State of Ohio v. Arthur Andersen & Co.

• Decision Date: 22 March 1978
• Docket Number: Nos. 77-1571 and 77-1591,s. 77-1571 and 77-1591
• Citation: 570 F.2d 1370
• Parties: STATE OF OHIO, Plaintiff-Appellee, v. ARTHUR ANDERSEN & CO., Defendant-Appellant. ARTHUR ANDERSEN & CO., Petitioner, v. Honorable Sherman G. FINESILVER, Respondent.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1370

570 F.2d 1370

STATE OF OHIO, Plaintiff-Appellee, v. ARTHUR ANDERSEN & CO., Defendant-Appellant.

ARTHUR ANDERSEN & CO., Petitioner, v. Honorable Sherman G. FINESILVER, Respondent.

Nos. 77-1571 and 77-1591.

United States Court of Appeals Tenth Circuit.

Argued and Submitted Nov. 17, 1977.

Decided Feb. 9, 1978.

Rehearing Denied March 22, 1978.

H. Thomas Coghill, Denver, Colo. (Paul E. Goodspeed and Jay Horowitz of Coghill, Goodspeed & Horowitz, Denver, Colo., and Charles W. Boand of Wilson & McIlvaine, Chicago, Ill., were with him on the brief), for Arthur Andersen & Co., defendant-appellant in No. 77-1571 and petitioner in No. 77-1591.

Miles M. Gersh, Denver, Colo. (Harry L. Hobson, Luke J. Danielson and Holland & Hart, Denver, Colo., were with him on the brief), for plaintiff-appellee in No. 77-1571 and respondent in No. 77-1591.

Before McWILLIAMS, BREITENSTEIN and DOYLE, Circuit Judges.

BREITENSTEIN, Circuit Judge.

Defendant-appellant Arthur Andersen & Co. seeks relief from preclusionary and monetary sanctions imposed under Rule 37(b)(2), F.R.Civ.P., for noncompliance with discovery orders. In Arthur Andersen & Co. v. Finesilver, 10 Cir., 546 F.2d 338, cert. denied, 429 U.S. 1096, 97 S.Ct. 1113, 51 L.Ed.2d 543, we upheld the validity of the discovery orders. The basic facts are outlined in that opinion and will not be repeated here. Motions by plaintiff-appellee, the State of Ohio, for imposition of sanctions were held in abeyance pursuant to our stay order. 546 F.2d at 340. After denial of certiorari to review our decision, the district court held a hearing on the imposition of sanctions and entered a comprehensive order finding specific facts. This order is reported as State of Ohio v. Crofters, Inc., D.C.Colo., 75 F.R.D. 12. The facts there found will be discussed here only insofar as is necessary to an understanding of this opinion. The district court said, Ibid. at 24-25:

"It is inescapable that Andersen has followed a willful, deliberate and flagrant scheme of delay and resistance in discovery matters. In light of the opportunities to provide discovery of relevant documents, Andersen's opposition can only be characterized as contumacious and unjustified."

The court ordered, 75 F.R.D. at 25-26, that Andersen reimburse Ohio $59,949 for costs and expenses incurred in securing production and that Andersen was precluded from opposing Ohio's claims on two specified matters.

Our number 77-1571 is Andersen's direct appeal from the order imposing sanctions. No. 77-1591 is its petition for mandamus which attacks the order as usurpation of judicial power. When the matter was first here, Andersen asserted that compliance was not required because it would violate the law of Switzerland. After reference to Societe Internationale v. Rogers, 357 U.S. 197, 78 S.Ct. 1087, 2 L.Ed.2d 1255, we said, 546 F.2d at 341:

"Societe implies that consideration of foreign law problems in a discovery context is required in dealing with sanctions to be imposed for disobedience and not in deciding whether the discovery order should issue."

We also said, Ibid. at 342:

"When and if a subsequent order of the court imposes a harmful sanction, that order may then be reviewed."

The district court has now imposed sanctions. It makes no practical difference whether its order be reviewed on direct appeal or by mandamus. Andersen is entitled to a review. We have here "a final disposition of a claimed right which is not an ingredient of the cause of action and does not require consideration with it." Cohen v. Beneficial Loan Corp., 337 U.S. 541, 546-547, 69 S.Ct. 1221, 1226, 93 L.Ed. 1528. Although the order may be collateral, we are convinced that under Cohen v. Beneficial Loan Corp., it is appealable. Accordingly, No. 77-1591, the petition for mandamus, is dismissed.

The sole issue concerns the validity of the sanctions. The as yet untried case was filed in April, 1972, and was transferred to the District of Colorado on November 17, 1972. See In re King Resources Company Securities Litigation, Jud.Pan.Mult.Lit., 352 F.Supp. 975. On the comparatively simple question presented, we are confronted with a record of approximately 3,000 pages plus six large envelopes of material. Briefs of 172 pages, plus appendices, have been filed. The briefs are replete with invectives, maledictions, and denunciations which we ignore. We also ignore Andersen's persistence in disparaging and derogating the trial judge and his actions.

Ohio loaned King Resources Company, KRC, eight million dollars allegedly in reliance on financial statements prepared by Andersen, 546 F.2d at 339-340. Fund of Funds, Ltd., FOF, an important customer of KRC, was a subsidiary of Investors Overseas Services, Ltd., IOS, a Canadian corporation with its principal place of business in Geneva, Switzerland. 75 F.R.D. at 15. Ohio claims that the relationship between KRC and FOF was not noted by Andersen in the KRC financial statements. Andersen denies any liability or wrongdoing. Its knowledge of the KRC-FOF-IOS connection is relevant and important to the lawsuit. 75 F.R.D. at 15.

On October 24, 1975, Ohio served on Andersen a request for production of documents including, as Request No. 26, material relative to Andersen's examination of IOS after January 1, 1967. During a November 7 conference, held pursuant to a local court rule, Andersen objected to discovery from other than its Denver office and raised the "foreign law" issue. The conference was unproductive and Ohio moved to compel response to its requests. On December 16 the court ruled that the requests were meritorious and ordered Andersen to produce the requested documents from its files within the United States. With regard to foreign secrecy laws, the court said:

" * * * if there is going to be any question of foreign secrecy laws, they are going to have to be specified with great particularity and specificity."

On April 15, 1976, Ohio filed another discovery motion related to documents in Andersen's Geneva office and concerned with the relationship between KRC and IOS. Andersen's April 30 reply to this request had attached a memorandum of Swiss counsel stating in general terms the requirements of Swiss law. Ohio then obtained, and tendered to Andersen, consents of FOF, and other related companies, to the production of the documents. Andersen filed a memorandum reasserting the Swiss law problem and rejecting the consents.

A May 27 order of the court directed Andersen to comply with the discovery requests. On June 17, Andersen moved for withdrawal of the May 27 order saying that it had been taken by surprise. In support of the motion it said that one of its lawyers was going to Geneva to consult with Swiss counsel:

"to determine what documents and information may be available for examination by Ohio without violating Swiss criminal law, e. g., the opportunity to consult with Swiss counsel as to the legal effect of the consents filed by Ohio and determine what, if any, documents and information sought may legally be provided pursuant to such consents."

Earlier, it had represented to the court that the documents were not producible because of Swiss law and that the consents were inadequate. It is incomprehensible and inexplicable how Andersen could make such representations when it did not know what the documents contained and still had to send a lawyer to Switzerland to get the information. We agree with the statement of the trial court, 75 F.R.D. at 17, that Andersen's conduct

"places in substantial doubt the credibility of both the written opinion of Swiss counsel and Andersen's own insistence that it had 'proceeded in good faith to do the best it can.' "

On June 25 the court denied Andersen's motion to stay the May 27 order and directed counsel to meet and discuss the discovery problems. On June 28 Andersen filed a notice of appeal from the May 27 order. The court modified the order on July 2 and directed Andersen to make "every effort" to produce the documents by July 12. On July 9 Andersen appealed from that order. Ohio then moved for sanctions for noncompliance and Andersen filed in the court of appeals a petition for mandamus relief. At a hearing on July 22, ten days after the deadline set by the court, Andersen finally produced 84 newspaper clippings from its Geneva files and filed a status report saying that 110 additional documents were on their way from Geneva and were expected within the week. The explanation for delay in producing the newspaper clippings is unconvincing. See 75 F.R.D. at 18 n. 4. Andersen explained its failure to produce the 194 concededly producible documents by saying that it had failed to "focus" on the problem of delay, 75 F.R.D. at 18. That failure does not excuse disobedience of the court's order. On July 23, the court entered a protective order and directed that production be had by August 20. Documents trickled in for several months. Some came from sources other than Geneva, and some pursuant to an IOS consent that Ohio had presented to Andersen in May. See 75 F.R.D. at 19. The court said, Ibid., that the "dilatory response to our December 16, 1975 order hardly bespeaks of the good faith compliance which Andersen repeatedly asserts."

The facts in the instant case are distinguishable from those considered in In re Westinghouse Electric Corporation Uranium Contracts Litigation, 10 Cir., 563 F.2d 992. In that case Rio Algom was found in contempt for failure to obey a discovery order. It asserted that it could not comply because of Canadian law. In reversing we said that it had acted in good faith and had made a diligent effort to comply. Ibid. at 998. We also noted that the trial court had conducted no balancing of interests as required by Societe. Ibid. at 999. In the instant case Andersen acted in bad faith and the balancing was heavily on Ohio's side.

Another opinion relating to the same Westinghouse litigation, No. 77-1833, filed January 31, 1978, 570 F.2d 899,...