(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued January 3, 1995 -- Decided April 10, 1995
STEIN, J., writing for a unanimous Court.
Abtrax Pharmaceuticals, Inc. (Abtrax) is a wholesaler of veterinary supplies located in Navesink,
New Jersey. Charles W. Rahner, Jr. is the president of Abtrax and owns ninety-nine percent of the
company's stock. In August 1969, Elkins-Sinn, Inc. (Elkins) agreed to package a veterinary product
developed by Abtrax called Gecolate, an intravenous muscle relaxant for horses. Abtrax holds the patent for
a process that Rahner and Elkins developed for sterilizing and packaging Gecolate powder. Abtrax began
marketing the product in 1974.
In February 1982, Elkins informed Abtrax that it would stop producing Gecolate powder. In 1984,
Elkins' parent company, A.H. Robins, began to market a competing product. In December 1985, Abtrax
filed a complaint against Elkins, alleging that Elkins had breached its contract by ceasing to manufacture
Gecolate powder without sufficient notice to permit Abtrax to find a new manufacturer, and that Elkins had
revealed trade secrets to competing manufacturers.
During discovery, Abtrax continually failed to provide Elkins with documents it had requested in
answers to interrogatories and in requests for production of documents. There were several motions and
resulting court orders requiring Abtrax to comply with those requests. Rahner, on behalf of Abtrax, claimed
that sales invoices and purchase orders for Gecolate powder had been lost or destroyed in a flood at Abtrax's
business premises. In addition, at both of Rahner's depositions, he failed to provide documents that had
been requested by Elkins, specifically documents relating to the sale of Gecolate powder from 1980 to 1982.
On September 5, 1990, the trial court issued an order requiring the deposition of Mrs. Rahner and
the production at that deposition of documents identified in the Rider that was attached to the original
notice to depose Mrs. Rahner. In the Rider, Elkins asked for all financial records pertaining to Gecolate
powder and Gecolate injectable solution from 1980 to the present, including but not limited to bills, invoices,
sales receipts, expenditures, and accounting records. The court also ordered that Abtrax produce the
documents identified in Elkins' March 28, 1989 request for production of documents, which was a reiteration
of the documents requested in the Rider. At Mrs. Rahner's deposition, Elkins was informed by Abtrax that
everything related to Gecolate powder previously had been provided.
Trial began in December 1990. During the direct examination of Rahner, it came to light that
Abtrax had not produced certain invoices requested during discovery. Rahner admitted that not all pre-1984
sales records had been lost in the flood. In addition, Abtrax's attorney learned that Abtrax had not produced
the sales records and invoices for Canadian sales of Gecolate powder. The judge adjourned the trial and
directed the attorneys to examine the undisclosed files at Rahner's office in Navesink.
At the Navesink warehouse, the attorneys located fifty to sixty boxes of pre-1984 invoices that
included sales records for Gecolate powder. Fourteen additional boxes were located at Rahner's home that
contained relevant sales records from 1979 to 1981, including sales invoices, purchase orders, and telephone
solicitations for Gecolate powder.
The trial resumed on December 17, 1990. Elkins' attorney moved pursuant to Rule 4:23-2(b)(3) to
dismiss the complaint for failure to comply with discovery orders. The trial court granted the motion, finding
that there was a serious abuse of the discovery process in that Rahner failed to disclose relevant documents,
made false statements under oath, and failed the obey court's order. In addition, the court awarded Elkins
counsel fees and expenses incurred for preparation and attendance at trial and other expenses the court
deemed appropriate.
Abtrax moved for reconsideration of the dismissal order. The trial court denied that motion on
December 23, 1991, concluding that Abtrax's disobedience of discovery orders and false deposition testimony
constituted contempt of court punishable by summary dismissal of the complaint and an award of counsel
fees and expenses. The court found that Rahner's conduct was clearly contumacious. The court also found
that the need for additional discovery and additional trial preparation was sufficiently prejudicial to Elkins.
On appeal, the Appellate Division affirmed the imposition of sanctions against Abtrax for willful
discovery misconduct, but reversed the trial court's dismissal of the complaint as too harsh a remedy.
The Supreme Court granted Elkins' petition for certification and Abtrax's cross-petition for
certification.
HELD: There was adequate, substantial, and credible evidence in the record to sustain the trial court's
factual findings of discovery misconduct consisting of the willful concealment of relevant documents;
therefore, the trial court properly exercised its discretion in dismissing Abtrax's complaint pursuant
to Rule 4:23-2(b)(3).
1. Discovery rules were designed to eliminate, as far as possible, concealment and surprise at trial. If
discovery rules are to be effective, courts must be prepared to impose the appropriate sanctions for violations
of those rules. Rule 4:23-2(b) authorizes the imposition of sanctions for failing to comply with a court order.
The sanction of dismissal should be imposed only sparingly and only when the discovery goes to the very
foundation of the cause of action or where the refusal to comply is deliberate and contumacious. (pp.15-22)
2. The findings of the trial court should not be disturbed unless those findings are so manifestly unsupported
by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of
justice. In other words, did the trial court abuse its discretion in dismissing the complaint? Here, the trial
court did not need to conduct an evidentiary hearing to decide whether Abtrax's complaint should be
dismissed with prejudice because the court had before it an extensive record. (pp. 22-26)
3. There was adequate, substantial and credible evidence in the record to sustain the trial court's factual
findings. Thus, the trial court did not abuse its discretion in finding deliberate and contumacious conduct
and in concluding that the extreme sanction of dismissal was appropriate in this case. Moreover, the court
appropriately noted that Rahner's conduct significantly prejudiced Elkins' trial preparation. (pp. 26-29)
Judgment of the Appellate Division reinstating Abtrax's complaint is REVERSED, and the judgment
of the Appellate Division in respect of the trial court's award of counsel fees and expenses is AFFIRMED.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI, and
COLEMAN join in JUSTICE STEIN'S opinion.
SUPREME COURT OF NEW JERSEY
A-70/
179 September Term 1994
ABTRAX PHARMACEUTICALS, INC.,
t/a SUMMIT HILL LABORATORIES,
Plaintiff-Respondent
and Cross-Appellant,
v.
ELKINS-SINN, INC.,
Defendant-Appellant
and Cross-Respondent.
Argued January 3, 1995 -- Decided April 10, 1995
On certification to the Superior Court,
Appellate Division.
Timothy J. Hinlicky argued the cause for
appellant and cross-respondent (Parker, McCay
& Criscuolo, attorneys; Stacy L. Moore, Jr.,
on the brief).
Bernard F. Conway argued the cause for
respondent and cross-appellant (Mr. Conway,
attorney; Kevin Weinman, on the brief).
The opinion of the Court was delivered by
STEIN, J.
The issue before us is whether a complaint should be dismissed pursuant to Rule 4:23-2(b)(3) for discovery misconduct consisting of the willful concealment of relevant documents. The Law Division found that plaintiff's conduct was contumacious, dismissed plaintiff's complaint with prejudice and awarded counsel fees and expenses. In an unreported opinion, the Appellate Division agreed with the finding that plaintiff had
willfully concealed relevant documents, affirmed the award of
counsel fees and expenses, but reversed the trial court's
dismissal of the complaint. We granted certification,
137 N.J. 314 (1994), and now hold that the trial court properly exercised
its discretion in dismissing Abtrax's complaint. As a result, we
reverse in part the judgment of the Appellate Division and
reinstate the judgment of the Law Division dismissing the
complaint.
Plaintiff Abtrax Pharmaceuticals, Inc., (Abtrax) is a wholesaler of veterinary supplies located in Navesink, New Jersey. Charles W. Rahner, Jr., the company's president, owns ninety-nine percent of Abtrax's stock. In August 1969, defendant Elkins-Sinn, Inc. (Elkins) agreed to package a veterinary product developed by Abtrax called Gecolate, an intravenous muscle relaxant for horses. Rahner and Elkins developed techniques for sterilizing the Gecolate powder and packaging it so that sterile water could be added before use. Abtrax holds the patent for that process. Production began in 1972 when the Food and Drug Administration approved Abtrax's New Animal Drug Application. By 1974, Abtrax began marketing the product.
In February 1982, Elkins informed Abtrax that it would stop producing Gecolate powder. In 1984, A.H. Robins, which became Elkins's parent company after the initial production of Gecolate powder, began to market Guailaxin, a competing product. Although
Rahner claims that he was unsuccessful in finding an alternative
manufacturer, since 1987 Vet Labs, Inc. has been producing
Gecolate injection for Abtrax, a solution form of the product
that Abtrax bought from another company.
In December 1985, Abtrax filed a three-count complaint
alleging that Elkins had breached its contract by ceasing to
manufacture Gecolate powder without sufficient notice to permit
Abtrax to find a new manufacturer (counts one and two). Abtrax
further alleged that Elkins had revealed trade secrets to
competing manufacturers (count three). Elkins filed an answer
and requested production of documents relating to Abtrax's
claims. In April 1986, Abtrax responded to Elkins's request by
stating, "we have not yet been able to do an accurate calculation
of damages although the same will be supplied to you as soon as
it is available to us."
After repeated efforts to obtain answers to interrogatories
and production of documents relating to Abtrax's alleged damages,
Elkins received answers to its interrogatories in November 1986.
However, in respect of Elkins's request for copies of
correspondence concerning Abtrax's attempts to find other
manufacturing sources, Abtrax responded: "[T]o be supplied."
Abtrax did not produce the documents that Elkins had requested.
After further requests for the production of the documents had
proved unavailing, Elkins moved pursuant to Rule 4:23-5(a) to
dismiss Abtrax's complaint because timely answers to
interrogatories had not been served.
The Law Division denied Elkins's motion, but permitted
Elkins's counsel to inspect the requested documents at Abtrax's
office. At a discovery session for document production held on
February 25, 1987, Abtrax made available inventory sheets, price
lists, raw-material costs, and a summary of taxable income, but
Abtrax did not produce purchase orders, sales invoices, tax
returns, and financial statements. Elkins's counsel certified
that Abtrax's former counsel had "advised [him during the
document production] that Mr. Rahner did not have sales invoices
or purchase orders concerning the Gecolate powder insofar as
[they] were either lost or destroyed in a flood at Plaintiff's
business premises sometime earlier," noting, however, that
Abtrax's former counsel "did agree to make further inquiry into
this and provide me * * * with at least representative invoices
or whatever additional records could be found." However,
Abtrax's former counsel, at his deposition in February 1991,
testified:
I don't think I made a statement to that
effect. * * * It's possible that something
like that was discussed. I believe there may
have been a discussion about a flood or
records being discussed * * * . [Rahner] may
have said there was a destruction of the
sales invoices, but not that they were all
destroyed.
Moreover, according to Abtrax's former counsel, Elkins's counsel
had stated at that document-production session that those
documents Abtrax had produced were "exactly what I wanted."
Shortly after the February 25, 1987 production of documents,
Elkins's counsel requested by letter that Rahner bring to his
deposition scheduled for March 10, 1987, "[r]epresentative copies
of billing receipts to [Gecolate-powder] customers 1980, 1981,
and 1982, or as best as can be produced." Prior to being
deposed, Rahner produced certain financial records,
correspondence, inventory sheets, invoices, and purchase orders.
At his deposition, Rahner was asked whether he had "produced * *
* everything [he had] in the matter," and he responded, "Yes."
On further questioning, Rahner stated that he had "[p]roduced
everything that was requested." However, Rahner only produced
copies of the billing receipts of Gecolate-powder sales for the
years 1982 through 1984, whereas Elkins had specifically
requested production of the records for the period 1980 through
1982.
In May 1987, Abtrax moved to file an amended complaint to
add two counts alleging (1) that Elkins had breached an agreement
regarding the use of Abtrax's powder-filling machine, and (2)
that Elkins had converted the machine for its own use and the use
of its parent company, A.H. Robins. Because that motion was
denied, Abtrax filed a new complaint in June 1987, repeating the
three counts in its initial complaint and adding the new counts.
By order dated August 14, 1987, the court dismissed without
prejudice the original complaint and ordered all completed
discovery to be applied to the action initiated by the new
complaint.
As the discovery process continued, Elkins attempted to
acquire the invoices and purchase orders relevant to Abtrax's
sales of Gecolate powder from 1980 to 1982, the years immediately
prior to the termination of the agreement between the parties, as
well as invoices for all other years through 1986. In February
1988, Elkins filed a notice to produce "[a]ll records, writing,
documents, items or other documentation as identified and
requested in Defendant's Interrogatories." Elkins's
interrogatory question fifty-five read, "State whether you have
any files or written documentation whatsoever in any way relating
to this law suit [that] you have not produced previously for * *
* inspection [and/or] copying." Abtrax responded, "Not to the
best of our knowledge. `Bench Book' will be supplied."
Interrogatory question fifty-six stated, "If any such records as
requested above exist, describe all such records and if you would
do so without an order, attach true and exact copies of same."
Abtrax replied, "n/a."
More discovery motions followed, and the trial court issued
additional discovery orders. In June 1988, there was another
document-production session at Abtrax's office at which time
Abtrax produced financial statements and tax returns, but none of
the other sales records that had been requested by Elkins.
On August 24, 1988, Rahner was again deposed. Elkins's
counsel asked Rahner, "with respect to those invoices [that] you
gave to me, are they all of the invoices you have?" Rahner
responded, "We gave you representative amounts, we couldn't
possibly find the invoices. It would take us two years to go
through thousands and thousands of invoices over a ten year
period." Elkins's counsel further asked, "what about letters,
write-ins, requests, purchase orders, et cetera, for [Gecolate
powder] during this period of time [when Abtrax had been out of
Gecolate powder]?" Rahner answered:
We dumped them after a year so we
wouldn't hold them after a while. We dumped
all purchase orders from distributors.
We didn't have them after the first nine
to twelve months, we didn't hold them.
Everybody is on a computer these days, they
wouldn't hold anything like that.
Rahner also testified that his wife had dealt with customers and
had been responsible for bookkeeping.
On November 4, 1988, Elkins sent a letter to Abtrax
demanding more specific answers to interrogatories and
specifically referring to question fifty-five and to the
documents that previously had been requested but had not been
produced. After receiving follow-up telephone calls, Abtrax
responded to that demand by letter dated March 27, 1989 stating,
"bench book previously provided."
On March 23, 1989, Elkins issued a notice to take Mrs.
Rahner's deposition, requesting that Mrs. Rahner "bring the
documents on the Rider annexed hereto." The Rider attached to
the notice requested production of the following:
1. Copies of all financial records in
any way pertaining to Gecolate Powder,
including but not limited to bills, invoices,
purchase orders, receipts for payments made
or received, canceled checks, receipts for
expenditures, sales orders or sales forms,
accounting records or work papers, summaries
of sales made, or any other financial or sale
records whatsoever for the period 1980 to the
present.
2. Copies of all financial records in
any way pertaining to Gecolate (Glycodex)
injectable solution, including but not
limited to bills, invoices, purchase orders,
receipt for payments made or received,
cancelled checks, receipt for expenditures,
sales orders or sales forms, accounting
records or work papers, summaries of sales
made, or any other financial or sale records
whatsoever for the period 1980 to present.
On March 28, 1989, Elkins by notice requested production of the
documents identified in the Rider.
Mrs. Rahner's deposition did not take place over the next
five months because of scheduling difficulties. During that five
months, Elkins sent five letters to Abtrax requesting production
of the documents that had been requested in the Rider. With Mrs.
Rahner's deposition scheduled for August 11, 1989, Abtrax
informed Elkins by telephone on August 9, 1989 that it objected
"to some of the information and documents requested."
As a result, a case-management conference was held on August
15, 1989. Following that conference, the trial court issued an
order on September 5, 1989 requiring that Abtrax produce Mrs.
Rahner for her deposition on or before September 8, 1989, and
also produce at that time the documents identified in the Rider
attached to the notice to take the deposition, and the documents
identified in the notice requesting production of documents dated
March 28, 1989. The court further ordered that Rahner be
available at Mrs. Rahner's deposition to answer any question that
she might not be capable of answering.
At Mrs. Rahner's deposition on September 8, 1989, the
following exchange occurred between Abtrax's trial counsel and
Elkins's counsel:
[Elkins's Counsel]: You're representing to
me that there are no other documents
pertaining to the [Gecolate] powder than what
was produced to us on previous occasions.
[Abtrax's Trial Counsel]: That's correct.
This is everything else today that we have by
documentation. There are no other documents.
[Elkins's Counsel]: Everything related to
the [Gecolate] powder was provided to us on a
prior occasion.
[Abtrax's Trial Counsel]: That's correct.
The trial began more than a year later in December 1990. On
December 13, the fourth day of trial, during Rahner's direct
examination, Abtrax's counsel displayed one of the
"representative samples" of invoices for a sale of Gecolate
powder, and asked, "Mr. Rahner, if you were to produce all of the
vouchers with regard to the sale of this product would those
documents reflect any difference in the price for the items other
than is reflected on these vouchers?" Rahner replied, "No." At
that point, Elkins's counsel asked for voir dire and, in
reference to his numerous demands during discovery for sales
invoices, expressed surprise that Rahner appeared to have
acknowledged the existence of invoices that had not been
produced.
Rahner initially contended that he had never stated that the
records he had produced were the only pre-1984 invoices he
possessed. Elkins's counsel then asked, "Did you at any time
represent to us that these documents that were just produced were
the only handwritten records or records that you maintained prior
to going onto computer that you have?" Rahner responded, "I
don't think so," and added, "I don't know. It's hard to say.
It's hard to say." Although Rahner explained that many records
had been lost in a flood of his prior office in Avalon, New
Jersey, he conceded that not all pre-1984 sales records, other
than those produced, had been destroyed. On further questioning
during voir dire, Elkins's counsel also discovered that Abtrax
had not produced the sales records and invoices for Canadian
sales of Gecolate powder.
The trial court then permitted Elkins's counsel to depose
Rahner during the lunch break. Rahner admitted that there were
Gecolate sales invoices at his office that had not been produced.
Elkins's counsel then moved for an order compelling Rahner to
produce the sales records he had not yet produced, including the
remaining invoices and records for Canadian sales. The court
adjourned the trial and directed the attorneys to continue with
discovery, the examination of files to be conducted in the
presence of counsel.
That same day, counsel for both Elkins and Abtrax went with
Rahner to his place of business in Navesink. At the warehouse,
counsel located approximately fifty to sixty boxes of pre-1984
invoices that included sales records for Gecolate powder. Rahner
denied that there were any records stored elsewhere, but his
attorney insisted that they look in Rahner's house. Counsel
found fourteen boxes of labeled business records in Rahner's
attic. A search of the records by attorneys for both parties
revealed that the boxes contained relevant sales records for the
period from 1979 to 1981, including sales invoices, purchase
orders, and telephone solicitations for Gecolate powder. On
returning to Abtrax's office, Abtrax's trial counsel remarked to
Elkins's counsel, "Charlie [Rahner] is now having to do what he
didn't want to do for the past 2 years."
The trial resumed on December 17, 1990, and Elkins's
attorney moved pursuant to Rule 4:23-2(b)(3) to dismiss the
complaint for failure to comply with discovery orders. During
argument, Abtrax's trial counsel conceded: "There is no question
the court order [to produce those documents identified in the
Rider and in the notice to produce] was not complied with."
Moreover, in response to the court's question whether the prior
understanding had been that "everything had been disclosed,"
Abtrax's trial counsel answered, "No dispute about that at all."
Observing that it was "considering what appears to be a very
serious abuse of [the discovery] process," the trial court found
"undisputed that [Rahner had] concealed the fact that he had many
documents that he didn't disclose to [Elkins] or to this Court."
The trial court stated that it was "of no moment whatsoever that
the documents now reveal[ed] may fully substantiate prior
representations," because Rahner's "determination [about] what
constitute[d] `representative' documentation [was] not even based
on his own review of his existing documentation." Moreover, it
concluded that Rahner had made false statements under oath and
thus failed "to obey the Court's order." The trial court
therefore granted defendant's motion to dismiss pursuant to Rule
4:23-2(b), and awarded Elkins counsel fees and expenses incurred
in respect of preparation for and attendance at trial, in
addition to such other counsel fees and expenses that the trial
court deemed appropriate.
After a substitution of counsel, Abtrax moved for
reconsideration of the dismissal order. The court heard
arguments on March 5, 1991, and June 13, 1991, and entered an
order denying Abtrax's motion on December 23, 1991. In a letter
opinion setting forth factual findings and legal conclusions, the
trial court held that plaintiff's disobedience of discovery
orders and false deposition testimony constituted contempt of
court punishable by summary dismissal of the complaint and an
award of counsel fees and expenses. Reiterating that it was
relying on its inherent contempt power, the trial court noted
that it was not summarily punishing Abtrax without the right to
counsel as a court may do where the "essential elements of the
misconduct undermined the court's authority and obstructed
orderly administration of justice." Rather, the court noted that
it "has extended the right to counsel and has allowed extensive
argument and has done a review of documents on which the finding
of contempt was based."
In support of its ruling, the trial court made the following
findings: Rahner denied having advance notice that Elkins would
cease production of Gecolate powder despite proof that Rahner had
negotiated with other potential producers of Gecolate; Rahner
testified falsely at his August 24, 1988 deposition that purchase
orders for Gecolate powder had been "dumped" after one year;
Rahner never referred specifically to Canadian sales of Gecolate
powder, which resulted in the preparation of expert reports
without reference to Canadian sales; and Rahner never reviewed
all the billing receipts for Gecolate powder to determine if the
sample receipts produced were "representative." In addition, the
court observed that although there might have been "some
misunderstanding early in the discovery process regarding what
documents were destroyed or lost in a flood in 1984, * * * there
could be no misunderstanding" that Rahner had failed to satisfy
the November 4, 1988 request for answers to interrogatories, the
March 23, 1989 Rider, the March 28, 1989 notice to produce
documents requested in the Rider, and the September 5, 1989 Order
from the trial court requiring Abtrax to produce the documents
requested in the Rider and in the March 28, 1989 notice. The
court therefore concluded that
notwithstanding many conferences at which
complete discovery was urged by this court,
and particularly, despite the September 5,
1989 order, Charles Rahner knowingly and on
behalf of [Abtrax], failed to produce
documents relevant to this litigation and
misled [Elkins]. I find further that Charles
Rahner testified falsely and misleadingly, as
set forth above[,] and that his conduct was
clearly contumacious.
The court added that although the dismissal was justified
even in the absence of prejudice to Elkins, Rahner's conduct was
significantly prejudicial to Elkins: Elkins would be required to
pursue discovery anew; expert reports would have to be redone;
Elkins already had revealed its theory of the case; Elkins would
have to obtain a new expert for damages because its prior expert
was no longer available; and trial preparation would have to be
repeated. In respect of counsel fees and expenses, the court
stated, "There is clear authority to impose such sanctions for
failure to obey a court order."
The Appellate Division affirmed the imposition of sanctions
against plaintiff for willful discovery misconduct, but reversed
the trial court's dismissal of the complaint with prejudice. In
the view of the Appellate Division, the trial court's action
should be viewed as the imposition of the sanction of dismissal
pursuant to Rule 4:23-2(b)(3), even though the trial court
characterized its order as one deriving from a court's inherent
power to punish for contempt pursuant to Rule 4:23-2(b)(4).
Thus, it rejected Abtrax's argument that it should remand the
matter for an evidentiary hearing to determine whether Rahner's
conduct constituted contempt of court within the contemplation of
Rule 1:10-1 or -2. The Appellate Division emphasized that the
trial court's findings were "binding because they [were] amply
supported by adequate[,] substantial and credible evidence";
however, it concluded that "[d]ismissal of the complaint with
prejudice was too harsh a remedy, notwithstanding Rahner's
egregious violation of discovery proceedings on behalf of his
corporation." The court was "satisfied that any prejudice
suffered to date by defendant [was] capable of being remedied."
Although Abtrax contended before the Appellate Division that
it had not willfully disobeyed a discovery order, the only issue
presented before this Court by Elkins's Petition for
Certification is whether the Appellate Division's reversal of the
trial court's dismissal of the action was error. At oral
argument, Abtrax moved for leave to file a cross-petition for
certification nunc pro tunc to raise the issue whether the record
supported the trial court's findings. Thereafter, Abtrax filed a
cross-petition nunc pro tunc, contending that the Appellate
Division was not bound by the trial court's findings because the
trial court had not conducted an evidentiary hearing to determine
if Abtrax's conduct had been deliberate and contumacious. The
Court grants both the motion and the cross-petition for
certification. ___ N.J. ___ (1995).
Discovery rules are designed "to further the public policies of expeditious handling of cases, avoiding stale evidence, and providing uniformity, predictability and security in the conduct of litigation." Zaccardi v. Becker, 88 N.J. 245, 252 (1982); see Aujero v. Cirelli, 110 N.J. 566, 573, 580-81 (1988); Cunningham v. Rummel, 223 N.J. Super. 15, 18 (App. Div. 1988). "The discovery rules were designed to eliminate, as far as possible, concealment and surprise in the trial of lawsuits to the end that
judgments rest upon real merits of the causes and not upon the
skill and maneuvering of counsel." Oliviero v. Porter Hayden
Co.,
241 N.J. Super. 381, 387 (App. Div. 1990). If the discovery
rules are to be effective, courts must be prepared to impose
appropriate sanctions for violations of the rules. Ibid.; cf.
Cunningham, supra, 223 N.J. Super. at 18-19 ("[I]f discovery
rules are to have any meaningful effect upon calendar control and
early disposition of litigation, they must be adhered to unless,
for good cause shown, they are relaxed under R. 1:1-2.").
Chief Justice Vanderbilt observed over thirty years ago, "As
with all rules it is necessary that there be adequate provisions
for the enforcement of the rules [regarding] discovery against
those who fail or refuse to comply. Sanctions are peculiarly
necessary in matters of discovery[,] and the power to invoke them
is inherent in our courts." Lang v. Morgan's Home Equip. Corp.,
6 N.J. 333, 338 (1951) (construing predecessor to Rule 4:23-2(b)). "A trial court has inherent discretionary power to impose
sanctions for failure to make discovery, subject only to the
requirement that they be just and reasonable in the
circumstances." Calabrese v. Trenton State College,
162 N.J.
Super. 145, 151-52 (App. Div. 1978), aff'd,
82 N.J. 321 (1980);
see also Lang, supra, 6 N.J. at 339 (same); cf. Allegro v. Afton
Village Corp.,
9 N.J. 156, 161 (1952) ("It is peculiarly within
the sound discretion of the trial court to deal with [the
question whether an adjournment should be granted or a complaint
should be stricken].").
However, competing policies are involved in disputes over
procedural issues. Aujero, supra, 110 N.J. at 573; Crews v.
Garmoney,
141 N.J. Super. 93, 96 (App. Div. 1976). "The
defendants's right to have the plaintiff comply with procedural
rules conflicts with the plaintiff's right to an adjudication of
the controversy on the merits." Zaccardi, supra, 88 N.J. at 252
(citing Crews, supra, 141 N.J. Super. at 96); see Georgis v.
Scarpa,
226 N.J. Super. 244, 247 (App. Div. 1988); Jansson v.
Farleigh Dickinson Univ.,
198 N.J. Super. 190, 193 (App. Div.
1985). "Because of these competing policies, and because of the
varying levels of culpability of delinquent parties, a range of
sanctions is available to the trial court when a party violates a
court rule." Zaccardi, supra, 88 N.J. at 252-53; see R. 4:23-2(b); Aujero, supra, 110 N.J. at 579 .
Rule 4:23-2(b) authorizes the imposition of sanctions for
failing to comply with a court order. It states in pertinent
part:
* * * If a party or an officer,
director, or managing or authorized agent of
a party * * * fails to obey an order to
provide or permit discovery, * * * the court
in which the action is pending may make such
orders in regard to the failure as are just,
and among others the following:
(1) An order that the matters regarding
which the order was made or any other
designated facts shall be taken to be
established for the purposes of the action in
accordance with the claim of the party
obtaining the order;
(2) An order refusing to allow the
disobedient party to support or oppose
designated claims or defenses, or prohibiting
the introduction of designated matters in
evidence;
(3) An order striking out pleadings or
parts thereof, or staying further proceedings
until the order is obeyed, or dismissing the
action or proceeding or any part thereof, or
rendering a judgment by default against the
disobedient party;
(4) In lieu of any of the foregoing
orders or in addition thereto, an order
treating as a contempt of court the failure
to obey any orders except an order to submit
to a physical or mental examination.
In lieu of any of the foregoing orders
or in addition thereto, the court shall
require the party failing to obey the order
to pay the reasonable expenses, including
attorney's fees, caused by the failure,
unless the court finds that the failure was
substantially justified or that other
circumstances make an award of expenses
unjust.
In respect of the ultimate sanction of dismissal, this Court has struck a balance by instructing courts to impose that sanction "only sparingly." Zaccardi, supra, 88 N.J. at 253; see Georgis, supra, 226 N.J. Super. at 250. "The dismissal of a party's cause of action, with prejudice, is drastic and is generally not to be invoked except in those cases where the order for discovery goes to the very foundation of the cause of action, or where the refusal to comply is deliberate and contumacious." Lang, supra, 6 N.J. at 339 (citations omitted); see Allegro, supra, 9 N.J. at 160-61; Johnson v. Mountainside Hosp., 199 N.J.
Super. 114, 119 (App. Div. 1985). "Since dismissal with
prejudice is the ultimate sanction, it will normally be ordered
only when no lesser sanction will suffice to erase the prejudice
suffered by the non-delinquent party, or when the litigant rather
than the attorney was at fault." Zaccardi, supra, 88 N.J. at 253
(citations omitted); see Johnson, supra, 199 N.J. Super. at 119.
Moreover, the "imposition of the severe sanction of dismissal is
imposed not only to penalize those whose conduct warrant it, but
to deter others who [might] be tempted to violate the rules
absent such a deterrent." Zaccardi v. Becker,
162 N.J. Super. 329, 332 (App. Div.), certif. denied,
79 N.J. 464 (1978).
The scarcity of cases ordering dismissal demonstrates that
trial courts have heeded our admonition to impose sparingly the
ultimate sanction of dismissal. Cf. Aujero, supra, 110 N.J. at
580 (stating that "[j]udges, no less than lawyers, strain to
avoid the ultimate sanction of dismissal of an affirmative claim
or striking of a responsive pleading" for failure to answer
interrogatories); Crews, supra, 141 N.J. Super. at 96 (stating
that courts are reluctant "to invoke the sanction of dismissal
where lesser measures [are] appropriate" for failure to answer
interrogatories). However, a party invites this extreme sanction
by deliberately pursuing a course that thwarts persistent efforts
to obtain the necessary facts. For example, in Interchemical
Corp. v. Uncas Printing & Finishing Co.,
39 N.J. Super. 318 (App.
Div. 1956), the plaintiff brought suit for unpaid royalties,
alleging that the defendant had failed to submit quarterly
reports and had refused to permit the plaintiff to inspect and
audit the defendant's records. Id. at 321. During pretrial
discovery proceedings, the court entered three orders directing
the defendant to produce named records and books for inspection.
Id. at 321-23. The defendant's failure to produce the requested
books and records led to the plaintiff's propounding and serving
interrogatories in an effort to secure the information contained
in the documents that had not been produced. Id. at 323. After
waiting more than four months for answers to the interrogatories,
the plaintiff obtained an order directing that the defendant
provide answers within thirty days or a default judgment would be
entered. Ibid. No answer having been provided, the court
suppressed the defendant's answer and ordered the plaintiff to
proceed to default judgment, after proof of damages. Ibid. The
Appellate Division "observed that the court had authority to
strike the defense and enter default judgment," id. at 324,
reasoning that the defendant had "invited the extreme sanction by
the course [that] it chose to pursue in the face of plaintiff's
persistent efforts to get at necessary facts." Id. at 326. It
found that the "order * * * was a just one, for the discovery
proceedings went to the very foundation of plaintiff's cause of
action, and defendant's refusal to comply was deliberate and
contumacious." Ibid.
Courts have also dismissed a plaintiff's case for failing to
answer interrogatories within a reasonable time. For example, in
Crews, supra, the Appellate Division affirmed the trial court's
denial of the plaintiff's motion to vacate the trial court's
dismissal of the complaint and to restore the matter to the trial
calendar. 141 N.J. Super. at 97. The plaintiff brought a
personal-injury action arising out of a motor-vehicle accident,
and the trial court dismissed the plaintiff's action for her
failure to answer interrogatories within the time prescribed by
the rules. Id. at 94-96. Following the service of the dismissal
order, the plaintiff failed to contact the defendant until
approximately eight months later, at which time she submitted to
the defendant unresponsive answers to the interrogatories. Id.
at 95. The plaintiff then moved to vacate the dismissal and to
restore the matter to the active trial calendar. Ibid. Finding
that the plaintiff had been dilatory in failing to respond to her
own attorneys' five written communications and that her answers
were unresponsive, and observing that the defendant was
prejudiced by the lack of early information concerning the
plaintiff's medical status, the trial court denied the
plaintiff's motion. Id. at 95-96. The Appellate Division held
that the trial court's denial was not an abuse of discretion.
Id. at 97.
Likewise, in Comeford v. Flagship Furniture Clearance
Center,
198 N.J. Super. 514, 518 (App. Div. 1983), the Appellate
Division determined that it was within the discretion of the
trial court to refuse to restore the plaintiffs' complaint for
failure to answer interrogatories. There, the plaintiffs failed
to answer the defendants interrogatories within the time allowed,
and the Assignment Judge granted the defendants' motion to
dismiss the plaintiffs' complaint. Id. at 515. Approximately
eleven months later, the plaintiffs moved to restore their
action, maintaining that they had not answered the
interrogatories because of their attorney's excusable neglect.
Id. at 516. Finding no satisfactory explanation for the
protracted delays and for the failure to comply with discovery
rules, the Appellate Division held that "the tortuous and
extended history of this case warranted the [A]ssignment
[J]udge's refusal to restore plaintiffs' complaint." Id. at 518.
This Court in Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474, 484 (1974), enunciated the standard for review of factual findings and legal conclusions in nonjury cases: "Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence." "`[O]ur appellate function is a limited one: we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Ibid. (quoting Fagliarone v. Township of No. Bergen, 78 N.J. Super. 154, 155 (App. Div.), certif. denied, 40 N.J. 221 (1963)).
Likewise, the standard of review for dismissal of a
complaint with prejudice for discovery misconduct is whether the
trial court abused its discretion, a standard that cautions
appellate courts not to interfere unless it appears that an
injustice has been done. See, e.g., Allegro, supra, 9 N.J. at
158, 161; Georgis, supra, 226 N.J. Super. at 249; Cunningham,
supra, 223 N.J. Super. at 19-20; Comeford, supra, 198 N.J. Super.
at 517. We recognize that "[t]here is a natural tendency on the
part of reviewing courts, properly employing the benefit of
hindsight, to be heavily influenced by the severity of outright
dismissal as a sanction for failure to comply with a discovery
order." National Hockey League v. Metropolitan Hockey Club,
Inc.,
427 U.S. 639, 642,
96 S. Ct. 2778, 2780,
49 L. Ed.2d 747,
751 (1976) (upholding district court's dismissal of plaintiff's
action for failure to comply timely with court order to answer
interrogatories). However, this Court is
[]sensitive to the legitimate concerns
expressed by the trial [court] that if our
discovery rules are to have any meaningful
impact upon our civil dockets they must be
strictly enforced. [Moreover,] we [are]
[]mindful of the perils and gravitational
pull of the slippery slope wherein the
efficacy of our rules is destroyed by the
gradual cumulation of exceptions. We
recognize that imposition of the severe
sanction of dismissal is imposed not only to
penalize those whose conduct warrants it, but
to deter others who may be tempted to violate
the rules absent such a deterrent.
See also Zaccardi, supra, 162 N.J. Super. at 332 (stating that "imposition of the severe sanction of dismissal is imposed not
only to penalize those whose conduct warrant it, but to deter
others who [might] be tempted to violate the rules absent such a
deterrent"); National Hockey League, supra, 427 U.S. at 643, 96
S. Ct. at 2781,
49 L. Ed.2d 751 (stating that "the most severe
in the spectrum of sanctions provided by statute or rule must be
available to the District Court in appropriate cases, not merely
to penalize those whose conduct may be deemed to warrant such a
sanction, but to deter those who might be tempted to such conduct
in the absence of such a deterrent").
Abtrax contends, however, that Rova Farms, supra, is
inapposite because in that case the trial court's judgment was
entered after a full hearing on the merits, whereas in this case
the trial court refused to hold an evidentiary hearing. As a
preliminary matter, we note that an evidentiary hearing is not
mandated in this case. See Nerney v. Garden State Hosp.,
229 N.J. Super. 37, 42 (App. Div. 1988) ("Discovery should be
completed before the trial court decides the issue of prejudice
and, if appropriate, an evidentiary hearing should be held.")
(emphasis supplied); Hirsch v. General Motors Corp.,
266 N.J.
Super. 222, 262 (Law Div. 1993) ("However, the Nerney court
unequivocally stated that an evidentiary hearing is not
mandatory. [Rather, a trial] court must consider whether an
evidentiary hearing would be helpful to determine the issue of
prejudice to the nondelinquent party."); cf. Comeford, supra,
198 N.J. Super. 514 (upholding trial court's dismissal of plaintiff's
complaint without conducting evidentiary hearing); Interchemical
Corp., supra,
39 N.J. Super. 318 (upholding trial court's
dismissal of defendant's defense without conducting evidentiary
hearing).
Rather, courts have required an evidentiary hearing where
the record before the trial court has not provided an adequate
basis for a fully informed determination of the underlying issue,
Nerney, supra, 229 N.J. Super. at 42, or where an evidentiary
hearing would be helpful for a determination of the issue,
Hirsch, supra, 266 N.J. Super. at 262. For example, in Johnson,
supra, 199 N.J. Super. at 120, the Appellate Division remanded
the matter for an appropriate hearing because the sparse record
was not "wholly informative" regarding the prejudice that the
defendants would sustain if the plaintiff's complaint were
reinstated. Conversely, in Hirsch, supra, 266 N.J. Super. at
263, where there had been extensive discovery, briefing, and oral
argument regarding the issue of prejudice, the court found that
"an evidentiary hearing [was] not necessary nor helpful to
determine the issue of prejudice."
The trial court presided over this matter since December
1988. During the two years prior to trial, excluding telephone
management conferences, the trial court conducted at least four
in-chamber pretrial/discovery management conferences, including
the conference on August 15, 1989, which resulted in the
September 5, 1989 discovery order. The trial court sat through
four days of trial, heard lengthy arguments on three separate
dates regarding the issue of dismissing Abtrax's complaint with
prejudice, and reviewed relevant documents. Pursuant to Abtrax's
motion for reconsideration, the trial court permitted Abtrax to
engage in further discovery and present any arguments or facts
bearing on the discovery-misconduct issue. The trial court also
had the benefit of extensive discovery and briefing as well as
detailed certifications discussing the case's history.
Therefore, we conclude that the trial court did not need to
conduct an evidentiary hearing to decide the issue whether
Abtrax's complaint should have been dismissed with prejudice. As
a consequence, we decline to exercise our power of plenary review
to conduct further findings of fact. Nonetheless, in deciding
this matter, we have undertaken a comprehensive examination of
the record.
Although Abtrax presents several arguments in an attempt to
raise factual discrepancies, this Court need not resolve those
issues. Rather, we decide only that there was adequate,
substantial and credible evidence in the record to sustain the
trial court's factual findings, and we will not disturb them.
See Rova Farms, supra, 65 N.J. at 484. Based on the trial
court's factual findings, we conclude that the trial court did
not err in finding that Abtrax's conduct was deliberate and
contumacious. We agree with the Appellate Division's
determination that the record before the trial court
"overwhelmingly support[ed] [its] conclusion of the willful,
deliberate disregard of discovery orders." We further agree with
the Appellate Division's view that the trial court's action
should be viewed as the imposition of the sanction of dismissal
pursuant to Rule 4:23-2(b)(3), rather than one deriving from the
court's inherent power to punish for contempt pursuant to Rule
4:23-2(b)(4).
Thus, we hold that the trial court did not abuse its
discretion in finding deliberate and contumacious conduct and in
concluding that the extreme sanction of dismissal was appropriate
in this case. In support of its conclusion that dismissal was
the appropriate sanction, the trial court observed that Rahner's
conduct had significantly prejudiced Elkins's trial preparation,
noting that the delayed production of undisclosed documents would
require Elkins to conduct additional discovery, obtain revised
expert reports, retain a new expert on damages, and engage in
additional trial preparation. The Appellate Division
acknowledged that Elkins had been prejudiced, but expressed the
view that compensating Elkins for any added counsel fees and
expenses incurred due to delay and additional trial preparation
would substantially remedy the prejudice caused by Abtrax's
discovery violations. We agree that the extent of the prejudice
caused by discovery violations and the ability to redress that
prejudice are significant factors to be weighed by a trial court
in imposing sanctions for discovery violations. Zaccardi, supra,
88 N.J. at 253; Crews, supra, 141 N.J. Super. at 96; cf. Aujero,
supra, 110 N.J. at 577 (stating that in determining whether to
relax court rules, one "`important factor[]'" is "`the prejudice
that would accrue to the other party'") (quoting Jansson, supra,
198 N.J. Super. at 195).
In exceptional circumstances, however, interests other than
prejudice can shift the balance in favor of dismissal as a
sanction. Although the discovery rules generally are viewed as
establishing specific guidelines for the conduct of trial
preparation, their underlying purpose is to assure full
disclosure of all material facts and documents to the parties, to
the end that the trial will serve the ends of justice rather than
function as a trap for the unwary. See Oliviero, supra, 241 N.J.
Super. at 387. A litigant that deliberately obstructs full
discovery corrupts one of the fundamental precepts of our trial
practice--the assumption by the litigants and the court that all
parties have made full disclosure of all relevant evidence in
compliance with the discovery rules. A litigant who willfully
violates that bedrock principle should not assume that the right
to an adjudication on the merits of its claims will survive so
blatant an infraction. Wholly apart from the prejudice caused by
Abtrax's discovery violations, the conclusion is inescapable that
Abtrax's failure to comply with discovery demands and orders, if
undetected, would have afforded Abtrax an unfair advantage at
trial, because of Abtrax's familiarity with facts and documents
that had never been disclosed to Elkins. Prevention of such an
unfair advantage is a basic premise of our discovery rules. On
this record, we are fully satisfied that the sanction of
dismissal imposed by the trial court was justified.
We reverse the judgment of the Appellate Division reinstating Abtrax's complaint, and affirm the judgment of the Appellate Division in respect of the trial court's award of counsel fees and expenses.
Chief Justice Wilentz and Justices Handler, Pollock, O'Hern,
Garibaldi, and Coleman join in this opinion.
NO. A-70 SEPTEMBER TERM 1994
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
ABTRAX PHARMACEUTICALS, INC.,
t/a SUMMIT HILL LABORATORIES,
Plaintiff-Respondent
and Cross-Appellant,
v.
ELKINS-SINN, INC.,
Defendant-Appellant
and Cross-Respondent.
DECIDED April 10, 1995
Chief Justice Wilentz PRESIDING
OPINION BY Justice Stein
CONCURRING OPINION BY
DISSENTING OPINION BY