Philips Medical Systems Intern. B.V. v. Bruetman, s. 92-3155

• Decision Date: 10 January 1994
• Docket Number: Nos. 92-3155,93-1308 and 93-1901,s. 92-3155
• Parties: , RICO Bus.Disp.Guide 8419 PHILIPS MEDICAL SYSTEMS INTERNATIONAL B.V., et al., Plaintiffs-Appellees, v. Martin E. BRUETMAN, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 600

8 F.3d 600

27 Fed.R.Serv.3d 1566, RICO Bus.Disp.Guide 8419

PHILIPS MEDICAL SYSTEMS INTERNATIONAL B.V., et al., Plaintiffs-Appellees, v. Martin E. BRUETMAN, et al., Defendants-Appellants.

Nos. 92-3155, 93-1308 and 93-1901.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 13, 1993.

Decided Nov. 1, 1993.

Rehearing Denied Jan. 10, 1994.

Robert J. Rubin, Darren B. Watts (argued), David A. Cerda, Altheimer & Gray, Chicago, IL, for plaintiffs-appellees.

James A. McGurk, Dennis A. Bell, Bell & McGurk, Donald L. Metzger (argued), Metzger & Associates, Chicago, IL, Howard A. Shalowitz, St. Louis, MO, for defendants-appellants.

Before POSNER, Chief Judge, and CUDAHY and KANNE, Circuit Judges.

POSNER, Chief Judge.

These appeals arise out of a $19 million default judgment against Dr. Martin Bruetman and several corporations that he controls. The judgment itself was before us in Philips Medical Systems International, B.V. v. Bruetman, 982 F.2d 211 (7th Cir.1992), and the interested reader is referred to that opinion for the details leading up to its entry; we shall simplify a lot to keep this opinion to a manageable length. A physician of U.S. citizenship but Argentine origin who divides his time between the United States and Argentina, Bruetman is engaged through his corporations in the supply of high-tech medical equipment to clinics and other medical facilities in South America. In 1991, Philips, a Dutch manufacturer of such equipment, brought this suit, claiming that Bruetman, in violation of the RICO statute, had used his corporations to defraud Philips by obtaining equipment from it on the basis of a false promise to pay for the equipment. On February 18, 1992, the district judge entered a default judgment against all the defendants because of Bruetman's refusal to cooperate in discovery and his other contumacious behavior, reviewed in our previous opinion. We affirmed the judgment. But noting that Bruetman had flown to Argentina on February 17, 1992 (precipitating the default judgment), and had remained there ever since, we said that "Bruetman is free to avoid the present contempt and default judgments ... by returning to the United States within thirty days from now for the continuation of the deposition and compliance with the district court's orders." 982 F.2d at 215. He would have to "cooperate fully" in discovery. Id. at 212.

Bruetman returned, responded to a document request by Philips that was pending, and asked the district court to vacate the default judgment. The court refused, primarily because Bruetman had not complied with an order the court had entered, in the course of proceedings to enforce the default judgment, requiring him to deposit in the court the proceeds (more than $800,000) from a sale of Philips equipment that he or one of his corporations had made to a clinic in Chile. The court added that "Dr. Bruetman's chaotic eleventh hour in court document production and its concomitant confusion" had "violated the spirit, if not the substance, of the Seventh Circuit's order that Dr. Bruetman return within 30 days and cooperate fully." Bruetman argues, in the main appeal before us, that the district court abused its discretion by refusing to vacate the default judgment.

A default judgment is the mirror image of a dismissal of a suit for failure to prosecute, a ground of dismissal that we discussed at length in Ball v. City of Chicago, 2 F.3d 752 (7th Cir.1993). Default is failure to defend; failure to prosecute is a plaintiff's default; both a default judgment and a dismissal for failure to prosecute are sanctions for disruptive or dilatory conduct in litigation. The standard for whether to impose them should, therefore, be the same, and a comparison of decisions articulating the standard for the entry of a default judgment with the standard set forth in Ball for dismissals for failure to prosecute indicates that they are the same. Crown Life Ins. Co. v. Craig, 995 F.2d 1376, 1381-82 (7th Cir.1993); Profile Gear Corp. v. Foundry Allied Industries, Inc., 937 F.2d 351, 353-54 (7th Cir.1991). The standards are explicitly merged in Beeson v. Smith, 893 F.2d 930, 931 (7th Cir.1990), and Anchorage Associates v. Virgin Island Bd. of Tax Review, 922 F.2d 168, 177 (3d Cir.1990), although Buck v. Dept. of Agriculture, 960 F.2d 603, 607 (6th Cir.1992), suggests a qualification: since a default judgment tends to be entered earlier in a litigation than a dismissal for want of prosecution, particular care must be taken that the judge does not, in the former case, jump the gun. Nevertheless the standards for the two sorts of sanctioning terminations are very close.

Since dismissals for failure to prosecute and judgments of default are sanctions, they must be analyzed as such. Notice is important, and sanctioning the right party is important--but there was plenty of notice here, and the right party is Bruetman; this is not a case of the lawyer's mistakes being visited on the client. Since sanctions should be proportionate to wrongdoing, the district judge should compare the size of the default judgment, discounted by the probability of collection, with the gravity of the defendant's procedural lapses or other misconduct, in deciding whether to enter such a judgment. A $19 million dollar default judgment must therefore give pause, just as a $19 million dollar fine would give pause. The figure exaggerates the realistic size of the sanction, as it is most unlikely that the assets of Dr. Bruetman and the corporations he controls come close to $19 million; and Bruetman's behavior was egregious. Yet the panel that decided the previous appeal was sufficiently impressed by the magnitude of the judgment to rule that Bruetman must be given a second chance, upon certain conditions.

Still, the court affirmed the default judgment without modification. The most sensible interpretation of the affirmance and accompanying opinion, we believe (no member of this panel was a member of the earlier one), is that in an effort (futile, as it turned out) to head off further litigation, the panel was laying down guidelines for the district court's consideration of a motion under Fed.R.Civ.P. 60(b), should one be filed, to vacate the default judgment. See also Fed.R.Civ.P. 55(c). Finality is an important value in a procedural system, and therefore a litigant who seeks to set aside a final judgment has a heavy burden; among other things he must establish that he has a meritorious defense to the suit. Connecticut National Mortgage Co. v. Brandstatter, 897 F.2d 883, 885 (7th Cir.1990); Rutland Transit Co. v. Chicago Tunnel Terminal Co., 233 F.2d 655, 657 (7th Cir.1956); 10 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2697 (2d ed. 1983). In recognition of the unusual (although not unprecedented, Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 363, 93 S.Ct. 647, 34 L.Ed.2d 577 (1973); Islamic Republic of Iran v. Boeing Co., 739 F.2d 464, 465 (9th Cir.1984) (per curiam), and, as we have suggested, possibly illusory) magnitude of the default judgment in this case, the panel in effect excused Bruetman from having to meet the ordinary test for vacating such a judgment, requiring him only to return to the United States, comply with the orders outstanding against him, and cooperate--fully--in the further conduct of the litigation: not also show that he has a meritorious defense.

The previous panel's opinion can be criticized for substituting for the established standard governing motions to vacate default judgments an uncanalized, even a lawless, discretion--or commended for flexibility, lenity, and ingenuity. That is neither here nor there. The opinion established the law to govern the further proceedings in this case. Williams v. Commissioner, 1 F.3d 502, 504 (7th Cir.1993). Granted, we are not to regard the previous opinion as a straitjacket; the doctrine of the law of the case does not forbid us to correct demonstrable errors. Brazinski v. Amoco Petroleum Additives Co., 6 F.3d 1176 (7th Cir.1993). So we must consider Bruetman's argument that the previous opinion contains a critical error induced by a misrepresentation that Philips's lawyer made to the panel. After noting the district court's order that Bruetman deposit in court the $800,000 in proceeds, and his failure to do so, the panel remarks that the district court had cited him for contempt, 982 F.2d at 214; and that is true--but the district court had vacated the contempt citation a couple of weeks later, a fact omitted in Philips's brief. The omission, however, while censurable, was not material, which may be why Bruetman did not move the panel to correct its opinion, as he easily could have done. The district court withdrew the citation for contempt but not the order on which it was based, and this court made it a condition of its lenient treatment of Bruetman that he comply with the district court's orders. And anyway the district court later reinstated the contempt citation, deciding that it had vacated it on the basis of incomplete information.

Bruetman did not comply with the order to deposit the proceeds. Instead, when the issue arose on remand, he reminded the district court of an "affidavit" he had filed months earlier, explaining that the entire proceeds had either been paid or committed to be paid, leaving nothing to deposit in court. The district court was not impressed. The "affidavit," not being signed under oath, was no such thing; and the details of the "commitments," including some $400,000 promised to Bruetman's Argentine lawyer, were not set forth. A further reason not to be impressed by Bruetman's defense of "impossibility" is that, as the district judge remarked, money is fungible and if the asset that had been ordered to be deposited in court had been dissipated, an equivalent asset could be substituted. Of course it is possible not only that the proceeds were entirely committed...