A “shot across the bow”: issuing discovery as a method of encouraging settlement

Quite often in my family law cases I will issue written discovery along with a settlement proposal. This is a strategy I see few other attorneys employ and the combination typically confuses my clients. “Why are we issuing discovery,” they will ask, “if our goal is settlement?”

A reasonable question deserves a response, so here’s the explanation: think of discovery coupled with a settlement proposal as a “shot across the bow.”  In the days before radio communications one warship might literally shoot a cannonball over the bow of another warship as a method of indicating awareness of the other ship’s presence and noting a desire to gauge the other ship captain’s intentions.  If the intention of the ship captain receiving that warning shot was not hostile, that captain would be expected to take actions indicating a lack of hostile intent.  The warning shot would further convey a willingness to act aggressively should the other ship’s captain have belligerent designs.

Issuing discovery early in the case doesn’t necessary convey an intent not to seek settlement.  Instead it may convey the following information:

1) The party issuing discovery is willing to go to trial if his or her goals cannot be achieved through negotiation

2) That party, through issuing discovery and subsequently obtaining responses, will be fully prepared to try the case should trial be necessary

3) That party is already thinking about the information the other side might possess, the concessions the other side might make, and some of the weaknesses in the other side’s position, and is prepared to use this information at trial

Further, in South Carolina, limited discovery may be necessary in equitable distribution cases to prevent an attorney from being liable for malpractice.  It is doubtful a party can rely solely upon the other party’s financial declaration in determining all of the other party’s assets that might be subject to equitable distribution.  While Rule 60 of the South Carolina Rules of Civil Procedure allows a judgment to be reopened based upon a claim of fraud, the South Carolina courts have created an intrinsic fraud versus extrinsic fraud distinction–one that no longer exists under the Federal Rules of Procedure–and does not allow Rule 60 motions to be brought for intrinsic fraud.[1] Obtaining limited discovery with the goal of uncovering hidden assets is advisable simply to avoid future claims of malpractice.

While issuing discovery early in the case is often thought to convey an intent to resort to contentious litigation, there are other, less hostile, purposes for issuing such discovery.  Just as arming for war may be a strategically sound method of avoiding war, issuing discovery may convey defensive preparedness and an ability to deter the other party’s overreaching.
[1] “Extrinsic fraud is fraud that induces a person not to present a case or deprives a person of the opportunity to be heard. Intrinsic fraud, on the other hand, is fraud which misleads a court in determining issues and induces the court to find for the party perpetrating the fraud.” Raby Const., L.L.P. v. Orr, 358 S.C. 10, 19, 594 S.E.2d 478, 483 (2004) (citation omitted).  “Relief is granted for extrinsic but not intrinsic fraud on the theory that the latter deceptions should be discovered during the litigation itself, and to permit such relief undermines the stability of all judgments.”  Mr. G. v. Mrs. G., 320 S.C. 305, 308, 465 S.E.2d 101, 103 (Ct.App.1995).

Adding to the confusion is that recently the South Carolina Supreme Court muddied the distinction between intrinsic and extrinsic fraud.  In Ray v. Ray, 374 S.C. 79, 86, 647 S.E.2d 237, 241 (2007), the family court denied Mr. Ray relief from judgment upon his claim that his ex-wife had hidden the existence of a non-compete agreement, for which she received compensation, from him and the court.  The family court dismissed his claim based on a finding that the fraud he alleged was intrinsic.  Three members of the Supreme Court found this fraud was extrinsic and reversed the family court.  I agree with the two dissenting members of the Supreme Court, who found Mr. Ray’s “complaint alleges a classic instance of intrinsic fraud.”  However I also applaud the United States Supreme Court for ultimately abolishing an intrinsic/extrinsic distinction that rewards fraud and confuses everyone.

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