IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

ALEXANDRIA DIVISION

AMERICA ONLINE, INC.,
Plaintiff,

v.

CN PRODUCTIONS, INC., and JAY NELSON,
Defendants.

CIVIL ACTION NO. 98-522-A

ORDER

This matter comes before the Court on plaintiff’s motion pursuant to Fed. R. Civ. P. 37 for terminating sanctions, or in other words for a default judgment as a sanction for defendants’ discovery abuses. Plaintiff also moves for an award of attorneys’ fees and a three-week extension on discovery limited to the issues of damages and potential third-party liability. Defendants, in turn, move to certify an issue for interlocutory appeal. Upon consideration of the parties’ submissions, it is hereby

ORDERED that:

1. Plaintiff’s motion for terminating sanctions is GRANTED, a judgment declaring defendants in default is entered, and the case is continued for a hearing on the injunctive relief and damages plaintiff seeks;

2. Plaintiff’s motion for an extension on discovery is DENIED, and the motion for attorneys’ fees is DENIED without prejudice to plaintiff’s right to revisit the issue during the hearing on damages; and

3. Defendants’ motion to certify for interlocutory appeal is DENIED without prejudice to their right to revisit the issue before Judge Hilton.

Background

Plaintiff America Online, Inc. ("AOL") filed this action on April 16, 1998. According to AOL’s seven-count complaint, defendants CN Productions, Inc. ("CN Productions"), and its president, Jay Nelson, have repeatedly and officiously bombarded AOL and its members with tens of thousands of deceptive, unsolicited electronic mail ("e-mail") messages. These "junk" e-mail messages allegedly advertise Internet Web sites, such as "pamsplayhouse..com" and "faaatasieinc.com," at which defendants make available a variety of pornographic products and services.

AOL also alleges that defendants forged the tern "aol.com" within their e-mail massages, thus creating the false impression that the e-mail messages originated from, or at least were endorsed by, an AOL member if not AOL itself. Plaintiff asserts that its attempts at self-help have proven unsuccessful in stopping defendants’ barrages of mass e-mail solicitations.

The specific counts listed in the complaint state claims under the Lanham Act, see 15 U.S.C. 5 1125 (a) (false designation of origin), § 1125 Cc) (1) (dilution of interest in a famous mark); the Computer Fraud and Abuse Act., see 18 U.S.C. § 1030 (e) (E) (exceeding authorized access)~ S 1030 (el (2) (B) (impairing computer facilities); the Virginia Computer Crimes Act, see Va. Code Ann. ~§ 18.2-152.1., ~ and the Virginia common law of trespass to chattels and conspiracy. Both the Computer Fraud and Abuse Act and the Virginia Computer Crimes Act provide for criminal sanctions in addition to creating civil causes of action against violators. See 18 U.S.C. § 1030(g), Va. Code. kin. § 18.2-152.12.

Over the past six months of plaintiff’s various attempts at discovery, defendants’ actions have made perfectly clear that defendants have no intention of disclosing any information to AOL that would assist in the just adjudication of these claims. The chronicle of defendants’ obstruction thus begins on May 8, 1998, when ai Productions and Nelson filed a motion for an extension on time to answer or otherwise plead to the complaint. A few weeks later, on June 1st, the Court entered a Consent Order retroactively allowing defendants until May 29th to answer. Despite this Court, it was not until August 27th, three months later, that CN Productions and Nelson filed an answer to the complaint.

On May 15th, AOL served its first set of document requests and interrogatories on defendants. CN Productions and Nelson filed their responses a month later, on June 15th, agreeing to produce some documents and answer some interrogatories by June 29th. As to the remaining discovery requests, defendants made two blanket objections. First, defendants asserted that the information requested constituted trade secrets, or was otherwise proprietary in nature- second, defendants claimed that plaintiff’s discovery requests infringed upon defendants’ "rights of free speech" under U.S. constitutional and state law.

The Court makes three observations with respect to this initial response. First, these objections were without merit.1

Second, they were untimely.2 Third, defendants nowhere mention what has subsequently become their central (but equally frivolous and untimely) objection to plaintiff’s discovery requests, namely that compelled compliance would violate the Fifth Amendment’s privilege against self-incrimination -

Defendants failed to abide by their promise to respond to at least some of plaintiff’s discovery requests by June 29th. Indeed, by July 10th, defendants had produced only one document and partially answered only four interrogatories. AOL moved to compel. The Court took the matter under advisement on July 22nd, while advising the parties to attempt to work out their differences. On July 31st, AOL filed a supplemental motion to compel discovery responses, complaining that defendants’ counsel had not returned AOL’s repeated phone calls or replied to AOL’s written correspondence. On August 7th, the Court granted the motion to compel in part.

As noted above, defendants at some point decided to assert the Fifth Amendment’s privilege against self-incrimination as an objection to several of AOL’s discovery requests. Defendants first formally raised the issue in their joint answer filed on August 27th (four months after the complaint) in which CDT Productions and Nelson mostly denied the complaint, but also invoked the Fifth Amendment in refusing to answer the claims under the Computer Fraud and Abuse Act and the Virginia computer Crimes Act. Since these statutes provide for criminal as well as civil penalties, defendants suggested, information turned over to AOL in this action could incriminate them in future criminal proceedings. Of course, black-letter Constitutional law gives CN Productions, a corporation, no such privilege, and thus defendants’ invocation of the Fifth Amendment in their joint answer was at least partially frivolous on its face.

On September l8th, AOL moved to strike defendants’ answer and for sanctions against Nelson for failing to comply with the Court’s Order of August 7th compelling discovery. On September 28th, the Court struck CN Productions’ answer and ordered it to file an amended answer, as well as any supplemental discovery responses made necessary by such amendments, by October 2nd. The Court also sanctioned Nelson in the amount of $2,000, while ordering him to respond fully to all pending document requests and interrogatories by October 15th. Finally, the Court stayed defendants’ discovery in this case pending the Court’s determination that Nelson had fully complied with the Court’s Orders.

CN Productions disregarded the Court’s Order and allowed October 2nd to come and pass without filing an amended answer. The amended answer that was filed on October 5th, moreover, is a telling measure of defendants’ bad faith. Where in the first answer ai Productions invoked the Fifth Amendment out of fear of handing over inculpatory evidence to AOL, in the amended answer CN Productions replaced the references to the Fifth Amendment with blanket denials of AOL’s allegations. To date, CN Productions has failed to explain how the same information could simultaneously incriminate and exonerate the company under the Computer Fraud and Abuse Act and the Virginia Computer Crimes Act. Moreover, defendant has to date disregarded the Court’s September 28 Order to supplement its responses to plaintiff’s discovery requests as necessitated by these denials in the amended answer.

On October 5th. defendants moved to clarify the Court’s September 28 Order requiring Nelson to comply "fully to all pending document requests" from AOL, claiming that the Court did not specify whether Nelson could continue to respond by invoking the Fifth Amendment’s privilege against self-incrimination. On October 23rd, the Court denied defendants’ motion to clarify. Nonetheless, Nelson has yet to produce the requested documents on fifth Amendment grounds.

Defendants have also asserted the privilege against self-incrimination in blanket refusals to respond to deposition questions regarding such routine matters as the identity of ON Productions’ employees. Nelson, for his part, invoked the Fifth Amendment in refusing even to answer whether he had read AOL’s complaint in this case, and whether the answer filed on his behalf was in fact his answer. Moreover, during the deposition of a ON Productions’ shareholder designated as its representative witness for purposes of Fed. R. Civ. P. 30(b) (6), the deponent also invoked the Fifth Amendment. On that basis , he refused to identity the officers, directors, and employees of the corporation, or to identity any other individuals who could serve as CDT Productions’ designee under Rule 30 (b) (6).3

Standard for Terminating Sanctions under Fed. R. Civ. P. 37

Rule 37(d) of the Federal Rules of Evidence gives the Court wide discretion to impose sanctions for a party’s failure to comply with its discovery orders. Consequently, cases of persistent discovery abuses can warrant entry of a default judgment under appropriate circumstances. See Mutual Federal Savings & Loan v.Richards & Assoc.,, 872 F.2d 88 (4th Cir. 1989). The Court must assess the propriety of this sanction with a four-part inquiry into whether the noncomplying party acted in bad faith; whether the noncompliance caused his adversary material prejudice; whether this particular sort of noncompliance needs to be deterred; and whether less drastic sanctions have been effective Id. at 93.

Discussion

The Court grants plaintiff’s motion pursuant to Rule 37 and declares defendants to be in default. The Court concludes that defendants have embarked on an obstructive course of conduct designed to frustrate AOL’s every attempt to discover information to which it is entitled as "relevant to the subject matter" of its claims, Fed. R. Civ. F. 26(b) (1).

CM Productions and Nelson have failed to comply with Court Orders compelling discovery. They have been chronically late in their filings, sometimes by a matter of months. They have frivolously invoked the law of trade secrets, their "rights of free speech," and the Fifth Amendment’s privilege against self-incrimination in refusing to respond to document requests. interrogatories. and deposition questions. They appear to have succeeded in producing one document after six months of discovery.

The Court concludes that defendants are playing games and will indulge them no longer. Defendants’ bad faith is plain from their abuse of this Court’s process and the totality of their efforts to thwart plaintiff’s discovery. AOL has suffered significant prejudice, having been denied in nearly all its efforts to inquire into the facts underlying its claims. The need for deterrence is obvious, since other litigants must not see such stonewalling go unpunished. Finally, lesser sanctions have proven ineffectual, witness the Court Orders compelling plaintiff’s discovery and staying defendants’, and the imposition of monetary sanctions on Nelson.

Under the Fourth Circuit’s four-part test, the Court therefore concludes that a default judgment against defendants is now an appropriate sanction. The Court is unwilling, however, to award plaintiff attorneys’ fees at this time, or to extend discovery. The case is continued for a hearing on the injunctive relief and damages AOL is seeking.

Albert V. Bryan
United States District Judge

Alexandria, Virginia
November 6th, 1998

1. For example, AOL’s discovery requests for such mundane information as defendants’ corporate structure, business contacts, and income could not conceivably compromise CN Productions’ trade secrets. In any event, the Court could easily have restricted disclosure of any trade secrets to AOL’s attorneys. Indeed, plaintiff apparently proposed such a remedy, but defendants rejected it.

CN Production and Nelson also had no colorable claim that compliance with the Federal Rules of Civil Procedure would violate their rights under the First Amendment of the U.S. Constitution. Moreover, any conflicting state laws would be preempted by operation of the Supremacy Clause.

2. Rule 26 (c) of the Local Rules of Practice requires objections to be served within fifteen days after service of discovery requests.

3. In their pleadings, defendants’ argue that these assertions of the privilege against self-incrimination were in good faith. As more fully explained in defendants’ brief:

"[Nelson] only began to invoke his Fifth Amendment right when the questions began to focus on matters that could ultimately result in criminal prosecution, such as the location where QI Productions, Inc. operates (because if that were disclosed AOL would be able to get a subpoena impounding the equipment found at that location), whether CN Productions, Inc. has its own computers (because these computers could then be subpoenaed and examined), the officers and employees of CDT Productions (because these persons are all, potential co-defendants in a criminal prosecution, any one of whom could be approached by the law enforcement authorities with an offer of immunity in exchange for testimony against him), etc."