Blatant Bad Faith in Discovery May Ultimately Warrant Terminating Sanctions
CrossFit, Inc. v. Nat’l Strength & Conditioning Ass’n, No. 14cv1191 JLS (KSC) (S.D. Cal. May 26, 2017).
In this unfair competition suit filed by CrossFit, the court concluded that the defendant withheld evidence in bad faith and “refus[ed] to accept responsibility” for its misconduct. The court considered summary judgment but did not award it since no evidence had yet been destroyed. Instead, the court ordered a full forensic examination as well as sanctions that “significantly narrow the issues remaining for trial.”
This case began when the defendant, the National Strength and Conditioning Association (“NSCA”), published a study incorrectly attributing exercise-related injuries to participation in workouts with the plaintiff, CrossFit. CrossFit sued for false advertising under the Lanham Act, unfair competition, and trade libel. The court previously ruled that the study “data were, as a matter of law, false.”
In addition to this federal lawsuit, the NSCA initiated a second case alleging trade libel, defamation, and unfair business practices, involving discovery of similar issues, in state court CrossFit received discovery in state court that it had not received in the federal case. Some of those materials contradicted the federal discovery. CrossFit subsequently deposed Nick Clayton, the NSCA’s Education Coordinator, who “admitted that several of the statements in his federal-action declaration … were false.”
The discovery materials withheld included “documents that affirmatively demonstrate Clayton’s perjury” and a 2013 executive summary naming CrossFit as a competitor, among other highly relevant information. CrossFit moved the court for terminating sanctions or for issue, evidentiary and monetary sanctions.
Federal Rule of Civil Procedure 37 authorizes courts “to impose a wide range of sanctions” for discovery misconduct. Those sanctions include dismissal or termination of the case, although that “severe remedy … should be imposed only in extreme circumstances.” Rule 37 sets out five factors for courts to weigh in considering terminating sanctions.
First, the court concluded that there was “ample evidence of willfulness, bad faith, or fault,” especially given Clayton’s admission to lying “in his federal deposition.” The court noted that the NSCA’s opposition brief failed to address this issue or the “startling federal-discovery omissions.” The court found that terminating sanctions “would essentially be a cleaner and more expedient disposal” of the case, serving both the public’s interest and the court’s need to manage its dockets. The risk of prejudice to CrossFit also weighed slightly in favor of termination, “given the sheer breadth of misconduct [by the NSCA] and [its] refusal to accept responsibility for the same.” Additionally, public policy supported ending the case, as “‘there is no point to a lawsuit … if it merely applies law to lies.’”
However, “less drastic sanctions” were available. While the court found that it would be “well within its discretion” to order summary judgment, it “decline[d] to do so,” in part because CrossFit had yet to find that any evidence had been destroyed. However, the court lacked confidence in that conclusion. Therefore, it ordered the NSCA to pay for a forensic analysis of its servers. Should that evaluation show that the NSCA had destroyed any evidence, the court would allow CrossFit to renew its motion for terminating sanctions.
The court also ordered substantial issue sanctions that will drastically limit the NSCA’s ability to defend itself. These include that “the NSCA and CrossFit are in commercial competition” and that “the NSCA’s false statement … constitute[d] advertising or promotion.” The court further ordered five permissive adverse inference jury instructions.
Finally, the court granted CrossFit leave to amend its complaint and to reopen discovery and awarded fees for bringing this motion.
Takeaways to avoid sanctions
If you are at fault, don’t needlessly make your case worse. Here, the NSCA multiplied its problems time and again. First, it filed the state lawsuit that ultimately revealed its lack of honesty. Second, its employee knowingly perjured himself in federal court. Finally, its documents revealed both the perjury and the falsity of its defense. Most of its wounds were self-inflicted.