In Charter Communications, the plaintiff, Charter Communications Operating, LLC, was faced with an incredibly contentious opponent. In pertinent part, Charter had contracted with Synygy, LLC [Original Synergy], a predecessor entity in the Stiffler Organization, to provide a cloud-based platform that Charter used to calculate commission-based compensation for its employees and vendors. Charter had also contracted with Original Synygy to provide professional services to support the compensation platform. In 2017, the Stiffler Organization claimed that Original Synygy merged with Optymyze, LLC, which became the counterparty to Charter’s contract. In 2018, the Stiffler Organization asserted that Charter’s use of the compensation platform exceeded contractual limits and demanded additional fees as compensation.
After Charter refused to pay, the Stiffler Organization threatened to block Charter’s access to the compensation platform. Charter later filed suit against Optymyze and moved for a temporary restraining order to bar Optymyze from blocking Charter’s access to the compensation platform. Once the court entered a temporary restraining order, Optymyze engaged in a bizarre series of litigation misconduct, which resulted in the court concluding that Stiffler and Optymyze violated the temporary restraining order. Stiffler and Optymyze’s misconduct further led to more than $1 million in remedial and coercive sanctions.
Seven months after Charter filed suit, Optymyze asserted 17 verified counterclaims against Charter. Charter moved for a dismissal under Federal Rule of Civil Procedure 41(b) and argued that the counterclaims contained false allegations that Stiffler verified in the counterclaims in violation of the court’s orders. After holding a hearing, the court concluded Charter presented clear and convincing evidence that the counterclaims contained false allegations. To give Optymyze and Stiffler the benefit of the doubt, the court held a further evidentiary hearing before ruling on Charter’s motion.
Not surprisingly, Stiffler and Optymyze engaged in further litigation misconduct by seeking unnecessary discovery, refusing to produce witnesses for a deposition, stalling on providing dates for the deposition, and obstructing the progress of litigation. Optymyze later filed a notice to dismiss its counterclaims without prejudice, and Charter moved to strike the notice of dismissal with prejudice, either under Rule 41(a)(2), 41(b), or Rule 37(c). Due to Optymyze and Stiffler’s reluctance to comply with the court’s orders, the counterclaims were dismissed with prejudice under Rule 41(b) and an award of reasonable attorney fees and expenses under the bad-faith exception to the American Rule.
When litigating against a disobedient party, Rules 41 and 37 provide powerful chess moves to address a party’s misconduct. Under Rule 41(b), “If the plaintiff fails to prosecute or to comply with these rules or a court order, a defendant may move to dismiss the action or any claim against it. Unless the dismissal order states otherwise, a dismissal under this subdivision . . . operates as an adjudication on the merits.” Fed. R. Civ. Proc. 41(b). In cases involving a party’s misconduct and refusal to comply with the court’s orders, practitioners should use Rule 41(b) to seek dismissal of unwarranted and erroneous claims. To fully support a Rule 41(b) motion, practitioners must be diligent in documenting a party’s misconduct throughout the litigation to further support dismissal with prejudice of the party’s counterclaims.
Rule 37 further offers an array of sanctions that the court can impose of discovery violations, such as establishing facts for the purposes of the action, refusing to allow the disobedient party to support opposing claims or defenses, or rendering a default judgment against the disobedient party. See, e.g., Terramar Retail Ctrs., LLC v. Marion #2-Seaport Tr., 2018 WL 6331622 at *10 (Del. Ch. Dec. 4, 2018). The Charter Communications decision not only provides an illustrative example of the result of a party’s failure to comply with a court’s discovery orders, but it also provides practitioners with litigation strategies to combat a party’s discovery abuses and misconduct.
