Lincoln Gen. Ins. Co. v. U.S. Auto Ins. Servs., No. 3:16-cv03198-B, 2019 U.S. Dist. LEXIS 225429 (N.D. Tex. Dec. 31, 2019).

In this case, a US magistrate judge recommended entering a default judgment against a principal with controlling interests in several affiliated companies after having struck the principal’s pleadings as a sanction for continuing discovery violations.

In a prior case, the reinsurer had sued the cedent and the principal’s other affiliated insurance companies after the cedent failed to hold premiums in a trust account and diverted those funds to the affiliated entities. The parties settled the claims and entered into a Memorandum of Understanding. The cedent and the affiliated companies, however, failed to fulfill their obligations and the reinsurer filed this case. The court severed the claims against the affiliated entities from those against the principal and the cedent. Following a bench trial, the court found two of the affiliate entities liable for tortious interference with contract. The reinsurer than pursued its claims against the principal for breach of fiduciary duty. In deciding to strike the principal’s pleadings, the magistrate judge determined that the principal had willfully violated the discovery orders and that no lesser sanction would deter further abuses.