Northwest Windpower, Llc v. Manuel Larosa ( 2014 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
MANUEL LA ROSA, DDS, an
individual, No. 70637-3-
Respondent, DIVISION ONE r:°, a- o
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UNPUBLISHED OPINION
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NORTHWEST WIND POWER, LLC,
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and TED THOMAS, individually and as o
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to his marital community,
Appellants. FILED: September 29, 2014
Trickey, J. — Discovery sanctions should be balanced against "the nature of the
discovery violation and the surrounding circumstances" of the case. Rivers v. Wash-
State Conf. of Mason Contractors. 145 Wash. 2d 674, 695, 41 P.3d 1175 (2002). Here,
while the trial court found that the defendants willfully violated discovery orders and
substantially prejudiced the opposing party and considered lesser sanctions, the limited
findings on the issues of prejudice and lesser sanctions do not sufficiently explain the
court's reasoning for imposing a default judgment. Moreover, the evidence in the record
does not support the determination that Dr. Manuel La Rosa was substantially
prejudiced. The record is insufficient to justify the harsh sanction. We reverse and
remand.
FACTS
Dr. Manuel La Rosa filed a complaint against Northwest Wind Power, LLC, and
its chief executive officer, Ted Thomas (collectively, Northwest), in May 2012.1 La Rosa
1 Clerk's Papers (CP) at 1-5, 176.
No. 70637-3-1 / 2
claimed that he entered into a contract with Northwest to purchase and install a wind
turbine on his Cle Elum property in 2010.2 La Rosa paid approximately $22,500 to
install the system. He alleged that the wind turbine was defective because it produced
only "nominal" amounts of electricity.3 La Rosa asserted causes of action for breach of
contract, breach of express and implied warranties, violation of the Consumer
Protection Act (CPA), chapter 19.86 RCW, and both intentional and negligent
misrepresentation.4
Northwest answered the complaint and denied that the wind turbine is defective.5
In November 2012, La Rosa served Northwest with interrogatories and requests for
production.6 Although initially represented by counsel, Northwest was unrepresented
when La Rosa propounded discovery requests and did not respond.7
In January 2013, La Rosa filed a motion to compel discovery.8 On February 15,
2013, the trial court granted the motion.9 The court ordered Northwest to provide "full
and complete answers" within five business days following entry ofthe court's order and
imposed $250 in sanctions.10
A couple of weeks after the court granted the motion to compel, attorney
Matthew King filed a notice of appearance on behalf of Northwest.11 La Rosa's counsel
2 CP at 2.
3 CP at 3.
4 CP at 3-4.
5 CP at 7.
6 CP at 11.
7CPat10, 12,95.
8 CP at 11-12.
9 CP at 27-28.
10 CP at 28.
11 CP at 31, 36.
No. 70637-3-1 / 3
sent King a copy of the order compelling discovery.12 About a month later, on April 4
and 5, King sent written responses to La Rosa's interrogatories, but did not provide any
documents responsive to his requests for production.13 King explained that he had not
yet received any documents from his clients.14
On April 9, a few days after receiving the interrogatory responses, La Rosa filed
a second motion to compel.15 La Rosa requested sanctions of $2,795.49, the amount of
expenses incurred in connection with compelling discovery.16 In response, Northwest
explained that documents had not yet been provided to counsel because of work
schedules and extensive travel, and assured the court that responses would be
forthcoming within two weeks.17 Northwest argued that La Rosa had not identified any
specific prejudice caused by the delay in light of the fact that no depositions had been
scheduled and trial was "many months away" and urged the court not to impose
sanctions.18
The court granted the motion and entered a second order compelling discovery
on April 17.19 The court found that (1) Northwest "willfully or deliberately" violated
discovery rules and the court's February 15 order, (2) La Rosa had been "substantially
prejudiced" in his ability to prepare for trial, and (3) the court considered lesser
sanctions and determined that no lesser sanction would suffice.20 The court ordered
Northwest to provide non-privileged documents responsive to the requests for
12 CP at 36.
13 CP at 37.
14 CP at 85.
15 CP at 30-34.
16 CP at 30.
17 CP at 91-92, 95.
18 CP at 93, 95.
19 CP at 105.
20 CP at 106.
No. 70637-3-1/4
production within 10 business days of the order. The court also ordered Northwest to
pay the previously-ordered sanctions in addition to new sanctions of $2,795.49.21
Finally, the court ordered that "if Defendants do not comply with all of the terms of this
order, Defendants' defenses and affirmative defenses shall be suspended automatically
without further order of the court. In such event, reinstatement of defenses and
affirmative defenses, if any, may be had only by subsequent court order and full
payment of the judgment amount."22
On June 21, La Rosa filed a motion for entry of default judgment as a discovery
sanction.23 La Rosa stated that in response to the second order compelling discovery,
Northwest produced only 18 pages of documents, a "mere fraction of responsive
documents," and had not paid any of the sanctions imposed.24 La Rosa did not
describe the documents provided by Northwest, but stated that none of the documents
produced related to (1) defenses or affirmative defenses, (2) customers from the past
five years, (3) claims or complaints by other wind turbine purchasers, (4) advertising
materials, (5) correspondence, apart from invoices, concerning the subject matter of the
lawsuit, (6) correspondence between the parties, and (7) correspondence with any
manufacturer or contractor.25
La Rosa argued that he had been substantially prejudiced by Northwest's
noncompliance because the discovery cutoff date was approaching on September 3,
21 CP at 107.
22 CP at 107.
23 CP at 109.
24 CP at 112.
25 CP at 112. And although he had not complained of these deficiencies in his second motion to
compel, La Rosa also asserted that one interrogatory question remained unanswered, the
defendants had not provided separate interrogatory answers, and had recently failed to submit a
witness list. CP at 112, 119. In response to the motion for default, Northwest confirmed that it
intended to call only the parties as witnesses. CP at 218.
No. 70637-3-1 / 5
2013, approximately two months and a half months away.26 Moreover, he argued that
the noncompliance with the February and April orders compelling discovery
demonstrated that any sanction lesser than default judgment would not suffice.27 La
Rosa sought damages of $47,522.00, comprised of $22,522.00, the amount he paid for
the wind turbine, plus $25,000.00 in damages under the CPA based on Northwest's
misrepresentations.28
Northwest admitted the outstanding sanctions had not been paid due to "financial
inability," but asserted that default was not warranted because it had produced all
responsive documents within its "care, custody, and control."29
The court entered a default judgment for the principal amount requested,
$47,522.00, plus prejudgment interest of $7,670.95.30 The trial court's order includes
findings, drafted by plaintiffs counsel, stating that Northwest "willfully or deliberately"
violated discovery rules and the court's February 2012 and April 2012 discovery
orders.31 The findings state that La Rosa was "substantially prejudiced" because
Northwest failed to provide documents that are "responsive to Plaintiff's basic
contention interrogatories and requests for production."32 The order further states that
the court "considered whether a lesser sanction would suffice to meet the purposes of
discovery sanctions and has determined that lesser sanctions would not suffice."33 In
addition, the court interlineated the following finding:
26 CP at 114.
27 CP at 114.
28 CP at 114.
29 CP at 218-19.
30 CP at 236.
31 CP at 237.
32 CP at 237.
33 CP at 237.
No. 70637-3-1 / 6
The court is convinced that Defendants' withholding of discovery is
intentional and for the purpose of frustrating Plaintiff's attempt to seek
redress for his claimed damages and that Defendants' conduct in
discovery is materially damaging Plaintiff's claim and effort to resolve his
claims in court in conformance with court rules.[34]
The court later entered an amended judgment, which included additional
amounts incurred by La Rosa: $24,495.50 in attorney fees and $782.48 in costs.35
Northwest appeals.
ANALYSIS
Northwest contends that imposition of default judgment as a discovery sanction
was overly harsh and unwarranted. According to Northwest, this case involves neither
egregious noncompliance with discovery rules and orders nor substantial prejudice to
the opposing party's case. Therefore, the sanction was disproportionate in view of the
conduct and the harm.
The trial court entered a default judgment against Northwest under the authority
of CR 37. CR 37 sets forth rules regarding sanctions when a party fails to comply with
discovery rules and court orders. The rule provides that when a party fails to obey an
order to provide or permit discovery, the court in which the action is pending may enter
"such orders in regard to the failure as are just," including:
(A) An order that the matters regarding which the order was made
or any other designated facts shall be taken to be established for the
purposes of the action in accordance with the claim of the party obtaining
the order;
(B) An order refusing to allow the disobedient party to support or
oppose designated claims or defenses, or prohibiting him from introducing
designated matters in evidence;
34 CP at 237.
35 CP at 276.
No. 70637-3-1 / 7
(C) An order striking out pleadings or parts thereof, or staying
further proceedings until the order is obeyed, or dismissing the action or
proceedings or any part thereof, or rendering a judgment by default
against the disobedient party;
In lieu of any of the foregoing orders or in addition thereto, the court
shall require the party failing to obey the order or the attorney advising him
or both to pay the reasonable expenses, including attorney fees, caused
by the failure, unless the court finds that the failure was substantially
justified or that other circumstances make an award of expenses unjust.
CR 37(b)(2)(A)-(C).
Discovery sanctions should be "proportional to the nature of the discovery
violation and the surrounding circumstances" of the case. Rivers, 145 Wash. 2d at 695;
Maaana v. Hyundai Motor Am., 167 Wash. 2d 570, 590, 220 P.3d 191 (2009). Generally,
"the court may impose only the least severe sanction that will be adequate to serve its
purpose in issuing a sanction." Teter v. Deck, 174 Wash. 2d 207, 216, 274 P.3d 336
(2012).
To support imposition of default judgment—the harshest sanction that may be
imposed upon a defendant—it must be apparent from the record that the trial court
found that (1) the disobedient party willfully or deliberately violated discovery rules and
orders, (2) the opposing party was substantially prejudiced in its ability to prepare for
trial, and (3) that the trial court "'explicitly considered'" whether a lesser sanction would
have sufficed. Burnet v. Spokane Ambulance, 131 Wash. 2d 484, 494, 933 P.2d 1036
(1997) (quoting Snediqar v. Hodderson, 53 Wash. App. 476, 487, 768 P.2d 1 (1989)). We
review a trial court's discovery sanctions for abuse of discretion. Wash. State
Physicians Ins. Exch. & Ass'n v. Fisons Corp., 122 Wash. 2d 299, 338, 858 P.2d 1054
(1993). Where a trial court's findings of fact are clearly unsupported by the record, the
No. 70637-3-1 / 8
appellate court will find that the trial court abused its discretion. Mayer v. Sto Indus.,
Inc., 156Wn.2d 677,684, 132P.3d 115 (2006): Maqana, 167 Wash. 2d at 583.
A court may enter an order imposing a discovery sanction without oral argument
or a colloquy on the record; however in that case, the findings on the Burnet factors of
willfulness, prejudice, and consideration of alternatives, must be contained within the
order itself or included in a contemporaneous record. Teter, 174 Wash. 2d at 216-17. And
to allow for meaningful review, the findings themselves must explain the court's
reasoning for reaching its conclusions. Burnet, 131 Wash. 2d at 494.
For example, in Rivers, the trial court's order dismissing the plaintiff's gender
discrimination complaint stated that the court had considered the lesser sanctions of
terms and exclusion of testimony, but "determined that dismissal of [Petitioner's]
complaint with prejudice is the only appropriate remedy." 145 Wash. 2d at 696 (alteration
in original). Reversing the dismissal, the Supreme Court concluded that this "limited
language" in the trial court's order did not allow the reviewing court to determine
whether dismissal of the complaint was an appropriate discovery sanction under the
circumstances. Rivers, 145 Wash. 2d at 696. The court observed that the while the
circumstances "might well justify the sanction of dismissal," the trial court failed to make
a sufficient record explaining its consideration and rejection of less harsh alternative
sanctions. Rivers, 145 Wash. 2d at 699.
In Maqana, on the other hand, the Supreme Court affirmed default judgment
imposed as a discovery sanction based on the trial court's careful and thorough
consideration of each of the Burnet factors on the record. 167 Wash. 2d at 584-92. The
record reflected, and the trial court determined that Hyundai, the defendant, engaged in
8
No. 70637-3-1 / 9
willful discovery abuses by making false and inaccurate representations, failing to
supplement incorrect responses, and making no effort to conduct a proper search
outside of its legal department for requested information. Maqana, 167 Wash. 2d at 584-
85. The trial court also found that Magana was specifically prejudiced in his ability to
develop evidence and prepare for trial because when Hyundai finally produced
documents pertinent to the sole disputed issue, the retrial date was less than two
months away. Maqana, 167 Wash. 2d at 579-80. And more fundamentally, as a result of
the more than five year delay by Hyundai, witnesses with certain vital evidence were no
longer living, had disappeared, or had discarded the evidence. Maqana, 167 Wash. 2d at
590. The trial court also explicitly considered the issue of lesser sanctions on the
record, contemplating the probable effect of a monetary fine on Hyundai, a multi-billion
dollar corporation, and discussing why admitting certain evidence as a sanction would
be inadequate or unworkable. Maqana, 167 Wash. 2d at 591-92.
Here, the trial court's specific finding that Northwest acted with intent to frustrate
La Rosa's attempt to pursue his legal claim satisfies Burnet's requirement that the court
consider whether the violation at issue was willful. See Jones v. City of Seattle, 179
Wash. 2d 322, 345, 314 P.3d 380 (2014) (willfulness is not established by the mere fact of
violation of a court order or discovery rule, "[sjomething more is needed.") However, the
findings of substantial prejudice and consideration of lesser sanctions do not
demonstrate that the court imposed default as a sanction following a "meaningful
inquiry" into the effect of Northwest's conduct and whether any other sanction could
compensate La Rosa. Jones, 179 Wash. 2d at 340.
No. 70637-3-1/10
Our ability to review the court's finding of prejudice is compromised because,
while the finding of prejudice stems from the failure to produce documents, the order
does not indicate which documents Northwest possessed and willfully failed to produce.
La Rosa's motion for default was based on the fact that Northwest had produced only
18 pages of documents. La Rosa asserted that Northwest's suggestion that it had
produced all documents in its possession relevant to the requests for production was
"demonstrably false."36 For instance, La Rosa noted that Northwest admitted to having
a customer list, objected to producing it without a protection order, but failed to seek
such an order.37
With respect to the request for documents related to claims made by other wind
turbine purchasers, Northwest responded that "Lawsuit[s] are public records. No other
claims have been made."38 La Rosa argued that this response was insufficient and that
Northwest was, at a minimum, required to identify other relevant lawsuits.39 In support
of his contention that documents related to customer claims existed, La Rosa submitted
a Snohomish County "confession of judgment," a document that identifies Northwest
Wind Power, LLC and Thomas as defendants but does not contain any factual
information about the nature of the lawsuit.40
La Rosa also claimed that the company's web site contradicted Northwest's
claim that it possessed no documents related to advertising because the web site
included links to product videos, manuals, diagrams, specifications, as well as a
"significant amount of advertising and puffery" about the wind turbine purchased by La
36 CP at 224.
37 CP at 194, 226.
38 CP at 194.
39 CP at 226.
40 CP at 101.
10
No. 70637-3-1 /11
Rcsa.41 And La Rosa contended that because the parties corresponded by e-mail
about the turbine, Northwest could not "seriously claim" to have no documents about the
subject of the lawsuit.42 In short, while La Rosa alleged that various documents existed
and were withheld, the order imposing the sanction does not specify what documents
Northwest should have produced nor explain how La Rosa's case was materially
damaged by the failure.
And in any event, the record does not sufficiently support a finding of substantial
prejudice. La Rosa did not identify any material or irreparable damage to his case. In
moving for default, the only prejudice La Rosa claimed was the approaching discovery
cutoff date, which was more than two months away in June 2013 when La Rosa filed his
motion.43 In contrast to the circumstances in Maqana, La Rosa did not point to any
critical evidence that was lost, damaged, or had lost its usefulness due to delay. In his
briefing before this court, La Rosa asserts that he was precluded from developing "any
facts central to his claims" because of the refusal to provide the list of past customers
and documents about customer complaints and customer-initiated lawsuits.44 But
again, nothing in the order imposing the sanction identifies these, or any other particular
documents, as wrongfully withheld in violation of prior discovery orders. And La Rosa
fails to explain how he was prevented from preparing for trial in any manner, in light of
the fact that documents pertaining to other customers do not appear to relate to the
41 CP at 226.
42 CP at 226.
43 CP at 114.
44 Br. of Resp't at 20. In his brief on appeal La Rosa identifies several lawsuits and asserts that
they involve defective turbines. See Br. of Resp't at 4, 5 n.1. But the only evidence in the
record about the existence of other claims is a court document which does not contain any
factual information about the case.
11
No. 70637-3-1/12
majority his claims involving breach of contract, breach of warranties, and
misrepresentation.
Finally, the record does not identify what less severe alternative sanctions the
trial court considered nor why it determined that those alternatives would not suffice. La
Rosa argued that default judgment would be the only effective sanction because the
court had applied lesser sanctions in two previous orders and Northwest had not
complied with either. This overstates the case because, as La Rosa admits, defense
counsel eventually sent answers to the interrogatories before the court entered the
second order to compel. And in response to the court's second order, Northwest
produced some documents responsive to the requests for production. But even if the
trial court concluded that default was the only viable alternative because of the lack of
full compliance in the face of previous sanctions, the court did not make a clear record
of its reasoning in reaching this conclusion.
The only record of the trial court's decision in this case is its order. We are
mindful of the onus placed on the trial court to create a record that complies with Burnet,
Rivers, and Jones in these circumstances when a party requests serious sanctions
pretrial and the court rules on such a motion without a colloquy on the record.
Nevertheless, as in Rivers, the order in this case is inadequate to support the extreme
sanction of default because it fails to identify the precise violation and states mere
conclusions on the issues of prejudice and consideration of lesser sanctions. Nor are
there sufficient facts in the record to support a finding of substantial prejudice.
Accordingly, the entry of default judgment in these circumstances constitutes an abuse
of discretion. We reverse the order of default and judgment.
12
No. 70637-3-1/13
La Rosa requests attorney fees incurred on appeal citing RCW 19.86.090, CR
37(d), and RAP 18.1. Given our disposition, we deny the request.
Reversed and remanded.
^T/^kes/ , J
WE CONCUR:
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13