Aoude v. Mobil Oil Corp.

Decision Date06 November 1989
Docket Number89-1696,Nos. 89-1690,s. 89-1690
PartiesSalim AOUDE, Plaintiff, Appellant, v. MOBIL OIL CORPORATION, Defendant, Appellee. . Heard
CourtU.S. Court of Appeals — First Circuit

David Berman, with whom Berman & Moren, Lynn, Mass., was on brief, for plaintiff, appellant.

Robert M. Gault, with whom Andrew Nathanson, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Mass., and Elizabeth T. Walker, Alexandria, Va., were on brief, for defendant, appellee.

Before BREYER, VAN GRAAFEILAND * and SELYA, Circuit Judges.

SELYA, Circuit Judge.

Plaintiff-appellant Salim Aoude rails against the involuntary dismissal of two suits which he filed against defendant-appellee Mobil Oil Corporation and others. The record of the case amply illustrates that, though the "bread of deceit is sweet to a man ... afterwards his mouth shall be filled with gravel." Proverbs 20:17. We told a part of the tawdry tale in Aoude v. Mobil Oil Corp., 862 F.2d 890 (1st Cir.1988), and now write the final chapter.

I

The general scenario of plaintiff's effort surreptitiously to acquire a Mobil franchise from another service station operator, John Monahan, and to force Mobil to accept the transaction, was recounted at some length in our earlier opinion. Id. at 891-92. Rather than revisit that narrative, we refer the interested reader to it, noting especially that, to gain bargaining leverage with Mobil, Aoude concocted, backdated, and persuaded Monahan to sign, a bogus purchase agreement. See id. at 891 & n. 2. The counterfeit reflected a price nearly twice what had actually been paid for Monahan's interest. When Mobil refused to bow to this artificially induced pressure, Aoude brought suit in state court, alleging, on a number of theories, that he had become the owner of Monahan's franchise, notwithstanding Mobil's refusal--as was its right--to honor the purported assignment. The complaint sought equitable relief and damages.

Plaintiff had given the ersatz agreement to his then-counsel, and it formed the complaint's centerpiece. Aoude knew that counsel had annexed the false agreement to the complaint instead of the real one; indeed, Aoude approved the filing of the suit on that basis. By his own admission, he "did not ask [his attorney] to amend the complaint" to retract the lie. Mobil, unaware that the agreement was a work of fiction, removed the case to federal district court based on diversity of citizenship and amount in controversy.

During the first four months of 1988, numerous depositions were conducted and other discovery undertaken. Aoude participated fully, plying Mobil with interrogatories and requests for document production and responding to Mobil's discovery initiatives. When Monahan's deposition was taken, the truth began to emerge. Later, during his own deposition, Aoude was confronted with Monahan's testimony and only then admitted the scheme. It was not until May 26, 1988 (almost three months after his deposition was taken) that plaintiff moved to amend his complaint to substitute the authentic purchase agreement for the bogus one. In the meantime, discovery had continued and a blizzard of legal documents had fallen. We single out four developments:

1. On February 24, Mobil threatened Monahan with franchise revocation based partly on his dealings with Aoude.

2. Aoude engaged new counsel.

3. On May 5, Aoude filed a second action in the same federal district court. The complaint in the "new" case adopted all the factual allegations made in the first case and prayed for essentially the same relief, but abandoned plaintiff's earlier reliance on the phony contract. Then, citing Mobil's February 24 letter to Monahan, the new complaint proceeded to allege violations of the Petroleum Marketing Practices Act (PMPA), 15 U.S.C. §§ 2801-2806 (1982).

4. On May 17, Mobil moved to dismiss both actions because of Aoude's fraudulent practices.

We need not wax longiloquent as to ensuing events. On June 2, the district court granted preliminary injunctive relief in Mobil's favor; 1 the court also denied plaintiff's motion to substitute the authentic agreement for the ersatz one. Thereafter, the district court heard arguments on defendant's dismissal motions and took them under advisement. Some months later, the court filed a memorandum decision dismissing both actions. In its rescript, the court observed that "plaintiff's entire case rests on a false foundation."

These appeals, one for each of plaintiff's two suits, followed.

II

At the outset, we address the standard of review. We believe that the district courts must be accorded considerable latitude in dealing with serious abuses of the judicial process and that the trier's determination to dismiss a case for such a reason should be reviewed only for abuse of discretion. See, e.g., Link v. Wabash R.R. Co., 370 U.S. 626, 633, 82 S.Ct. 1386, 1390, 8 L.Ed.2d 734 (1962); HMG Property Investors, Inc. v. Parque Indus. Rio Canas, Inc., 847 F.2d 908, 916-17 (1st Cir.1988); cf. Fashion House, Inc. v. K mart Corp., 892 F.2d 1076, 1081 (1st Cir. 1989) (district court's choice of sanctions for discovery violation will only be set aside for abuse of discretion); Damiani v. Rhode Island Hospital, 704 F.2d 12, 15-16 (1st Cir.1983) (similar).

While broad, the trial court's discretion is not unlimited. The judge must consider the proper mix of factors and juxtapose them reasonably. "Abuse occurs when a material factor deserving significant weight is ignored, when an improper factor is relied upon, or when all proper and no improper factors are assessed, but the court makes a serious mistake in weighing them." Independent Oil and Chemical Workers of Quincy, Inc. v. Procter & Gamble Mfg. Co., 864 F.2d 927, 929 (1st Cir.1988); see also Anderson v. Cryovac Inc., 862 F.2d 910, 923 (1st Cir.1988) (to warrant reversal for abuse of discretion, it must "plainly appear[ ] that the court below committed a meaningful error in judgment").

Although dismissal need not be preceded by other, less drastic sanctions, Farm Constr. Services, Inc. v. Fudge, 831 F.2d 18, 20 (1st Cir.1987) (per curiam); Damiani, 704 F.2d at 15, it is an extreme remedy, and should not lightly be engaged. Thus, a district court may dismiss a case only "when circumstances make such action appropriate," Link, 370 U.S. at 633, 82 S.Ct. at 1390, and after "thoughtful consideration of all the factors involved" in a particular case, Damiani, 704 F.2d at 17. Because dismissal sounds "the death knell of the lawsuit," district courts must reserve such strong medicine for instances where the defaulting party's misconduct is correspondingly egregious. Id.; see also D.P. Apparel Corp. v. Roadway Express, Inc., 736 F.2d 1, 3 (1st Cir.1984); Corchado v. Puerto Rico Marine Management, Inc., 665 F.2d 410, 413 (1st Cir.1981), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982). In calibrating the scales, the judge should carefully balance the policy favoring adjudication on the merits with competing policies such as the need to maintain institutional integrity and the desirability of deterring future misconduct. See HMG Property, 847 F.2d at 917; see also National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 643, 96 S.Ct. 2778, 2781, 49 L.Ed.2d 747 (1976) (per curiam).

III

Exercising great circumspection, the court below suggested several sources from which it derived authority to enter the dismissal orders. We are not similarly inclined. It strikes us as elementary that a federal district court possesses the inherent power to deny the court's processes to one who defiles the judicial system by committing a fraud on the court.

A.

A "fraud on the court" occurs where it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier or unfairly hampering the presentation of the opposing party's claim or defense. See, e.g., Alexander v. Robertson, 882 F.2d 421, 424 (9th Cir.1989); Pfizer, Inc. v. International Rectifier Corp., 538 F.2d 180, 195 (8th Cir.1976); England v. Doyle, 281 F.2d 304, 309 (9th Cir.1960); United Business Communications, Inc. v. Racal-Milgo, Inc., 591 F.Supp. 1172, 1186-87 (D.Kan.1984); United States v. ITT Corp., 349 F.Supp. 22, 29 (D.Conn.1972), aff'd mem., 410 U.S. 919, 93 S.Ct. 1363, 35 L.Ed.2d 582 (1973).

Because corrupt intent knows no stylistic boundaries, fraud on the court can take many forms. In our estimation, however, the present case is a near-classic example of the genre. Appellant's bad faith is manifest. By Aoude's own admission, he fabricated the purchase agreement; gave it to his lawyer; read the complaint before it was filed; realized that counsel, acting on his behalf, proposed to annex the bogus agreement to the complaint (thus representing it to be authentic); and nevertheless authorized the filing. Thereafter, Aoude and his counsel continued to act out the charade until, in the course of pretrial discovery undertaken by Mobil, Monahan revealed a glimmer of the truth. Even then, Aoude hedged his bets, forcing Mobil to piece together the sordid story bit by bit. Following Monahan's deposition testimony, more than three months elapsed before plaintiff asked to amend his complaint to substitute the real agreement for the invented one. The only conceivable reason for Aoude's elaborate duplicity was to gain unfair advantage, first in the dispute, thereafter in the litigation. The tactic plainly hindered defendant's ability to prepare and present its case, while simultaneously throwing a large monkey wrench into the judicial machinery. In our view this gross misbehavior constituted fraud on the court. See Cleveland Demolition Co. v. Azcon Scrap Corp., 827 F.2d 984, 986 (4th Cir.1987) (fraud on court may exist where witness and...

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