A Pack of Lies Leads to a Pack of Sanctions

First Fin. Sec., Inc. v. Lee, No. 14-1843 (D. Minn. Mar. 8, 2016).

A court recently imposed sanctions, including adverse jury instructions and legal costs, where two defendants repeatedly failed to produce texts and e-mails, even after a magistrate judge’s order to do so, and continually misrepresented facts.

In this breach of contract case, the defendants, Gilles Moua, and Main Lee, who had been contractors for the plaintiff, First Financial Security (FFS), resigned on May 10, 2014 to work for a competitor. In the subsequent 12 days, more than 1,300 contractors who had been on Moua’s team at FFS also resigned and followed Moua to the competitor.

In trying to prove that the defendants violated their contractor agreement by inducing this defection, FFS sought e-mails and text messages sent before and after a critical meeting that the defendants hosted at their home on the day they resigned. FFS was “almost entirely stymied” in discovery by the defendants, who repeatedly denied having any more responsive communications to produce, but every time they were prodded for more documents, including by a magistrate judge’s order, they produced more e-mails and texts. Ultimately, they admitted that they had accidentally lost thousands of texts.

FFS asked for spoliation sanctions, but the magistrate judge refused, finding that the lost text messages may have been destroyed intentionally but not necessarily in bad faith. However, he did recommend sanctions for the defendants’ willful failure to comply with his discovery order. The sanctions ordered included striking the defendants’ affirmative defenses, adverse inference instructions, and attorneys’ fees and costs.

The defendants filed objections to the magistrate’s recommendations. The district court affirmed most of the recommendations, finding “strong circumstantial evidence” that the defendants had concealed documents.

First, the district court concluded that the defendants willfully violated discovery orders. The defendants tried to blame their former counsel for failing to turn over relevant communications. The court noted that even if all the blame properly fell on former counsel, “a party is responsible for the conduct of his or her attorney.” Moreover, the court did not believe that the defendants were blameless, based on their piecemeal production of texts and multiple false representations regarding the production of “all” records that were repeatedly proven false.

The defendants then tried to argue that there was no prejudice to FFS from the missing texts. They claimed the lost texts harmed them more than FFS, as such communications “could only help to exonerate them.” Moreover, FFS could obtain those communications from the third-party recipients. The court dismissed both claims out of hand, finding clear prejudice: if the defendants’ argument were allowed to stand, “no party could ever be sanctioned, even for the most egregious discovery abuses.” Further, obtaining the records from more than a thousand custodians would be difficult and expensive, and “scattershot texts and emails from third parties cannot compensate for its inability to obtain a complete record of defendants’ written communications from defendants themselves.”

Accordingly, the district court approved the imposition of adverse inference instructions for the defendants’ failure to comply with discovery and allowed the jury to infer that the defendants instructed their team to come to their home and recruited the sales contractors to defect with them to their new company. The court also awarded FFS its costs and fees for both of its motions to compel against the defendants and their former counsel.

As for documents supporting the defendants’ affirmative defenses, the court found it unclear whether responsive documents actually existed, despite the defendants’ otherwise “suspicious” conduct. The court, therefore, allowed the defenses to proceed unless FFS could establish that the defendants withheld relevant information.

First Fin. Sec., Inc. v. Lee, No. 14-1843 (D. Minn. Mar. 8, 2016).


“The truth will set you free”: it is as true in discovery as it is in life. The defendants’ repeated misrepresentations led to the court discounting their claims, including their argument that they had “difficulty with the English language” and thus could not comply with their discovery obligations. They testified without needing an interpreter, so it was incredible that they could not understand “a simple instruction to preserve and produce” documents. Moreover, the parties failed to convince the court that experienced smartphone users could not locate text messages on their phones. The parties are fortunate that the court did not accuse them (or their counsel) for perjury, as their false statements were made under penalty of perjury.