eDiscovery Daily Blog

Payday Loan Company Sanctioned for Discovery Violations: eDiscovery Case Law

In James v. National Financial LLC, C.A. 8931-VCL (Del Ch. Dec. 5,2014), Delaware Vice Chancellor Laster granted the plaintiff’s motion for sanctions after determining that the defendant’s “discovery misconduct calls for serious measures”. However, the plaintiff’s request for a default judgment was not granted, but lesser sanctions that included attorneys’ fees and a ruling that the lack of information contained in the requested document resulted in an admission.

Case Summary

On May 7, 2013, the plaintiff borrowed $200 from the defendant, which does business in multiple locations in Delaware under the name Loan Till Payday LLC. The plaintiff needed the $200 to pay for rent and groceries. The loan agreement, which consisted primarily of boilerplate provisions, imposed onerous terms. It contemplated twenty-six bi-weekly payments of $60 with a final balloon payment of $260. The total repayments added up to $1,620, for a cost of credit of $1,420 and an APR of 838.45%. Yikes. The standard loan agreement signed by the plaintiff gave her sixty days after signing the agreement to opt out of the mandatory arbitration provision, which she did and filed a verified class action complaint against the defendant, claiming unconscionable lending practices.

During discovery, the plaintiff asked the defendant to provide information about loans it made, including the annual percentage rates (“APRs”). After the defendant moved for a protective order, the court ordered the defendant to produce certain categories of information, including the APRs. The defendant produced a spreadsheet containing some of the categories but not others. When the plaintiff checked the APRs against the few loan documents she had, they differed and the defendant’s principal ultimately agreed that the data contained errors. The court ordered the defendant to produce an updated spreadsheet (which they did) and an affidavit from an IT consultant attesting to the procedures used to populate the spreadsheet (which they did not), and the spreadsheet omitted information required by the court’s order. As a result, the plaintiff moved for default judgment sanctions against the defendant.

Court Ruling

Noting that “[t]he court expects Delaware counsel to play an active role in the discovery process, including in the collection, review and production of documents”, Vice Chancellor Laster granted the plaintiff’s motion for sanctions, but not the requested default judgment sanctions, stating that “National’s discovery misconduct calls for serious measures. Although I believe that entry of a default judgment would be warranted on these facts, I will not grant that remedy in light of the Delaware Supreme Court’s guidance about invoking the ultimate sanction and the availability of less punitive consequences.” Instead, the Vice Chancellor awarded attorneys’ fees and ruled that the lack of information contained in the requested document resulted in an admission.

So, what do you think? Should the default judgment sanction have been awarded? Please share any comments you might have or if you’d like to know more about a particular topic.

Click here to see our previous story about the Delaware Court of Chancery amending its Rules regarding discovery two years ago.

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