Maybe it’s the bad economy . . . or maybe I’ve just hit a patch of cases against really unscrupulous adversaries. But, in the last six months, I’ve handled two very similar cases in which the other side refused to produce their business records to us during litigation. As anyone who has been a litigant knows, the law allows parties to litigation to request and obtain a wide scope of records from the other party to the case. This is part of a process called discovery. Discovery is used to obtain all the information needed to prepare for trial.
What can you do if your adversary will not comply with your discovery requests? Actually, this first question deals with an issue that arises all of the time. In fact, in most cases, the parties dispute what discovery is permissible, whether someone has produced everything required, and whether a party may withhold certain records. When this happens, the party requesting the records will file a motion to compel, asking the court to order the other party to comply with his requests.
That is usually the end of the story. Once the court rules on the issue, the adversary produces whatever the court ordered to be produced.
In the two cases I mention above, my adversaries refused to comply with the court orders. In both cases, I asked the defendants to produce most of their business records; e.g., bank statements, checks, invoices, QuickBooks files, emails, etc. In both cases, the defendants produced on a very small sliver of the universe of documents requested. And, after the court ordered them to produce the rest of the business records, the defendants claimed the records were long ago destroyed or lost.
As the defendants knew, I couldn’t prove my case at trial without the defendants’ records. So, we believed the defendants were fabricating their stories. Should I have just given up and dismissed my cases? Heck no. I utilized a rarely-used procedure: I filed a motion with the court asking the court to punish the defendants for refusing to comply with the court’s prior orders, and/or for destroying their business records. What type of punishment would remedy this situation? I asked for “terminating sanctions" – which is an order by the court entering judgment in my clients’ favor and against the recalcitrant defendants – even without a trial. This procedure is allowed in California courts under Code of Civil Procedure section 2023.030. Federal law also allows for terminating sanctions.
Section 2023.030 sanctions are very difficult to win. I was required to prove that the adversary failed to comply with a court order compelling him to provide discovery, or that the adversary has intentionally destroyed records relevant to the litigation – or both. In addition, I had to show the court that the only remedy that would adequately address the harm caused by the defendants’ conduct was a terminating sanction. In both of these cases, we were able to prove these things easily. We proved that the defendants had altered their QuickBooks records to conceal suspect transactions. We proved that defendants destroyed (or lied about destroying) all or the majority of their paper business records to obstruct our ability to prove what they had done. And we proved that, because defendants refused to produce the business records, we could not establish our damages.
So, what did we achieve with these terminating sanctions? The courts entered judgments in my clients’ favor for the full amounts we asked for in our Complaints. In fact, in one of the lawsuits, we included a claim for racketeering which, under Federal law, gave us the right to “treble" damages – which means the court gave us triple the amount we asked for in the Complaint.
These victories were extremely satisfying. In the vast majority of cases, we lawyers fight about all kinds of issues – and we definitely fight over discovery issues. But, in the end, everyone produces the records and information they’re supposed to provide. So, when I’m in a case where the other side ignores all of the rules, lies and destroys records, and even flouts court orders, it’s very frustrating – for my clients and me. And, I know that courts rarely grant Section 2023.030 sanctions. It’s even more frustrating to think that the bad guys may get away with their conduct.
Consequently, when the court grants terminating sanctions – and my clients receive a just result – I smile. It’s nice to see the justice system working for my clients.