General Ins. Co. of America v. Eastern Consol. Utilities, Inc.
| Decision Date | 22 September 1997 |
| Docket Number | No. 96-1882,96-1882 |
| Citation | 126 F.3d 215 |
| Parties | GENERAL INSURANCE COMPANY OF AMERICA v. EASTERN CONSOLIDATED UTILITIES, INC.; Midatlantic Pipeline, Inc.; Eastern Excavating, Inc.; John L. Daddona; Judy Daddona; Donald A. Daddona; Eva Daddona; Frank P. Daddona; Katherine M. Daddona John L. Daddona, Judy L. Daddona and David Gubitosi * , Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
John P. Karoly, Jr. (argued), Law Offices of John Karoly, Allentown, PA, for Appellants.
Henry S. Perkin, Perkin & Feldman, Allentown, PA, Benjamin D. Lentz (argued), Hart & Hume, New York City, for Appellee.
Before: STAPLETON, LEWIS and ALDISERT, Circuit Judges.
In this case, a defendant and a nonparty deponent were held in contempt of court, pursuant to Federal Rule of Civil Procedure 37(b), for failing to appear at their respective depositions. As one of the sanctions imposed, the district court took as established certain facts relating to both the defendant and nonparty deponent. The issue we confront on appeal is whether the district court abused its discretion in holding the defendant and the nonparty deponent in contempt and in fashioning sanctions with respect to its contempt order.
We will hold that the district court abused its discretion in holding the defendant in contempt for failure to appear because the plaintiff failed to set a time and place for his deposition, as required by the district court's order. We further find that the district court did not err in holding the nonparty deponent in contempt, inasmuch as he failed to attend a scheduled deposition. However, we conclude that the district court abused its discretion in sanctioning the nonparty deponent by binding him to the established facts. As a result, we will remand to the district court so it may reconsider appropriate sanctions consistent with this opinion.
In 1994, Appellee General Insurance Company of America sued John L. Daddona ("Daddona"), Eastern Consolidated Utilities, Inc., Mid-Atlantic Pipeline, Inc., Eastern Excavating, Inc., Judy Daddona, Frank P. Daddona and Katherine M. Daddona. Daddona and the other defendants had executed an indemnity agreement and other agreements in which they essentially promised to reimburse General for potential losses arising from its issuance of certain bonds connected to several construction projects. The contractor, and the principal on the bonds, was defendant Eastern Consolidated Utilities, Inc., a company affiliated with Daddona. General had lost several million dollars as a result of issuing those bonds.
Daddona employed extraordinary delaying tactics during pre-judgment discovery. As a result, the court, by Order filed May 10, 1995, granted a motion compelling Daddona to submit to a deposition and produce documents. After the deposition, General moved for summary judgment on all of its claims in the amount of $3,993,566.96 against Daddona and certain of the other defendants (Eastern Consolidated Utilities, Inc., Mid-Atlantic Pipeline, Inc., Eastern Excavating, Inc. and Judy Daddona). Final judgment was entered on August 30, 1995, against these defendants. Prior to entry of judgment, General settled with the remaining defendants, Frank P. Daddona and Katherine M. Daddona, and the case was dismissed as to them.
General sought postjudgment discovery because the judgment remained unsatisfied. Daddona has neither appealed the judgment nor sought a stay of enforcement.
On November 21, 1995, in aid of its enforcement of the judgment, General took the deposition of Charles Hair, an attorney Daddona retained to incorporate various entities. Daddona was given notice of the deposition, but did not attend. Hair testified that he incorporated Five-Star, Ltd.; Par-3, Ltd.; D.G. Holding, Inc.; The Master at Shepherd Hills, Inc.; and The Golf Course at Shepherd Hills, Inc. He also testified that Five-Star was owned in three equal shares by Gubitosi, the Culnen Family Trust and the Dadd Partnership. The Dadd Partnership was owned in equal parts by Daddona and his two brothers. Five-Star owned 100% of the shares in Par-3, Ltd. Five-Star also owned 85% of the shares in D.G. Holding, Inc.; The Dadd Partnership owned 10% and Gubitosi 5% of the remainder. D.G. Holding, in turn, owned The Masters at Shepherd Hills, Inc. and The Golf Course at Shepherd Hills, Inc. Together, Par3, Ltd. and D.G. Holding, Inc. operated a golf course and country club known as Shepherd Hills. Hair also testified that he had owned 5% of D.G. Holding which he later transferred to Gubitosi. Hair's testimony was limited to the events surrounding the incorporation of these entities; he did not purport to describe their current ownership structure.
General also noticed Daddona's deposition. The notice demanded certain documents and designated November 21, 1995, as the date for the deposition. Daddona did not provide the requested documents and did not attend the deposition. General then moved for an order compelling Daddona to comply with the notice. On January 19, 1996, the district court, apparently pursuant to Federal Rule of Civil Procedure 37(a)(2) and (4), granted General's motion and ordered Daddona to pay a sanction of $100 by February 5, 1996 and to attend his deposition "at a time and place designated by Plaintiff within thirty (30) days...." General Ins. Co. of Am. v. Eastern Consol. Utils., Inc. et al., slip op. at 1, dated January 19, 1996 (No. 94-4388) (A. at 1). General never sent a letter setting a date for a deposition and Daddona never attended one.
Appellant David M. Gubitosi, Daddona's business partner, was not a defendant in the underlying action and became involved only after judgment was entered. Seeking to acquire information concerning Daddona's business interests, General served Gubitosi with a subpoena on December 29, 1995. The subpoena called for Gubitosi's deposition and document production on January 10, 1996.
On January 4, 1996, General's attorneys wrote to Gubitosi's attorney, John P. Karoly, Jr., to confirm this plan. Because of bad weather, however, it was mutually agreed that the deposition would be briefly delayed. Karoly failed to respond to telephone calls regarding a new date. General then wrote a letter, dated February 2, 1996, to suggest new dates. Gubitosi failed to respond. As a result, upon General's motion pursuant to Fed.R.Civ.P. 45(e), the district court found Gubitosi to be in contempt and ordered him to produce documents and attend his deposition "at a time and place designated by plaintiff, within 30 days of the date of this Order." 1 General Ins. Co. of Am. v. Eastern Consol. Utils., Inc. et al., slip op. at 2, dated May 15, 1996 (No. 94-4388) (emphasis in original) (A. at 4).
On May 22, 1996, General wrote to John P. Karoly, Jr., Gubitosi's attorney, designating June 3, 1996, as the date for his deposition. Gubitosi then fired Karoly and hired a new attorney, James L. Heidecker. (He later replaced Heidecker with Karoly). Heidecker requested and received a brief adjournment. On June 17, 1996, General sent a letter to Heidecker regarding the contempt order and the deposition. Neither Heidecker nor Gubitosi responded.
General wrote to Heidecker again on June 25, 1996, and designated July 31, 1996, as the new date for the deposition. Gubitosi requested yet another adjournment, and General wrote again on July 23, 1996, designating July 24 as the date for document production and August 15 as the date for the deposition. But Gubitosi did not produce any documents by the 24th. By letter dated July 29, 1996, General informed Gubitosi that if the documents were not produced by July 31, 1996, the deposition would not go forward and another motion for sanctions would be presented to the court. On August 15, Gubitosi arrived at the offices of General's lawyer, claiming that he was there for the deposition; however, General had canceled the deposition, and General's attorneys were not present because it had not received the requested documents by July 31, 1996. Thus, once again, the deposition did not go forward.
On August 16, 1996, General, pursuant to Federal Rule of Civil Procedure 37(b), requested the district court to issue an order declaring Daddona to be in contempt for failure to obey the Order dated January 19, 1996, and directing him to attend his deposition and produce documents by February 19, 1996; declaring Gubitosi to be in contempt for failure to obey the Order dated May 15, 1996, and directing him to attend his deposition and to produce documents by June 15, 1996; requiring Daddona and Gubitosi to pay $500 each to General for its expenses and attorney's fees; and declaring the following facts (which were drawn from Hair's deposition) to be established as against both Daddona and Gubitosi:
(i) Five-Star Holding, Limited (a/k/a Five-Star Ltd.), D.G. Holding, Inc. ), Par-3, Ltd., The Masters at Shepherd Hills, Inc. and The Golf Course at Shepherd Hills, Inc. are all Pennsylvania corporations;
(ii) Gubitosi, the Dadd Partnership and [Culnen] Family Trust each own one third of the shares of stock in Five-Star Limited;
(iii) Five-Star Limited owns 85% of the shares of stock in D.G. Holding, Inc., the Dadd Partnership owns 10% and Gubitosi owns 5%;
(iv) Five-Star Limited owns 100% of the shares of stock in Par-3, Ltd.;
(v) D.G. Holding, Inc., owns 100% of the shares of stock in The Masters at Shepherd Hills, Inc. and the Golf Course at Shepherd Hills, Inc.;
(vi) The Dadd Partnership is a Pennsylvania partnership; and
(vii) Judgment debtor Daddona owns, either individually or jointly with judgment debtor Judy Daddona, a one third interest in the Dadd Partnership, Donald A. Daddona owns, either individually or jointly with Eva Daddona, a one third interest and Frank P. Daddona owns, either individually or...
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