Law Enforcement Alliance of America, Inc. v. USA Direct, Inc. ( 2003 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
LAW ENFORCEMENT ALLIANCE OF 
AMERICA, INCORPORATED,
Plaintiff-Appellant,
v.  No. 02-1715
USA DIRECT, INCORPORATED,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Gerald Bruce Lee, District Judge.
(CA-01-930-A)
Argued: January 24, 2003
Decided: March 14, 2003
Before WILLIAMS and KING, Circuit Judges, and
HAMILTON, Senior Circuit Judge.
Affirmed in part, reversed in part, and remanded by unpublished per
curiam opinion.
COUNSEL
ARGUED: Richard E. Gardiner, Fairfax, Virginia, for Appellant.
John Hardin Young, SANDLER, REIFF & YOUNG, P.C., Washing-
ton, D.C., for Appellee. ON BRIEF: Joseph E. Sandler, SANDLER,
REIFF & YOUNG, P.C., Washington, D.C., for Appellee.
2 LAW ENFORCEMENT ALLIANCE v. USA DIRECT
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Law Enforcement Alliance of America, Inc. (LEAA), appeals (1)
the district court’s grant of summary judgment to U.S.A. Direct, Inc.
(USAD), on LEAA’s claim that USAD breached an implied in fact
agreement by failing to guarantee payment of $25,000 per month to
LEAA for the months of April 2001 through September 2001; (2) the
district court’s grant of summary judgment to USAD on USAD’s
counterclaim that it is entitled to $107,295.46 in unpaid invoices, plus
finance charges, for direct mail services that USAD provided to
LEAA; and (3) the district court’s upholding of the magistrate judge’s
award of discovery sanctions against LEAA under Rule 37 of the
Federal Rules of Civil Procedure for abuse of the discovery process.
For the reasons that follow, we affirm in part, reverse in part, and
remand for further proceedings.
I.
In 1993, USAD, a Pennsylvania corporation, began providing
direct mail services for LEAA, a Virginia corporation.1 The direct
mail services in this case involved raising funds for LEAA by solicit-
ing new memberships and membership renewals. LEAA participated
in designing mailings that USAD then printed and mailed to the
addresses on a mailing list provided by LEAA. When the recipients
mailed in their membership dues, an escrow agent collected the mail
and deposited the funds into an escrow account. After USAD pro-
vided the direct mail services, it would send an invoice to LEAA, and
then USAD would be paid out of the funds in the escrow account. The
1
Because this appeal comes to us from the district court’s grant of
summary judgment on USAD’s motion, we view the evidence in the
light most favorable to LEAA, the nonmoving party. See Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
LAW ENFORCEMENT ALLIANCE v. USA DIRECT 3
parties entered into an agreement with Washington Intelligence
Bureau, Inc. (WIB) establishing WIB as the escrow agent who would
hold funds raised through USAD’s direct mail services (1993 Agree-
ment). Although, by its terms, the 1993 Agreement stated that it
would be in force from March 1, 1993 to January 1, 1995, the parties
continued using WIB as an escrow agent until early 2001. In June
1995, at the request of USAD, LEAA completed and signed a credit
application (1995 Credit Application), wherein LEAA agreed to the
following terms: "Our Terms are Net Due Upon Receipt. A finance
charge of eighteen (18%) percent will be applied to all balances out-
standing over thirty (30) days." (J.A. at 15-16.) The 1995 Credit
Application contained no expiration date.
In October 1997, USAD and LEAA entered into another agreement
(1997 Agreement), which expressly incorporated terms "comparable
to the arrangement [the parties had] worked under since 1995." (J.A.
at 24.) The parties agreed to continue using the escrow mechanism
and that funds from the escrow account would be distributed as fol-
lows: LEAA would receive $20,000 per month,2 then USAD would
be paid the amount due on outstanding invoices, and LEAA would
receive any remaining funds.
By its terms, the 1997 Agreement ended in September 2000,3
although the parties continued their business relationship through Jan-
uary 2001, unaware that the agreement had ended. When USAD real-
ized that the 1997 Agreement had expired, it notified LEAA by
proffering a new agreement that proposed to modify some the terms
of the 1997 Agreement and to lower LEAA’s monthly draws to
$16,250 per month (2001 Proposed Agreement). LEAA rejected the
2
On January 7, 1999, both parties agreed in writing to amend the 1997
Agreement to increase the monthly amount LEAA received from the
escrow account from $20,000 per month to $25,000 per month.
3
The 1997 Agreement specifically states, "The term of this agreement
shall be three years beginning October 1, 1997 and extending until Sep-
tember 1, 2000." (J.A. at 25 ¶ 6.) The parties dispute whether the 1997
Agreement terminated on September 1, 2000, or September 30, 2000.
Viewing the evidence and inferences in the light most favorable to
LEAA, we assume that the 1997 Agreement terminated on September
30, 2000.
4 LAW ENFORCEMENT ALLIANCE v. USA DIRECT
2001 Proposed Agreement and did not make a counter-offer. Without
any contract or agreement, all services occurring after January 31,
2001, were provided by USAD on a pre-paid, "pay as you go," basis.
LEAA received $25,000 per month from the escrow account from
September 2000 through January 2001, $23,000 in February 2001,
and nothing in March 2001. USAD performed no more direct mail
services for LEAA and, on April 26, 2001, LEAA withdrew the
remaining balance of approximately $80,000 from the escrow
account.
In May 2001, LEAA filed a Motion for Judgment in Virginia Cir-
cuit Court alleging that, although the 1997 Agreement expired in Sep-
tember 2000, there was an implied in fact contract that continued the
1997 Agreement relationship between the parties until October 2001
and that LEAA was entitled to the $25,000 per month it would have
received from the escrow account for the months of April through
October. USAD removed the case to federal court based on diversity
jurisdiction and counterclaimed for outstanding payments and finance
charges due under seven invoices for direct mail services provided to
LEAA, asserting theories of breach of contract, unjust enrichment,
and quantum meruit. In the district court, LEAA conceded that it was
not entitled to any funds for October 2001, and thus, that its total
damage claim was $150,000, $25,000 per month from April through
September 2001.
On December 28, 2001, USAD filed a motion for summary judg-
ment with respect to LEAA’s claim and USAD’s counterclaims. Fol-
lowing this motion, LEAA belatedly produced four of the seven
invoices relating to USAD’s counterclaims, which LEAA had previ-
ously denied existed, and which it had failed to produce in both its
mandatory disclosures and its responses to USAD’s requests for pro-
duction. The district court granted USAD’s summary judgment
motion on both LEAA’s claim and USAD’s counterclaim and granted
USAD damages of $107,295.46, plus finance charges,4 for the seven
outstanding invoices, but denied USAD attorney’s fees. USAD then
moved for sanctions against LEAA for withholding the four invoices,
4
The parties stipulated that the finance charges awarded by the district
court on January 31, 2002, were $19,375, plus daily interest of $53.64
on and after February 1, 2002.
LAW ENFORCEMENT ALLIANCE v. USA DIRECT 5
which a magistrate judge granted. After the district court affirmed the
sanctions of $6,169 over LEAA’s objections and entered a final sum-
mary judgment order, LEAA timely appealed. We first address
LEAA’s arguments regarding the district court’s grant of summary
judgment to USAD and then address the discovery sanctions.
II.
We review a grant of summary judgment de novo. Higgins v. E.I.
DuPont de Nemours & Co., 863 F.2d 1162, 1167 (4th Cir. 1988). In
conducting this review, we apply the same legal standards as the dis-
trict court. Ramos v. S. Md. Elec. Coop., Inc., 996 F.2d 52, 53 (4th
Cir. 1993). The district court should only grant a motion for summary
judgment where there is no genuine dispute as to an issue of material
fact, and the moving party is entitled to summary judgment as a mat-
ter of law. See Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48 (1986). The party bearing the burden at trial
must demonstrate that a triable issue of fact exists; it may not rest
upon mere allegations or denials. Anderson, 477 U.S. at 248.
A.
On appeal, LEAA first contends that its "undisputed evidence
demonstrate[s], from the conduct of the parties, that there was a meet-
ing of the minds that the parties agreed to continue to operate under
the terms of the 1997 Letter Agreement upon its expiration for a
period of one year, beginning October 1, 2000 and expiring Septem-
ber 30, 2001." (Appellant’s Br. at 10.) Thus, LEAA claims that the
district court erred by granting USAD summary judgment because an
implied in fact contract was formed between the parties, entitling
LEAA to $25,000 per month from April 2001 through September
2001, for a total of $150,000.
Under Virginia law,
A contract implied in fact is a true contract, the agreement
of the parties being inferred from the circumstances . . . . A
"contract implied in fact" presupposes an obligation arising
from mutual agreement and intent to promise, which agree-
6 LAW ENFORCEMENT ALLIANCE v. USA DIRECT
ment and promise have not been expressed in words, and it
requires a meeting of the minds just as much as an express
contract.
4A Michie’s Jurisprudence of Virginia and West Virginia, Contracts,
§ 99 at 561 (footnotes omitted), quoted in Commonwealth Biotech-
nologies, Inc. v. Va. Commonwealth Univ., 2002 WL 1426143, *4
(Va. Cir. Ct. 2002). At trial, LEAA would have had the burden of
proof of establishing the implied in fact contract it alleged and its
breach. Dickerson v. Conklin, 235 S.E.2d 450, 455 (Va. 1977).
Because a "meeting of the minds is essential to the formation of a
contract," Marefield Meadows, Inc. v. Lorenz, 427 S.E.2d 363, 365
(Va. 1993), to overcome a motion for summary judgment LEAA must
present sufficient evidence to demonstrate a triable issue of fact as to
whether there was a meeting of the minds. Celotex v. Catrett, 477
U.S. 317, 323 (1986) ("The moving party is ‘entitled to a judgment
as a matter of law’ because the nonmoving party has failed to make
a sufficient showing on an essential element of her case with respect
to which she has the burden of proof." (quoting Fed. R. Civ. P.
56(c))).
To show that there was meeting of the minds, LEAA exclusively
relies on a conclusory assertion by its president that "[b]ased upon the
actions of the parties through about January, 2001, there was mutual
assent that the terms of the 1997 Letter Agreement, including the
guaranteed $25,000/month, would continue for another year." (J.A. at
182.) Evidence presented in opposition to a motion for summary
judgment, however, must be probative, not merely colorable, Ander-
son, 477 U.S. at 256-57, and cannot be merely "conclusory statements
. . . without specific evidentiary support," Causey v. Balog, 162 F.3d
795, 801-02 (4th Cir. 1998) ("Causey made conclusory statements
that Montgomery treated him less favorably than younger black and
white employees of similar rank. Causey’s conclusory statements,
without specific evidentiary support, cannot support an actionable
claim for harassment."). LEAA’s president’s statement is nothing
more than a conclusory assertion and is insufficient for a reasonable
jury to infer that USAD intended to commit itself to performance of
its obligations under the 1997 Agreement for one year beyond the
express terms of that agreement. Moreover, LEAA’s president’s claim
is contradicted by LEAA’s concession that USAD unequivocally
LAW ENFORCEMENT ALLIANCE v. USA DIRECT 7
informed LEAA in mid-January 2001 that the 1997 Agreement had
expired, that a new written agreement was required, and that after
February 2001 all direct mail services would be performed on a pre-
paid basis. Without more, LEAA cannot sustain its burden of provid-
ing sufficient evidence of a triable issue of fact on its claim of an
implied in fact contract.
Because LEAA has failed to provide sufficient evidence of a triable
issue of fact about whether there was any meeting of the minds
between it and USAD to extend the 1997 Agreement, the district
court did not err in granting summary judgment in favor of USAD
with respect to LEAA’s claim alleging breach of an implied in fact
contract.
B.
LEAA next challenges the district court’s grant of summary judg-
ment in favor of USAD with respect to USAD’s claim for payment
of seven unpaid invoices. Regarding six of the invoices (invoice num-
bers 6256, 6660, 6736, 6901, 6736-1, and 6441 (totaling
$106,418.42)), there is no dispute that LEAA requested the services,
that USAD provided the documented direct mail services to LEAA,
and that LEAA accepted the services. LEAA argues that it does not
owe USAD the outstanding balance on the invoices because, under
the 1997 Agreement, USAD’s invoices were to be paid out of money
in the escrow account, and when the invoices were received, there
was insufficient money in the escrow account to pay the invoices after
paying LEAA’s guaranteed $25,000 per month. The 1997 Agreement,
however, did not apply to the disputed invoices because the 1997
Agreement expired by September 30, 2000, and the disputed invoices
were all received after that date.5 Moreover, as discussed in Section
II.A above, there was no implied in fact contract that included the
5
The 1997 Agreement expired by its express terms in September 2000,
and nothing therein stated that any contract created under the 1997
Agreement would continue to be controlled by its terms after the agree-
ment expired. Thus, because all the invoices at issue were received after
the 1997 Agreement had expired, payment of the invoices is not con-
trolled by the 1997 Agreement and need not come out of the escrow
account.
8 LAW ENFORCEMENT ALLIANCE v. USA DIRECT
terms of the 1997 Agreement. Accordingly, we affirm the district
court’s grant of summary judgment regarding invoices 6256, 6660,
6736, 6901, 6736-1, and 6441 requiring payment of $106,418.42 in
damages.
Regarding the remaining unpaid invoice, invoice number 7650,
LEAA maintains that, via email, it and USAD had previously agreed
to a flat fee of $13,119.09 for the entire project, to be paid up front,
and that it never agreed to pay anything above that fee. By email,
LEAA requested "a bottom line, hard number total for the entire
package" and inquired whether "$13,119.09 [would] get this package
out the door . . ., as promised, without any ‘additional charges’ being
assessed." (J.A. at 37-38.) In reply, USAD agreed that $13,119.09
would "get your package out the door" and explicitly stated, "No, to
any additional charges, unless you request additional [data process-
ing] work after the fact." (J.A. at 37.) LEAA then paid USAD
$13,119.09; there is no evidence that LEAA requested any additional
data processing work. USAD, however, characterizes its email as
merely a cost estimate and claims that in order to be fully compen-
sated for the actual cost of the project, USAD is entitled to an addi-
tional $877.04 due to the difference between the number of pieces
covered in the original quotation and the number of pieces reflected
in the final invoice.
Viewing the evidence in the light most favorable to LEAA, as we
must, LEAA has provided sufficient evidence for a jury to find that
the parties formed a contract whereby USAD agreed to perform the
project in exchange for $13,119.09, to be paid up front. See Marefield
Meadows, 427 S.E.2d at 366 ("This acceptance was unqualified and
introduced no new terms. Thus, it meets the legal requirements for the
creation of a contract through letters."). Accordingly, there is a genu-
ine issue of material fact as to whether LEAA owes USAD any addi-
tional amount on invoice 7650, and the district court erred in granting
summary judgment in favor of USAD with respect to that invoice. We
reverse the district court’s grant of summary judgment on this invoice
and remand for further proceedings.
C.
LEAA next challenges the district court’s grant of summary judg-
ment in favor of USAD with respect to USAD’s claim for $19,375 in
LAW ENFORCEMENT ALLIANCE v. USA DIRECT 9
finance charges calculated on the unpaid invoices. As we reversed the
district court’s grant of summary judgment on invoice 7650, we
reverse the grant of summary judgment on the finance charges for
invoice 7650 as well.
With regard to the remaining six invoices, the district court granted
summary judgment in favor of USAD because the invoices at issue
explicitly stated, "NET DUE UPON RECEIPT," and noted that "[a]
finance charge of 1.5% per month (18% annually) will be applied to
all balances outstanding past the stated credit terms." (J.A. at 133-43.)
USAD presented these invoices to LEAA after the services were per-
formed. Nothing on the face of the invoices demonstrates that LEAA
accepted the finance charge term, and USAD has presented no other
evidence of acceptance. Accordingly, these invoices are insufficient
to sustain USAD’s burden of proof on LEAA’s liability for finance
charges. In reviewing the grant of summary judgment, however, we
are not confined to the grounds relied on by the district court; we may
affirm on any legal basis supported by the record. Bryant v. Bell
Atlantic Md., Inc., 288 F.3d 124, 132 (4th Cir. 2002).
USAD submitted evidence with respect to invoices 6256, 6660,
6736, 6901, and 6736-16 that, prior to performing the services, USAD
provided cost estimations to LEAA, which were subsequently
approved by LEAA, that included a finance charge term stating: "Pay-
ment: Payment shall be based upon credit and terms approved by
U.S.A. Direct, Inc. A finance charge of eighteen percent (18%) annu-
ally shall be imposed upon all overdue accounts." (J.A. at 147, 149,
151, 155, 157, 161, 165, 168, 172.) LEAA argues that, notwithstand-
ing this language, the parties understood that no finance charges
would apply. LEAA supports this claim by pointing to evidence in the
record that demonstrates that finance charges were not applied under
the 1997 Agreement and that when such finance charges appeared,
USAD instructed LEAA to ignore them. The invoices at issue in this
6
Invoices 6736 and 6736-1 are for services performed with regard to
the same cost estimate. Invoice 6736-1 was merely a supplement to 6736
to charge for postage that was not reflected in invoice 6736. Because
LEAA approved a cost estimation for this job, LEAA agreed to finance
charges for the job, even though USAD chose to submit a separate
invoice for the insufficient postage.
10 LAW ENFORCEMENT ALLIANCE v. USA DIRECT
appeal, however, were not governed by the terms of the 1997 Agree-
ment. Further, evidence of how the parties dealt with finance charges
under their previous contract cannot be used to contradict the express
terms of the contract created by LEAA’s acceptance of the cost esti-
mations. Course of dealing evidence, including evidence of course of
performance under a prior contract,7 may not be used where it is
7
In Virginia, "course of dealing is a sequence of . . . conduct between
the parties" prior to the formation of a contract, Va. Code Ann. § 8.1-
205(1) (Michie 2001), while "course of performance" deals with actions
between the parties after the formation of a contract, Va. Code Ann.
§ 8.2-208(1). Course of performance evidence from a prior contract is,
logically, course of dealing evidence for a subsequent contract. In other
words, the same actions might be a course of dealing for one contract
and, at the same time, be a course of performance for another contract.
In this case, how USAD and LEAA dealt with invoices under the 1997
Agreement would be course of performance evidence with regard to
interpretation of the 1997 Agreement because the actions took place after
USAD and LEAA entered into the 1997 Agreement and during the
course of that agreement. The disputed invoices, however, were not gov-
erned by the 1997 Agreement. Any actions taken under the 1997 Agree-
ment would be actions taken prior to the formation of any contract
involving the disputed invoices and would be course of dealing evidence
with regard to interpretation of the disputed invoices. As the express
terms are inconsistent with the course of dealing evidence, the course of
dealing evidence is excluded. See Columbia Nitrogen Corp. v. Royster
Co., 451 F.2d 3, 8-9 (4th Cir. 1971).
Although course of dealing and course of performance evidence only
applies to the sale of goods under the Uniform Commercial Code, these
provisions were enacted in Virginia in Article 1, the General Provisions.
Accordingly, course of dealing and course of performance evidence is
not limited merely to contracts for the sale of goods, but extends to all
commercial contracts. See Chas. H. Tompkins Co. v. Lumbermens Mut.
Cas. Co., 732 F. Supp. 1368, 1374 n.7 (E.D. Va. 1990). Moreover, the
Supreme Court of Virginia has cited an Article 2 provision regarding
these concepts in a case involving a service contract. See Doswell Ltd.
P’ship v. Virginia Elec. and Power Co., 468 S.E.2d 84, 90 (Va. 1996)
("Evidence that contract phrases or terms have acquired, by custom in
the locality, or by usage of the trade, a peculiar meaning not attached to
them in their ordinary use is admissible even though the phrases or terms
themselves are unambiguous. . . . See Code § 8.2-202(a) (terms in com-
mercial sales agreements may be explained or supplemented by course
of dealing or usage of trade evidence).").
LAW ENFORCEMENT ALLIANCE v. USA DIRECT 11
inconsistent with express terms of a contract. See Va. Code Ann.
§ 8.1-205(4) (Michie 2001) ("The express terms of an agreement and
an applicable course of dealing or usage of trade shall be construed
wherever reasonable as consistent with each other; but when such
construction is unreasonable express terms control both course of
dealing and usage of trade."); Columbia Nitrogen Corp. v. Royster
Co., 451 F.2d 3, 9 (4th Cir. 1971) ("[E]vidence of usage of trade and
course of dealing should be excluded whenever it cannot be reason-
ably construed as consistent with the terms of the contract."). Because
USAD has presented uncontroverted evidence of a binding contract,
namely, that it offered services to LEAA under cost estimations that
included a finance charge term for invoices 6256, 6660, 6736, 6901,
and 6736-1, that LEAA accepted and approved these cost estimations,
and that USAD performed the services, the district court properly
granted summary judgment in favor of USAD regarding these
invoices.
With respect to invoice 6441, USAD has not put into evidence cost
estimations approved by LEAA before the services were provided8
and relies on the 1995 Credit Application and the invoices themselves
to show that LEAA owes the finance charge. As discussed above, the
finance charge term in the invoices is insufficient to support summary
judgment for USAD. Although LEAA did agree to the 1995 Credit
Application before USAD provided the services in the invoices at
issue, and the 1995 Credit Application has not expired, LEAA has
presented course of performance evidence9 that USAD never claimed
finance charges from LEAA for outstanding balances. Accordingly,
there is a material question of fact as to whether USAD has waived
its right to rely on the finance charge term in the 1995 Credit Applica-
tion. See John H. Maclin Peanut Co. v. Pretlow & Co., 11 S.E.2d 607,
8
Although USAD claimed at oral argument that there was a cost esti-
mation for Invoice Number 6441, it did not submit any evidence of a cost
estimation approved by LEAA in the district court or in this court.
9
As discussed supra note 7, course of performance evidence is evi-
dence of actions that the parties took after the formation of a contract.
Where, subsequent to the formation of a contract, the parties have disre-
garded certain terms in the contract, the parties may have waived the
right to enforce that contractual term. See John H. Maclin Peanut Co. v.
Pretlow & Co., 11 S.E.2d 607, 611 (Va. 1940).
12 LAW ENFORCEMENT ALLIANCE v. USA DIRECT
611 (Va. 1940) (observing that whether parties have deliberately and
mutually disregarded plain terms of a contract, and thus waived con-
tractual rights, is generally a jury question).
Accordingly, we affirm the district court’s grant of summary judg-
ment in favor of USAD with respect to USAD’s claim to finance
charges in connection with invoices 6256, 6660, 6736, 6901, and
6736-1. We reverse the district court’s grant of summary judgment in
favor of USAD with respect to USAD’s claim to finance charges in
connection with invoices 6441, and 7650 and remand for further pro-
ceedings with respect to such claims.
III.
LEAA also challenges the district court’s overruling of its objec-
tions to the discovery sanctions imposed upon it by the magistrate
judge. We review the grant of discovery sanctions under Rule 37 of
the Federal Rules of Civil Procedure for abuse of discretion. Ander-
son v. Found. for Advancement, Educ. and Employment of Am. Indi-
ans, 155 F.3d 500, 504 (4th Cir. 1998). The magistrate judge granted
USAD’s motion for discovery sanctions against LEAA, pursuant to
Rule 37(b), for LEAA’s failure to comply with Rule 26(a)(1)(B) of
the Federal Rules of Civil Procedure, which requires timely disclosure
of documents that the disclosing party may use in support of its
claims or defenses. LEAA failed to produce invoices 6256, 6441,
6660, and 6736, which had been approved for payment by LEAA’s
Director of Marketing, until after the deadline for the exchange of
mandatory disclosures under the court’s scheduling order, after the
close of all discovery, after the filing of motions for summary judg-
ment, and only two weeks before trial.
The magistrate judge found that LEAA "used" these invoices in its
motion for partial summary judgment and its response to USAD’s
motion for partial summary judgment by claiming that "[n]one of the
seven (7) invoices . . . are signed or initialed by any agent or represen-
tative of LEAA."10 (J.A. at 243.) The magistrate judge also found that,
10
At oral argument, LEAA admitted that the four invoices were in fact
signed or initialed by an LEAA representative and that its claim other-
wise in its partial summary judgment motion was incorrect.
LAW ENFORCEMENT ALLIANCE v. USA DIRECT 13
by the time the four invoices were produced, USAD "[h]ad already
expended considerable time and effort conducting discovery on the
issue of [LEAA’s] acceptance for payment of these invoices." (J.A.
at 243.) Furthermore, USAD submitted a sworn declaration showing
that $6,981.50 in counsel fees and costs were directly attributable to
LEAA’s failure to produce the four invoices, the magistrate judge
expressly found that "these fees are reasonable under the circum-
stances, and that they were in fact incurred due to [LEAA’s] failure"
to timely disclose the four invoices. (J.A. at 243-44.) The magistrate
judge then summarized his findings: "(1) that [LEAA’s] conduct is
inexcusable even if it does not rise to the level of bad faith; (2) that
[LEAA] caused considerable prejudice to [USAD]; (3) that the need
for deterrence of this sort of non-compliance with the rules is great;
and (4) that less drastic sanctions would not have been effective."
(J.A. at 244.) The district court reviewed the evidence, overruled
LEAA’s objections, and summarily affirmed the magistrate judge’s
imposition of sanctions.11
LEAA makes several arguments that the district court erred. LEAA
first contends that USAD did not demonstrate that LEAA acted in bad
faith with respect to its late disclosure of the four invoices. Under
Anderson, we recognized that the "Fourth Circuit has developed a
four-part test for a district court to use when determining what sanc-
tions to impose under Rule 37." Anderson, 155 F.3d at 504. A district
court must determine:
(1) whether the non-complying party acted in bad faith, (2)
the amount of prejudice that noncompliance caused the
adversary, (3) the need for deterrence of the particular sort
of non-compliance, and (4) whether less drastic sanctions
would have been effective.
Anderson, 155 F.3d at 504 (citing Wilson v. Volkswagen of Am., Inc.,
561 F.2d 494, 503-05 (4th Cir. 1977)). LEAA claims that a district
court necessarily must find all four Anderson factors to grant sanc-
tions and that USAD failed to show the first factor, "bad faith,"
because the magistrate judge only stated that LEAA’s "conduct is
11
The district court reduced the sanction award to $6,169.00 based on
USAD’s agreement to reduce its claim by 3.25 hours.
14 LAW ENFORCEMENT ALLIANCE v. USA DIRECT
inexcusable even if it does not rise to the level of bad faith." (J.A. at
244.)
LEAA misreads Anderson. Anderson does not hold that a district
court must find that a party acted in bad faith, it merely holds that in
determining what sanctions are appropriate, a district court must con-
sider "whether" the party acted in bad faith. Id. at 504. Where a dis-
trict court determines that there was no bad faith, that determination
will likely be reflected in a less severe sanction. Anderson does not
require a finding of bad faith before discovery sanctions can be
awarded and to hold otherwise would be at odds with Rule 37(c)(1)’s
plain language, which contains no such requirement.
LEAA next makes a semantic argument that it never actually
"used" the invoices and did not intend to do so, and thus was not
required to disclose them under Rule 26(a)(1)(B), which only requires
disclosure of all documents or other tangible items that a party "may
use to support its claim or defenses." The concept of "use," however,
is defined broadly:
"Use" includes any use at a pretrial conference, to support
a motion, or at trial. The disclosure obligation is also trig-
gered by intended use in discovery, apart from use to
respond to a discovery request; use of a document to ques-
tion a witness during a deposition is a common example.
The disclosure obligation attaches both to witnesses and
documents a party intends to use and also to witnesses and
to documents the party intends to use if—in the language of
Rule 26(a)(3)—"the need arises."
Fed. R. Civ. P. 26 advisory committee notes to 2000 Amendment.
Although LEAA did not actually submit the invoices with their partial
motion for summary judgment, LEAA "used" the invoices when it
represented that "[n]one of the seven (7) invoices . . . are signed or
initialed by any agent or representative of LEAA." (J.A. at 243.) Also,
to prove this defense at trial, LEAA would have had to "use" the doc-
ument as evidence at trial. Thus, the invoices are something that
LEAA (1) used in its motion for partial summary judgment and (2)
used "to support its claim or defenses." Accordingly, the district court
did not abuse its discretion in finding that LEAA used the invoices.
LAW ENFORCEMENT ALLIANCE v. USA DIRECT 15
LEAA also contends that there is no evidence that USAD’s
claimed expenses were caused by LEAA’s failure to disclose. The
magistrate judge’s decision was properly based on USAD’s attorney
time sheets, deposition receipts, and its sworn affidavit in support of
USAD’s motion for sanctions. LEAA provided no evidence to the
contrary.
Because LEAA’s legal arguments are unavailing, the district court
did not abuse its discretion by upholding the magistrate judge’s award
of discovery sanctions in favor of USAD.
IV.
For the foregoing reasons, (1) the district court’s grant of summary
judgment in favor of USAD with respect to LEAA’s breach of an
implied in fact contract claim is affirmed; (2) the district court’s grant
of summary judgment in favor of USAD with respect to USAD’s
claim for payment under invoices 6256, 6441, 6660, 6736, 6736-1,
and 6901 is affirmed; (3) the district court’s grant of summary judg-
ment in favor of USAD with respect to USAD’s claim for payment
under invoice 7650 is reversed and the merits of the claim should be
considered on remand; (4) the district court’s grant of summary judg-
ment in favor of USAD with respect to USAD’s claim for finance
charges in connection with invoices 6256, 6660, 6736, 6901, and
6736-1 is affirmed; (5) the district court’s grant of summary judgment
in favor of USAD with respect to USAD’s claim for finance charges
in connection with invoices 6441 and 7650 is reversed and the merits
of the claim should be considered on remand; and (6) the award of
discovery sanctions is affirmed. We grant LEAA’s motion to supple-
ment the appendix with the stipulation that USAD may also file the
additional pages that it has identified.
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED