is barred from producing any evidence to support its
damage claim.” Noting that BizProLink could not prevail if it
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could not show damages, the court dismissed the case. BizProLink
timely appealed.
II.
We review a district court’s issuance of sanctions for failure
to comply with a discovery order for an abuse of discretion.
National Hockey League v. Metropolitan Hockey Club Inc., 427 U.S.
639, 642 (1976). While we generally give district courts a wide
range of discretion to impose these sanctions, “when the sanction
involved is judgment by default, the district court’s ‘range of
discretion is more narrow.’” Mutual Fed. Savings & Loan Ass’n v.
Richards & Associates Inc., 872 F.2d 88, 92 (4th Cir. 1989)
(internal quotation omitted). Default judgments are given more
scrutiny because they deal with “the party’s rights to a trial by
jury and a fair day in court.” Id.
In its complaint, BizProLink alleged that it suffered
approximately $10.3 million in damages because of the alleged
breach of the oral agreement by AOL. The complaint delineated the
damages in seven categories, including labor, overhead and
software. However, it did not include a basis for the figures or
the methodology of their computation. When AOL attempted via
Interrogatory 13 to discover the rationale for these damages,
BizProlink initially hesitated, and ultimately came forward with
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little beyond a single-page spreadsheet separating operating
expenses as of April 1, 2001.
It is understandable that the district court was frustrated
with BizProLink’s continued inability to produce any significant
support for its damages claim beyond the spreadsheet. The court
undoubtedly recognized that the lack of proof would undermine
BizProLink’s case at trial. Nevertheless, as discussed below, its
decision to impose the draconian remedy of dismissal under Rule 37
on these facts was an abuse of discretion.
This Court traditionally employs a four-part test for
determining whether dismissal is a proper sanction under Rule 37:
(1)whether the noncomplying party acted in bad faith;
(2) the amount of prejudice his noncompliance caused his
adversary, which necessarily includes an inquiry into the
materiality of the evidence he failed to produce;
(3) the need for deterrence of the particular sort of
noncompliance; and (4) the effectiveness of less drastic
sanctions.
Mut. Fed., 872 F.2d at 92. The use of this test “insure[s] that
only the most flagrant case, where the party’s noncompliance
represents bad faith and callous disregard for the authority of the
district court and the Rules, will result in the extreme sanction
of dismissal or judgment by default.” Id. Although we analyze
BizProLink’s appeal under the four factor test out of an abundance
of caution, we note at the outset that the applicability of the
test to these facts is unclear. As we explain in greater detail
below, it is uncertain that BizProLink violated the discovery order
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at all, as it contends that it turned over all the information in
its possession. On these facts, an in-depth analysis of only two
of these factors will suffice, and both counsel in favor of a
reversal of the district court.3
(1) Whether BizProLink Acted in Bad Faith
After BizProLink’s initial refusal to answer Interrogatory 13,
the district court ordered that it turn over “all of the
documentation and data and analysis that supports their claim for
damages,” plus any written explanation as to how these figures were
computed. (JA 554C). In response, BizProLink produced only the
spreadsheet which the district court considered inadequate and
found to be in violation of its order. However, it is not clear
that BizProLink’s failure to produce further evidence supports a
finding of a violation. BizProLink contended before both the
district court and this court that it has no more documentation or
analysis to support its damage claims and that no one involved,
including counsel, is clear how the damage figure was initially
3
The other two factors counsel towards reversal as well. If
BizProLink had no more information to give, then AOL suffered no
prejudice. However, even if other evidence existed, an order
limiting BizProLink’s trial evidence to that submitted during
discovery would have alleviated any prejudice that could have
existed. Similarly any concern about deterrence for future
discovery orders is minimal here since no amount of deterrence can
cause the production of information that does not exist. In
addition, even if BizProLink had other evidence, a trial
evidentiary limitation order would provide sufficient deterrent
effect to prevent future discovery abuses.
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derived. If this contention is true, then BizProLink was not only
not in blatant violation of the discovery order, it had in fact
complied with it. It gave AOL all the documentation that it had
supporting the damage claims, meager though it may be. AOL does
not now contend that there is any more evidence of data or analysis
currently in BizProLink’s possession. Nor does it appear that
BizProLink is simply withholding documents in order to save them
for trial. Rather, all of the evidence currently before the court
suggests that BizProLink has no documentation beyond the single-
page spreadsheet to support its damage claims. The fact that no
more documentation exists may be evidence of the strength or
weakness of BizProLink’s case, but it does not support a finding of
bad faith in complying with the court’s discovery order.
(2) The Effectiveness of Less Drastic Sanctions
Because of the extreme nature of Rule 37 dismissals, this
court has previously “encouraged trial courts initially to consider
imposing sanctions less severe than default.” Hathcock v. Navistar
Int’l Transp. Corp., 53 F.3d 36, 41 (4th Cir. 1995). On May 28,
2004, the Magistrate Judge ordered that BizProLink provide all
evidence of its damages to AOL or face the threat of a subsequent
limitation of its presentation of damages. The Magistrate Judge
held that “whatever they come up with [in response to the order],
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that’s all they’re going to be allowed to introduce at trial.” (JA
554C).
This sanction would have been the preferable one. The purpose
of the discovery process is to allow both parties to be prepared
for any evidence that will be put forward at trial. U.S. v.
Procter & Gamble Co., 356 U.S. 677, 682 (1958). Because BizProLink
contends that it has no more data or analysis to support its damage
claims, it is not the case that its inability to turn over this
nonexistent evidence will cause prejudice to AOL at trial. Rather,
the limited amount of documentation currently on record represents,
according to BizProLink, the entirety of its damage evidence. Had
the court adhered to its initial inclination to simply limit
BizProLink’s trial evidence to the current record rather than
dismiss the case, the result would have been to simply force
BizProLink to live with any evidentiary deficiencies going forward.
Instead, the court’s decision had the effect of rendering the
ultimate punishment on BizProLink for failing to produce evidence
that the record suggests does not exist. The less drastic trial
evidence limitation sanction would have been effective in
maintaining the importance of the discovery process and preserving
the right of district courts to enforce their discovery orders.
However, it also would have allowed the merits of the damage claim
to be adjudicated in the proper forum at trial, rather than in the
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context of a discovery dispute when it is unclear that a violation
has occurred.
III.
Because we find no evidence of bad faith on the part of
BizProLink in responding to the discovery order and the lesser
sanction of limiting the evidence allowed at trial would have been
effective in addressing any violation which did exist, the
dismissal under Rule 37 was an abuse of discretion. For these
reasons, the judgment of the district court is
REVERSED AND REMANDED.
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