Eleventh Circuit Rules District Court Did Not Abuse its Discretion by Dismissing Defendants in CFPB Enforcement Action as Sanctions for “Obstructionist Conduct” in Depositions

A unanimous panel of the U.S. Court of Appeals for the Eleventh Circuit has affirmed the district court’s order dismissing several defendants as sanctions for the CFPB’s continuation of “obstructionist conduct” in depositions.

In CFPB v. Brown, the depositions in question were of a CFPB witness taken in the CFPB’s enforcement action against 18 defendants that alleged the defendants had engaged in or substantially assisted a fraudulent debt collection scheme in violation of the CFPA and the FDCPA.  The five defendants charged with providing substantial assistance were service providers to the defendants who were alleged to have directly engaged in the scheme.  One of the five defendants provided telephone broadcast services and the other four defendants provided payment processing services. 

The depositions were taken after the district court rejected the CFPB’s attempt to avoid providing a representative by moving for protective orders.  As described by the Eleventh Circuit, the transcript of the first deposition “reveals that the CFPB avoided answering questions through a number of impermissible tactics” that included:

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• “Lodg[ing] more than 70 work product objections, even objecting to fact-based questions that the district court had instructed it to answer;”
  
  
• Giving the CFPB’s witness “memory aids” from which the witness read verbatim for extended periods of time; and
  
  
• Taking the position, after the district court indicated in its ruling on the CFPB’s motion for protective orders that the defendants could ask about exculpatory facts, that the CFPB had not identified any exculpatory facts in the entire record.

After the defendants informed the district court of the CFPB’s conduct at the first deposition, the district court held a telephonic hearing during which the judge reiterated that the CFPB’s witness needed to answer fact-based questions and that the defendants had a right to question the CFPB about exculpatory facts.  The district court indicated that memory aids were acceptable due to the voluminous records but stated that “regurgitating pre-written information would be insufficient in many cases.” 

Nevertheless, as the Eleventh Circuit summarized the deposition transcripts, “the CFPB continued its obstructionist conduct during the next four depositions” despite the additional instructions from the district court.  The Eleventh Circuit described the CFPB’s conduct as follows:

"All in all, in each 30(b)(6) deposition, whether the CFPB’s tactic was to object at every turn, instruct its witness not to answer, refuse to acknowledge any exculpatory facts, or have its witness read extended and nonresponsive answers, the CFPB tried to game the system so that nothing was accomplished."

Because of the CFPB’s repeated conduct, the defendants moved for sanctions pursuant to Rule 37 of the Federal Rules of Civil Procedure.  Rule 37(b) permits a district court to impose sanctions for a party’s failure to obey an order to provide or permit discovery and for the failure of a person designated as a witness to appear for his or her deposition.  The district court granted the defendants’ motion for sanctions, concluding that the CFPB had shown a “willful disregard” for its instructions and that the CFPB’s witness had “failed to appear” because even though physically present, “he was effectively unavailable due to his inability to answer questions without memory aids and refusal to address exculpatory evidence.”  Because it found the CFPB’s conduct to be “egregious,” the district court struck all of the CFPB’s claims against the five service providers and dismissed them from the case.

In reviewing the sanctions order, the Eleventh Circuit first concluded that the district court did not abuse its discretion in imposing Section 37(b) sanctions because the CFPB had repeatedly failed to obey the district court’s instructions.  It also concluded that the district court had not abused its discretion by imposing a sanction that was too severe.  In response to the CFPB’s argument that the dismissal was improper because the service providers were not prejudiced by the CFPB’s conduct, the Eleventh Circuit stated that “we staunchly disagree and believe the record (as reiterated throughout this opinion) speaks for itself in refuting this contention.”