Manta Industries Ltd. v. Law

Background

Manta Industries Ltd. brought claims against Paul Law, Lourdes Law, and Fashion Industries, Ltd., including claims seeking to pierce the corporate veil, alleging fraudulent conveyance, alleging breach of fiduciary duty, and alleging aiding and abetting a breach of fiduciary duty based on an alleged transfer of assets to avoid an unfavorable judgment in a related case.

Manta sought discovery from Paul Law beginning in 2018. The opinion describes repeated failures to provide documents and answers, Paul Law’s failure to attend a continued deposition, and multiple court orders requiring discovery compliance. The January 14 and January 16, 2020 orders again required Paul and Lourdes Law to respond to specified discovery requests and warned that failure to comply could lead to sanctions. The Laws did not meet the February 17, 2020 deadline. They later produced documents and amended responses in November 2023, after Manta filed its sanctions motion, but the court found that most of Manta’s requests remained outstanding or that the responses did not comply with the Federal Rules of Civil Procedure.

The sanctions motion

Manta moved under Federal Rule of Civil Procedure 37, which allows sanctions for disobeying discovery orders. It asked the court to strike the Laws’ answer, enter default judgment, schedule a damages hearing, and award the reasonable attorney’s fees and costs incurred in preparing the motion.

Manta argued that the Laws had willfully disregarded the court’s orders and that lesser sanctions would not work. The Laws argued that their responses were complete and that Manta’s failure to reschedule depositions or respond further to an April 24, 2020 letter showed a failure to confer in good faith.

Court’s analysis

The court found that the Laws’ noncompliance was willful. It relied on their repeated failure to follow clear discovery orders, their failure to seek extensions or other relief, their failure to explain the noncompliance until faced with the sanctions motion, and their limited and allegedly nonresponsive production.

The court applied four factors used to decide whether a severe Rule 37 sanction is appropriate: the reason for the noncompliance, whether lesser sanctions would work, the duration of the noncompliance, and whether the party had been warned about possible sanctions. The willfulness and duration factors favored sanctions. The warnings factor also favored sanctions because the Laws had received three orders stating that noncompliance could result in sanctions. The court treated the question whether lesser sanctions would work as neutral, in part because the Laws had made some later production and because neither side had advanced discovery for about three and a half years after April 2020.

Ruling

Judge Loretta A. Preska concluded that sanctions were warranted but declined, at that time, to strike the Laws’ answer or enter default judgment. The court gave the Laws one final opportunity to comply before imposing those potentially harsher consequences.

The court granted in part and denied in part Manta’s sanctions motion. It granted Manta’s request for monetary sanctions to the extent permitted by Rule 37(b)(2)(C), including reasonable expenses and attorney’s fees incurred in preparing the motion. The parties were ordered to confer and propose a schedule for the monetary-sanctions request.

The court also ordered Paul and Lourdes Law to appear for continued depositions no later than September 13, 2024, answer every question unless protected by privilege, and provide compliant discovery responses by August 26, 2024. Manta was ordered to provide the Laws and their counsel copies of all outstanding discovery requests by August 14, 2024. The parties could adjust the dates by agreement. If the Laws failed to comply fully by September 13, 2024, Manta could renew its request to strike the answer, enter default judgment, and schedule a damages hearing.

Disposition

Plaintiff’s motion for sanctions was granted in part and denied in part.