R & R Sails, Inc. v. Insurance Co. of Pennsylvania

Where a court precludes evidence as a sanction for discovery requirement violations and such preclusion amounts to the dismissal of the party’s claim, a court must consider whether the failure to comply involved willfulness, fault, or bad faith, and also the availability of lesser sanctions.

R & R Sails, Inc. (“R&R”) sued The Insurance Company of Pennsylvania (“AIG”), alleging breach of contract and tortious bad faith following AIG’s refusal to cover fire damage to a facility owned by R&R. AIG fully satisfied R&R’s breach of contract claim prior to trial. AIG moved to preclude introduction of evidence supporting R&R’s tort claim, on the basis that R&R failed to provide this evidence in a timely fashion. The district court found that R&R violated Federal Rule of Civil Procedure 26, and sanctioned R&R by excluding evidence in support of its tort claim, pursuant to Federal Rule of Civil Procedure 37(c)(1). The court found, due to the preclusion sanction, that R&R could not support its bad faith tort claim with any evidence and granted AIG judgment as a matter of law (“JMOL”). R&R appealed from the district court’s grant of JMOL against its tort claim. The Ninth Circuit found the district court did not abuse its discretion in finding R&R violated Rule 26. However, the Court held the district court failed to support its preclusion of R&R’s evidence with sufficient findings. The Court reasoned that the preclusion of R&R’s evidence amounted to a dismissal of a claim. Therefore, the district court was required to consider whether R&R’s failure to disclose information in a timely fashion “involved willfulness, fault, or bad faith,” and also was required to consider “the availability of lesser sanctions.” Because the district court failed to conduct this inquiry, it erred by excluding R&R’s evidence. REVERSED and REMANDED.