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Supreme Court of Washington Holds Trial Court Did Not Abuse Discretion in Imposing $8,000,000 Default Judgment Pursuant to CR 37 for Defendant’s Willful Discovery Violations

Posted in CASE SUMMARIES

Magaña v. Hyundai Motor Am., 220 P.3d 191 (Wash. 2009)

Plaintiff sustained injuries in an automobile accident that he alleged were caused in part by a defective seat design which allowed the seat to collapse.  The case went to trial and plaintiff was awarded $8,000,000.  The verdict was reversed on appeal for reasons related to plaintiff’s expert’s testimony and a new trial on the issue of liability was ordered.

In preparation for retrial, plaintiff requested that defendant Hyundai update its prior discovery responses.  Previously, following its unilateral decision to limit the time frame of its responses, Hyundai represented it had no similar claims of seat back failure for production and that the 1995-1999 Hyundai Accents were the only models with the same or substantially similar seat design.  In its updated response, though, Hyundai indicated it would produce information related to alleged seat back failures in 1995-1999 Accents and in 1992-1995 Elantras.  Hyundai also stated that 1995-1999 Accents use the same or similar right front seat as the 1996 Accent and that the 1992-1995 Elantras “had a recliner on the right front seat that was substantially similar to the front recliner on the 1996 Hyundai Accent.”  For the first time, claims of alleged seat back failure from 2000 and 2002 were produced.

Plaintiff sought to compel production of all documents related to seat back failures.  Upon the trial court’s order granting the motion, Hyundai produced additional documents, including (for the first time) records from its consumer “hotline” database and nine reports of seat back failures involving 1995-1999 Accents.

Thereafter, plaintiff moved for default judgment arguing that “it would be impossible to prepare a case with the other similar incidents just produced” and that certain evidence had been lost due to delay. In its defense, defendant claimed that it had been relieved of its obligation to produce other similar incidents of seatback failure per a 2001 agreement between the parties and that the prejudice to plaintiff was speculative.

Following an evidentiary hearing in which the primary focus was whether plaintiff was prejudiced, the trial court granted default judgment.  “The court found (1) there was no agreement between the parties to limit discovery, (2) Hyundai falsely responded to Magaña’s request for production and interrogatories, (3) Magaña was substantially prejudiced in preparing for trial, and (4) evidence was spoiled and forever lost. The trial court considered lesser sanctions but found that the only suitable remedy under the circumstances was a default judgment.” Defendant appealed.

On appeal, the order of the trial court was reversed upon the court’s finding that plaintiff had not been prejudiced and that lesser sanctions would have sufficed.  Plaintiff appealed to the Supreme Court of Washington.

Reviewing the trial court’s sanctions for abuse of discretion, the Supreme Court noted that if a trial court imposes one of the “harsher remedies” under CR 37(b), the record must clearly show:  (1) one party willfully or deliberately violated the discovery rules and orders, (2) the opposing party was substantially prejudiced in its ability to prepare for trial, and (3) the trial court explicitly considered whether a lesser sanction would have sufficed.

Turning then to the issue of willfulness, the court noted that both the trial court and the Court of Appeals held that Hyundai’s failure to disclose was willful and that is responses to discovery were “false, misleading, and evasive.”  The court also noted that Hyundai “then failed to supplement its incorrect responses” in preparation for the new trial.  Addressing the adequacy of Hyundai’s search, the court stated:

A corporation must search all of its departments, not just its legal department, when a party requests information about other claims during discovery.  Here Hyundai searched only its legal department.  Hyundai’s counsel told the trial court that in response to request for production 20, Hyundai’s search "was limited to the records of the Hyundai legal department" and that "no effort was made to search beyond the legal department, as this would have taken an extensive computer search."  CP at 5319.  As the trial court correctly found, "[t]here is no legal basis for limiting a search for documents in response to a discovery request to those documents available in the corporate legal department.

The court also stated:

The trial court also found "Hyundai had the obligation not only to diligently and in good faith respond to discovery efforts, but to maintain a document retrieval system that would enable the corporation to respond to plaintiff’s requests.  Hyundai is a sophisticated multinational corporation, experienced in litigation."  Id.  Hyundai willfully and deliberately failed to comply with Magaña’s discovery requests since Magaña’s initial requests in 2000 and continued to do so.

Concluding its discussion of willfulness, the court noted the record fully supported the trial court’s other conclusions and that there was no abuse of discretion as to the willfulness element of the three part test.

Turning to the issue of prejudice, the court found that plaintiff’s “ability to prepare for trial was substantially prejudiced because of Hyundai’s egregious actions during discovery.”  Specifically, the high court dismissed the rationale of the appellate court that plaintiff could have completed his necessary inquiry into other accidents if given more time and rejected the assertion that plaintiff was partially to blame for his troubles by requesting additional discovery and then complaining about a lack of time to investigate.  The Supreme Court also determined that the appellate court used the wrong standard in determining the existence of prejudice.  Specifically, the court found that the proper inquiry was whether plaintiff could have properly prepared for trial rather than whether the plaintiff could have obtained a fair trial – the erroneous standard applied by the lower court.  Accordingly, the Supreme Court held that plaintiff’s ability to prepare for trial was substantially prejudiced, as determined by the trial court.

Finally, addressing whether the trial court explicitly considered lesser sanctions, the Supreme Court found that “the trial court adequately and explicitly” considered lesser sanctions on the record but determined the only adequate remedy was default judgment.  In addressing the sufficiency of a monetary fine, for example, the trial court found that “it would be difficult to know what amount would be suitable since ‘Hyundai is a multi-billion dollar corporation” and that money would not address the prejudice that existed.  The Supreme Court also noted the trial court’s explicit acknowledgment that default judgment would reinstate the substantial verdict, but reasoned that while the amount to be awarded was large, it was not because of plaintiff’s wrongdoing but rather “Hyundai’s atrocious behavior in failing to respond to discovery requests throughout the lawsuit.”

In accordance with the reinstatement of default judgment, the Supreme Court also reinstated plaintiff’s award of attorney’s fees and expenses and awarded plaintiff’s fees and costs for responding to the second appeal.