In a case involving repeated discovery violations, a state supreme court held that failing to comply with court orders justifies entry of summary judgment, even in the absence of actual prejudice. ABA Litigation Section leaders believe the decision in Mohns, Inc. v. BMO Harris Bank N.A.highlights for counsel the importance of complying with court orders and the need to explain to clients the risks of noncompliance.
The litigation arose from a payment dispute between the plaintiff, a general contractor, and the defendant, a bank financing the project. The bank assured the contractor that its draws would be honored during the economic downturn. During the course of the project, however, the bank sold the loan, and the contractor went unpaid when the new owner of the loan foreclosed on the project. The initial bank represented that the new bank would honor the draw requests. The new loan owner, however, ultimately refused to pay the contractor.
The contractor sued the original bank for breach of contract, unjust enrichment, and misrepresentation. In response to the contractor’s interrogatories, the bank provided responses that “contained more objections than answers” and refused to produce any documents on the grounds that all documents had previously been produced in the new loan owner’s separate foreclosure action. The bank also refused to produce the loan sale agreement because it was allegedly confidential. At deposition, the bank’s designated corporate representative lacked knowledge of the bank’s discovery responses and the deposition topics set forth in the deposition notice.
The contractor moved to compel discovery and sought sanctions. The bank moved for summary judgment. The trial court ordered a new deposition of a representative with firsthand knowledge of the topics, ordered that defendant provide more specificity in its discovery answers, and ordered the bank to provide a complete and unredacted copy of the loan sale agreement. It also took the sanctions request under advisement and delayed the summary judgment hearing until after discovery was completed.
Despite failing to complete the discovery as ordered, the bank agreed to have its summary judgment motion decided prior to the new hearing date. The trial court denied the motion, finding that the bank’s discovery violations caused the “shortcomings” of the contractor’s case. It extended the discovery deadline and warned that if the bank failed to remediate the discovery violations, it would enter summary judgment in favor of the contractor.
In response, the bank belatedly produced thousands of documents, including a document the trial court opinioned was “as close to a smoking gun as I have seen in a long time in a misrepresentation claim.” The new corporate representative produced for deposition still lacked knowledge about the relevant facts or documents. Finding the series of delays and discovery violations to be “egregious” and in “blatant disregard” of its orders, the trial court entered summary judgment in favor of the contractor as a discovery sanction against the bank.
The Supreme Court of Wisconsin affirmed the trial court’s entry of summary judgment. In so holding, the high court rejected the bank’s argument that the sanction was inappropriate because there was no finding that the bank’s discovery violations prejudiced the contractor. It stated that “[a]s a prerequisite to imposing default judgment as a discovery sanction, a circuit court must find the sanctioned party engaged in egregious or bad faith conduct, without a clear and justifiable excuse, but need not determine the opposing party was prejudiced thereby.” The supreme court explained that “parties acting egregiously or in bad faith ‘significant[ly] prejudice’ ‘the circuit court's ability to efficiently and effectively administer judicial business,’” and that drastic measures may be needed “to punish and deter the flagrant disobedience of court orders.”
In this case, the high court agreed that the circuit court properly exercised its discretion in imposing the ultimate sanction. Specifically, it noted that “[b]ased on the circuit court's warnings, its findings of egregiousness, BMO's refusal to obey the order, and the availability of this sanction under Wis. Stat. § 804.12(2), the circuit court's decision to impose the sanction of default judgment was a reasoned determination that a reasonable circuit court could make.”
Litigation Section leaders agree with the decision. “At every instance in this case, the defendant refused to comply with the discovery rules under Wisconsin law. Here, the court forewarned that it would impose sanctions, including granting summary judgment, if it did not resolve the discovery issues,” says John S. Austin, Raleigh, NC, cochair of the Section’s Trial Practice Committee. “When a court enters an order compelling production and warns of ultimate sanctions, then it is perfectly justified in imposing this level of sanctions,” he adds.
“This opinion highlights the importance of complying with discovery rules and orders. Balancing responsibility between client and counsel is driven by the particular facts. Here, the defendant failed to comply with two orders, a lesser sanction would only permit the behavior to continue,” says Donald W. Davis, Akron, OH, vice-chair of the Section’s Trial Practice Committee.
“While this case instructs attorneys on the necessity of complying with discovery rules and orders, clients typically do not read court opinions. When you are getting pushback from a client regarding discovery requirements, you might want to mention a case like this in your jurisdiction. Then follow up that conversation with a letter to the client,” Austin advises.
