You may recall from 2021, a nearly 100 page Fair Labor Standards Act (FLSA) case opinion from Judge Beaverstock in the Southern District of Alabama sanctioning defendants with a default judgment for refusing to cooperate with discovery.  Of course an appeal of the $13.1 million default judgment followed and now the 11th Circuit has affirmed that decision for the most part and remanded on the statute of limitations issue. The case is Hornady, et al v. Outokumpu Stainless USA, LLC, 2024 WL 4471161 (11th Cir. October 11, 2024). 

This article will outline what occurred with the 11^th Circuit review of the lower court decision. However, the decision merits a bit more as to the pre-litigation games played with the FLSA. We will discuss those games in a subsequent post.

The 11th Circuit Court found that the district court did not err in entering this large default judgment, because the actions of defendant were “intentionally subversive” toward discovery.  Default judgment was a last resort, as nothing else worked including striking affirmative defenses and an answer.

Second the 11^th Circuit noted the defendant's argument that the lower court erred in not reconsidering its default decision. The 11^th Circuit ruled hat district courts have plenary power to reconsider interlocutory orders and therefore there was no abuse of discretion here in failing to reconsider the order.

Third the court determined that the district court properly found a sufficient legal basis for the default judgment entered.  Finally, as to the last issue, the lower court had decided against some class plaintiffs as to the statute of limitations.   The plaintiffs actually appealed and challenged that part of the decision. The 11th Circuit could not tell if the lower court had properly supported that part of the decision. Therefore, a remand was necessary for that limited issue.

My first observation on this is that a default judgment of this significance is only likely to be upheld on appeal when less drastic sanctions would not ensure compliance. In this instance the 11th Circuit noted 12 separate court orders for the defendant to produce documents. The documents required were pay records that were at the heart of the FLSA case. They were records that the defendant was required to keep and should have been produced. Without the records the trial could not proceed. 

Further the magistrate judge did employ lesser sanctions. It had struck five of the affirmative defenses in one answer and later struck an third amended answer entirely.  Still there was an ongoing failure to produce the documents. That all amounted to strike one!

Second the defendant began to blame its vendor contending that it was the source of the delay. Nine scheduling orders followed allowing the defendant more time to produce the records. Finally, the vendor was made to appear for a hearing, and it was quickly learned that the vendor was not at fault for the delay. This was a misrepresentation by defendant! The court found bad faith. Strike two!

Third counsel for the defendant was fired during the case, giving the defendant another reason to ask for further delay. However, after the new counsel took over the same issues continued.  Strike three! That led to the "intentionally subversive approach to discovery” condemnation noted by the 11th Circuit.

There is much more to this case inclusive of the theories of liability, but we will discuss that later. For now, parties to litigation can recognize that courts will be reasonable before awarding sanctions but there is a limit.