Tennessee judge issues default judgment over discovery violations

A case in Tennessee is a sharp reminder of the possible consequences if lawyers are not doing their due diligence during the discovery process.

Lawyers from Arnold & Porter Kaye Scholer LLP and their client, Endo Pharmaceuticals, were accused of conspiring to hide information about the company's role in the opioid epidemic.

Tennessee State Court Chancellor E.G. Moody issued a default judgment against Endo in favor of the plaintiffs after finding that Endo and lawyers from Arnold & Porter tried to corrupt the record to gain a litigation advantage during trial.

Commenting on the April 6 ruling, Lucian T. Pera, legal ethics practitioner and partner at Adams and Reese LLP in Tennessee, said that it is rare that a judge issues a default judgment as a sanction over litigation misconduct.

"They are very severe," Pera said. "Obviously, it's darn near the most severe sanction that can be imposed on a party. Judges certainly do not do it lightly."

Moody wrote in his order that the court was especially concerned about the lawyers' many false statements to plaintiff's counsel and the court during the discovery process.

According to the order, many of the records Endo concealed regarding its role in selling and marketing an opioid medication, Opana ER, without proper safeguards, were highly relevant for the $2.4 billion lawsuit. Endo suggested that the plaintiffs take additional depositions at Endo's expense, but Moody said that would be insufficient and unjust.

Moody wrote that Endo's attorneys violated Tennessee's rules of professional conduct and issued an order identifying the attorneys who made the alleged false statements.

In a statement posted on Endo's website, the company said that it takes its discovery obligations seriously and has made extraordinary efforts to address the court's concerns, such as hiring an additional law firm and producing hundreds of thousands of additional documents.

"Endo strongly disagrees with the Staubus [plaintiff] court's orders, which it believes are procedurally, factually, and legally deficient," the company wrote. "The Company will seek review of the Staubus court's orders by the Tennessee appellate courts."

Arnold & Porter did not respond to a request for comment.

Heather L. Rosing, CEO and president of Klinedinst PC, said "generally, the courts in California will give the party and the attorney multiple opportunities to cure before considering debilitating evidence, issue, or terminating sanctions, which are allowed under the Code of Civil Procedure under certain circumstances.

"In this instance, the lawyers and clients are accused of a conspiracy to hide the truth, which is a very serious finding. We have not seen this type of finding in many California cases."

Perhaps the most well-known instance in California happened in the Qualcomm v. Broadcom case in 2008, Rosing said.

U.S. Magistrate Judge Barbara L. Major of the Southern District of California imposed $8.5 million in sanctions and referred six attorneys who represented Qualcomm to the State Bar for disciplinary action. The lawyers were accused of hiding or ignoring relevant documents. But the sanctions were overturned. Qualcomm, Inc. v. Broadcom Corp., 2008 WL 66932 (S.D. Cal. 2008)

Rosing said that California lawyers are generally well-intentioned in the discovery process but sometimes lack the sophistication in the document collection, leading to motions to compel. She said that one of the most important things lawyers can do is to study e-discovery or have in-house or outside vendors to help during the process.

"Unfortunately, the cost of e-discovery in litigation can be overwhelming, leading to concerns about access to justice in certain matters," Rosing said. "Ultimately, it is up to the courts to balance the need for the discovery with the burden on the parties, in light of the facts of the matter. It is no easy task."