Bradley v. American Household Inc.

• Citation: 378 F.3d 373
• Decision Date: 06 August 2004
• Docket Number: No. 03-2341.,03-2341.
• Parties: Dale W. BRADLEY, individually and as Guardian and Next Friend of their minor children; Tammy L. Bradley, individually and as Guardian and Next Friend of their minor children; JLB and JDB, Plaintiffs-Appellees, v. AMERICAN HOUSEHOLD, INCORPORATED, formerly known as Sunbeam Corporation; Stephen T. Moffett, Esq., Defendants-Appellants, and R. Scott Long; Barbara A. Allen; Thomas L. Vitu; John E. Hall, Parties in Interest.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 373

378 F.3d 373

Dale W. BRADLEY, individually and as Guardian and Next Friend of their minor children; Tammy L. Bradley, individually and as Guardian and Next Friend of their minor children; JLB and JDB, Plaintiffs-Appellees, v. AMERICAN HOUSEHOLD, INCORPORATED, formerly known as Sunbeam Corporation; Stephen T. Moffett, Esq., Defendants-Appellants, and R. Scott Long; Barbara A. Allen; Thomas L. Vitu; John E. Hall, Parties in Interest.

No. 03-2341.

United States Court of Appeals, Fourth Circuit.

Argued: June 4, 2004.

Decided: August 6, 2004.

Appeal from the United States District Court for the Northern District of West Virginia, Frederick P. Stamp, Jr. J.

ARGUED: Walter Estes Dellinger, III, O'Melveny & Myers, L.L.P., Washington, DC; Paul Mogin, Williams & Connolly, Washington, DC, for Appellants. William J. Hansen, McDermott, Hansen & McLaughlin, Denver, CO, for Appellees. ON BRIEF: Pamela Harris, Jessica Davidson Miller, Shannon Pazur, O'Melveny & Myers, L.L.P., Washington, DC, for Appellant Moffett. Robert B. Barnett, Williams & Connolly, L.L.P., Washington, DC; John E. Hall, Eckert, Seamans, Cherin & Mellott, L.L.C., Pittsburgh, PA, for Appellant American Household, Inc., George E. McLaughlin, McDermott, Hansen & McLaughlin, Denver, CO, for Appellees.

Before WILKINSON, LUTTIG, and MICHAEL, Circuit Judges.

Vacated and remanded by published opinion. Judge WILKINSON wrote the opinion, in which Judge LUTTIG and Judge MICHAEL joined.

OPINION

WILKINSON, Circuit Judge:

Dale and Tammy Bradley sued Sunbeam in this products liability action, claiming that their house had caught fire as a result of a defective Sunbeam electric blanket. During discovery, the Bradleys requested access to all returned electric blankets then in Sunbeam's possession, and the district court granted their request in part. But before Sunbeam produced the blankets, the parties settled the case for a substantial sum and agreed to vacate the district court's production order.

Nevertheless, the Bradleys later moved to reopen the case, arguing that Sunbeam should be sanctioned for continuing to dispose of blankets both before and after the district court's production order. The district court agreed, and it severely sanctioned both Sunbeam and its attorneys. While some of the sanctions were clearly criminal in nature, they were imposed without the necessary constitutional and statutory safeguards. And to the extent that the sanctions were civil in nature, the Bradleys surrendered those claims when they settled the case. We therefore vacate the sanctions imposed by the district court, and remand the case for further proceedings consistent with this opinion.

I.

A.

The Sunbeam Corporation manufactured over 32 million electric bedding products between 1990 and 2000.¹ Sunbeam receives approximately 600,000 returned products each year, including those that have allegedly smoked, sparked, smoldered or caught fire. In 1999, for instance, Sunbeam received about 1100 such blanket remnants; in 2000, about 1800.

Sunbeam long ago adopted a retention policy to deal with its returned products. Under its policy, Sunbeam retains returned products for as long as they are the subject of a potential claim or lawsuit. Once a customer's complaint has been resolved, the product is marked for destruction, or returned to the consumer upon request. Documentary claim files are not discarded with the product, but instead are retained for an additional two years after the claim is closed.

George McLaughlin, the plaintiff's lead counsel in this case, requested the suspension of Sunbeam's policy on numerous occasions, dating back at least to 1998. The purpose of these requests was to determine if the returned blankets had any bearing on pending cases against Sunbeam being litigated by McLaughlin. Stephen Moffett, Sunbeam's lead counsel, replied to McLaughlin each time by explaining that Sunbeam did not intend to change its policy.

On September 22, 1999, a fire occurred at the residence of Dale and Tammy Bradley in Moundsville, West Virginia. The Bradleys retained Mr. McLaughlin and sued Sunbeam Corporation, claiming that the fire had been caused by a defective Sunbeam electric blanket. During discovery, the Bradleys sought the remains of, and the claims files for, every returned electric blanket that had allegedly smoked, sparked, smoldered, or caught fire. On August 8, 2000, the magistrate judge ordered Sunbeam to produce blanket remains "in their possession as of the date of the serving" of plaintiff's initial discovery request, which was November 2, 1999. He also ruled that Sunbeam had to produce "claims filed that Sunbeam has in its possession."

As a result, Sunbeam set aside all of the blankets then in its possession — on August 8, 2000 — that had also been in its possession nine months earlier on November 2, 1999. However, the Bradleys had not specifically requested that Sunbeam suspend its retention policy, and the magistrate judge had not ordered suspension of the policy on his own initiative. Sunbeam therefore continued to dispose of blankets that had been returned after November 2, 1999, just as it had disposed of blankets returned prior to the magistrate judge's August 8 Order. It is Sunbeam's continuing adherence to its retention policy — both before and after the magistrate judge's August 8 Order — that lies at the heart of this appeal.

On November 1, 2000, the United States District Court for the Northern District of West Virginia adopted the magistrate judge's August 8 Order. The parties then dispute whether discovery was forthcoming, but in any event, the Bradleys moved for sanctions. At a hearing on November 17, 2000, the magistrate judge found that Sunbeam and Moffett had "intentionally and willfully refused" to comply with his August 8 Order by not producing the ordered discovery. The magistrate judge fined Sunbeam and Moffett sums of $5000 and $1000, respectively; ordered all discovery produced to the Bradleys' counsel on November 20 and 24; promised to fine Sunbeam and Moffett sums ranging from $5,000 to $125,000 in the event that discovery was not completed on November 20 and 24; threatened default judgment; and scheduled a criminal contempt hearing.

On November 20 — the day that Sunbeam had been ordered to produce discovery — Sunbeam and the Bradleys settled their case on the record. Sunbeam agreed to pay the Bradleys $500,000, and to produce 80 boxes of documents for McLaughlin's review. In addition, the parties agreed that the earlier August 8, November 1, and November 17 court orders would be vacated. In December 2000, Sunbeam paid the Bradleys the full settlement amount, and the parties executed a "Full and Final Settlement" that incorporated "the terms and conditions ... specifically set forth and recited on the record" at the November 20 hearing ("Settlement Agreement"). Notably, the Settlement Agreement did not address the production of blanket remains, nor had that issue been set forth at the November 20 hearing as a term or condition of the parties' settlement. During settlement negotiations, Sunbeam had agreed to produce blanket remains in Florida and Mississippi, but this was never incorporated into the Settlement Agreement. On January 16, 2001, the district court dismissed the case, subject to reopening on either party's motion, or for good cause shown, within 90 days.

B.

The parties' settlement was not, however, the end of this litigation. In January 2001, Sunbeam produced the 80 boxes of documents, and McLaughlin tagged 25,000 pages that he wanted copied. Later, with written notice, Sunbeam withheld approximately 300 of the tagged pages as privileged, after what Sunbeam claimed was a more thorough review of the files. As for production of returned blankets, Sunbeam made available blanket remains in its Fort Lauderdale and Hattiesburg offices, and McLaughlin inspected the Fort Lauderdale blankets in January 2001 and the Hattiesburg blankets in June 2002 and February 2003.

Nevertheless, in February 2003 the Bradleys moved to reopen the case and enforce the settlement. The thrust of the Bradleys' motion was twofold: first, Sunbeam's withholding of roughly 300 pages from the 80 boxes of documents, and, second, Sunbeam's ongoing destruction of blanket remains. The Bradleys requested that the district court reaffirm the August 8, November 1, and November 17 Orders, which the parties had agreed to vacate at the time of the settlement.

On February 20, 2003, the district court granted the Bradleys' motion, reopened the case, and returned the matter to the magistrate judge for a report and recommendation. After an evidentiary hearing, the magistrate judge issued an order faulting Sunbeam for destroying blanket remains following the August 8 Order. The magistrate judge then held a hearing on sanctions, and ordered Sunbeam and Moffett to submit affidavits as to their financial status.

On August 4, 2003, the magistrate judge issued his report. As to Sunbeam's withholding of documents, he found that the parties had agreed that privileged documents could be removed during the copying process. The magistrate judge therefore ordered the nearly 300 pages be submitted for in camera inspection, so that he could determine whether they were discoverable. As for the destruction of evidence, the magistrate judge found "that Sunbeam [had] destroyed or failed to produce items which were the subject of a discovery request and a court order." He was particularly troubled by testimony that Sunbeam had not suspended its retention policy while the Bradleys' case was pending. The magistrate judge believed that Sunbeam had an ongoing duty, before and after the August 8 Order, to preserve blanket remains in anticipation of litigation. He recommended that Sunbeam be fined $200,000; that Moffett be fined $100,000; and that copies of his report be forwarded to the attorney disciplinary boards in the states in which Moffett was licensed.

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