Seeking Punitive Damages Can Expand Scope of Discovery

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“I know I know … it ain’t no secret if you tell // I know I know… if you want the water, then dig the well.” – Howard Pavane

As litigators are well aware, a lawsuit frequently begins and ends with discovery.  Complaints must be carefully worded and allegations carefully chosen in order to maximize success in developing a record and in exploring causes of action. Indeed, a recent decision from the United States Bankruptcy Court for the Western District of Oklahoma reminds litigants that the nature of the underlying claims can have tremendous repercussions in terms of the proper scope of discovery.

In Waldrop v. Discover Bank (In re Waldrop), the debtor initiated an adversary proceeding against Discover Bank and its outside counsel, alleging that the bank and its counsel had violated the automatic stay by continuing garnishment proceedings against the debtor after the commencement of her bankruptcy case. In connection with that adversary proceeding, Waldrop served Discover Bank’s attorney with interrogatories, seeking discovery regarding, among other things, any insurance policy that the attorney might have with respect to the claims involved in the lawsuit, details regarding any other sanctions motions or Fair Debt Collection Practices Act (FDCPA) claims have been asserted against the attorney, any internal policies and procedures for collection activities after a debtor has filed for bankruptcy, and information regarding the attorney’s relationship with Discover Bank and how much he has been paid by the bank in the previous several years on account of such collection activities.

In the first instance, the court noted that the bank’s attorney’s initial responses were insufficient on their face, and inherently failed to satisfy the burden imposed in Rule 7033(b)(4) of the Federal Rules of Bankruptcy Procedure. Namely, his responses were simply “boilerplate” and did not properly address the six limited interrogatories posed by the debtor. Indeed, even where a defendant did not believe that the plaintiff had a “good case,” such subjective belief does not absolve a defendant from reasonable discovery and compliance with applicable law and rules.

But compliance with applicable discovery rules is to be expected and is not particularly novel.

Importantly, the court went on to specifically note the importance of the fact that the relief being sought included potential claims for punitive damages pursuant to section 362(k) of the Bankruptcy Code (which permits recovery of punitive damages in “appropriate circumstances”). Consequently, those inquiries regarding the attorney’s prior conduct and financial information (including assets available or recovery and fees previously recovered in comparable actions) were relevant, and the debtor was entitled to reasonable discovery in connection therewith.

As the court noted:

For discovery purposes, it is sufficient that if as a matter of law the plaintiff is entitled to recover punitive damages and has sufficiently alleged facts entitling her to the same, federal courts permit pretrial discovery of financial information of the defendant without requiring plaintiff to establish a prima facie case on the issue of punitive damages.

Although litigants can often get caught up in the weeds of discovery, Waldrop reminds us of the importance of the underlying allegations and the claims asserted in an adversary proceeding, as such claims – even those related to ultimate damages – will have an important effect on the scope of discovery and the development of the case.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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