62 F.3d 1469 (D.C. Cir. 1995), 94-7141, Shepherd v. American Broadcasting Companies, Inc.

Docket Nº:94-7141, 94-7186.
Citation:62 F.3d 1469
Party Name:32 Fed.R.Serv.3d 688 Michele E. SHEPHERD and LaRue Graves, Appellees, v. AMERICAN BROADCASTING COMPANIES, INC., Appellant.
Case Date:August 25, 1995
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 1469

62 F.3d 1469 (D.C. Cir. 1995)

32 Fed.R.Serv.3d 688

Michele E. SHEPHERD and LaRue Graves, Appellees,

v.

AMERICAN BROADCASTING COMPANIES, INC., Appellant.

Nos. 94-7141, 94-7186.

United States Court of Appeals, District of Columbia Circuit

August 25, 1995

Argued May 16, 1995.

Rehearing and Suggestion for

Rehearing In Banc Denied

Oct. 6, 1995. *

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William H. Jeffress, Jr., Washington, DC, argued the cause, for appellant. With him on the briefs, were Randall J. Turk, J. Bradley Bennett, James R. Heavner, Jr., John H. Pickering and Louis R. Cohen, Washington, DC. A. Douglas Melamed, Washington, DC, entered an appearance.

Mark Lane, New York City, argued the cause, for appellees. With him on the brief was Nkechi Taifa, Washington, DC.

Before: HENDERSON, ROGERS and TATEL, Circuit Judges.

TATEL, Circuit Judge:

We review a district court's use of its inherent power to punish litigation misconduct with the ultimate sanction of default. As old as the judiciary itself, the inherent power enables courts to protect their institutional integrity and to guard against abuses of the judicial process with contempt citations, fines, awards of attorneys' fees, and such other orders and sanctions as they find necessary, including even dismissals and default judgments. In order to promote the disposition of cases on their merits, to protect parties and attorneys from the possible misuse of the inherent power, and to preserve its effectiveness, we hold that a district court may use its inherent power to enter a default judgment only if it finds, first, by clear and convincing evidence--a preponderance is not sufficient--that the abusive behavior occurred; and second, that a lesser sanction would not sufficiently punish and deter the abusive conduct while allowing a full and fair trial on the merits. Because the

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district court made neither of these findings, we vacate the default judgment and remand for proceedings consistent with this opinion.

I.

In January 1986, plaintiffs Michele Shepherd and LaRue Graves, two graphic artists in ABC's Washington News Bureau, filed an employment discrimination complaint in the Superior Court of the District of Columbia against ABC, its parent, Capital Cities/ABC, Inc., and two ABC officials. The complaint contained multiple counts of race and gender discrimination based on Mr. Graves' termination from ABC and Ms. Shepherd's allegedly undesirable work assignments. It included retaliation claims stemming from Ms. Shepherd's and Mr. Graves' participation in certain minority employee activities at ABC. ABC removed the case to the United States District Court for the District of Columbia, eventually moving for summary judgment.

In July 1989, on the day set aside for the summary judgment hearing, Ms. Shepherd and Mr. Graves filed an emergency motion for sanctions against ABC, alleging that ABC and its attorneys had engaged in litigation misconduct both by altering a document produced in discovery and by harassing two potential witnesses. The district court postponed the summary judgment hearing, instead hearing testimony for several days regarding the alleged misconduct. Ms. Shepherd's and Mr. Graves' central claim was that ABC had altered a two-page confidential memorandum describing an October 1985 meeting of ABC minority employees that Ms. Shepherd and Mr. Graves had attended. ABC's Washington Bureau personnel manager, Carol Ornes, had prepared the memorandum for ABC officials in New York. She based the memorandum on a report from Robert Sam, another attendee. Ms. Shepherd and Mr. Graves claimed that the original Ornes memorandum had identified them as participants in the meeting, but that in an effort to deceive them and the court, ABC deleted their names from the version produced in discovery in early 1986. To support their charge, Ms. Shepherd and Mr. Graves called Ms. Ornes' former secretary, Marilyn Powell, who testified that she recalled typing Ms. Shepherd's name somewhere in a draft of the memorandum almost four years earlier. She did not recall typing Mr. Graves' name. Ms. Powell was one of the two witnesses Ms. Shepherd and Mr. Graves alleged ABC's attorneys harassed.

ABC categorically denied altering the memorandum, introducing evidence suggesting that Ms. Powell instead could have remembered seeing Ms. Shepherd's name on other documents, such as an agenda prepared for the meeting. Ms. Ornes, several of the memorandum's recipients, and the attorneys who assisted in the document production all testified that the memorandum ABC produced in discovery was the authentic memorandum. In addition, from the files of ABC's Vice President for Human Resources, John Frisoli, ABC produced a second copy of the memorandum in which neither Ms. Shepherd's nor Mr. Graves' name appeared. The Frisoli copy was identical to the copy ABC had already produced except that its first page contained three hand-written notes Mr. Frisoli added in October 1985.

Crediting plaintiffs' witnesses and unpersuaded by ABC's explanations, the district court found that ABC or its attorneys had fraudulently altered the Ornes memorandum by deleting references to Ms. Shepherd and Mr. Graves and that its attorneys had harassed the two witnesses. Shepherd v. ABC, 151 F.R.D. 179, 182, 187-89 (D.D.C.1992). Relying on both its inherent power and Federal Rule of Civil Procedure 37(b), the district court entered a default judgment against all defendants. Id. at 191-93. In further support of the default judgment, the district court found several additional acts of misconduct, including that ABC submitted false or improperly verified answers to interrogatories; that ABC attempted to deceive the plaintiffs and the court by denying that it had deliberately sent Mr. Sam to the October 8 meeting as a spy; that ABC's attorneys drafted "an artful and deceptive declaration" for Sam to sign; and that the attorneys attempted to suppress relevant evidence through an improper assertion of work-product privilege. Id. at 181-89. On the basis of these findings, the court also concluded that Ms. Shepherd and Mr. Graves had proven

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their retaliation claims on the merits. Id. at 193.

ABC moved for reconsideration. It challenged each finding of misconduct and argued that the district court should have insisted on clear and convincing evidence. In response, the district court adhered to the preponderance standard, but modified a number of its findings. Shepherd v. ABC, 151 F.R.D. 194 (D.D.C.1993). Most significantly, it vacated its finding that ABC had removed Mr. Graves' name from the Ornes memorandum, it vacated its harassment finding regarding witness Marilyn Powell, and it withdrew its findings that ABC's counsel had knowingly submitted a deceptive declaration from Robert Sam and had attempted to suppress evidence. It also vacated its ruling that Ms. Shepherd and Mr. Graves had proven their retaliation claims on the merits. The district court reaffirmed its conclusions that ABC removed Ms. Shepherd's name from the Ornes memorandum, harassed a second witness, deceived the court regarding Mr. Sam's role as informant, and improperly verified interrogatory answers. The court also found that ABC failed to satisfy its obligation to preserve all copies of the Ornes memorandum. Although the court vacated the default judgment against the two individual defendants, it reaffirmed its default judgment against ABC and Capital Cities in favor of both Ms. Shepherd and Mr. Graves. Id. at 196-211.

After additional discovery and briefing, the district court awarded Ms. Shepherd compensatory and punitive damages of $125,000 and Mr. Graves compensatory and punitive damages and back pay of over $184,000. Shepherd v. ABC, 862 F.Supp. 486, 503 (D.D.C.1994). It vacated the default judgment against Capital Cities and dismissed it from the case. Id. at 491, 504. The district court also awarded Ms. Shepherd and Mr. Graves attorneys' fees of over $518,000. Shepherd v. ABC, 862 F.Supp. 505, 513 (D.D.C.1994).

ABC appeals the default judgment, arguing among other things that Rule 37(b) does not apply to this case, that inherent power sanctions require clear and convincing evidence of the predicate misconduct, and that even using a preponderance standard the evidence does not support any of the district court's misconduct findings. ABC also argues that the district court should have held further hearings to resolve disputed issues regarding the calculation of damages and attorneys' fees.

II.

We begin with Rule 37(b)(2), one of the two sources of authority on which the district court rested its default judgment. This rule permits the court to use such orders "as are just" to sanction a party that "fails to obey an order to provide or permit discovery." Fed.R.Civ.P. 37(b)(2). As we have stated, "[a] production order is generally needed to trigger Rule 37(b)." Attorney General v. The Irish People, Inc., 684 F.2d 928, 951 n. 129 (D.C.Cir.1982), cert. denied, 459 U.S. 1172, 103 S.Ct. 817, 74 L.Ed.2d 1015 (1983); see also Jamie S. Gorelick, Stephen Marzen & Lawrence Solum, DESTRUCTION OF EVIDENCE Sec. 3.4, at 74 & n. 23 (1989 & Supp.1995) ("[f]ederal court decisions ... unanimously agree that sanctions pursuant to Rule 37 may not be awarded absent violation of a court order"). The district court, however, did not identify a discovery order that ABC violated. Ms. Shepherd and Mr. Graves argue that other courts have approved Rule 37(b) sanctions for violations of oral or even "constructive" orders, but they have furnished us with no basis for finding that either existed here. Rule 37(b) therefore cannot support the sanctions before us today.

We turn then to the...

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