Decided: November 5, 2013
The Fourth Circuit held that the United States District Court for the Eastern District of Virginia did not abuse its discretion by dismissing Project Management Company’s (PMC) case against DynCorp International LLC (DynCorp) as a sanction for discovery malfeasance. The Fourth Circuit therefore affirmed the judgment of the district court.
After contracting with the State Department to aid in the development of Iraq’s civilian police force, DynCorp made a subcontract with PMC for operations and maintenance support between August 1, 2008 and February 17, 2009. PMC executed the subcontract through Hussein Fawaz (Fawaz), its Managing Director and purported part owner of the company. Under the subcontract, PMC Project Manager Greg Byers (Byers) was PMC’s point of contact with DynCorp. The subcontract stated that, in response to invoices from PMC, DynCorp would tender payments through wire transfers to a PMC account at Kuwait Gulf Bank (Kuwait Account). Furthermore, the subcontract stated that “[n]o oral statement of any person shall modify or otherwise affect the terms, conditions, or specifications stated in [the] [s]ubcontract.” After beginning performance, PMC listed payment instructions on the face of each invoice; the instructions were consistent with the terms of the subcontract. However, in December 2009, the PMC invoices started directing DynCorp to pay PMC through a different bank account: an account at the National Bank of Kuwait (Lebanon) held in the name of Fawaz (Lebanon Account). Fawaz, Byers, and another PMC employee confirmed the change in instructions. DynCorp eventually terminated the subcontract due to issues with PMC’s performance. After termination, DynCorp learned that Fawaz was not a part owner of PMC. DynCorp also learned that PMC’s actual owners included Rabea Al-Muhanna (Al-Muhanna); according to PMC, Al-Muhanna had sole authority over PMC’s financial affairs.
On January 25, 2012, PMC sued DynCorp in federal court, alleging that DynCorp breached the subcontract by transferring money to the Lebanon Account instead of the Kuwait Account. The parties agreed to complete discovery by April 13, 2012, and the district court set the trial date on August 15, 2012. During the discovery period, DynCorp discovered that at least some of the money it deposited into the Lebanon Account was used to pay PMC’s obligations. DynCorp subsequently asked the district court to impose sanctions under the court’s inherent authority to issue sanctions for abuses of the judicial process, per United States v. Shaffer Equipment Co., 11 F.3d 450. DynCorp claimed that PMC concealed documents that demonstrated PMC’s acquiescence to the use of the Lebanon Account; stated that PMC made a late production of documents demonstrating PMC’s acquiescence to the use of the Lebanon Account, and did so only after DynCorp received documents from a third party indicating that PMC used the Lebanon Account; and asserted that the late-produced documents demonstrated that PMC’s Rule 30(b)(6) representatives—Al-Muhanna and Philip Zacharia (Zacharia)—gave false or misleading testimony and that PMC gave false interrogatory answers. DynCorp asked the district court to dismiss the case. The district court granted DynCorp’s motion for sanctions but declined to dismiss the case; rather, the district court ordered that, inter alia, PMC produce its Rule 30(b)(6) representatives for additional depositions before August 11, 2012. PMC then filed for a protective order, seeking to shield Zacharia from production for deposition and seeking relief from having to produce Al-Muhanna before August 13, 2012—two days before the trial. DynCorp again asked the district court to dismiss the case under its inherent authority; the district court declined to do so, but instead ordered PMC to produce the Rule 30(b)(6) representatives by August 13, 2012. PMC produced Al-Muhanna and Zacharia for deposition on August 13; however, it also told DynCorp that these witnesses were no longer its Rule 30(6)(b) representatives, and offered a new Rule 30(b)(6) representative. PMC also produced additional, previously undisclosed documents—some of which were written in Arabic.
DynCorp submitted a supplemental memorandum asking the court to strike PMC’s claim of damages or, alternatively, to dismiss the case. The district court reevaluated PMC’s conduct under the Shaffer Equipment standard. The court detailed PMC’s discovery abuses, finding that, inter alia, PMC improperly withheld documents, the withheld documents contradicted Al-Muhanna’s deposition testimony, and that PMC gave a false answer to an interrogatory. The district court concluded that PMC was highly culpable, that DynCorp was significantly prejudiced, and that the previous sanctions did not remedy the prejudice to DynCorp. The district court then dismissed the case with prejudice. PMC appealed, arguing that, inter alia, (1) Al-Muhanna did not provide false testimony; (2) the district court improperly considered its false interrogatory response, as DynCorp did not raise this issue as a reason for sanctions; (3) the district court’s culpability finding was not supported by substantial evidence; (4) DynCorp and the judicial process did not suffer prejudice, as DynCorp received all the relevant documents before the date of the trial; and (5) lesser sanctions could have remedied the prejudice and that public policy warranted a decision on the merits.
The Fourth Circuit first noted that the district court considered all six of the Shaffer Equipment factors, and the district court found that each factor weighed in favor of the case’s dismissal. With regard to PMC’s first argument, the Fourth Circuit noted the support in the record for the conclusion that Al-Muhanna testified falsely. With regard to the second argument, the Fourth Circuit noted that district courts are not limited to the parties’ arguments when exercising the inherent authority to impose sanctions under Shaffer Equipment. With regard to the third argument, the Fourth Circuit referred back to the support in the record for a finding of culpability. The Fourth Circuit noted that PMC failed to support its fourth argument with citation, and that PMC produced many documents after the end of the discovery period. Lastly, with regard to PMC’s fifth argument, the Fourth Circuit recognized “the need to preserve the integrity of the judicial process in order to retain the confidence that the process works to uncover the truth,” and noted that the district court’s lesser sanctions did not alleviate the prejudice.
– Stephen Sutherland