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This post has been updated to reflect subsequent appellate action. Scroll down to the bottom to see the update.
In Wachtel v. Health Net, Inc., Judge Faith S. Hochberg of the United States District Court for the District of New Jersey imposed severe sanctions on Health Net Inc., a health insurance provider, and its subsidiaries for what the court term its “flagrant disregard” of discovery orders and its “lengthy pattern of repeated and gross noncompliance with discovery.” These sanctions arose in a case in which the plaintiff beneficiaries, Zev and Linda Wachtel, had filed an ERISA action against the Health Net defendants for breach of fiduciary duty and other wrongs regarding the manner in which the defendants reimbursed out-of-network claims.
After a “lengthy pattern of repeated and gross noncompliance with discovery” emerged, the beneficiaries made a motion for an integrity hearing under Rule 37 of the Federal Rules of Civil Procedure. (Rule 37 governs sanctions against a party who fails to provide discovery as required by the discovery rules or a court order.) The court had previously held eleven days of evidentiary hearings regarding whether the defendants had complied with court orders to retain, search, and produce e-mail and other electronic documents.
The court noted that the defendants had “employed an obstructionist approach to discovery” throughout the litigation. The defendants had failed to produce documents responsive to the beneficiaries’ requests, failed to preserve and search e-mails, and engaged in a pattern of violation and disregard of discovery orders.
Some examples of the defendants’ bad faith discovery violations include:
- defendants never produced thousands of pages of relevant and responsive documents within the three-year-long discovery period
- defendants did not even search for these documents until it decided to look for them for its own use at trial and for its defense at the Rule 37 hearing
- thousands of defendants’ employees’ e-mails were never searched; many others were lost permanently due to defendants’ e-mail retention/non-retention practices. This caused Plaintiffs to waste huge amounts of time and money deposing the defendants’ witnesses without the benefit of their e-mails and other documents relevant to each deponent.
- defendants produced approximately 20,000 pages of previously unproduced discovery to the plaintiffs in support of their motion for summary judgment. Many of these documents related to individuals whom the plaintiffs had already deposed years earlier.
- defendants willfully ignored several of over 160 court discovery orders and opinions
- defendants engaged in a “repetitive pattern of strategic delays”
- defendants only produced many documents that were not produced in discovery upon court order at the Rule 37 integrity hearing
- defendants ignored court orders to produce documents
- defendants failed to ask their witnesses to search for relevant documents before their depositions
- often, defendants did not even argue that production was burdensome, but later decided to argue burdensomeness to legitimize their failure to obey the court’s orders
- defendants unilaterally, and with no legal basis, decided to stop restoring and producing requested e-mails
- defendants process for responding to discovery requests was utterly inadequate, as they relied on an in-house paralegal who was also responsible for approximately 60 other cases
The court noted that this was not a case of inadvertent or negligent failure to disclose the existence of additional discovery. Rather, the defendants actively chose not to advise the plaintiffs or the court that they were planning to rely on documents that had never before been produced. The court found that the defendants chose not to produce the belated discovery until its impact would be most acute. These discovery violations rose to the level of bad faith.
Shockingly, Health Net unilaterally decided that if the magistrate judge did not expressly state that she was ruling on their “burdensome” objections, they could continue to withhold documents. The company never told the judge that it was not complying with her discovery orders in this way—rather, it simply withheld the documents.
Ultimately, the court concluded that the repeated nature of the defendants’ conduct and their flagrant disregard of court orders warranted strong sanctions. The court characterized Health Net’s conduct as “abusive and contemptuous of” the magistrate judge’s orders and of its adversary.
This case vividly demonstrates that litigants should never ignore a discovery order. A litigant who persistently evades discovery will face harsh sanctions, such as the preclusion of evidence, monetary sanctions, the striking of privilege assertions, etc. Courts are likely to be very hostile to a litigant that has treated the discovery process with such a cavalier attitude, especially if the party thereafter unearths documents that had previously been requested in support of its own motions. The severest of sanctions will be warranted in the face of such bad faith conduct.
The court imposed sanctions severe enough to redress the defendants’ misconduct and to remedy the harm to the beneficiaries and the court. The court noted that these sanctions were imposed in part “to punish Defendants’ disrespect and abuse of this Court’s procedures.” The severe sanctions the court imposed include: deeming facts admitted; precluding evidence; striking the defendants’ privilege assertions in various privilege logs; striking the defendants’ late-designated witnesses; imposing monetary sanctions; and appointing a special discovery master.
The court observed that Health Net’s “intentional discovery abuse [was] systemic and shocking.” It admonished the defendants for draining court time and resources, and for seriously interfering with the court’s functioning.
Kathy Trawinski is a Seton Hall University School of Law student (Class of 2012) who focuses her studies in the area of commercial litigation. She is an Associate Editor of the Law Review and a member of the Moot Court Board. She will begin as a first year associate at Day Pitney LLP in the fall of 2012. Prior to law school, she was a 2009 graduate of the University of Virginia, where she earned a BA in English.
August 28, 2012
By: Catherine Kiernan
While sanctions against the defendant for severe lack of candor to the court and evasive responses to plaintiffs’ discovery requests were properly ordered by the district court, the third circuit noted that the defendant did not have to produce all documents ordered. The third circuit held that, the fiduciary exception to the attorney-client discovery privilege does not apply to ERISA fiduciary and its corporate parents because “the plaintiff-beneficiaries are not the ‘real’ clients obtaining legal representation.”
Click here for the full article.