Lower Court Correctly Found that GM Disobeyed Discovery Orders, but Order Imposing $700,000 in Sanctions and Striking Affirmative Defenses Violated Due Process

Serra Chevrolet, Inc. v. Gen. Motors Corp., 446 F.3d 1137 (11th Cir. 2006) GM appealed the decision of the District Court for the Northern District of Alabama which found that GM had violated discovery orders and imposed $700,000 in monetary sanctions and struck certain of GM’s affirmative defenses. A summary of the lower court’s decision and a copy of its order are available here. The 11th Circuit concluded that, although the district court did not abuse its discretion when it found that GM had violated an order to produce information about satellite dealerships, the district court violated the due process rights of GM by failing to provide any rational basis for the sanctions it imposed. $700,000 Fine The appellate court found that the district court provided an insufficient record and rationale for its fine of $700,000:

The district court offered no rationale whatsoever for the $50,000 a day sanction. Although the court found that GM was in contempt for 98 days, which, at $50,000 a day, would amount to $4.9 million, the court limited the sanction to $700,000, or 14 days of contempt, and the district court provided no explanation for its decision to limit the fine to 14 days.

Thus, it was “impossible” for the appellate court to provide meaningful review on appeal, since the district court failed to give “any justification” for its decision. “We cannot evaluate whether the fine was “just” and “specifically related to the particular ‘claim’ which was at issue in the order to provide discovery.” The court ordered that on remand, the district court must provide a rationale for any fine, and advised that “[t]he costs to the court of the numerous motions, hearings, and orders are an appropriate consideration.” It further counseled that “the district court ‘may also find that the fine is better deemed costs to be paid in full or in part to’ Serra or its attorneys for their litigation expenses in compelling the relevant discovery.” And finally: “Whatever the court decides, it must create a record of its reasons for the imposition of any fine to afford meaningful review by this Court.” Striking Certain Affirmative Defenses Next, the appellate agreed with GM that the “district court violated due process because ‘there is absolutely no nexus between the documents that the district court ordered produced in its discovery orders and the court’s sanction striking GM’s affirmative defenses of res judicata, issue preclusion, judicial estoppel, or law of the case doctrine.'” It found that the district court had struck three defenses regarding the preclusive effect of certain earlier litigation, but that those defenses had no apparent relationship with the discovery abuse. “The discovery orders compelled the production of documents regarding satellite agreements between GM and Chevrolet dealers nationwide and vehicle allocation data for Chevrolet dealers in the Birmingham area, but those documents were unrelated to the earlier litigation in the state courts.” The appellate court concluded:

As with the monetary sanctions, the district court failed to state any reasons for striking these defenses. Because the legal defenses were not “specifically related to the particular ‘claim’ which was at issue in the order to provide discovery,” the sanctions violated the due process rights of GM.

The court therefore affirmed in part, reversed in part, and remanded the matter to the district court for further proceedings.