Winning the Battle But Losing the War

When confronted with a discovery request, it often is a lawyer's instinct to react that the request is too broad. "That's outrageous and must be reigned in! I can't ask my client to find all of that!" However, you must be careful not to limit the opponent's discovery so much that you end up failing to produce documents that your own side needs to prove its claims or defenses.

A recent case from the Eighth Circuit illustrates the importance of not taking discovery-limiting positions that hurt your own case. In Gander Mountain Co. v. Cabela's, Inc., 540 F.3d 827 (8th Cir. Aug. 27, 2008), the parties disputed the meaning of a trademark license agreement. The key disputed provision gave defendant the right to license certain of plaintiff's trademarks, provided the license was "evidenced by a separate written agreement in form and content customary to licenses of the type described above." When defendant presented plaintiff with the required payment and a license agreement, plaintiff balked and brought a declaratory judgment action to find that defendant was not entitled to the license.

During discovery, plaintiff served an interrogatory requesting defendant's explanation of what the contract meant by "customary form and content of licenses." Defendant responded that the license it had tendered (but which plaintiff rejected) was the only example that was needed. Plaintiff moved to compel a more informative answer but defendant prevailed. Plaintiff filed a second motion to compel a further response, but defendant countered with a motion for protective order, claiming the issue had been decided. The district court agreed with defendant.

Defendant succeeded in shutting down plaintiff's attempt to get defendant to explain what it thought the contract meant beyond merely saying that it believed its proposed license was satisfactory. So far so good. Defendant was saving itself the trouble of answering plaintiff's troublesome discovery requests, right?

Not so fast. Plaintiff moved for summary judgment, contending that the contract language did not provide definite enough terms. Because the single example of a license agreement that defendant offered could not be determinative of what constitutes customary form and content of licenses, plaintiff argued, there was no evidence in the record from which one could conclude that the tendered license satisfied the contract's requirements. The defendant must have been surprised when the district court agreed, and granted summary judgment. It appealed, requesting among other things that the matter be remanded with directions to re-open for additional fact and expert discovery.

The Eighth Circuit affirmed, finding that the district court had not committed error "by granting [plaintiff's] motion for summary judgment without allowing [defendant] an opportunity to conduct discovery that it had previously declined to conduct." The lesson here is that defendant was too good at shutting down plaintiff's discovery attempts. Without allowing information to find its way into the record that defendant needed to prove its own interpretation of the contract, defendant deprived itself of any defense to the summary judgment motion. As this was a situation of defendant's own creation, defendant apparently found little sympathy with the district court or appellate court.

It is interesting to note that on appeal defendant argued that the district court had somehow violated the law-of-the-case doctrine. Apparently, defendant claimed that the fact that the district court had refused to compel defendant to produce the evidence concerning trademark license agreements generally rendered any such evidence, if it had been produced in response to the summary judgment motion, inadmissible for purposes of establishing a genuine issue of material fact. The appellate court disagreed, finding that refusal to compel was in no way a ruling on admissibility.

I tend to see the law-of-the-case argument as better fitting the other side's argument because that doctrine, like other branches of judicial estoppel, is intended to force parties to live with the consequences of their litigation strategy choices. If a defendant argues that it shouldn't be put to producing something in discovery, it must accept that if the court accepts that argument defendant will be barred from producing it later should it turn out to be needed. So before you set out to win a discovery battle, be sure that you aren't setting yourself up to lose the war.

State Court Default Judgment Estopped Debtors From Re-Litigating Dischargability

In Evans v. Ottimo, 469 F.3d 278 (2d Cir. Nov. 20, 2006), the debtors attempted to litigate whether their debts were nondischargeable under § 523(a) of the Bankruptcy Code. The debt involved a default judgment for Evans for $400,000 entered by a New York state court in which the court found that the debtors had committed fraud. The debtors never appealed that judgment, and commenced bankruptcy proceedings five years later.

Evans argued that the debtors were collaterally estopped from contesting that a judgment for damages due to fraud was nondischargeable, but the bankruptcy court disagreed because the judgment in issue was entered in default.

The district court reversed and the Second Circuit agreed, finding that collateral estoppel principles are applicable even in default judgment situations. The two key conditions for estoppel were satisfied here -- the issue was identical between proceedings, and the estopped party had a full and fair opportunity to litigate the issue in the prior action.

Third Circuit Examines Split Regarding Preclusive Effect Of Alternative Findings

The doctrine of collateral estoppel holds that a ruling on a particular issue has preclusive effect and may not be re-litigated in a later proceeding where the identical issue was actually adjudicated, there was a full and fair opportunity to litigate the issue, and the determination by the adjudicator was necessary to the decision in the case. However, courts are split over whether this doctrine applies to a ruling based on alternative findings because of the difficulty in concluding that any one alternative finding was any more “necessary to the decision” than the others.

In Jean Alexander Cosmetics, Inc. v. L’Oreal USA, Inc., No. 05-4321, 2006 WL 2337267 (3d Cir. Aug. 14, 2006), the Third Circuit observed that the First Restatement of Judgments adopted the view that any alternative findings should be given equally preclusive effect, but 40 years later the Second Restatement reached the opposite conclusion, refusing to give preclusive effect to alternative findings that were each independently sufficient to support the judgment. The federal courts of appeal have split behind those two positions, with the majority following the First Restatement.

The Third Circuit rejected the Second Restatement position and sided with the Second, Seventh, Ninth and Eleventh Circuits.