COURTS WIELD HARSH PENALTIES FOR ABUSING THE DISCOVERY PROCESS
Evelyn Alfonso , 30 January 2004
A federal district court last summer issued the ultimate sanction of dismissal due to plaintiffs= abuse of the discovery process and persistent refusal to abide by the court=s discovery orders. Internet Law Library, Inc. v. Southridge Capital Management, 2003 WL 21537782 (S.D.N.Y. July 8, 2003). ITIS, Inc., formerly known as Internet Law Library, Inc., and its CEO, along with several of its shareholders, brought an action against defendant investors alleging their involvement in a scheme to defraud plaintiffs and to manipulate downward the price of ITIS stock in
violation of federal and state laws. Internet Law Library, Inc. v. Southridge Capital Management, 223 F. Supp. 2d 474, 477-78 (S.D.N.Y. 2002).
Judge Robert L. Carter of the United States District Court for the Southern District of New York dismissed the suit with prejudice as to all defendants due to plaintiffs= repeated attempts to expand and misconstrue the court=s orders on the ground that Federal Rule of Civil Procedure 37(b)(2)(C) authorizes dismissal of a plaintiff=s complaint along with other sanctions if a party Afails to obey an order to provide or permit discovery.@ Internet Law Library, 2003 WL 21537782 at *3. While dismissal is indeed the harshest sanction available to a court, it is appropriate where a party who has disobeyed an order has done so willfully, in bad faith, or is in some way at fault. Id. The court held that plaintiffs= failure to respect the court and its orders justifies dismissal of the complaint as both a remedy and a deterrent to future misconduct. Id. at *4.
ITIS is a publicly traded company owning subsidiaries that operate Internet sites specializing in legal and other types of research and litigation support services. Internet Law Library, Inc. v. Southridge Capital Management, 223 F. Supp. 2d 474, 478 (S.D.N.Y. 2002). The CEO of ITIS, in seeking out capital, was referred to defendant Southridge and negotiations between these entities ensued thereafter. Id. Plaintiffs alleged that defendants made a number of misrepresentations during these negotiations, including, inter alia, that defendants would refrain from
selling ITIS stock for a year after the closing because they had a long-term investment interest in ITIS, and that they would not manipulate ITIS stock with the intention of depressing its price. Id
