ASI, Inc. v. Aquawood, LLC

Background

ASI, Inc. moved for sanctions against the defendants for alleged discovery violations. ASI requested several remedies, including default judgment with treble damages, instructions that would harm the defendants’ position at trial, an injunction barring the defendants from conducting business in the United States, and payment of costs and fees.

The court had appointed Special Master Thomas M. Sipkins to handle pretrial matters and supervise discovery. The Special Master had ordered the defendants to produce unredacted financial records, declarations concerning the “Manley Server,” and the server’s contents to the extent any defendant had access to them. The defendants could redact information only for a compelling reason accepted by the Special Master.

The defendants objected to that order, but the court overruled their objections and affirmed it. The defendants began making the required productions in August 2023, but documents were still missing. ASI then moved for sanctions, citing allegedly improper redactions, missing financial records, and failure to produce the Manley Server. The defendants stated that they had continued producing some documents and did not possess or control others. ASI maintained that the later productions still did not comply with the court’s orders.

Default-judgment request

Federal Rule of Civil Procedure 37 permits sanctions when a party disobeys a discovery order, including default judgment. The court explained that default judgment is a severe remedy generally reserved for willful violations of court rules, contumacious conduct, or intentional delays. Default judgments are disfavored because courts prefer deciding cases on their merits.

The court held that, even accepting ASI’s factual allegations as entirely accurate, the alleged conduct did not meet the high standard for default judgment. The court noted that many issues had been addressed through productions made after ASI filed its motion. It also found that the timing of the required productions was potentially ambiguous because the Special Master had set an aggressive schedule, while the court’s later order did not establish specific deadlines.

Ruling

The court denied ASI’s motion as to the request for entry of default judgment. It emphasized that the ruling did not approve or excuse the defendants’ conduct and that the Special Master could determine that other, potentially severe, sanctions were warranted. The court’s ruling was limited to allowing the action to proceed.

The court submitted the remaining requests for sanctions to the Special Master. Under the appointment order, the Special Master could impose non-contempt sanctions under Rule 37 and recommend contempt sanctions to the court. The order therefore states that ASI’s sanctions motion was denied as to default judgment and submitted to the Special Master for consideration of lesser sanctions.