The Court of Appeals for the 7th Circuit upheld a $413 million default judgment against defendants for committing egregious discovery violations. In Domanus v. Lewicki, 742 F.3d 290 (7th Cir. 2-4-2014), plaintiffs were shareholders in KBP and the defendants were either current or former shareholders. The corporation was formed to develop a business park in Poland. Plaintiffs alleged that defendants developed a fraudulent scheme to loot the company by causing KBP to pay out millions of dollars to the defendants for services never performed, and that the defendants stole cash and property. They also issued stock to one of the defendants which diluted the plaintiff’s ownership shares and made that defendant the majority shareholder.
The defendants abused the discovery process which resulted in several sanctions rulings by the magistrate. When the plaintiffs objected to the magistrate’s relatively lenient decisions, the district judge found the sanctions’ too light and imposed more onerous ones. Finally, the plaintiffs moved for a default judgment before the district judge because the defendants did not produce documents that a contempt order previously required them to produce. The court then computed the damages without a hearing and entered judgment for $413 million.
The Court of Appeals reviewed all of the discovery sanctions which had been entered and said,
Taken together, these discovery abuses form a mosaic that convincingly shows both a “clear record of delay or contumacious conduct,” and “willfulness, bad faith, or fault.” Maynard, 332 F3d at 462. Moreover, the district judge was clear that her list of abuses was not exhaustive. She also emphasized her adherence to our directive that she consider the defendants’ discovery conduct as a whole, and not focus solely on “the straw that broke the camel’s back.” e360 Insite, 658 F3d at 643. Thus, the district judge’s decision to grant the default judgment was warranted and not an abuse of discretion.
The court also held that the court did not abuse its discretion in denying the defendants a damage hearing. The court pointed out that the defendants did not submit a damages expert or put forth an alternative damage theory of their own.