Subscribe Subscribe   Find us on Twitter Follow POL on Twitter  



Vacating discovery sanctions orders improper?

The Wall Street Journal has a surprisingly one-sided account (h/t J.M.) of a discovery dispute between KPMG and one of its clients. A CFO at Targus embezzled millions of dollars before pleading guilty; Targus seeks to hold its auditors responsible. During the litigation, an Orange County judge sanctioned KPMG for failing to produce documents "in a full and timely manner."

KPMG has appealed the sanctions order. Simultaneously, KPMG is negotiating a settlement with the opposing party, Targus. The Journal implies that there is something wrong because KPMG is asking Targus to vacate the discovery sanctions order, and quotes a Boston University Law professor, Susan Koniak, to that effect.

At no point does the story consider a reasonable possibility: if KPMG is legitimately aggrieved by the lower court's sanctions order, then if it settles the case, its appeal will be dismissed as moot, and it will be unable to vindicate itself. Any given large entity involved in hundreds of litigations is going to have a handful of sanctions orders against it in any twelve-month period, simply because it's impossible to perfectly comply with every pending judicial discovery order. Certainly, some violations are bad-faith violations, but other times, a party will use impossible discovery demands to leverage the failure to meet those demands into a tactical advantage in the underlying litigation. Unfortunately, by assuming the conclusion (as it does by quoting Koniak that KPMG "screwed around in discovery"), the Journal doesn't let us know which of two scenarios is happening here. If a rule is adopted preventing a party from vacating a discovery sanctions order as part of a settlement, then parties will have fewer settlements and instead litigate cases to the bitter end, because it is only through litigation that a party aggrieved by a sanctions order can vacate the order.

The settlement provision certainly could have an adverse impact on Targus's attorneys, who no doubt hope to use a victory over KPMG to attract other clients in other lawsuits. But as it is, Targus will be able to obtain additional money from KPMG in exchange for agreeing to the condition of vacating the order. So the question arises: did Targus's attorneys leak the settlement negotiation to the Wall Street Journal to the detriment of their own client? And if so, why isn't the Wall Street Journal covering this more interesting aspect of the story?



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.