Willful Discovery Misconduct Results in Default Judgment in Successor Liability

26 May 2017

Arrowhead Capital Finance, Ltd. v. Seven Arts Entertainment, Inc. et. al., Case No. 14-6512 (S.D.N.Y., May 2, 2017) is a successor liability case brought by Plaintiff, a lender, against Defendants, two related film companies that are the alleged successors to a loan obligation and subsequent judgment in favor of Plaintiff.

Over a year into the case, the court ordered Defendants to produce certain documents after Defendants failed to provide meaningful discovery responses. Defendant failed to produce the documents timely, and the court scheduled a contempt hearing to determine whether Defendants’ principal, Peter Hoffman, had violated court orders. The court found that Hoffman had concealed assets and information related to those assets and ordered production of the discovery, reserving decision on the sanctions issue. Defendants again failed to produce documents, and the court sanctioned Defendants, finding Hoffman in contempt of court and ordering Defendants to find outside counsel and pay Plaintiff’s attorneys’ fees incurred as a result of the discovery conduct.

In January 2017, Plaintiff advised the court that Defendants continued to refuse to comply with the court’s orders, including to produce information located in their computer system. The court delayed the trial and ordered the parties to brief the issues related to a potential FRCP 37 motion, and Plaintiff filed a Motion to Strike Defendants’ Answers and enter judgment in its favor.

The court found that Defendants engaged in willful discovery conduct and noncompliance with the court’s orders. The court used Defendants’ bank records as an example of their willfulness by describing how the court repeatedly told Hoffman and Defendants’ counsel to get the bank records, and Hoffman, on the record, agreed to provide a list of bank accounts and statements but never did. Plaintiff was forced to subpoena the records. The court noted that the discovery violations had been going on for nearly two years despite repeated warnings, and that lesser sanctions had had no effect on Defendants. The court entered default judgment against Defendants and ordered them to pay Plaintiff’s expenses incurred as a result of Defendants’ misconduct.

ILS – Plaintiff Electronic Discovery Experts