Chrysler Corp. v. Carey

• Decision Date: 14 June 1999
• Docket Number: No. 98-4020,98-4020
• Citation: 186 F.3d 1016
• Parties: (8th Cir. 1999) CHRYSLER CORPORATION, APPELLEE, v. JOHN J. CAREY; JOSEPH P. DANIS; CAREY & DANIS, L.L.C., APPELLANTS. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1016

186 F.3d 1016 (8th Cir. 1999)

CHRYSLER CORPORATION, APPELLEE, v. JOHN J. CAREY; JOSEPH P. DANIS; CAREY & DANIS, L.L.C., APPELLANTS.

No. 98-4020

U.S. Court of Appeals, Eighth Circuit

Submitted: June 14, 1999

Filed: Aug. 5, 1999

Appeal from the United States District Court for the Eastern District of Missouri.

Martin M. Green, Clayton, Missouri, argued (Joe D. Jacobson, Clayton, Missouri, on the brief), for Appellants.

John E. Hall, St. Louis, Missouri, argued (Barry A. Short and Gary M. Smith, St. Louis, Missouri, on the brief), for appellee.

Before Beam and Morris Sheppard Arnold, Circuit Judges, and Panner,¹ District Judge.

Beam, Circuit Judge.

Chrysler brought this action for breach of fiduciary duty against its former counsel. Chrysler alleged that its former counsel had shared or used its confidential information to aid attorneys prosecuting product liability claims against Chrysler. After four days of trial, the evidence established repeated discovery abuses by the defendants. As a sanction, the district court² struck the pleadings of the defendants, entered judgment against the defendants on the issue of liability, and submitted the case to the jury to determine damages. Defendants appeal and we affirm.

I. BACKGROUND

The defendants, John Carey and Joseph Danis are both attorneys and former associates of the St. Louis law firm of Thompson & Mitchell (T& M). T& M represented Chrysler as lead counsel in most of Chrysler's product liability class action litigation. Carey and Danis worked on five Chrysler lawsuits: the Osley case, involving allegedly defective heater cores; and four others involving allegedly defective door latches. Carey, the more senior of the two attorneys, drafted motions and briefs, conducted discovery, and communicated frequently with Chrysler's in-house counsel. Specifically, he drafted a third-party complaint, identified potential expert witnesses and participated in Discussions with Chrysler regarding class action defense issues and settlement strategy. In connection with the settlement of the Osley case, Carey redrafted the plaintiffs' amended complaint in order to make it as broad as possible to achieve the greatest possible res judicata effect. Most of Danis's Chrysler work consisted of research, writing briefs, and drafting discovery requests and responses. In 1993 and 1994, his last two years at T& M, Carey billed twenty-seven percent of his time to Chrysler litigation. In 1994, Danis billed twenty-three percent of his time to Chrysler. During the litigation of these cases, regular exchanges of confidential information took place between Chrysler and T& M. Carey and Danis had complete access to T& M's Chrysler files and T& M's computer network which contained drafts and final versions of pleadings, research, memoranda, and communications with Chrysler.

Carey and Danis left T& M in January 1995 and formed their own law firm, Carey & Danis, L. L. C. (Carey & Danis). They shared office space with the law firm of Danis's father, David Danis, Danis, Cooper, Cavanaugh & Hartweger, L. L. P. (Danis, Cooper). When they left T& M, Carey and Danis took 996 pages of Chrysler-related documents, including documents pertaining to cases they had never worked on and memoranda labeled "Confidential and Privileged."

Shortly after Carey and Danis started their firm, they became members of a small, informal group of attorneys who regularly worked together on class action lawsuits. This group included David Danis, Joseph Phebus of Illinois, John Deakle of Mississippi, Michael Campbell of Florida, and J. L. Chestnut of Alabama (the group). In 1995 and 1996, members of the group filed class actions against Chrysler in New Jersey, Mississippi, and Alabama. In August 1995, Cary & Danis became involved with Dennis Beam regarding a potential class action suit against Chrysler involving an anti-lock brake system (ABS). Carey & Danis arranged to have Beam represented by Danis, Cooper and another firm. However, the petition in the Beam case was modeled on the Osley amended complaint that Carey had drafted for Chrysler and taken from T& M. After it become aware that Chrysler was investigating a possible conflict of interest, the second firm withdrew and Carey & Danis joined Danis, Cooper as attorneys of record for Beam. In December 1995, T& M wrote Carey & Danis and demanded that they withdraw from the Beam case because their actions were "wholly inconsistent with their fiduciary obligations" to Chrysler. Meanwhile, Carey & Danis had already begun to explore the possibility of joining Beam with another class action ABS case against Chrysler that was already filed in New Jersey, Chin v. Chrysler. After receiving the letter from T& M, David Danis dismissed the Beam case in St. Louis without prejudice and joined Beam with the Chin case. The amended complaint listed only Danis, Cooper as co-counsel. Later, Danis, Cooper withdrew from the case after its involvement was challenged by Chrysler.

In October 1995, another member of the informal group, John Deakle, filed an ABS class action suit against Chrysler in Mississippi and sent Carey & Danis a letter discussing a potential division of fees. Portions of Deakle's complaint mirrored the Beam complaint. In June 1996, group member Chestnut filed an ABS class action suit against Chrysler in Alabama. Carey and Danis deny that they participated in any class action suit against Chrysler.

Chrysler filed this action against Carey, Danis, and their firm in March 1996 alleging inter alia, breach of fiduciary duty. In an effort to determine the extent of the role Carey and Danis played in the ABS cases, Chrysler served interrogatories and requests for documents upon Carey and Danis, and upon the non-party members of the group as well. When asked to produce documents pertaining to any communication Carey & Danis had with anyone else regarding ABS class action litigation against Chrysler, Carey & Danis responded "No such documents exist." The discovery process was, to say the least, protracted and acrimonious. The non-party attorneys fought every effort to produce documents, forcing Chrysler to litigate the issue in several different jurisdictions. The pre-trial litigation lasted over two years.

At trial, Chrysler introduced forty-two letters and other pieces of correspondence which had been sent to or from Carey and Danis that involved class action litigation against Chrysler. On the morning of the fourth day of trial, defense counsel³ shared with Chrysler's counsel some documents he intended to use in the cross-examination of a witness. Among those documents, was a letter dated December 13, 1995, written by Joseph Danis to Paul Grossman, the attorney representing the plaintiffs in the New Jersey ABS class action against Chrysler. The letter was a recap of a previous meeting between Danis, his father David Danis, and Grossman regarding the possibility of joining Beam as a plaintiff in the action filed by Grossman. The letter had never been disclosed to Chrysler. Shortly before the lunch break, Chrysler brought the letter to the court's attention and moved that the court strike the defendants' answer. After reviewing interrogatories and requests for production of documents and corresponding responses, and after hearing from counsel, the district court struck the defendants' answer, resulting in a default judgment for Chrysler on the issue of liability.

Carey and Danis appeal, arguing that the imposition of the sanction was an abuse of discretion, and that even if a sanction were warranted, the severity of the sanction was an abuse of discretion. They further argue that they did not receive a fair hearing before the court struck their pleadings.

II. DISCUSSION

The district court imposed the sanction under Rule 37 of the Federal Rules of Civil Procedure and the inherent authority of the court. Our review is deferential, and we will not reverse a decision by the district court imposing sanctions absent an abuse of discretion. See, e. g., Sylla-Sawdon v. Uniroyal Goodrich Tire Co., 47 F.3d 277, 280 (8th Cir. 1995). This review applies to the decision to impose a sanction, the nature of the sanction imposed, and the factual basis for the court's decision. See Dillon v. Nissan Motor Co., 986 F.2d 263, 267 (8th Cir. 1993).

In order to impose sanctions under Rule 37, there must be an order compelling discovery, a willful violation of that order, and prejudice to the other party. See Baker v. General Motors Corp., 86 F.3d 811, 816 (8th Cir. 1996), rev'd on other grounds, 118 S. Ct. 657 (1998). Carey and Danis argue that Chrysler suffered no prejudice from the nondisclosure of the letter because Chrysler, through depositions, was already aware of all the information contained in the letter.⁴ Carey and Danis also argue that the court could not have found the failure to produce the letter to be a willful violation of discovery.⁵ We agree with the defendants, as far as their argument goes. The letter revealed little or nothing unknown to Chrysler. A year before trial, Chrysler knew of the meeting between David Danis, Danis and Grossman as well as the attempted joinder of the Beam case to the New Jersey case. In fact, much of the information contained in the letter was recited in the district court's May 1998 order denying summary judgment. See Chrysler Corp. v. Carey, 5 F. Supp. 2d 1023, 1030 (E.D. Mo. 1998). Chrysler also knew of Deakle's Mississippi case, and had deposed Deakle. Had the letter been properly produced in discovery, as it should have been, it may have made Chrysler's later discovery more efficient, or at most may have led to further inquiry. However, that speculation does not translate into prejudice sufficient to sustain the drastic sanction of a stricken answer. Chrysler points to nothing that would have changed the nature of its case or its trial strategy had it known about the letter.

Unfortunately, our review of the record shows Carey...