Lee v. Max International

FILED
United States Court of Appeals
PUBLISH Tenth Circuit

UNITED STATES COURT OF APPEALS May 3, 2011
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court

MARKYL LEE, a/k/a Markyl Angel
Lee; PROMISES TO KEEP, LLC, a
Florida limited liability company,

Plaintiffs-Appellants,
v. No. 10-4129

MAX INTERNATIONAL, LLC, a
Utah limited liability company,

Defendant-Appellee.

Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:09-CV-00175-DB)

Stuart Miller, Laguna Hills, California, for Plaintiffs-Appellants.

James T. Blanch (Erik A. Christiansen and Katherine E. Venti, with him on the
brief), Parsons, Behle & Latimer, Salt Lake City, Utah, for Defendant-Appellee.

Before MURPHY, HARTZ, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

How many times can a litigant ignore his discovery obligations before his

misconduct catches up with him? The plaintiffs in this case failed to produce

documents in response to a discovery request. Then they proceeded to violate not
one but two judicial orders compelling production of the requested materials.

After patiently affording the plaintiffs chance after chance, the district court

eventually found the intransigence intolerable and dismissed the case as sanction.

We affirm. Our justice system has a strong preference for resolving cases on

their merits whenever possible, but no one, we hold, should count on more than

three chances to make good a discovery obligation.

The case started ordinarily enough. In February 2009, Markyl Lee and his

wholly owned company, PTK, filed a complaint alleging that Max International

had breached a contract with them. In the usual course discovery followed and

Max propounded various document requests. Unsatisfied with the plaintiffs’

production, Max filed a motion to compel.

So far, a little off track but nothing out of the ordinary. Soon, however,

things got worse. In October 2009, a magistrate judge granted Max’s motion and

ordered production of a variety of documents. Despite the order, only a trickle of

material followed. Plaintiffs still failed to turn over many items Max had

requested and the court had ordered produced.

This led Max to file a motion for sanctions seeking dismissal of the case.

As happens in these things, much motions practice followed. Eventually, the

magistrate judge in January 2010 confirmed that the plaintiffs had “blatant[ly]”

and without apparent excuse flouted the October 2009 order. Aplt. App. at 398.

Even so, the magistrate stopped short of granting Max’s request for dismissal.

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Instead, the court chose to give the plaintiffs one more chance to produce the

requested documents. At the same time, the magistrate warned plaintiffs that

“continued non-compliance will result in the harshest of sanctions.” Id. The

magistrate gave plaintiffs until February 26, 2010 to produce the requested — and

now twice compelled — discovery.

On January 25, 2010, the plaintiffs filed with the court a declaration

certifying that they had now produced all the requested documents. But once

again Max couldn’t find all of the requested documents. So the very next day

Max sent a letter claiming that various materials still remained missing.

Receiving no reply to its letter, on February 3 Max renewed its motion for

sanctions. Two days after Max filed its motion, plaintiffs produced some of the

missing records. Later in the month, the plaintiffs sent along yet more discovery

materials.

When the magistrate heard arguments on Max’s renewed motion for

sanctions, she was not well pleased. She issued a report and recommendation to

the district court judge finding that the plaintiffs had violated not only her

October 2009 but also her January 2010 order — and that the plaintiffs violated

the latter order despite having been expressly warned that any further problems

could result in dismissal. Pursuant to Rule 37 of the Federal Rules of Civil

Procedure, the magistrate recommended to the district court that it grant Max’s

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motion and dismiss the case as sanction for plaintiffs’ misconduct. In June 2010,

the district court did just that, and it is from this order the plaintiffs now appeal.

We view challenges to a district court’s discovery sanctions order with a

gimlet eye. We have said that district courts enjoy “very broad discretion to use

sanctions where necessary to insure . . . that lawyers and parties . . . fulfill their

high duty to insure the expeditious and sound management of the preparation of

cases for trial.” In re Baker, 744 F.2d 1438, 1440 (10th Cir. 1984) (en banc); see

also Patterson v. C.I.T. Corp., 352 F.2d 333, 336 (10th Cir. 1965). The Supreme

Court has echoed this message, admonishing courts of appeals to beware the

“natural tendency” of reviewing courts, far from the fray, to draw from fresh

springs of patience and forgiveness, and instead to remember that it is the district

court judge who must administer (and endure) the discovery process. See Nat’l

Hockey League v. Metropolitan Hockey Club, 427 U.S. 639, 642 (1976).

Commentators, too, have advised us to remember that “the district courts must

have latitude to use severe sanctions for purposes of general deterrence.” See

Charles Alan Wright, Arthur R. Miller, Mary Kay Kane & Richard L. Marcus,

Federal Practice & Procedure § 2284, at 444.

No doubt district judges enjoy such special discretion in this arena because

of the comparative advantages they possess. In the criminal sentencing context,

the district court receives special deference because it has a better vantage than

we to assess the defendant, the crime, the credibility of all involved. And in some

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sense discovery disputes are analogous. The district court’s active participation

in the discovery motions practice affords it a superior position than we — with

but a cold record to review — for deciding what sanction best fits the discovery

“crime,” both as a matter of justice in the individual case and “to deter [others]

who might be tempted to [similar] conduct.” Nat’l Hockey League, 427 U.S. at

643. Discovery disputes are, for better or worse, the daily bread of magistrate

and district judges in the age of the disappearing trial. Our district court

colleagues live and breathe these problems; they have a strong situation sense

about what is and isn’t acceptable conduct; by contrast, we encounter these issues

rarely and then only from a distance. See Regan-Touhy v. Walgreen Co., 526

F.3d 641, 647 (10th Cir. 2008).

We hold that the district court’s considerable discretion in this arena easily

embraces the right to dismiss or enter default judgment in a case under Rule 37(b)

when a litigant has disobeyed two orders compelling production of the same

discovery materials in its possession, custody, or control. Plaintiffs in this case

were given no fewer than three chances to make good their discovery obligation:

first in response to Max’s document requests, then in response to the October

2009 order, and finally in response to the January 2010 order. Plaintiffs failed at

all three turns. And three strikes are more than enough to allow the district court

to call a litigant out. Of course, our legal system strongly prefers to decide cases

on their merits. Because of this, we have held that a dismissal or default

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sanctions order should be predicated on “‘willfulness, bad faith, or [some] fault’”

rather than just a simple “inability to comply.” Archibeque v. Atchison, Topeka &

Santa Fe Ry., 70 F.3d 1172, 1174 (10th Cir. 1995) (quoting Nat’l Hockey League,

427 U.S. at 640). Likewise, the Federal Rules protect from sanctions those who

lack control over the requested materials or who have discarded them as a result

of good faith business procedures. See, e.g., Fed. R. Civ. P. 37(e) (providing a

safe harbor for those who “fail[] to provide electronically stored information lost

as a result of the routine, good-faith operation of an electronic information

system”). But a party’s thrice repeated failure to produce materials that have

always been and remain within its control is strong evidence of willfulness and

bad faith, and in any event is easily fault enough, we hold, to warrant dismissal or

default judgment.

Back in 1937 the drafters of the Federal Rules promised that their project

would help ensure “the just, speedy, and inexpensive determination of every

action.” Fed. R. Civ. P. 1. To date, that promise remains elusive, more

aspirational than descriptive. But it is surely the case that if court orders can be

repeatedly flouted we will only retreat further from the goal. When a party feels

at liberty to disobey not just a discovery request but two court orders compelling

production of the same material in its control, weeks or months (as in this case)

pass without progress in the litigation. Hours, days, weeks of lawyers’ time are

consumed at great expense. Focus shifts from the merits to the collateral and

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needless. This is not speedy, inexpensive, or just. Just the opposite. And no

doubt tolerating such behavior would encourage only more of it. But there is

such thing as discovery karma. Discovery misconduct often may be seen as

tactically advantageous at first. But just as our good and bad deeds eventually

tend to catch up with us, so do discovery machinations. Or at least that’s what

Rule 37 seeks to ensure. See Roadway Express, Inc. v. Piper, 447 U.S. 752, 763

(1980) (“Rule 37 sanctions must be applied diligently . . . .”); The Sedona

Conference, The Case for Cooperation, 10 Sedona Conf. J. 339, 342 (2009); Final

Report on the Joint Project of the American College of Trial Lawyers Task Force

on Discovery & The Institute for the Advancement of the American Legal System

at 2 (Rev. Apr. 15, 2009), available at

http://www.du.edu/legalinstitute/publications %20rules.html.

Of course, the plaintiffs urge us that theirs isn’t a case warranting

dismissal.

First, they note, the district court’s dismissal order was expressly

predicated on a finding that they violated two orders — and this, they say, they

simply didn’t do. To be more exact, the plaintiffs don’t question that they failed

to comply with the October 2009 order — and they admit that they don’t “have a

good explanation” for this misconduct. Aplt. App. at 649. Instead, they argue

only that they did comply with the magistrate’s January 2010 order, and that the

district court’s factual finding otherwise is clearly wrong. See Watson v. United

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States, 485 F.3d 1100, 1108 (10th Cir. 2007) (explaining that “a [factual] finding

must be more than possibly or even probably wrong; the error must be pellucid to

any objective observer”). Because the district court rested its decision to dismiss

their case on a factually faulty premise, they say, it should be reversed.

But it is the plaintiffs who are mistaken. For its part, Max claims the

plaintiffs violated the January 2010 order in many ways. In reply, plaintiffs

vigorously dispute Max’s representations on each and every score. For our

purposes, however, we don’t need to wade too deeply into this heap of dispute

upon dispute. To sustain the district court’s factual finding that plaintiffs violated

the January 2010 order against a challenge that it is clearly erroneous, it is

enough for us to identify one violation. And one violation of the January 2010

order surely concerns Mr. Lee’s tax returns. Max sought these documents in its

May 2009 document requests, but plaintiffs failed to provide them. The court

ordered the tax returns produced in October 2009, but still plaintiffs failed to

yield. In January 2010, the court once again ordered the tax records produced.

Responding to this latest order, on January 25 the plaintiffs filed with the court a

declaration under the penalty of perjury certifying that they had produced all of

the tax records. As it happened, they had not. Even the plaintiffs themselves now

don’t dispute this much. Neither does anyone dispute that the records were

relevant to the case, the request for them reasonably tailored, and that the

documents were always within the plaintiffs’ control.

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 Instead, the plaintiffs shift ground. They try to convince us that their false

declaration shouldn’t matter. The magistrate gave them, they note, until February

26 to comply with the January 2010 order. And though their January 25

production was incomplete and their declaration of compliance false, they

eventually produced the requested tax records by February 26. And all’s well that

ends well, they say.

We disagree. Once the plaintiffs chose to declare — under penalty of

perjury, no less — that their production of tax records was now compliant with

the January 2010 order, the game was up. The court and defendants were entitled

to take that sworn declaration to the bank, to rely upon it, to consider the matter

closed. Yet, the plaintiffs produced the tax records only after Max uncovered the

falsity of the declaration and only after Max was forced to file yet another motion

concerning their production. None of this should’ve been necessary. And none

of this, in any reasonable sense, demonstrates “compliance” with the January

2010 order. Discovery is not supposed to be a shell game, where the hidden ball

is moved round and round and only revealed after so many false guesses are made

and so much money is squandered. Perhaps the district court could’ve exercised

its discretion to allow the case to proceed despite the false declaration and the

plaintiffs’ repeated noncompliance. But it certainly did not err in finding that its

January 2010 order was violated. See Garcia v. Berkshire Life Ins. Co., 569 F.3d

1174, 1180 (10th Cir. 2009) (to say a false declaration is neither here nor there

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“would render the sanctity of the oath quite meaningless” (internal quotation

omitted)). 1

Second, the plaintiffs complain that the district court failed to explain in

sufficient detail the reasons for its dismissal order. We have, the plaintiffs

observe, previously suggested various factors a district court may wish to

consider when deciding whether to exercise its discretion to issue a dismissal

sanction: “(1) the degree of actual prejudice to the defendant; (2) the amount of

interference with the judicial process; (3) the culpability of the litigant; (4)

whether the court warned the party in advance that dismissal of the action would

be a likely sanction for non-compliance; and (5) the efficacy of lesser sanctions.”

Ehrenhaus v. Reynolds, 965 F.2d 916, 921 (10th Cir. 1992) (internal quotations

omitted). According to the plaintiffs, a district court must always “provide a

detailed evaluation” of these Ehrenhaus “factors on the record.” Aplt. Br. at 26.

The district court’s failure to do so in this case, they say, requires us to reverse.

Again the plaintiffs are in error. In Ehrenhaus we expressly stated the

factors “do not represent a rigid test” that a district court must always apply. 965

F.2d at 921. The Ehrenhaus factors are simply a non-exclusive list of sometimes-

1
Because plaintiffs’ declaration was offered on behalf of both Mr. Lee and
PTK, and because the plaintiffs themselves have consistently urged the courts to
treat them as “one and the same” for all purposes in this case, we have no
difficulty treating the plaintiffs as one in our legal analysis here, as the district
court did. Aplt. App. at 14-15.

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helpful “criteria” or guide posts the district court may wish to “consider” in the

exercise of what must always remain a discretionary function. Id. Accordingly,

we have repeatedly explained that we will uphold a district court’s sanctions

order of dismissal or default — despite the “fact that . . . the court [has] not

evaluate[d]” the Ehrenhaus factors, and despite the fact that not all the factors are

satisfied in a particular case — so long as our independent review of the record

confirms that the district court didn’t abuse its discretion. Archibeque, 70 F.3d at

1174-75; see also Nasious v. Two Unknown B.I.C.E. Agents, 492 F.3d 1158, 1162

(10th Cir. 2007) (holding that we may “affirm a district court’s dismissal based

on our own independent assessment of its legal propriety” even if the district

court failed to discuss the Ehrenhaus factors); Richison v. Ernest Group, Inc., 634

F.3d 1123, 1130 (10th Cir. 2011) (noting that district courts generally may be

affirmed “on any basis supported by the record”); Anaeme v. FHP of New Mexico,

Inc., No. 99-2076, 1999 WL 1101756 at *2 (10th Cir. Dec. 3, 1999) (unpublished)

(finding no abuse of discretion despite district court’s failure to mention

Ehrenhaus factors); Rocky Mountain Tech. Eng’g Co. v. Hutchens Indus., Inc.,

263 F. App’x 895, 898 (10th Cir. 2008) (unpublished) (same). 2

2
The plaintiffs suggest that Procter & Gamble Co. v. Haugen, 427 F.3d
727 (10th Cir. 2005) is inconsistent with these precedents. It is not. In Procter &
Gamble we said simply that a district court “should ordinarily” evaluate the
Ehrenhaus factors, and we reversed the district court’s dismissal order because
“not only did the district court fail to consider the Ehrenhaus factors,” but,
dispositively, “our own independent review suggest[ed]” that “the extreme
(continued...)

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 The dispositive question on appeal thus isn’t whether the district court’s

order could or did touch every Ehrenhaus base. Instead, it is and always remains

whether we can independently discern an abuse of discretion in the district court’s

sanctions order based on the record before us. The Ehrenhaus factors may

sometimes help illuminate that question, just as they sometimes may assist a

district court in exercising its discretion. But a district court’s failure to mention

or afford them extended discussion does not guarantee an automatic reversal.

And where, as here, the record shows that a party failed to comply with a

document request and two court orders compelling production of materials within

the party’s control, we are convinced a district court does not abuse its discretion

by dismissing the case or entering default as sanction, regardless whether and to

what extent the Ehrenhaus factors found their way into the court’s order.

Affirmed.

2
(...continued)
sanction of dismissal was clearly inappropriate under the circumstances” and thus
constituted an abuse of discretion. Id. at 738 (emphasis added). Our independent
review in Procter & Gamble revealed an abuse of discretion because the plaintiff
there (quite unlike the plaintiffs here) lacked control over and thus the ability to
produce the requested data. Id. In Procter & Gamble we also repeated the
unremarkable proposition that we may vacate a district court’s sanctions order,
much as with any other order, for further explanation when the district court
record is so cryptic that it makes it “impossible” for us to conduct “our own
independent review.” Id. (citing Mobley v. McCormick, 40 F.3d 337, 341 (10th
Cir. 1994) (reversing because a “short, three paragraph order” was insufficient to
allow this court to “engag[e] in any meaningful review”)). But our precedents
make quite clear that a district court’s failure to consider the Ehrenhaus factors
doesn’t automatically render our independent review impossible.

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10-4129 - Lee v. Max International

HARTZ, Circuit Judge, joined by Judge MURPHY, concurring:

I agree that the dismissal with prejudice must be affirmed. Although recital

of an analysis of the Ehrenhaus factors is not mandatory before a district court

dismisses with prejudice because of discovery violations, the court should provide

an explanation of the need to dismiss with prejudice. In this case the explanation

was inadequate, perhaps because of a justifiable frustration with the conduct of

the plaintiffs. Nevertheless, that conduct was sufficiently egregious that I see no

point in remanding to the district court to recite the obvious.