The Duty of Inquiry and Sanctions for Failure to Investigate Client’s Claim

Damage Control Method
May 13, 2021

In two recent decisions, the District of Maryland has imposed sanctions for failure to properly investigate a client’s documents.  Taken together, Bioiberica Nebraska and Membreno show that the Court expects a reasonable inquiry into information that is within a party’s possession, custody, or practical control.  Filings or representations that contradict such information may result in sanctions.

In Bioiberica Nebraska, Inc. v. Nutramax Mfg., Inc., 2021 WL 1840292 (D. Md. May 7, 2021), the Court imposed sanctions under its inherent power.  The sanctioned party’s “lax approach to understanding its own case, all while repeatedly concocting new theories for [its opponent] to respond to and the Court to review, constitutes bad faith….”  Id. at *3.

In Bioiberica Nebraska, the plaintiff sought to file a fourth amended complaint in a lawsuit that had been pending for more than two and a half years.  The Court discussed plaintiff’s “repeatedly shifting legal theories and the unexplained, belated discovery of key evidence that had apparently been in [plaintiff’s] possession from the start of litigation more than two years prior.”  Id. at *1 (Emphasis added).  The Court denied the motion to amend the complaint as having been brought in bad faith and, relying on its inherent power, imposed sanctions.

The Court wrote in part:

Here, it is not the invoice revelation and subsequent attempt to once again fundamentally alter its legal theory that, in a vacuum, constitutes an abuse of the judicial process. Instead, it is [plaintiff]’s conduct over the course of this litigation, with this extraordinarily belated discovery of the critical invoice as the capstone, that informs the Court’s conclusion that [plaintiff] has acted in bad faith. …

Here, put in its simplest terms, it was misconduct and an abuse of the judicial process to spend more than two years litigating this case, formulating five pleadings containing numerous distinct (and, in several instances, directly conflicting) legal theories to keep the litigation alive, without making a serious and complete effort to understand the basic facts underlying its suit.

Id. at *2 (emphasis added).

The Court stated that plaintiff failed “to take the task of crafting its pleadings seriously enough to identify what it now suggests is the dispositive document that wins it the entire case.”

[Plaintiff], and its counsel in a sworn declaration, emphasize that its conduct regarding the newfound invoice was, at most, negligent, not intentional. … While the failure to locate the relevant invoice may not have itself been intentional, the company’s decision to pursue this litigation in the manner it has—propounding a series of ever-shifting legal theories without, apparently, ever verifying the factual basis for its claims—reflects a conscious course of action that ultimately abused the judicial process…. As a result of these decisions, the parties and the Court have spent significant time, energy, and resources on assessing a series of pleadings and theories that [plaintiff] now suggests are functionally irrelevant to the resolution of this dispute, because they were all based on the wrong invoice. This cavalier approach to its pleadings undermines the ability of the judicial process to “uncover the truth” and threatens its integrity by centering the inquiry on erroneous and wasteful side shows that could (and should) have been avoided.

The Court criticized plaintiff’s “decision to engage in this course of litigation without ensuring that it had a full grasp of the facts in its possession underlying its claims, resulting in the late-discovered invoice and the subsequent filing of the Fourth Amended Complaint.”  Id. at *3.

What went wrong?  The Court explained:

In its Opposition, [plaintiff] attempts, for the first time, to explain why it only recently discovered the apparently critical invoice. Following the Court’s entry of a Scheduling Order in mid-October, “[t]o be in a position to comply with the discovery that was expected from [defendant], [plaintiff]’s counsel gathered and assembled details of the transaction from its inception.” …  Prior to that, it claims, “[plaintiff]’s counsel had no reason to inquire further” because it assumed [a related company,] Bioiberica S.A.U. billed the first shipment. Id. For a company that diligently formulated theory after theory to survive dismissal, no matter how tenuous or contradictory, this explanation does little to justify its conduct. [plaintiff]’s counsel had a duty to conduct a “reasonable inquiry under the circumstances,” see Fed. R. Civ. P. 11(b), and the circumstances here—five pleadings over the course of more than two years, alongside a warning from the Court regarding the continued amendments and course of litigation strategy—demonstrate that the limited inquiry it describes was most definitively not reasonable. Collecting the documents relevant to the transaction should have been an initial step, not one saved for several years later.

Id. at n. 2 (Emphasis added).

In another recent decision, Membreno v. Atlanta Restaurant Partners, LLC, 2021 WL 351174 (D. Md. Feb. 2, 2021), a litigant told the Court that “producing the requested discipline and termination records was unduly burdensome in that it ‘would require reviewing hundreds of individual personnel files.’”  In fact, the files had been destroyed and were not available for review.

In Membreno, sanctions were imposed under Fed.R.Civ.P. 26(g).  See “District of Maryland’s Recent Application of Spoliation Doctrine in Discrimination Case.”

The Membreno Court wrote: “[Defendant] may be correct that Rule 26(g) does not require parties to perform an ‘exhaustive investigation’ before producing discovery responses, but the plain text of the rule requires a more extensive inquiry than what ARP undertook here. Accordingly, the Court finds that ARP violated Rule 26(g)’s certification requirement and that its failure is not substantially justified.” [Emphasis added].

Taken together, Bioiberica Nebraska and Membreno show that the Court expects a reasonable inquiry into available information.

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