Nelson v. Schultz, 878 F.3d 236

Nelson, Schultz, and Rodgers formed 664 N. Michigan, LLC; Nelson alleges he was removed as an LLC manager in 2005 and lost $1.13 million in development fees.
Nelson sued Schultz and Rodgers for breach of contract and several torts about ten years later.
During discovery defendants sought Nelson’s and his company’s tax returns, bank statements, loan applications, and financial statements from roughly 2004–2008 to defend the claim that Nelson was removed for cause (poor finances) and to assess mitigation.
The district court compelled production, warned Nelson twice that dismissal could follow if he did not produce the documents or provide a detailed affidavit of a diligent search, and ordered additional production deadlines.
Nelson produced limited tax transcripts, submitted evasive declarations claiming both production and lack of possession, and provided a bank statement saying records existed only for seven years; he never provided the court-ordered documents or a clear affidavit of diligent search.
The district court dismissed Nelson’s case for want of prosecution (referencing both Rule 37(b) and Rule 41(b)); Nelson’s motion for reconsideration was denied and he appealed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether dismissal was proportionate to Nelson’s discovery misconduct	Nelson: court failed to assess proportionality, merits, and magnitude; lesser sanctions warranted	Defs: dismissal appropriate after repeated noncompliance despite orders and warnings	Court: affirmed — judge sufficiently evaluated misconduct and did not abuse discretion
Whether judge was required to state explicitly that violations were willful	Nelson: court didn’t explicitly find willfulness	Defs: order and pattern of conduct imply willfulness	Court: willfulness can be inferred from the sanction order; no abuse of discretion
Whether judge had to consider lesser sanctions before dismissal	Nelson: judge should have weighed lesser sanctions first	Defs: district court need not consider lesser sanctions when dismissal is warranted	Court: judges should weigh lesser sanctions but are not required to; dismissal permissible here
Whether confusion about applying Rule 37(b) vs Rule 41(b) undermines dismissal	Nelson: procedural confusion invalidates sanction	Defs: substance matters; either rule requires proportionality and was satisfied	Court: confusion irrelevant; proportionality requirements under either rule were met

Johnson v. Chi. Bd. of Educ., 718 F.3d 731 (7th Cir. 2013) (Rule 41(b) requires proportionality in dismissal)
Langley by Langley v. Union Elec. Co., 107 F.3d 510 (7th Cir. 1997) (Rule 37 requires tailoring sanctions to misconduct)
Brown v. Columbia Sussex Corp., 664 F.3d 182 (7th Cir. 2011) (district court must assess appropriateness of dismissal for discovery noncompliance)
Negrete v. Nat’l R.R. Passenger Corp., 547 F.3d 721 (7th Cir. 2008) (dismissal considered for willful and repeated discovery violations)
Aura Lamp & Lighting Inc. v. Int’l Trading Corp., 325 F.3d 903 (7th Cir. 2003) (court may infer willfulness from sanction order; outlines ideal factors to consider)
McInnis v. Duncan, 697 F.3d 661 (7th Cir. 2012) (standard for assessing neglect sufficient to warrant dismissal)
Kasalo v. Harris & Harris, Ltd., 656 F.3d 557 (7th Cir. 2011) (identifies factors relevant to choosing lesser sanctions)
Ball v. City of Chi., 2 F.3d 752 (7th Cir. 1993) (describes principles district courts ideally should consider before dismissal)
Dickerson v. Bd. of Educ. of Ford Heights, Ill., 32 F.3d 1114 (7th Cir. 1994) (pattern of failure to meet court-imposed deadlines can justify dismissal)