The Ultimate Sanction

Felman Prod., Inc. v. Industrial Risk Insurers, 2011 U.S. Dist. Lexis 112161, No. 3:09-0481 (S.D.W.Va. Sept. 29, 2011).

Topic: Claim dismissal for discovery misconduct.


Plaintiff Felman brought a $39 million business-interruption claim against insurer Industrial Risk Insurers ("IRI"). Felman claimed that a nine-month-long shut down of a production furnace caused the significant loss. While IRI was still investigating the claim, Felman filed suit. Robins Kaplan LLP represents IRI.

A highly adversarial discovery period followed. Felman inadvertently produced documents indicating that the business interruption claim was fraudulent. As previously reported here, Felman tried to "clawback" this evidence by claiming attorney-client privilege. The court's denial of the clawback was based on Felman's failure to take reasonable precautions during discovery and numerous production problems that ensued even after opposing counsel had notified Felman of the same. Felman's other discovery abuses included delayed and excessive productions of ESI, designation of each electronic record "Confidential," and production of misleading interrogatory responses. Further, Felman claimed work-product protection on numerous materials, but then repeatedly failed to issue timely litigation holds to key employees and individuals at affiliated companies. Felman also destroyed material evidence and violated two orders issued by the magistrate overseeing discovery.

As a result of Felman's discovery misconduct, IRI moved for dismissal. The court granted the motion in part by dismissing Felman's business-interruption claim with prejudice. The court also awarded an adverse inference to IRI and required Felman to pay the attorneys' fees IRI incurred due to the discovery abuses. The court noted that dismissal is the most severe sanction available under Rule 37, and that its discretion is "more narrow" when considering this relief. Nonetheless, the court found dismissal warranted as a sanction because of Felman's general discovery misconduct, violation of previous orders to produce documents, and failure to preserve documents pursuant to its obligations under the Federal Rules.

BuLits Points

  • Connect the dots on litigation holds. Identify key players with potentially relevant information and issue litigation hold notices to them when you first anticipate litigation. Remember that key players may be former employees or may work for affiliated companies. Depending on whether these individuals' documents could be said to be within your client's "custody or control," your client may be obligated to preserve them as well.
  • Recognize the connection between work-product privilege claims and litigation holds. Discussions held in "reasonable anticipation of litigation" may be protected from discovery under the work-product privilege-but "reasonable anticipation of litigation" also triggers the responsibility to issue litigation holds for document retention. Be mindful to take a consistent position.
  • Let reason be your guide. Be forthcoming and thoughtful in your responses to discovery. Take reasonable precautions and review documents carefully for relevance, privilege, and confidentiality designations-and then heed warnings about potential problems you get from the other side.
And Remember

Although dispositive sanctions-like dismissal and default judgment-are the most severe sanctions available under Rule 37, judges may award this relief in cases of extreme discovery abuse. While each jurisdiction has its own standards, the court in this case found that violating court orders, failing to issue timely litigation hold notices, and destroying relevant electronic discovery warranted dismissing a significant portion of the plaintiff's complaint.

The articles on our Website include some of the publications and papers authored by our attorneys, both before and after they joined our firm. The content of these articles should not be taken as legal advice.