Dismissal of a Counterclaim is an Appropriate Sanction for Flagrant Discovery Abuse

Simons vs. Fox, No. 17-1012 (7th Cir., February 1, 2018)

This appeal addresses the propriety of sanctions against a litigant for discovery abuses. In a highly contested dispute between the ex-CEO of a trading firm and its founder, the founder and defendant, asks the appellate court to vacate the dismissal of his counterclaim as a sanction for his discovery abuse. Simons sued Fox for firing him for uncovering Fox’s alleged violations of corporate and securities laws. Fox then countersued Simons for defamation. Throughout the acrimonious litigation, Fox asserted that Simons lied in order to destroy Fox’s companies. Rather than prove that assertion with evidence, Fox obstructed Simons’s discovery. This led to sanctions and ultimately the dismissal of Fox’s counterclaim. Fox appeals the orders leading up to the dismissal.

Fox repeatedly refused Simons’s discovery requests, he refused to produce documents he possessed or controlled, and he was an uncooperative deponent. The district court judge directed the production of documents in at least three separate orders, yet Fox declined to produce discovery. The judge sanctioned Fox and he refused to pay the monetary sanction. Fox was then held in contempt of court and ordered to pay a fine for everyday he remained in contempt. Fox refused to pay the fine for contempt. After Fox asserted that he lacked funds to pay any fines, the judge entered an alternative sanction of dismissing his counterclaim as the sanction for Fox’s obstruction. The court found that when presented with the dismissal of claims as a sanction, “we weigh not only the straw that finally broke the camel’s back, but all the straws that the recalcitrant party piled on over the course of the lawsuit.” Domanus, 742 F.3d at 301 (quoting e360 Insight, Inc. v. Spamhaus Project, 658 F.3d 637, 643 (7th Cir. 2011)).

Similarly, the circuit court held that the trial court did not commit reversible error by allowing Simons to voluntarily dismiss the claims against Fox after Fox’s counterclaim was dismissed. Federal Rules of Civil Procedure 41(a)(2) allows a Plaintiff to dismiss claims voluntarily at any time “on terms the court considers proper.” The court reasoned that at the time of dismissal, Fox was in contempt of court, and he showed no prospect of respecting his long-ignored discovery obligations. Therefore, Fox cannot show prejudice from the judge allowing Simons to dismiss his claims voluntarily to end the case. Finally, Fox contended that the district judge was biased and should have disqualified himself. The court found that judicial rulings, even those that “are critical or disapproving of, or even hostile to” a party, do not constitute a valid basis for disqualification except in the “rarest circumstances” in which “deep-seated favoritism or antagonism” makes fair judgement impossible. Liteky v. United States, 510 U.S. 540, 555 (1994). The circuit court found that Fox presented no persuasive reason to disturb the district judge’s fair and patient approach to managing the case and affirmed the decision.

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