Specialtycare IOM Services, LLC v. Medsurant Holdings, LLC

07/06/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
March 28, 2018 Session
SPECIALTYCARE IOM SERVICES, LLC v. MEDSURANT HOLDINGS,
LLC, ET AL.
Appeal from the Chancery Court for Davidson County
No. 15-695-II Carol L. McCoy, Chancellor
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No. M2017-00309-COA-R3-CV
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Appellant appeals the trial court’s entry of default judgment as a discovery sanction
against it. Because there is insufficient evidence of contumacious conduct on the part of
Appellant to justify default, we reverse the trial court’s entry of default judgment on
liability. We vacate the trial court’s award of damages on the jury verdict, but affirm the
award of attorney’s fees as an initial discovery sanction.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed in Part, Vacated in Part, Affirmed in Part and Remanded
KENNY ARMSTRONG, J., delivered the opinion of the court, in which W. NEAL
MCBRAYER and ARNOLD B. GOLDIN, JJ., joined.
W. Brantley Phillips, Jr., Russell E. Stair, Matthew J. Sinback, Robert J. Mendes, and R.
Mark Donnell, Jr., Nashville, Tennessee, for the appellants, Medsurant Holdings, LLC,
and Medsurant, LLC.
Thor Y. Urness, Patricia Head Moskal, and R. Brandon Bundren, Nashville, Tennessee,
for the appellee, SpecialtyCare IOM Services, LLC.
OPINION
I. Background
SpecialtyCare IOM Services, LLC (“SpecialtyCare,” or “Appellee”) and
Medsurant Holdings, LLC (“Holdings”) and Medsurant, LLC (together with Holdings,
“Medsurant,” or “Appellants”) are direct competitors in the intraoperative
neurophysiologic monitoring services (“IOM”) industry. IOM services are typically used
for patients undergoing operations related to the nervous system, or procedures that pose
a risk to nervous system integrity, e.g., spinal surgery, certain brain surgeries, carotid
endarterectomy, etc. During such surgeries, a trained IOM clinician, who is employed by
an IOM company, attaches a computer system to the patient using electrodes, and
interactive software then performs two primary tasks: (1) a selective activation of
stimulating electrodes; and (2) processing and displaying electrophysiologic signals from
the electrodes. This procedure allows physicians to observe and document
electrophysiologic signals in real time either in the operating room or remotely.
Customers of IOM companies include health care systems, acute care hospitals, and
surgery centers. IOM services are quite specialized, and physicians and clinicians work
side-by-side. Accordingly, the success of an IOM company significantly depends on the
clinicians developing and maintaining close business relationships with the customers.
The IOM industry is comprised of only a few IOM companies. SpecialtyCare is the
largest IOM provider, and IOM services account for approximately 30% of its business.
Medsurant is significantly smaller than SpecialtyCare, and Medsurant and SpecialtyCare
vigorously compete for IOM business in the market.
In January 2015, both Medsurant and SpecialtyCare bid to buy another IOM
company, ProNerve, which was in bankruptcy. After executing confidentiality
agreements, SpecialtyCare and Medsurant obtained conditional access to ProNerve’s
confidential and competitive information, including information about its employees and
customers. SpecialtyCare was the successful bidder at approximately $11 million. On
February 24, 2015, SpecialtyCare and ProNerve executed an Asset Purchase Agreement
(“APA”), which was approved by the U.S. Bankruptcy Court for the District of Delaware
on April 10, 2015.
After executing the APA but before the bankruptcy court approved the sale,
SpecialtyCare sent letters to ProNerve employees, advising them of the acquisition and
offering them positions with SpecialtyCare (contingent on the approval of the sale in
bankruptcy court). Ultimately, 91 ProNerve IOM technicians accepted positions with
SpecialtyCare, and 23 ProNerve technicians obtained employment elsewhere. Nine
ProNerve employees took positions with Medsurant. Each of these former employees
had one or more restrictive covenant agreements with ProNerve.
On June 10, 2015, SpecialtyCare filed suit against Holdings and Medsurant,
alleging four business tort claims: (1) Medsurant intentionally and maliciously induced
ProNerve employees and customers to violate or breach the terms of their contracts that
SpecialtyCare acquired, i.e., procurement of breach of contract (Counts I and II); and (2)
Medsurant intentionally and wrongfully interfered with existing employee and customer
relationships or, alternatively, with prospective business relationships with those
employees and customers, i.e., tortious interference with business relationships (Counts
III and IV). On November 12, 2015, SpecialtyCare filed its first amended complaint; on
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December 30, 2015, SpecialtyCare filed a second amended complaint. Medsurant
answered all of the complaints, denying any liability.
As discussed in detail below, Medsurant allegedly refused to cooperate in
discovery. Accordingly, SpecialtyCare filed a motion to compel discovery, and after a
hearing, the trial court entered an order on November 4, 2015, see infra. When
Medsurant allegedly failed to comply with the November 4, 2015 order, SpecialtyCare
moved for discovery sanctions. The trial court convened several hearings on sanctions.
While these sanction hearings were ongoing, on January 21, 2016, Medsurant’s attorney
moved for withdrawal, and attorneys with Bryan Cave, LLC and Harwell, Howard, Hyne,
Gabbert, & Manner, P.C. were substituted as counsel of record. SpecialtyCare did not
contest the motion allegedly on Medsurant’s assurance that substitution of new counsel
would not cause further delays.
Following the second hearing on sanctions, the trial court imposed an initial
discovery sanction, ordering Medsurant to pay SpecialtyCare’s attorney’s fees and costs
incurred by discovery delays. At a third hearing, the trial court verbally warned
Medsurant that it risked default judgment if it continued to abuse the discovery process.
Finally, after a fourth sanction hearing, the trial court entered an order of default against
Medsurant on May 3, 2016. Medsurant moved to set aside the default judgment. The
trial court heard the motion on August 5 and August 12, 2016.
On August 15, 2016, the trial court entered an order on the attorney’s fee
sanctions, wherein it awarded SpecialtyCare $119,815.77 in attorney’s fees and costs.
On August 24, 2016, the trial court entered an order denying Medsurant’s motion to set
aside the default judgment on liability.
On August 22 through August 26, 2016, the case proceeded to the jury on the
issue of damages. Compensatory damages and punitive damages were bifurcated.
Following the compensatory damage phase, the jury returned a verdict of $2.8 million in
favor of SpecialtyCare. Following the punitive damages phase, the jury returned a
verdict of $16 million, finding that Medsurant had intentionally destroyed material
evidence for the purpose of evading liability, thus supporting removal of the statutory
cap. Following its Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 1992) review, the
trial court affirmed the damages award and entered its final judgment on September 20,
2016. In addition to affirming the jury verdict on damages, the September 20, 2016 order
also affirms the trial court’s previous award of $119,815.77 in attorney’s fees as a
discovery sanction. The trial court denied Medsurant’s post-trial motions to alter or
amend or for a new trial by orders entered on January 18, 2017. Medsurant appeals.
II. Issues
Mesurant raises five issues as stated in its brief:
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1. Whether the Chancery Court erred in entering a default judgment
against Defendants and, thereafter, in refusing to set it aside, where the
default judgment was the first discovery sanction ordered in the case, a
significant monetary penalty was also imposed as a sanction, discovery
shortcomings were not willful or contumacious, the plaintiff suffered no
measurable prejudice and Defendants engaged in swift and substantial
efforts to cure prior counsel’s discovery shortcomings.
2. Whether, as a matter of law, the Chancery Court misapplied the default
judgment by concluding that the default judgment established liability
and causation for all damages claimed by SpecialtyCare and entitled
SpecialtyCare to recover damages to which it was not entitled.
3. Whether the Chancery Court committed numerous errors during the
course of the trial that cumulatively deprived Defendants of a fair trial.
4. Whether the punitive damages approved by the Chancery Court are
excessive, violate Defendants’ due process rights and should be voided
or substantially reduced.
5. Whether the Chancery Court erred in concluding that Defendants
waived their right to challenge several key aspects of the Chancery
Court’s decision.
III. Discovery Sanction of Default Judgment on Liability
We begin by addressing whether the trial court erred in granting default judgment
against Medsurant on liability as a discovery sanction. Appellate courts review a trial
court’s decision to impose sanctions and its determination of the appropriate sanction
under an abuse of discretion standard. Alexander v. Jackson Radiology Assoc., P.A.,
156 S.W.3d 11, 14 (Tenn. Ct. App. 2004) (citing Lyle v. Exxon Corp., 746 S.W.2d 694,
699 (Tenn. 1988)). An abuse of discretion occurs where the trial court has applied an
incorrect legal standard or where its decision is illogical or unreasoned and causes an
injustice to the complaining party. Id. (citing Mercer v. Vanderbilt Univ., Inc., 134
S.W.3d 121, 131 (Tenn. 2004)). Discretionary decisions, however, “are not left to a
court’s inclination, but to its judgment; and its judgment is to be guided by sound legal
principles.” State v. Lewis, 235 S.W.3d 136, 141 (Tenn. 2007) (quoting Martha S. Davis,
Standards of Review: Judicial Review of Discretionary Decisionmaking, 2 J. App. Prac.
& Process 47, 58 (2000) (citations and internal quotation marks omitted)). Thus, an
abuse of discretion may be found “‘when the trial court has gone outside the framework
of legal standards or statutory limitations, or when it fails to properly consider the factors
on that issue given by the higher courts to guide the discretionary determination.’”
Lewis, 235 S.W.3d at 141 (quoting 2 J. App. Prac. & Process at 59). We will not
overturn the trial court’s decision merely because reasonable minds could reach a
different conclusion. Eldridge v. Eldridge, 42 S.W.3d 82, 85 (Tenn. 2001).
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The following additional facts are relevant to the issue of discovery sanctions.
The lawsuit was filed on June 10, 2015. On or about July 10, 2015, SpecialtyCare served
Medsurant with its first set of interrogatories and requests for production of documents.
On July 20, 2015, Medsurant filed its answer to the complaint, denying liability. On or
about July 28, 2015, SpecialtyCare served Medsurant with a second set of discovery
requests. Collectively, the discovery requests included 87 document requests and 30
interrogatories.
On August 17, 2015, Medsurant filed a motion for extension of time to respond to
discovery, arguing that SpecialtyCare’s requests were “voluminous and extremely broad,
[and] include[d] a nationwide geographic scope.” In addition, Medsurant argued that
“[t]he interrogatories . . . exceed [the trial court’s] local rule limit . . . without leave of the
court.” Thereafter, Medsurant proffered its objections to SpecialtyCare’s discovery
request but no responses. On August 21, 2015, SpecialtyCare filed a response in
opposition to Medsurant’s motion for extension of time and a motion to compel
discovery.
On September 4, 2015, the trial court heard the pending motions. Following
arguments by the parties’ attorneys, the trial court made the following statements from
the bench:
You[, i.e., Medsurant] are going to provide all the answers to the various
written discovery by next Friday, noon. That’s the immediate response that
[SpecialtyCare] requested. Actually, it’s the deadline you agreed to. I am
going to hold in abeyance ruling on whether or not you’ve waived your
objections by how forthcoming the responses are. . . . I understand about
preserving your objections . . . And, at this point, they are preserved. But
two weeks from today, we’re going to come back and review whether or
not the Court should waive the objections . . . . But having read the entire
complaint, I am now much more cognizant of why time is of the essence
with regards to [discovery]. So for [SpecialtyCare] to insist that the rules
be followed has a different connotation. . . . There are some allegations that
are made that are fairly serious. If, in fact, there’s much merit to what
[SpecialtyCare] ha[s] to say, they may be incurring substantial damages by
virtue of [Medsurant’s] actions.
The trial court entered an order on September 4, 2015, granting Medsurant until
September 11, 2015 to tender its responses to SpecialtyCare’s discovery requests. On the
same day, the trial court entered a second order continuing the hearing on SpecialtyCare’s
motion to compel.
The trial court reconvened the hearing on September 21, 2015, at which time it
noted that “the sum total of [Medsurant’s] . . . document production, as of the September
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11, 2015 deadline,”. . . [was] about 400 pages.” SpecialtyCare renewed its motion for
“[a] complete waiver of [Medsurant’s] objections [to the discovery requests].” The trial
court then proceeded to address each discovery request, allowing SpecialtyCare to state
its need for the requested information and allowing Medsurant to state its objection to the
request. At the close of the September 21, 2015 hearing, the trial court had addressed all
but three of the discovery requests. The trial court gave Medsurant 30 days to comply
with the discovery the court had clarified and authorized during the hearing and
continued the hearing on the remaining three requests.
Following the September 21, 2015 hearing, the parties discussed the need for an
order of protection in view of the nature of the documents requested through discovery.
In an email dated September 21, 2015, Medsurant’s attorney agreed
to submit that order on a joint basis with one modification. My clients do
not have in-house counsel. It would be prejudicial to my client to allow
your client to have one or more of its employees with access to my clients’
confidential information without an equal right of access for my clients in
order to properly prepare a defense to the allegations your client has made.
I can agree to a modified “AOE” [Attorney’s Eyes Only] provision
provided you will agree that such a provision would include no more than
two managerial employees of my clients.
On or about September 21, 2015, SpecialtyCare filed its answers to Medsurant’s
first set of interrogatories. Like Medsurant had done in responding to discovery requests,
SpecialtyCare lodged some objection to each of the interrogatories. In addition,
SpecialtyCare designated several responses as “Attorney’s Eyes Only” or redacted those
responses in its answers. On September 22, 2015, SpecialtyCare’s attorney emailed
Medsurant’s attorney the following:
In order to fully respond to your client’s discovery requests, SpecialtyCare
designated three answers to your client’s interrogatories as “Attorney’s
Eyes Only.” We have likewise designated a few of the documents we are
producing today as “Attorney’s Eyes Only.” Please confirm that you will
treat the information so designated as “Attorney’s Eyes Only” while we
work towards finalizing the Agreed Protective Order. With respect to your
email [of September 21, 2015], we are willing to change the proposed
Agreed Protective Order from “Attorney’s Eyes Only” to “Outside Counsel
Only.” We believe this will eliminate the issue raised in your email. . . .
Within an hour of the receipt of the foregoing email, Medsurant’s attorney notified
SpecialtyCare, via email, that “[p]rior to receiving your email, my office had already sent
your discovery responses to our clients.” The email further states that, “[u]pon receipt of
your email today, I sent a redacted version of Plaintiff’s interrogatory responses to my
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clients and requested that they use the redacted version for now.” Later that day,
SpecialtyCare responded, by email, that
We are extremely disturbed and disappointed that you provided information
designated Attorney’s Eyes Only (“AEO”) to your client. You had no
authority to do this and I simply cannot imagine what you were thinking
when you decided to send this information to your client. Your excuse that
you provided the AEO information to your client because you had made a
proposal to be able to share AEO information with your client—a proposal
that we had not agreed to, and obviously will not agree to—is no excuse.
As to your providing your clients with another version of information after
receiving [Medsurant’s previous email], the selective unilateral redaction of
information designated under an AEO designation as not to be disclosed to
non-attorneys is likewise not permitted under any construction of the rules
of professional conduct of which I am aware. For obvious reasons, we
reserve all rights in this matter, and in light of this, we will not be
producing documents unless and until a protective order is entered by the
Court. Please immediately advise us of the identities of all persons to
whom you provided information designated AEO and all others who have
seen this information and, if you have not already done so, immediately
retrieve all copies, electronic or otherwise, of the AEO information that was
improperly provided to your client, and provide us a description of the steps
taken to remedy this unauthorized disclosure.
To which Medsurant’s attorney replied, by email, stating, in relevant part:
Let’s be clear, your [SpecialtyCare attorney’s] actions were highly
irregular. In my experience, it has been a consistent practice of all
attorneys not to produce confidential information until there is an
agreement (even an informal agreement) or order regarding protection of
that confidential information. You produced [SpecialtyCare’s]
interrogatory responses without any agreement on the treatment or
characterization of confidential information. I should clarify my earlier
statement. When we sent the responses to our client, I had not reviewed the
responses in any detail and I did not realize that you had designated any
responses as AEO. It did not occur to me that you would produce
confidential information without any agreement first. . . . I am concerned
about your decision to refuse to produce any documents. First, I have
agreed . . . to maintain the AEO designation of any information produced
and designated as AEO until an agreement is in place. Second [another
SpecialtyCare attorney] indicated that you designated only a few
documents as AEO. To refuse to produce all of the other documents that
you have not designated is unreasonable. I would ask that you reconsider
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such an extreme position.
Later that day, SpecialtyCare’s attorney responded that: “Your response is very
disappointing. Your duty in this circumstance is clear.” The email goes on to state that,
if Medsurant does not comply with SpecialtyCare’s request to be advised of the identity
of all persons to whom Medsurant gave AEO material, SpecialtyCare “will seek relief
from the court.”
On or about September 25, 2015, SpecialtyCare filed a motion for protective
order, and for certification of return of “Attorney’s Eyes Only”-designated information,
wherein it outlined the foregoing email exchange between the parties’ attorneys. On
October 2, 2015, Medsurant filed a motion to compel, wherein it argued that
SpecialtyCare should be made to produce the discovery requests it was withholding due
to Medsurant’s attorney’s dissemination of AEO-designated materials. SpecialtyCare
opposed the motion.
On or about October 12, 2015, Medsurant sent a letter to SpecialtyCare’s attorneys
stating that the discovery responses proffered by SpecialtyCare were “woefully
deficient.” Medsurant requested that SpecialtyCare supplement its responses “as soon as
possible but no later than Monday, October 26, 2015.” In the absence of SpecialtyCare’s
compliance, Medsurant stated that it would have no choice “but to seek intervention from
the Court compelling SpecialtyCare to fully comply with its discovery obligations . . . .”
For each of the interrogatories, to which SpecialtyCare objected, Medsurant’s letter
outlines, with specificity, the information sought.
On October 13, 2015, the trial court reconvened the hearing on SpecialtyCare’s
motion to compel. The parties agreed to consolidate the hearings on the cross-motions to
compel and the motion for protective order. Following the hearing, on November 4,
2015, the trial court entered a detailed order, outlining Medsurant’s discovery
requirements as to each of SpecialtyCare’s requests.
On or about November 4, 2015, Medsurant’s attorney filed supplemental
responses to SpecialtyCare’s interrogatories and requests for documents (approximately
400 additional pages). On or about November 11, 2015, SpecialtyCare sent a letter to
counsel for Medsurant. This letter was sent in response to Medsurant’s October 12, 2015
letter, supra, wherein Medsurant complained that SpecialtyCare’s discovery responses
were “woefully deficient.” The November 11, 2015 letter states, in relevant part that:
Your [Medsurant’s] letter alleges [SpecialtyCare’s] discovery responses are
“deficient in many respects.” However, a party’s responses are by
definition responsive to the propounding party’s requests. In this case,
many of Holdings’ discovery requests are objectionable, so [SpecialtyCare]
has responded accordingly. This does not mean, of course, that the
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responses are deficient, and a party may not manufacture a discovery
dispute by relying upon objections to objectionable discovery requests.
SpecialtyCare’s letter goes on to address the disputed interrogatory answers and why
Medsurant’s disputes with the answers SpecialtyCare provided are not warranted. For
example, concerning interrogatory number 2, SpecialtyCare states that Medsurant’s
assertion that, “in many cases [SpecialtyCare] failed to provide this information,” does
not “specifically identify[] any of the alleged ‘many cases.’” The letter continues in the
same vein.
On November 20, 2015, Medsurant filed another motion to compel, alleging that
SpecialtyCare’s responses were “evasive and incomplete.” On November 30, 2015,
SpecialtyCare filed a response in opposition to Medsurant’s motion to compel, wherein it
argued that: “Medsurant has served four interrogatories and eight requests for production
that would require SpecialtyCare to produce virtually every piece of paper involving its
customers since at least May 14, 2012. Medsurant’s requests are unquestionably overly
broad.” The trial court heard Medsurant’s motion to compel on December 4, 2015. At
the hearing, the trial court reviewed each of the disputed interrogatories. By order of
January 6, 2016, the trial court denied Medsurant’s motion in part and granted it in part.
The order provides, in relevant part:
Medsurant Holdings’ motion to compel as to Interrogatory No. 3 is
GRANTED IN PART and DENIED IN Part. The Court orders
SpecialtyCare to supplement its answer to provide Medsurant Holdings
with the catagories of damages that SpecialtyCare Seeks, if they are known
at this time. For each category of damages, SpecialtyCare shall also state
the amount of damages it seeks, to the extent the amount is known at this
time. The Court will permit SpecialtyCare to qualify its answer by stating
that the categories and amounts of its damages are based on presently
known information, may change as discovery continues and will be further
supplemented when the Defendants fully respond to SpecialtyCare’s
discovery requests. Finally, the Court further orders SpecialtyCare to state
the manner in which it calculated its losses and damages, unless those
calculations were performed by SpecialtyCare’s attorneys.
***
Medsurant Holdings’ Interrogatory No. 17 sought to compel SpecialtyCare
to identify the revenue per month received as a result of procedures
performed at Providence Surgery Center, TriStar Summit Medical Center
and TriStar Souther Hills Medical Center from 2013 to the present.
Medsurant Holdings’ Request for Production No. 38 and Request for
Production No. 41 sought to compel SpecialtyCare to produce documents
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related to or evidencing any procedures performed by [these entities].
Medsurant Holdings’ motion to compel is GRANTED IN PART and
DENIED IN PART. SpecialtyCare is ordered to supplement its answer to
Interrogatory No. 17 to identify the revenue per month it received as a
result of the procedures performed at Providence Surgery Center, TriStar
Summit Medical Center and TriStar Souther Hills Medical Center for the
years 2014 and 2015 but not for the year 2013. Medsurant Holdings’
motion to compel pertaining to its request Nos. 38 and 41 were omitted
from the Court’s ruling by oversight and may be renewed. [The previous
sentence was handwritten on the order].
Medsurant’s motion was otherwise denied.
Shortly after the trial court entered its November 4, 2015 order, Medsurant filed
supplemental responses, producing an additional 412 pages of documents. On or about
January 11, 2016, SpecialtyCare sent a letter to Medsurant’s new counsel, stating: “The
purpose of this letter is to address the noncompliance by Medsurant Holdings, LLC
(“Holdings”) and Medsurant, LLC (“LLC”) (collectively, “Medsurant”) with the Court’s
Order of November 4, 2015. Medsurant’s noncompliance is identified and explained in
detail below.” The letter goes on to outline Medsurant’s alleged failure to comply with
the November 4, 2015 order on discovery. On January 15, 2016, and before agreeing to
substitution of counsel, SpecialtyCare sent a letter to Medsurant’s new attorneys, stating,
in relevant part:
We will consent to the motion to substitute your firm as counsel for
all named Defendants provided that [the previous attorney’s] withdrawal
and your substitutions will not be used as a basis for any delay in this case,
including without limitation compliance with the Court’s order on
discovery.
Our client has diligently prosecuted this matter, and Defendants have
consistently impeded our efforts to move this case forward expeditiously,
including without limitation the following examples:
 After Defendants refused to timely respond to written discovery, our client
was forced to file multiple motions and argue at more than 15 hours of
hearings on three occasions to compel the most necessary and basic
information related to the Defendants’ wrongful conduct. Even after our
client obtained an order compelling Defendants’ compliance with our
client’s discovery requests, Defendants have refused to comply with the
Court’s order. We have addressed Defendants’ failures to comply with the
Court’s rulings in our [January 11, 2016 letter to Medsurant’s former
attorney] and expect Defendants’ full compliance with the Order on or
before Monday, January 18th. Defendants’ proposed motion comes on the
eve of compliance with this demand to obey an Order of the Court, and we
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will oppose any effort to seek delay in this regard. If keeping [Medsurant’s
former attorney] involved to accomplish such compliance is necessary, we
suggest Defendants do so.
 Defendants have impeded our client’s efforts as to entry of a protective
order and have used this to delay their provision of discovery responses and
documents.
 Defendants have refused to agree to a straightforward scheduling order that
we proposed many months ago.
 Defendants have demanded our client add Medsurant Holdings’ wholly-
owned subsidiaries as party defendants when Medsurant Holdings
unquestionably has possession, custody, and control of responsive
documents and information.
 Defendants have attempted to distract the Court by filing motions to
compel seeking irrelevant information. Moreover, even after our client
prevailed on such motions, Defendants refused to draft an order consistent
with the Court’s bench ruling, causing further delays. (The Court entered
our client’s proposed order with little modification.).
On January 25, 2016, SpecialtyCare filed its first motion for discovery sanctions.
Therein, SpecialtyCare averred that Medsurant failed to comply with the trial court’s
November 4, 2015 order. As sanctions, SpecialtyCare asked the court to enter default
judgment against Medsurant. In the alternative, SpecialtyCare asked the court to prohibit
Medsurant from introducing certain matters into evidence and to award SpecialtyCare its
attorney’s fees and costs. On February 8, 2016, Medsurant filed a response in opposition
to SpecialtyCare’s motion for sanctions, stating, in relevant part, that
SpecialtyCare. . . seeks the most punitive of sanctions against Medsurant—
the entry of default judgment—for alleged delay tactics in responding to
discovery requests. In support, SpecialtyCare selectively cites the record in
this case. A closer examination of the facts, however, reveals that
SpecialtyCare is attempting to manufacture a claim of delay where none
exists. SpecialtyCare’s allegations of delay and request for default
judgment are especially puzzling given that there are no pending court
deadlines and no trial date set for this case. Medsurant has endeavored to
timely and appropriately respond to discovery requests throughout this
case. To the extent Medsurant’s discovery responses have been deficient, it
has amended or supplemented its responses. Accordingly, Medsurant
requests that the Court deny the Motion for Sanctions in its entirety.
On January 29, 2016, the trial court entered a protective order, allowing
SpecialtyCare to designate “protected information” as “confidential” or “Confidential—
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Attorney’s Eyes Only,” and enjoining Medsurant to comply with such designation. On
February 22, 2016, the trial court entered an order allowing Medsurant’s former counsel
to withdraw and substituting new counsel. On the same day, the trial court entered a
scheduling order, setting the case for jury trial on August 22, 2016. The scheduling order
further states that “[a]ll discovery in this matter shall be completed on or before Friday,
June 10, 2016.”
On February 12, 2016, the trial court heard SpecialtyCare’s motion for sanctions.
At the outset of the hearing, the trial court asked Medsurant’s former attorney to remain
in the courtroom, explaining that
the reason that I ask [Medsurant’s former attorney] to stay is that I have
spent, I think, from about 1:00 until about 5:36 one day going over
discovery with [Medsurant’s former attorney] and plaintiff’s counsel. And
then we spent another four hours, maybe, together on the same thing. So I
have spent a lot of time on the discovery dispute which seems to have
reared its ugly head once again today. So I’m not too moved about more
time or failure to fully respond . . . .
The trial court then asked Medsurant’s former counsel the following: “[Y]ou were here
during our numerous discussions about discovery. Did you have any question in your
mind as to what I had ordered?” Medsurant’s former counsel answered, “No, Your
Honor.” Medsurant’s former attorney answered, “Yes,” when the court asked him:
“[D]id you understand that there was supposed to be clarification that you would make
with your client, come back and submit it in proper format to the plaintiffs?” The court
then asked whether there was any reason why that wasn’t done, to which Medsurant’s
former attorney replied, “We submitted all of the information that we received from our
client.” At this point, the court continued the motion for sanctions for two weeks.
Although the trial court stated that: “It is my intention that there will be
sanctions,” it went on to state that: “Now, with regard to the motion for sanctions, it’s not
likely that you will get a default judgment, but it may happen, depending on the
cooperation the attorneys have with their client.” To this end, the court stated that, “I am
going to allow present new counsel to provide all of the information before Friday, two
weeks.” The trial court asked SpecialtyCare to draft an order, which was entered on
February 26, 2016 and states, in relevant part:
Medsurant must provide to SpecialtyCare all of the information made the
subject of SpecialtyCare’s Motion for Sanctions before February 26, 2016.
It is further
ORDERED, ADJUDGED, and DECREED that for the nine former
ProNerve employees who are employed with any of the presently named
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defendants, Medsurant must provide to SpecialtyCare before February 26,
2016: (1) the name of where that employee worked while employed with
ProNerve; (2) the name and address of the hospital(s) or healthcare
institutions where the employee worked while employed with ProNerve;
and (3) the physicians with whom the employee had any contact with
employed with ProNerve. It is further
ORDERED, ADJUDGED, and DECREED that for the nine former
ProNerve employees who are employed with any of the presently named
defendants, Medsurant must provide to SpecialtyCare before February 26,
2016: (1) the name of where the employee presently works; (2) the name
and address of the hospital(s) or healthcare institutions where the employee
presently works; and (3) the physicians with whom the employee has been
assigned or worked with since the beginning of their employment with any
of the presently named defendants.
The hearing on SpecialtyCare’s motion for sanctions continued on February 26,
2016. At the outset of the hearing, SpecialtyCare announced that:
We did receive about 120 pages of documents at 2:30 yesterday.
You had ordered that they do everything that they would be doing to get
themselves in compliance with the Court’s order by yesterday.
At about 1:09 a.m. today, [we] received an email with about 350
pages of documents, and then at 1:50 a.m. today another email with,
presumably, documents. Its’ something that [we’ve] not been able to open
yet, some sort of an attachment issue. . . .
But [we are] prepared to, based on the review of the roughly 500
documents . . .that were delivered through 1:09 this morning—to address
the continuing deficiencies in those documents.
***
So we submit that the reasons justifying the relief we sought in the
motion that was heard two weeks ago still exists in large part. . . . [W]e
believe, at minimum, the attorneys’ fees—this is the fifth time we’ve been
in front of the Court on this matter—that attorneys’ fees we have had to
incur in connection with all these efforts should be paid.
SpecialtyCare then proceeded to outline the pieces of discovery that Medsurant allegedly
failed to produce. SpecialtyCare also complained that many of the documents Medsurant
produced were not in electronic format as the court had ordered. In response to
SpecialtyCare’s argument, Medsurant’s new attorney explained that
I think this is a good time to address the topic that you’ve mentioned, that
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information has been slow to come from the defendants throughout this
case. We had a hearing with Your Honor two weeks ago. I would say
since that time we’ve worked furiously to compile and produce information
and compile the information that you’re about to view which represents a
very substantial amount of work.
***
And part of addressing those now was to emphasize for this Court that
while things may have been slow to come from prior counsel to the
defendants, that’s not the case now. New counsel is using an extreme
amount of diligence to compile the information.
In response, the trial court stated:
[T]here has been a lot of delay in coming forth with this information, and I
appreciate that you are going to ask [Medsurant] to produce it. That might
be the first time for you to ask for it, but it’s not the first time they’ve been
asked for it, and you need to go back and tell them that.
While acknowledging the trial court’s admonishment, Medsurant’s attorney explained
that electronic searches had been conducted to identify information sought by
SpecialtyCare, including communications between former employees and former
ProNerve hospital customers that were now Medsurant customers. However,
Medsurant’s attorney stated that, “for many of these employees . . . there were zero hits”
and very few responsive documents. The trial court replied:
One of the things that I wrote down that was mentioned is that Medsurant
has a server that has all this information, the electronic information, on it.
Most computer devices have a server, and a lot of information is stored on
the server or in the cloud. . . . And what was said is that this server could
be activated as to produce all of the information, the electronic information,
that they’re requesting. And that, I have to say I concur with it, because
they have these companies like Logic Force or something that are just
computer gurus that can go into a computer and pull out whatever data is
there, and you can look at it and then you can decide how much of it is in
response and provide it to the other side. It’s a lot of work and it’s
expensive, but if that’s necessary, sometimes that’s what is done. I’m not
here to create expense for anybody. The rules are very straightforward that
if you don’t do it, then bad things will happen. . . .
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Medsurant’s attorney then explained that:
I know they mentioned they were anticipating thousands of documents. I
went over this extensively in the last two weeks with these employees and
with management. It is not the practice at Medsurant that a technician—9
of these 11 are technicians. It’s not the practice that technicians
communicate with surgeons and facilities. They just don’t. They don’t
email them. They don’t text-message them. I went through this very in-
depth because, like plaintiff’s counsel, I was expecting more email traffic,
and I was told unequivocally that it is not their practice that a technician
would contact a surgeon or facility.
Concerning the lack of electronic emails and communications, SpecialtyCare’s attorney
later stated that:
I just want to clarify that when we say “failed to produce any documents
related to Chaney, Pierce, and Clark,” I think the defendants are trying to
limit that information to the expense reports and the employment file. And
we want to be clear that we have requested many, many, many more
documents other than the expense reports and the employment file. So
there are additional documents we expect to receive that we have not.
To which, the trial court replied: “I am anticipating that there are the emails that are
going to be forthcoming, which should be the bulk of what you’re expecting. . . . Not
only for these three, but for everybody.” Medsurant’s attorney then reiterated that
[a]s to Chaney, Pierce, and Clark, we did the same search that I referenced
previously. Chaney, Pierce, and Clark each listed in these disclosures the
customers they worked with at ProNerve. We did search their Medsurant
email to determine whether they had any contacts with any of those
customers since being employed. So either those records don’t exist or
they were produced this morning; that is, their emails with their former
customers. So we weren’t just limiting it to the employee file. And, again,
referencing this bulk of the documents they expect, the bulk of the
documents they seem to expect are communications between these
technicians and the surgeons and facilities they worked with at ProNerve. . .
. Those have been produced, and they are exceedingly limited as to each of
the technicians.
***
Again, Your Honor by Wednesday of next week, I will either supplement
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or I will provide some sort of affirmance that everything has been
produced. Again, I don’t like to hide behind technicalities in discovery.
We just need a flow of communication that says it seems some of these
expenses are missing. And I will, again, follow up by Wednesday of next
week that says either we have produced absolutely everything or here’s
some supplement.
The trial court later replied:
I was pleased to hear you say by Wednesday you will have this taken care
of, because on Thursday we’ll be meeting again to see what’s been
accomplished. And at this point, because there has been such delay and it
is not apparent to me that the defendant has had a substantial amount of the
information which is not privileged that has not been forthcoming, that I am
more inclined to grant a default judgment as a sanction. I had not really
thought I would do that, but I am very unhappy with the lack of
forthcoming discovery in light of my order. And this is not aimed at you
[Medsurant’s attorney], it’s not aimed at the previous attorneys, but it is
directed at the defendants. They operate a business and they’re very smart,
as are the plaintiffs and they’re very smart. And I’m fairly convinced, as I
said before, that the information they think is privileged, each of them has
a, probably, general, if not specific, knowledge of where their competitor is
operating. They may not know precisely which employee is doing
precisely what. But must of what has been requested should have been
forthcoming before now. And I have spent an inordinate amount of time
going through and saying, “Go back and ask them for this.” So if
[Medsurant] is going to avoid a default judgment, [it] really need[s] to give
you everything that you ask . . . for. So it’s not going to be your fault. You
know exactly what to ask. And this is what happened the last time with the
other attorneys. I told the other attorneys precisely what they were
supposed to get from their client, now your client. So when you go back,
it’s not news to them. It’s news to you, but not to them. So you may tell
them that right now they have sorely worn my patience, that they have been
noncompliant with my order, and that they are on the verge of just having a
hearing on damages. . . .
To which, Medsurant’s attorney responded: “I understand, Your Honor. I do hope that
the depth of information that we’ve provided in the last two weeks would show this Court
that whatever resistance existed before is not now.” To which, the trial court replied:
I have to say that I truly appreciate every comment that you’ve made in that
regard, and if that had been on the second or the third time that we were
here, your clients would be in a much better posture, because I am very
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forgiving. I do not think that a default judgment—I’ve never done that, and
I’d like to think I’m not going to do it, but right now it is right on the front
of my mind. They are going to be held responsible for the amount of time
that the plaintiffs have spent trying to get this information. And I’m not
going to award them all their attorneys’ fees, but they’re going to get some,
because this has been a big undertaking that shouldn’t have been. And if
you had been giving me the responses the first time out and been able to
provide all the documentation that you say you’re going to produce—
because, as I said earlier, I wanted you to provide to me something and if
you think it’s private, put it under seal and give it to me, and you did that. I
don’t want to make things difficult for the lawyers; clients do that. So I try
to have very specific things that you can meet. . . . Now, the attorneys’ fees
are part of the sanctions. I’m not certain if I will grant them the default
judgment or some other sanction than just the attorneys’ fees.
The trial court reconvened the hearing on SpecialtyCare’s motion for sanctions on
March 3, 2016, when SpecialtyCare made the following announcement to the court:
Yesterday, a little after noon, we received a document dump, I would say,
describe it, of about 7,000 pages of information. And [we’re] going to go
through some examples of that information and show you that one of two
things happened. And either of which, we submit, really requires the Court
to enter a default judgment here because either they were withholding those
documents, having been repeatedly ordered to produce them, or they didn’t
look for them.
Counsel for SpecialtyCare then outlined the alleged shortfalls in the information
proffered by Medsurant. For example, SpecialtyCare argued that Medsurant had engaged
in “selective production” by omitting attachments from submitted emails. SpecialtyCare
also noted that, although Medsurant’s attorney had represented that certain emails did not
exist, the 7,000 pages contained some of these emails, which SpecialtyCare argued
should have been produced months before. In addition, SpecialtyCare argued that there
were still “gaps” in the discovery. In response, Medsurant’s attorney stated:
Your Honor, we have gone through a lot of documents here this morning, a
lot of information. And I think something that Plaintiff’s counsel repeated
time and time again today is crucial to your understanding of what has
transpired. As [SpecialtyCare’s attorney] went through these documents,
he must have said a dozen times, this e-mail, this issue, this item goes to the
heart of our case. . . . These are exactly the types of documents that they
want and need to try to prove their case. And I think that goes to the point
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and goes to the heart of this issue which is that this—that the production
has been full and complete. These documents have been produced. They
are, in plaintiff’s own characterization, critical to their case and critical to
their claims and have been produced.
***
Your Honor, we’ve clearly searched the records even through the highest
levels of the company . . .and the dates on these e-mails are also telling.
The last e-mail on here is Friday, January 15, 2016. These are very current
emails. To the extent there are very specific items or documents that may
have some sort of flaw in them, for example, [SpecialtyCare’s attorney]
pointed to the fact that an attachment was missing off an e-mail, I can attest
to the Court that many, many e-mails that were produced had attachments.
And to the extent an attachment was left off of the production, that’s an
inadvertent mistake and not a calculated attempt to avoid producing.
***
To the extent there was some minor flaw or discrepancy in the search term,
those items can be dealt with in the ordinary course, and I would expect
them to be dealt with in the course of the continuing discovery in this case.
For instance, Your Honor, before this hearing started, I was approached by
plaintiff’s counsel about the search terms on Melissa Chaney’s e-mail box.
There was a question. I have contacted the IT personnel at my client. I
have got an answer to the question that they had, so that I can specifically
answer a question about the search terms and search categories that were
done. And in an effort to demonstrate our full production and our full
compliance in this case, I have produced—even though I don’t think I’m
required to produce them, I have voluntarily produced the records of all of
our search terms and our search categories. . . . [T]he defendants have,
respectfully, spent three weeks pouring through records and information
trying to produce everything that might be relevant in this case. . . . To the
extent some particular specific items may have been missing or left out, we
will continue to produce those documents as they’re identified, but it’s not
the type of thing that requires a continuous presence in front of this court.
Medsurant’s attorney then asked the trial court to consider appointing a special master to
resolve any ongoing discovery issues that might arise, to-wit:
Again, Your Honor, there’s no attempt to hide here. There’s no attempt to
avoid production. However, as cases progress and knowledge increases,
sometimes there are additional documents that do need to be produced.
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Respectfully, I don’t believe this Court is the best forum for that, and for
that reason, I think the appointment of a special master might be
appropriate in these instances, Your Honor, to deal with some of these very
minute issues.
The trial court declined to appoint a special master, stating:
I appreciate your concern for me, but one of the problems is that I have
been sitting here listening to discovery requests for several times. And to
foist this off on a master would be inappropriate, given how much
collective memory I have acquired on this, and the state at which it’s
proposed. If it had been just a situation of minutia and small discovery
requests back in November, that might have been appropriate.
The court later addressed the parties’ respective counsel, to-wit:
I wanted to say on the record for you to take back to your clients, that I
greatly appreciate all of the work that you have done in a very short period
of time as new counsel . . . to get your client’s attention that this is very
serious. . . I’m not saying that a default judgment is off the table because I
haven’t [read the parties’ respective briefs]. . . . I recognize that
[SpecialtyCare’s attorney,] would like a default judgment, but I’m also
aware of the consequences of such an action and believe that a resolution
on the merits is probably more appropriate. But given the sanction, it may
be that it’s really to the benefit of your client anyway. I have looked at
these documents and it seems to me that there was a very active and
concerted effort to employ those individuals which were working for
ProNerve to go to work for Medsurant, and even a representation that
Medsurant was the new acquirer had been made. . . . I will tell you that I
have not imposed sanctions very often for discovery abuses, but I do feel
persuaded in a big way that there has been an abuse of the discovery
process by the defendants. And you may tell your clients that. And for
that, sanctions are warranted beyond the award of attorneys’ fees. And I
will have to fashion that remedy.
The trial court instructed the parties to file supplemental briefs regarding
sanctions. SpecialtyCare filed its supplemental brief on March 9, 2016; Medsurant filed
its response on March 15, 2016.
On April 6, 2016, the trial court reconvened the hearing on SpecialtyCare’s motion
for sanctions. SpecialtyCare again argued that Medsurant still had not completely
complied with the trial court’s discovery orders. After giving Medsurant’s attorney an
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opportunity to respond, the trial court made the following, oral ruling:
I want to again reiterate that I think you [Medsurant’s attorney] have been
cooperative to the extent that [it] is possible for an attorney in your position
to be cooperative. I do not fault you for the lack of further production of
documents or responses to interrogatories that have not been forthcoming.
***
Each day that passes, the damage that is being done to
[SpecialtyCare] continues to accelerate because the relationship between
those employees that Medsurant now employs, that SpecialtyCare
anticipated they would be employing, becomes a stronger bond. They are
the recipient of any benefits from Medsurant that might have been benefits
from SpecialtyCare had they gone to work for SpecialtyCare.
I do find, and I did the last time before this most recent filing, that
sanctions are appropriate, and I was hesitant to grant a default judgment
with regards to the claims made by SpecialtyCare.
I have considered whether I should merely put down findings that
Medsurant actively solicited nine then ProNerve employees; that the
defendants’ solicitations interfered with SpecialtyCare’s contractual and
business relationships; that SpecialtyCare was aware of the relationships
existing between the employees and ProNerve and the expectation that
SpecialtyCare had upon the purchase of the ProNerve assets; and that
Medsurant intentionally induced their breach of the contract that they had
entered into with this asset purchase.
I find that Medsurant should be subject to sanctions for failure to
comply with my previous court orders that were specifically set out and
those which were addressed in court on a number of occasions for a number
of hours, to the extent that they are liable for attorney’s fees of
SpecialtyCare from and after its first filing of the motion for sanctions, and
would ask that you file a statement of attorney’s fees incurred in that.
I also find that the failure to be forthcoming with the documentation,
the inconsistent answers in the interrogatories, the continuing delay to be
forthcoming warrant the imposition of a default judgment, and that will be
granted as a sanction in this matter.
On May 3, 2016, the trial court entered an order granting default judgment against
Medsurant for failure to comply with discovery. The trial court’s order states, in relevant
part:
SpecialtyCare’s Motion for Sanctions came to be heard on February
11, February 26, March 3, and April 6, 2016. At the first hearing on
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February 12, the Court ordered Defendants to produce certain information
with respect to the employees at issue in the case, among other information.
. . . At this same hearing, the Court announced that, given Defendants’
serious discovery abuses, it was the Court’s intention that “there will be
sanctions.” Although the Court explained that it was hesitant to enter a
default judgment, the Court specifically warned Defendants that it might do
so “depending on the cooperation the attorneys have with their clients” in
providing the requested documents and information . . . .
After Defendants produced only an additional 467 pages of
documents and a fraction of the requested information, including producing
documents electronically in the early morning hours on February 26, 2016,
the Court held another hearing on February 26, 2016. . . . At the hearing on
February 26, 2016, at which the parties and the Court addressed what
Defendants had done to come into compliance with the November 4 Order
since hearing on February 12, 2016 (which was only to produce an
additional 467 pages of documents consisting of employment-related filed
that Defendants previously refused to produce), the Court announced that it
was “more inclined to grant a default judgment” because it was “very
unhappy with the lack of forthcoming discovery in light of [its] order.” The
Court gave Defendants another five days to provide all of the requested
information and documents and set another hearing for March 3, 2016.
On March 2, 2016, Defendants produced almost 7,000 pages of
documents, more than eight months after they were first requested. At the
March 3, 2016 hearing, counsel for SpecialtyCare went to great lengths to
identify extremely relevant documents that Defendants had still failed to
produce notwithstanding Defendant’s approximately 7,000 page-
production. For example, while Defendants produced emails . . . Defendant
failed to produce attachments to those emails. . . . Counsel for Defendants
promised to produce the missing documents. As this Court explained at the
hearing on March 3, 2016, the Second Amended Complaint and the records
that Defendants did produce reveal “a very active and concerted effort to
employ those individuals which were working for ProNerve to go and work
for Defendants and even a representation that Defendants [were] the new
acquirer. . . . .”
Upon learning of Defendants’ roughly 7,000-page production at the
hearing on March 3, 2016 (the sixth hearing on Defendants’ discovery
misconduct), the Court reiterated its view that “certain sanctions are
warranted, including attorneys’ fees” given “the significant delay in
production of documents which should have been forthcoming.” The Court
stated that it felt “persuaded in a big way that there has been an abuse of the
discovery process by the defendants.” “And for that,” the Court explained,
“sanctions are warranted beyond the award of attorneys’ fees.” The Court
then set the final hearing on SpecialtyCare’s Motion for Sanctions on April
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6, 2016 . . . .
Long after Defendants’ discovery deficiencies had been addressed in
a series of hearings and ruled upon successively by the Court and
Defendants had been given multiple ultimatums by the Court to comply
with the Court’s orders, counsel for Defendants offered to have a discussion
with counsel for SpecialtyCare concerning electronic discovery searches
conducted by Defendants. Since even the production of thousands of pages
of documents finally may by Defendants on March 3, 2016, had huge gaps,
SpecialtyCare followed up with Defendants to gain a better understanding
of their theretofore-unexplained failure to provide responsive information
despite multiple court orders . . . . SpecialtyCare reasonably claimed that it
did this so that it could, if possible, determine how Defendants conducted
their prior searches and where Defendants actually searched for documents
so that it could determine whether and how Defendants could rectify their
electronic discovery deficiencies. Accordingly, counsel arranged [two
telephonic conferences]. . . .
While Defendants admitted they had only searched for documents
for “one month,” both of these conferences demonstrated that after ignoring
their discovery obligations for the better part of seven months, Defendants,
their counsel and their IT department had still failed to conduct a proper
search for responsive information. . . . Defendants belated effort to collect
and produce electronic documents unquestionably “exclude[d] relevant
documents.” . . . The search was deficient as searches that would only find
all terms specified instead of any terms specified were conducted on a last-
minute basis long after the Court had repeatedly admonished Defendants to
make a proper production of responsive information.
As of the hearing on April 6, 2016, and notwithstanding that the
Court had ordered the Defendants either to produce all the documents they
had already been ordered to produce or to state affirmatively that there are
no additional documents forthcoming, Defendants had done neither. In
fact, Defendants did not make a serious effort to comply with the Court’s
orders, which is evidenced in part by Defendants’ failure to search properly
for and produce electronic information. . . . Defendants’ person responsible
for searching for responsive documents . . . was not trained or certified in
the tool he used to perform the searches, which were not done until long
after the Court had issued successive rulings and orders following the
November 4 Order. As a result, documents responsive to the Court’s orders
were not searched for and not produced.
Additionally, despite being made aware of specific missing
documents by SpecialtyCare at the March 3, 2016 hearing, Defendants
failed to supplement their document production between the March 3 and
April 6, 2016 hearings. Defendants had every opportunity to search for and
supplement their production between March 3, 2016 and April 6, 2016, but
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failed to search for and produce additional, responsive documents.
The trial court’s order goes on to state that Medsurant’s “discovery abuses are further
evidenced by the fact that the Court ordered [Merdsurant] to supplement certain
interrogatory responses, and when they did so, those sworn responses were contradicted
by the sworn deposition testimony of [Messrs. Klear and Lincoln].” The order then
states, in relevant part:
The Court has devoted seven hearings (totaling well in excess of 12
hours) to Defendants’ failures to produce documents and obey the Court’s
orders. The Court has provided Defendants with ample opportunities to
correct their discovery deficiencies and they have refused to do so.
***
The Court recognizes the severity of a default judgment.
Nevertheless, the Court concludes that a default judgment is the appropriate
sanction in this case. Defendants have repeatedly failed to comply with
discovery rules and this Court’s discovery orders, which has needlessly
delayed this litigation and prejudiced SpecialtyCare. Defendants have
provided interrogatory answers inconsistent with deposition testimony.
The limited discovery responses that Defendants have eventually provided
after extended and inexplicable delays have been evasive and incomplete.
The Court gave Defendants multiple opportunities to provide the necessary
discovery. Defendants, however, repeatedly failed to comply with the
Court’s specific orders, even after the Court specifically warned Defendants
that their continued failure to comply might result in default judgment.
During multiple hearings, the Court asked Defendants’ counsel (both
prior and current) to confirm that they understood what the Court had
ordered, and counsel unequivocally confirmed that they understood.
Moreover, there is no evidence to suggest that SpecialtyCare somehow
contributed to Defendants’ extended and inexplicable delays in producing
the requested documents. The Court finds that Defendants, not their
attorneys or anyone else, are responsible for the repeated discovery abuses
throughout this litigation.
Additionally, as this Court has previously recognized,
SpecialtyCare’s claim states a ground for relief against Defendants. The
Second Amended Complaint and the records that Defendants have
produced reveal “a very active and concerted effort to employ those
individuals which were working for ProNerve to go and work for
Medsurant and even a representation that Medsurant was the new acquirer. .
. .”
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***
As indicated, entry of default judgment is appropriate where there is
a clear record of delay or contumacious conduct. Here, as described above,
there is a clear record of delay and contumacious conduct by Defendants . .
.
(internal citations omitted).
Under Rules 37.04 and 37.02(C) of the Tennessee Rules of Civil Procedure, the
trial court is expressly authorized to dismiss an action for failure to abide by discovery
rules. Holt v. Webster, 638 S.W.2d 391, 394 (Tenn.Ct.App.1982). Rule 37.04 states
that, if a party fails to serve answers or objections to interrogatories, the trial court may
enter such orders as are just, and may take any action authorized in Rule 37.02(C). Tenn.
R. Civ. P. 37.04. Rule 37.02(C) provides that the trial court may, among other things,
enter an order “dismissing the action or proceeding or any part thereof.” Tenn. R. Civ. P.
37.02(C). “Dismissal is a harsh sanction.” Holt, 638 S.W.2d at 394. As such, this Court
has cautioned that
. . .the inherent powers of the court to impose sanctions are most effective
when utilized with discretion and restraint. . . “[T]he punishment must fit
the offense.” “[T]he power to sanction should be used sparingly. It should
not be used like a sword and used frequently . . . to do so would diminish
the significance when sanctions are imposed.” Thus, it is a drastic
measure which the court wisely imposes with discretion.
Pegues v. Illinois Central R.R. Co., 288 S.W.3d 350, 354 (Tenn. Ct. App. 2008), perm.
app. denied (Tenn. Jan. 20, 2009) (quoting Alexander v. Jackson Radiology Assoc.,
P.A., 156 S.W.3d 11, 14 (Tenn. Ct. App. 2004), perm. app. denied (Tenn. Nov. 15,
2004)). The Tennessee Supreme Court has stated that cases should be decided on their
merits whenever possible. See Bates v. Sanders, 79 S.W.2d 41, 42 (Tenn. 1935).
However, Tennessee courts have recognized that “trial judges must be able to control
their dockets ... they must have available the most severe spectrum of sanctions not
merely to penalize those whose conduct warrants sanctions but also to deter others who
might be tempted to engage in similar conduct if the sanction did not exist.”
Manufacturers Consolidation Service, Inc. v. Rodell, 42 S.W.3d 846, 864 (Tenn. Ct.
App. 2000), perm. app. denied (Tenn. Dec. 4, 2000). Although dismissal is appropriate
in some cases, it “is a harsh sanction that generally is not favored in circumstances where
lesser sanctions are available.” Id. at 864. Accordingly, “[a]ppellate courts do not treat
decisions to dismiss cases pursuant to Tenn. R. Civ. P. 37.02(C) . . . lightly.” Kotil v.
Hudra-Sports, Inc., et al., No. No. 01-A-01-9305-CV00200, 1994 WL 535542 (Tenn.
- 24 -
Ct. App. Oct. 5, 1994) (citation omitted).
Concerning what behavior warrants the sanction of dismissal, we find guidance in
our caselaw. In Shahrdar v. Global Housing, Inc., 983 S.W.2d 230, 236 (Tenn. Ct. App.
1998), perm. app. denied (Tenn. Oct. 19, 1998), a former hotel manager sued the hotel,
claiming breach of an oral contract, negligent misrepresentation, promissory fraud, and
intentional or negligent infliction of emotional distress. Id. at 233. From the time the
complaint was filed, the plaintiff repeatedly sought adequate responses to his discovery
requests from the defendants. Id. Approximately eighteen months after the complaint
was filed, the plaintiff moved for a default judgment, asserting that the defendants had
failed to comply with discovery orders. The trial court granted the motion for default,
denied plaintiff’s motion to set aside the default, and convened a jury to hear the issue of
damages. Id. at 234.
On appeal, this Court affirmed the trial court’s grant of a default judgment as a
discovery sanction. In doing so, we noted that “the defendants’ conduct in this case can
be described as uncooperative at best.” Id. at 236. Specifically, we acknowledged that,
despite the trial court’s ordering them to fully comply with discovery, the defendants
either did not fully answer the interrogatories and requests for production or answered
them with “boilerplate objections.” Id. Furthermore, the designated corporate
representative for the defendants claimed to know nothing about the circumstances of the
case, despite the fact that he was the president of the corporation. Id. The defendants
argued that default judgment was improper because the default judgment was entered
shortly after its trial counsel withdrew from the case. The appellate court rejected that
argument, noting that the corporate defendant had in-house counsel at all pertinent times,
and that the defendants had “ample opportunity to respond to the orders of the court.” Id.
Other cases have upheld the imposition of a default judgment as a discovery
sanction. For example, in American Steinwinter Investor Group v. American
Steinwinter, Inc., 964 S.W.2d 569 (Tenn. Ct. App. 1997), this Court affirmed the trial
court’s grant of default judgment when the defendant refused to obey discovery orders of
the court without a reasonable excuse. Id. at 574. We noted that the defendant’s flagrant
disregard was clear from the record, and that “severe sanctions were in order.” Id. In
Galde v. Keritsis, No. 03A01-9807-CH-00228, 1999 WL 496630 (Tenn. Ct. App. July
15, 1999), we affirmed the grant of default judgment where the defendant repeatedly
refused to appear for deposition and failed to appear at trial. Id. at *3-*4. In Galde, we
stated that the defendant’s
actions were egregiously scornful of the judicial process. He not only
refused contumaciously on four occasions to appear for a deposition, he
refused to attend the trial; and, compounding his behavior, after Judgment
was entered he refused to appear and answer interrogatories.
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Id. at *3. In Potts v. Mayforth, 59 S.W.3d 167 (Tenn. Ct. App. 2001), we affirmed the
trial court’s grant of default judgment where the defendant repeatedly failed to comply
with discovery requests and committed perjury by lying in his answers to interrogatories.
Id. at 172.
Based on the foregoing line of cases, this Court, in Murray v. Christian Methodist
Episcopal Church, 153 S.W.3d 371, 379 (Tenn. Ct. App. 2004), perm. app. denied
(Tenn. Oct. 4, 2004), noted that, in other cases in which the trial court’s grant of default
was affirmed, the failure to respond to discovery: (1) was repeated, see Galde, 1999 WL
496630 at *3-*4; (2) was without reasonable excuse, see American Steinwinter, 964
S.W.2d at 574; see also Holt, 638 S.W.2d at 394 (affirming the grant of default judgment
on finding that there was “no plausible justification for plaintiffs’ failure to file timely
and complete responses to defendant’s interrogatories.”); (3) involved perjured discovery
responses, see Potts, 59 S.W.3d at 172; or (4) resulted in a delay of over a year. See
Shahrdar., 983 S.W.2d at 233 (Tenn.Ct.App.1998).
Although the actions that will justify the grant of default judgment must be
reviewed on a case by case basis, Murray, 153 S.W.3d at 379, caselaw dictates that this
extreme sanction is appropriate only when “there has been a clear record of delay or
contumacious conduct.” Shahrdar, 983 S.W.2d at 236 (quoting In re Beckman, 78 B.R.
516, 517 (M.D.Tenn.1987) (citation omitted) (“The entry of judgment by default . . . is
only appropriate where there has been a clear record of delay or contumacious
conduct.”)). “Contumacious is defined as ‘scornful’ or ‘recalcitrant.’” Am. Exp.
Centurion, No. E2011-01247-COA-R3-CV, 2013 WL 937831, at *5 (Tenn. Ct. App.
March 11, 2013) (quoting Bryan Garner, A Dictionary of Modern Legal Usage 220 (2nd
ed. 1995) (characterizing the conduct as “egregiously scornful of the judicial process.”)).
Contumacious conduct means “‘[w]illfully stubborn and disobedient conduct, commonly
punishable as contempt of court.’” Id. (quoting Black’s Law Dictionary 298 (5th ed.
1979)). Accordingly, “in order to justify the harsh result of dismissal, the party’s actions
in failing to timely respond to discovery must both tend to cause a delay and be ‘scornful’
or ‘willfully stubborn.’” Id. For example, in Alexander v. Jackson Radiology, plaintiff
Alexander intentionally and surreptitiously took an incriminating exhibit in the course of
a deposition. Alexander, 156 S.W.3d at 16. The discovery abuse also included
plaintiff’s “blatant, inexcusable, repeated lying, under oath, when questioned the next
day” about the disappearance of the exhibit. Id. Plaintiff Alexander did not simply deny
taking the exhibit “but indignantly and aggressively expressed resentment at being
questioned about its disappearance and whereabouts.” Id. After “carefully consider[ing]
the balancing which the court must undertake in determining what sanctions are
appropriate under the circumstances,” in Alexander, we held that, “[i]n light of the
totality of the circumstances presented . . . the trial court did not abuse its discretion when
it dismissed Dr. Alexander’s lawsuit,” and, specifically, that “the totality of Dr.
Alexander’s actions ‘offend[ed] the basic principles underlying our judicial system.’” Id.
at 17 (citation omitted).
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By contrast, this Court has reversed a trial court’s grant of default judgment in
several cases. As discussed above, a trial court’s decision to dismiss an action on the
basis of discovery abuse is reviewed under the abuse of discretion standard. Alexander,
156 S.W.3d at 14. We have held that a trial court acts outside its discretion in dismissing
a case for discovery abuse when there is no record of “willful or dilatory conduct,”
Pegues 288 S.W.3d at 351, or when the non-moving party’s failure to respond to
discovery was not sufficiently “contumacious.” Murray, 153 S.W.3d at 378 (citations
omitted).
In Pegues, a railroad employee filed a personal injury action against the railroad
for damage allegedly incurred as a result of employee’s exposure to hazardous materials
such as asbestos. 288 S.W.3d at 350. The railroad moved to dismiss on the basis that
employee failed to comply with pretrial order to produce experts for deposition. Id. In
vacating the trial court’s dismissal of plaintiff’s case, we stated:
In the present case, however, although as counsel for Mr. Pegues
conceded at the July 13 hearing his response to the Railroad’s motion to
dismiss was filed late, the record does not support a conclusion that Mr.
Pegues merely disregarded or flouted the trial court’s discovery order.
Further, as counsel for Mr. Pegues observed at the hearing, discovery was
within the bounds of the scheduling order issued by the court in April 2007.
...
In light of the totality of the record, we do not believe Mr. Pegues’
failure to produce witnesses for deposition as ordered by the trial court rises
to the level of conduct exhibited in Alexander or Holt. . . . We are not
insensitive to the trial court’s frustration. . . . However, we do not believe
the sanction of dismissal is appropriate where Mr. Pegues has attempted to
comply with the trial court’s order and is within the scheduling order
established by the trial court in April 2007. Although Mr. Pegues’ time to
obtain competent medical proof is not unlimited, and although we take no
position on the merits of Mr. Pegues’ claim, we cannot agree with the trial
court that the harsh sanction of dismissal was appropriate at this juncture.
Id. at 355; accord Hogan v. Illinois Central R.R. Co., No. W2007-01985-COA-R3-CV,
2008 WL 3067768 (Tenn. Ct. App. Aug. 4, 2008), perm. app. denied (Tenn. Feb. 17,
2009) (“As in Pegues, we do not believe the sanction of dismissal is appropriate where
Mr. Hogan has attempted to comply with the trial court's order and where the Railroad
does not dispute that Mr. Hogan is within the discovery time allocated in a scheduling
order issued by the trial court in April 2007.”).
In March v. Levine, 115 S.W.3d 892 (Tenn. Ct. App. 2003), this Court reversed
the trial court’s refusal to set aside a default judgment. In March, decendent/wife’s
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parents sued husband for the wrongful death of wife. The trial court granted plaintiffs’
motion to compel, ordering husband to return to Nashville for his deposition. Despite the
order, husband refused to travel to Nashville and suggested that he be permitted to
participate in a telephonic deposition, or to submit to a deposition near his home in
Mexico. Husband asserted “unconvincingly” that he lacked the financial resources to
travel to Nashville. Id. at 912-13. The trial court did not accept the husband’s
proposals, and his deposition was noticed to be taken in Nashville. Id. at 916 (Steward,
J., dissenting). When husband failed to appear, the deposition was noticed again on a
date certain, and the trial court ordered husband to inform the trial court whether he was
willing to attend the deposition. Husband neither gave notice to the trial court, nor did he
attend the deposition. Subsequently, husband failed to appear at a hearing at which the
trial court considered the plaintiffs’ motion for sanctions. At that hearing, the trial court
granted a default judgment against the husband and later denied husband’s motion to set
aside the default judgment. This Court reversed, holding that default judgment was
“simply too drastic a sanction for [the husband’s] behavior.” Id. at 912. Specifically, we
reasoned that, although the trial court had discretion to grant a default judgment as a
sanction, the default judgment “should be set aside if reasonable doubt exists as to the
conduct of the defaulting party.” Id. at 913. We further noted that husband was not the
only transgressor throughout the litigation, but that the plaintiffs contributed to some of
the other problems in the case.
In Murray, plaintiff/contractor filed suit against defendant/church for breach of a
construction contract after the church allegedly failed to pay contractor for work that
contractor completed. Id. at 373. On May 17, 2000, concurrent with the complaint,
contractor propounded discovery interrogatories on the church; however, the church
attempted to resist service of process, claiming that it was not the owner of the property
at issue. Id. at 374. The church was eventually served through the Secretary of State
after the Secretary of State threatened to dissolve its charter if it did not accept service of
process. On November 21, 2000, the contractor filed a motion to compel, asserting that
the church failed to respond to any of his discovery requests. The contractor asked for a
default judgment against the church for its failure to respond to discovery. On December
14, 2000, the church filed some discovery responses. On December 19, 2000, the trial
court entered an order denying the contractor’s motion to compel and the motion for
default judgment. The trial court, however, did express displeasure at the church’s
conduct, stating: “the [church] failed to file an Answer in a timely manner and further
failed to answer discovery in a timely manner and this Court finds no legal justification
or factual basis that possibly serve as an excuse for the conduct of the [church].” Id. at
374. On August 29, 2001, the contractor again filed a motion to compel discovery and
for sanctions. The motion argued that the church had failed to properly respond to
discovery because it had refused to fully answer questions in the interrogatories, instead
stating that it had no knowledge of the facts alleged in the case. On September 4, 2001,
the contractor propounded a second set of interrogatories on the church. On September
14, 2001, the trial court entered an order requiring the church to fully answer both
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outstanding discovery requests by September 28, 2001. The trial court deferred the grant
of sanctions pending the final outcome of the litigation. Prior to the expiration of the
deadline provided in its previous order, however, the trial court held a status conference
with the parties. After the conference, the trial court granted the motion to compel and
awarded sanctions against the church, to be set at a later hearing. The trial court also
allowed the church’s attorney to withdraw and granted the church an additional five days
to answer the discovery requests. The church failed to respond to any of the discovery
requests. The church later alleged that any further responses would be futile since the
church was not a proper party to the action. Id. at 375.
On October 10, 2001, the trial court held a hearing on the award of sanctions. The
trial court concluded that the church’s original discovery responses were “inadequate,
incomplete, evasive, and amounted to a complete failure to respond.” Id. at 376. The
trial court further concluded that having failed to respond to the additional discovery
propounded by the contractor, the church “engaged in a clear pattern of discovery abuse,
stonewalling, and delay throughout this litigation.” Id. Consequently, the trial court
granted a default judgment in favor of the contractor by order of October 15, 2001. The
trial court later awarded both compensatory and punitive damages to the contractor. Id.
On appeal to this Court, the church argued that the sanction imposed by the trial
court was too harsh considering the particular facts of the case. Id. at 377. This Court
held that, although the case presented a “close question,” the facts did not rise to the level
of contumacious conduct required to justify such a harsh sanction. Id. at 378. The Court
explained that the church consistently maintained that it was not a proper party to the suit,
and that, at the time of the first motion to compel, the church was guilty of “little
discovery misconduct” because it had filed, albeit belatedly, its answer and original
discovery responses. In addition, the Court noted that the inadequacy of the church’s
responses was not raised by the plaintiff contractor until August 2001, nearly eight
months after the church responded to discovery, and the only order granting a motion to
compel was entered when the church was effectively without counsel. The Court further
disagreed with the trial court’s characterization that the church had entered into a
calculated scheme to stonewall the contractor’s litigation. Id. at 380-81.
In Am. Exp. Centurion Bank, this Court applied the holdings in the foregoing line
of cases and reversed the trial court’s grant of default judgment as a sanction for
discovery abuses. Specifically, we held that
The circumstances in this case similarly fail to rise to the level of
contumacious conduct found in other cases in which the trial court’s
dismissal or default judgment was affirmed on appeal. For example, unlike
in Shahrdar, in which the case was delayed for over eighteen months by
the conduct of the defendant, this case was delayed less than four months
from the time the discovery was due to the time that the case was orally
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dismissed by the trial court. Shahrdar, 983 S.W.2d 233. Indeed, the case-
at-bar fails to even rise to the level of delay found in Murray. In Murray,
the church was approximately six months late responding to the first set of
discovery requests and never responded to the second request propounded
by the plaintiff contractor. Murray, 153 S.W.3d at 376-8. In this case, the
record shows that American Express did respond to the discovery requests,
albeit approximately four months late. Indeed, the record shows that
American Express responded to Mr. Lowrey’s Request for Production of
Documents within the time allotted by the trial court after the order on the
motion to compel. Only the responses to the Interrogatories were delayed,
and only for a short time after the deadline expired. Although Mr. Lowrey
asserts that the responses ultimately submitted by American Express were
inadequate, this contention is unsupported in the record, as the trial court
never entered an order stating that the responses proffered by American
Express were insufficient. Further, while the trial court granted the default
judgment in Murray after both the discovery and the entire case languished
for sixteen months, only approximately eleven months passed between the
filing of the complaint and the entry of the order dismissing the case-at-bar,
and a mere five months passed between the time Mr. Lowrey’s discovery
requests were served on American Express and when the case was
eventually dismissed.
Additionally, unlike the party in Steinwinter, American Express did
offer an explanation for its failure to timely return the interrogatory
responses, through the affidavit of American Express’s custodian of
records. This affidavit tends to show that the delay in returning the
responses was the result of excusable neglect. See Steinwinter, 964 S.W.2d
at 574. . . . . American Express was not withholding documents from Mr.
Lowrey in an attempt to be “evasive,” “stubbornly willful,” or to
“stonewall[ ]” Mr. Lowrey’s defense. [citation omitted]. While we agree
that American Express acted inappropriately in defying the trial court’s
order to fully respond to discovery within the given time frame, the facts of
this case simply do not rise to the level of contumacious conduct required
to justify dismissal with prejudice.
Am. Exp. Centurion Bank, 2013 WL 937831, *7-*8.
Default judgment is not an appropriate discovery sanction where the
action/inaction does not evidence a “clear record of delay or contumacious conduct.”
Shahrdar, 983 S.W.2d at 236. From the foregoing cases, such situations (i.e., where
default judgment was not warranted) include, but are not limited to, those instances
where: (1) discovery responses are proffered within the bounds of the scheduling order
issued by the trial court; Pegues, 288 S.W.3d at 355; (2) the discovery delay was the
result of “excusable neglect,” Am. Exp. Centurion Bank, 2013 WL 937831, *8
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(distinguishing the case from Steinwinter); (3) both parties contributed to the delays,
March, 115 S.W.3d at 913 (noting that defendant husband was not the only transgressor
throughout the litigation, but that the plaintiffs contributed to some of the other problems
in the case.”); or (4) the delay was relatively short, e.g., less than one year, Murray, 153
S.W.3d 371.
Turning to the record, the following facts and procedure are discussed in detail
above; however, it is helpful to review a truncated timeline, to-wit:
 June 10, 2015, SpecialtyCare files its lawsuit.
 July 10, 2015, SpecialtyCare serves Medsurant with the first set of interrogatories
and requests for production of documents.
 July 13, 2015, Ogletree, Deakins, Nash, Smoak & Stewart, P.C. makes appearance
as counsel for Medsurant
 July 28, 2015, SpecialtyCare serves Medsurant with discovery totaling 87
document requests and 30 interrogatories.
 August 17, 2015, Medsurant moves for extension of time to file discovery
responses.
 August 21, 2015, SpecialtyCare files a motion to compel.
 September 4, 2015, the trial court hears SpecialtyCare’s motion to compel and
gives Medsurant until the following Friday, September 11, 2015, “to provide all
the answers to the various written discovery.”
 September 21, 2015, the trial court reconvenes the hearing on SpecialtyCare’s
motion to compel. Medsurant has produced approximately 400 pages. The trial
court begins to go through each of SpecialtyCare’s discovery requests to clarify
them.
 September 22, 2015 and following, parties’ attorneys engage in email concerning
Medsurant’s attorney divulging SpecialtyCare’s allegedly privileged discovery
responses to Medsurant. [A protective order was not entered until January 29,
2016]. SpecialtyCare informs Medsurant that it will not proffer further discovery
until an order of protection is entered.
 September 25, 2015, SpecialtyCare files a motion for protective order and return
of privileged discovery.
 October 12, 2015, Medsurant files a motion to compel against SpecialtyCare.
 October 13, 2015, trial court reconvenes the hearing on the motion(s) to compel.
 November 4, 2015, trial court grants SpecialtyCare’s motion to compel entering a
detailed order concerning Medsurant’s discovery requirements.
 November 4, 2015, Medsurant files some 400 pages of supplemental responses,
but SpecialtyCare is not satisfied.
 November 12, 2015, SpecialtyCare files its first amended complaint
 November 20, 2015, Medsurant files a second motion to compel.
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 December 4, 2015, trial court conducts a hearing on Medsurant’s motion. The
trial court goes over each request to clarify SpecialtyCare’s discovery obligation.
 December 30, 2015, SpecialtyCare files second amended complaint
 January 6, 2016, trial court enters an order on the December 4, 2015 hearing.
 January 2016, Medsurant produces an additional 412 pages.
 January 11, 2016, SpecialtyCare notifies Medsurant that it is still noncompliant.
 January 15, 2016, SpecialtyCare sends a letter to Medsurant’s new attorney,
outlining discovery issues.
 January 21, 2016, Ogletree, Deakins, Nash, Smoak & Stewart seeks permission to
withdraw as counsel for Medsurant.
 January 25, 2016 (less than six months after initial discovery was propounded),
SpecialtyCare moves for discovery sanctions.
 February 22, 2016, trial court enters order allowing Medsurant’s original attorneys
to withdraw and substituting new counsel. On the same day, the trial court entered
a scheduling order, setting the case for jury trial on August 22, 2016. The
scheduling order further states that “[a]ll discovery in this matter shall be
completed on or before Friday, June 10, 2016.”
 February 12, 2016, trial court convenes hearing on SpecialtyCare’s motion for
sanctions. Order entered on February 26, 2016.
 February 26, 2016, court reconvenes hearing on motion for sanctions.
SpecialtyCare announces that Medsurant has tendered approximately 500
additional pages. The trial court orders Medsurant to comply by the following
Wednesday, March 2, 2016.
 March 2, 2016, Medsurant tenders approximately 7,000 pages
 March 3, 2016, the trial court reconvenes the hearing on sanctions. SpecialtyCare
asserts that there are still “gaps” in Medusrant’s discovery responses. The trial
court denies Medsurant’s oral motion for appointment of a special master to
handle discovery disputes and orally grants attorney’s fees as an initial discovery
sanction against Medsurant.
 April 6, 2016, the trial court reconvenes the sanction hearing after the parties file
supplemental briefs. The trial court orally grants default judgment.
 May 3, 2016, the trial court enters an order granting default judgment.
In the first instance, given the complexity of the case, the above timeline is not
overly protracted. In fact, as in Murray, less than one year elapsed between the filing of
the complaint (July 10, 2015) and the trial court’s decision, on April 6, 2016, to grant the
default judgment. Furthermore, SpecialtyCare pushed for sanctions very early in the
discovery process. As set out above, SpecialtyCare propounded discovery on July 10 and
July 28, 2015. Then, on August 21, 2015, SpecialtyCare filed a motion to compel. The
emails exchanged between the parties’ attorneys suggest that SpecialtyCare filed its
motion to compel while the parties were still negotiating the timeline for discovery.
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We further note that Medsurant was not solely at fault for discovery delays in this
case. In its responses to Medsurant’s discovery requests, SpecialtyCare (like Medsurant)
objected to each of Medsurant’s requests. Furthermore, when Medsurant’s attorney
shared SpecialtyCare’s self-labelled “Attorney’s Eyes Only” responses with its client,
SpecialtyCare unilaterally informed Medsurant that it would not provide further
discovery until the court entered an order of protection—this, despite the fact that
SpecialtyCare tendered the responses in the absence of such order. March, 115 S.W.3d
at 913. This led Medsurant to file a cross-motion to compel. Although SpecialtyCare’s
failure to answer Medsurant’s discovery did not relieve Medsurant from answering
SpecialtyCare’s discovery requests, SpecialtyCare’s delay also protracted the overall
discovery timeline. Id.
Although SpecialtyCare argues that the court held some seven or eight hearings on
sanctions, the record shows that the first three hearings were on the cross-motions to
compel. These hearings resulted in the November 4, 2015 order, which clarified the
discovery requests. These initial hearings that merely clarified and expanded on the
discovery requested by both SpecialtyCare and Medsurant should not be held against
Medsurant. At this point in the proceedings, both parties had legitimate questions
concerning the exact nature of the other party’s discovery requests.
Pursuant to the November 4, 2015 order, Medsurant produces additional
discovery. SpecialtyCare claimed that the discovery was inadequate. Medsurant hired
new counsel and produced an additional 400 pages of discovery in early January 2016.
SpecialtyCare again complained that the discovery was inadequate. On January 25, 2016
(less than seven months after SpecialtyCare propounded its first request for discovery),
SpecialtyCare moved for discovery sanctions, including default.
While discovery, before Medsurant hired another lawyer, was incomplete,
discovery was forthcoming after new counsel was hired. Medsurant does not dispute that
its electronic searches were initially inadequate. Mesurant’s IT employee was neither
trained nor certified on the eDiscovery software being used. Accordingly, he incorrectly
constructed the searches to return “hits’ only if a document contained each and every
search term, rather than a single term. Am. Exp. Centurion Bank, 2013 WL 937831, *8
(discussing excusable neglect). Although, in this regard, Medsurant committed error that
resulted in under-inclusive searches and deficient document production, there is no
evidence that Medsurant committed these errors for the sole purpose of delay. Shahrdar,
983 S.W.2d at 236 (default judgment is appropriate only where there has been a “clear
record of delay or contumacious conduct.”). Furthermore, Medsurant’s initial counsel
failed to address the electronic discovery problems at an early date by filing a Tennessee
Rule of Civil Procedure 26.02 objection.1 By failing to seek the trial court’s assistance in
1
Tennessee Rule of Civil Procedure 26.02 provides, in relevant part, that:
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limiting or clarifying electronic discovery, Medsurant compounded the production delay.
Again, from our review of the record, there is no evidence that these errors were made for
the sole purpose of delay. Id. Regardless, after Medsurant engaged new counsel, the
eDiscovery problems were swiftly addressed, an outside vendor was hired to assist with
electronic production, and documents were forthcoming. In fact, Medsurant’s new
attorney met the deadlines set by the court. Specifically, as set out above, the trial court
ordered Medsurant’s new counsel to produce documents by February 26, 2016;
Medsurant produced approximately 500 pages on February 25, 2016. The trial court then
gave Medsurant until March 3, 2016 to produce more discovery; Medsurant produces
approximately 7,000 pages on March 2, 2016. The court orally awarded attorney’s fees
as discovery sanctions one day after the 7,000 pages were produced. Pegues, 288
S.W.3d at 355. The trial court then rapidly escalated the discovery sanctions. On April
6, 2016, the trial court orally announced its decision to grant default judgment as a
discovery sanction and entered its order granting default on May 3, 2016, despite its
previous timeline for discovery. As noted above, in a scheduling order entered on
February 22, 2016, the trial court ordered that “[a]ll discovery in this matter shall be
completed on or before Friday, June 10, 2016.” The trial court then gave Medsurant’s
attorney new timelines following each hearing, supra. Although the trial court did not
change the ultimate deadline of June 10, 2016, the trial court entered its default judgment
order on May 3, 2016, more than a month ahead of the discovery deadline set in its
February 22, 2016 order. Pegues, 288 S.W.3d at 355.
As set out in context above, SpecialtyCare complained to the trial court each time
Medsurant tendered discovery. When viewed in context, however, SpecialtyCare’s
complaints are vague, e.g., there are “gaps” in the discovery; Medsurant’s discovery is
“woefully deficient.” Although the trial court allowed SpecialtyCare to elaborate on its
concerns with the discovery, SpecialtyCare provided few details regarding what was
missing or deficient in the responses. In its order on default, supra, the trial court held
that the discovery Medsurant produced “had huge gaps,” “excluded relevant documents,”
“was deficient.” Furthermore, the trial concludes that, in conducting electronic searches,
“documents responsive to the Court’s orders were not searched for and not produced,”
that there were “missing documents,” and that Medsurant “failed to search for and
A party need not provide discovery of electronically stored information from sources that
the partv identifies as not reasonably accessible because of undue burden or cost. On
motion to compel discovery or for a protective order, the party from whom discoverv is
sought must show that the information is not reasonably accessible because of undue
burden and cost. If that showing is made, the court may nonetheless order discovery from
such sources if the requesting party shows good cause. e.g., where the party requesting
discovery shows that the likely benefit of the proposed discovery outweighs the likely
burden or expense. taking into account the amount in controversy, the resources of the
parties, the importance of the issues, and the importance of the requested discovery in
resolving the issues. The court shall specify conditions for the discovery.
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produce additional, responsive documents.” What is missing from the trial court’s order
is specificity as to what additional missing documents Medsurant should have produced,
or even what types of documents SpecialtyCare expected. In addition, it appears, from
the record, that the parties were negotiating the terms of the search, and Medsurant’s
attorney invited SpecialtyCare’s attorney to participate in the searches in order to produce
the electronic documents it claimed were missing from Medsurant’s responses. Am. Exp.
Centurion Bank, 2013 WL 937831 at *8 (discussing excusable neglect).
We also note the trial court’s finding that “[t]he second amended complaint and
the records that Defendants have produced reveal a very active and concerted effort to
employ those individuals which were working for ProNerve to go and work for
Medsurant.” Taking this finding as true, it logically follows that if the “records that
Defendants . . . produced” show liability on Medsurant’s part, then the discovery
produced by Medsurant was responsive and sufficiently complete to provide
SpecialtyCare the necessary discovery information to support the causes of action set out
in its complaint. Furthermore, in Cohen v. Clarke, No. M2012-02249-COA-R3-CV,
2014 WL 107967 (Tenn. Ct. App. Jan. 10, 2014), this Court stated that:
In the opinion of this Court, and in line with our previous opinion in
Pegues, we conclude that when imposing the harshest of penalties, i.e.,
dismissal of the lawsuit, the trial court must endeavor to explain not
only the violations, but also how those violations prejudiced or
otherwise affected the complaining parties so as to justify dismissal.
While we concede that there are cases in which mere violation of the
rules of civil procedure may be sufficient to warrant dismissal of the
lawsuit, see, e.g., Holt v. Webster, 638 S.W.2d 391 (Tenn. Ct. App.
1982) (involving failure to timely and completely respond to discovery),
we are not convinced at this juncture that this is one of those cases.
Cohen, 2014 WL 107967, at *9. In its order granting default, the trial court found that:
“Defendants have repeatedly failed to comply with discovery rules and this Court’s
orders, which has needlessly delayed this litigation and prejudiced SpecialtyCare.” The
order, however, does not specify exactly how SpecialtyCare has been prejudiced by
Medsurant’s discovery shortcomings. As set out above, in its statements from the bench,
the trial court alludes to the possibility of prejudice to SpecialtyCare, i.e., “[H]aving read
the entire complaint, I am now much more cognizant of why time is of the essence with
regards to [discovery]. So for [SpecialtyCare] to insist that the rules be followed has a
different connotation. . . . There are some allegations that are made that are fairly
serious. If, in fact, there’s much merit to what [SpecialtyCare] ha[s] to say, they may be
incurring substantial damages by virtue of [Medsurant’s] actions.” The trial court,
however, did not reduce its oral statement to writing. It is well settled that “the court
speaks through its order[s] not through the transcript.” In re Adoption of E.N.R., 42
S.W.3d 26, 31 (Tenn. 2001); Palmer v. Palmer, 562 S.W.2d 833, 837 (Tenn. Ct. App.
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1977). “A judgment must be reduced to writing in order to be valid. It is inchoate, and
has no force whatever, until it has been reduced to writing and entered on the minutes of
the court, and is completely within the power of the judge or Chancellor.” Broadway
Motor Co. v. Pub. Fire Ins. Co., 12 Tenn. App. 278, 280 (1930). “We do not review the
court’s oral statements, unless incorporated in a decree, but review the court's order and
judgments for that is how a Court speaks.” Steppach v. Thomas, 346 S.W.3d 488, 522
(Tenn. Ct. App. 2011) (quoting Shelby v. Shelby, 696 S.W.2d 360, 361 (Tenn. Ct. App.
1985)). Regardless, from our review of the record, the trial court does not provide
sufficient specificity, either orally or in writing, concerning exactly how SpecialtyCare
“may be incurring substantial damages by virtue” of discovery delays.
From the totality of the circumstances, we conclude that the grant of default
judgment as a sanction for discovery abuses was error. Accordingly, we reverse the trial
court’s order on default. We note that Appellants have not raised a specific issue
concerning the trial court’s award of attorney’s fees as an initial discovery sanction. The
appellate court may treat issues that are not raised on appeal as being waived. Tenn. R.
App. P. 13(b); Bing v. Baptist Mem’l Hosp.-Union City, 937 S.W.2d 922, 924 (Tenn. Ct.
App. 1996). Accordingly, we leave the trial court’s award of attorney’s fees undisturbed.
However, having determined that the grant of default judgment was error, we vacate the
trial court’s award of both compensatory and punitive damages on the jury verdict.
IV. Conclusion
For the foregoing reasons, we reverse the trial court’s order granting default
judgment on liability. We affirm the trial court’s order awarding attorney’s fees as an
initial discovery sanction. We vacate the trial court’s order on damages and remand the
case for such further proceedings as may be necessary and are consistent with this
opinion. Costs of the appeal are assessed one-half to the Appellants, Medsurant
Holdings, LLC, Medsurant, LLC, and their surety, and one-half to the Appellee,
SpecialtyCare IOM Services, LLC, for all of which execution may issue if necessary.
_________________________________
KENNY ARMSTRONG, JUDGE
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