Amernational Industries, Inc. v. Action-Tungsram, Inc.

• Decision Date: 14 February 1991
• Docket Number: INC,ACTION-TUNGSRA,No. 90-1050,90-1050
• Citation: 925 F.2d 970
• Parties: 1991-1 Trade Cases 69,331, 18 Fed.R.Serv.3d 1228 AMERNATIONAL INDUSTRIES, INC., Plaintiff-Appellee, v., Defendant, Electroexportimport, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 970

925 F.2d 970

1991-1 Trade Cases 69,331, 18 Fed.R.Serv.3d 1228

AMERNATIONAL INDUSTRIES, INC., Plaintiff-Appellee, v. ACTION-TUNGSRAM, INC., Defendant Electroexportimport, Defendant-Appellant.

No. 90-1050.

United States Court of Appeals Sixth Circuit.

Argued Jan. 29, 1991.

Decided Feb. 14, 1991.

Philip Vestevich and William J. Lamping, argued, Vestevich, Dritsa, Evans & Becker, Bloomfield Hills, Mich., and Christopher A. Payne, Stradley, Schmidt, Stephens & Wright, Dallas, Tex., for plaintiff-appellee.

David H. Paruch (argued), Clark, Klein & Beaumont, Detroit, Mich., for defendant and defendant-appellant.

Before KEITH and MILBURN, Circuit Judges, and CONTIE, Senior Circuit Judge.

MILBURN, Circuit Judge.

Defendant-appellant Electroexportimport ("Electro") appeals from an order denying its motion to set aside a default judgment of approximately $11 million entered in favor of plaintiff-appellee Amernational Industries, Inc., ("Amernational") as a sanction for failure to comply with Amernational's discovery request for production of documents. Because we are firmly convinced that the district court abused its discretion, we reverse.

I.

A.

This case arises out of the sale of household light bulbs by a Romanian trading company for importation into the United States by two United States based corporations, one being the plaintiff and the other a competitor of the plaintiff. At the center of this dispute is a contract executed on March 21, 1983, between Electro, the wholly owned trading company and instrumentality of the government of Romania, and the plaintiff for the sale of approximately $1,000,000 worth of incandescent bulbs.

B.

Because of the nature of this case, we find it necessary to provide a fairly detailed account of its procedural progress. The original complaint filed January 22, 1986, named Action-Tungsram, Inc. ("Tungsram") on theories of interference with contract and antitrust violations; however, the complaint against Tungsram was dismissed on June 19, 1987. An amended complaint adding Electro on theories of breach of contract and antitrust violations was filed on August 20, 1986. Initially, the summons and complaint were served on a Romanian diplomat with no affiliation to Electro; however, on December 30, 1986, proof was posted in Romania that Electro received a copy of the complaint that was mailed by the district court clerk on October 10, 1986. In the meantime, on December 12, 1986, plaintiff filed a request for production of documents by Electro ¹ and served that request, like the complaint, on the Romanian diplomat.

In March, April and June, 1987, Electro failed to appear at status conferences scheduled by the district court. On the first occasion, Electro had a valid excuse because the court failed to notify Electro of the conference. The failure to appear in April and June led to a motion by the plaintiff for imposition of sanctions and default judgment.

In opposing the motion, Electro argued that default judgment could not be entered against it as an instrumentality of a foreign sovereign. See 28 U.S.C. Sec. 1608(e). In a cross-motion, Electro sought dismissal of the action on the grounds that Amernational had not complied with certain provisions of the Foreign Sovereign Immunities Act, 28 U.S.C. Sec. 1602 et seq., and that the dispute should be submitted to arbitration pursuant to an arbitration clause in the contract between Electro and Amernational.

Based upon the proof of service posted December 30, 1986, the district court found that the Foreign Sovereign Immunities Act had been complied with. The court then dismissed three of the seven counts in the complaint as covered by the arbitration clause, and held that the arbitration clause did not apply to the alleged antitrust violations as they were not matters arising "in connection with the present contract." The court also denied default judgment but granted the motion as to sanctions leaving the amount to be determined later.

Following an unsuccessful attempt by Electro to appeal from the order denying the motion to dismiss the remaining counts of the complaint, ² the district court entered a scheduling order on May 24, 1988, calling for the completion of discovery by December 31, 1988. On November 7, 1988, the court entered an order awarding sanctions against Electro in the amount of $2300.

On March 17, 1989, Amernational filed a second motion for entry of default judgment based on non-payment of the $2300 in sanctions and Electro's failure to respond to the request for production of documents allegedly served on Electro on December 11, 1986. We note that Amernational's brief in support of the motion concentrated on the failure to pay sanctions as ordered and made no mention of a discovery violation. Electro responded that this was the first notice to its counsel of any outstanding request for production of documents and tendered a check to Amernational's counsel in full payment of the awarded sanctions. At a March 24, 1989, conference, the district court took the motion for default judgment under advisement with respect to the outstanding discovery request.

On June 8, 1989, Amernational renewed its motion for default judgment based on the failure to produce the requested documents. In response to the motion, Electro's local counsel indicated that, per telex communication from Romania, Electro was undertaking to comply with the document request. Pursuant to a show cause order, the court held a hearing on August 2, 1989, as to whether default judgment should be granted. At the time of the hearing, Electro had partially complied with the production request by turning over eighty-seven pages of documents to Amernational's counsel two days before the hearing. Amernational contended that the documents produced were far short of those needed to prosecute the case, and did not constitute a response as envisioned by Federal Rule of Civil Procedure 34.

At the hearing, Electro's counsel complained that the initial discovery request was made, without translation, before effective service of process on Electro. ³ Electro's counsel also assured the court that he had made diligent efforts to secure the documents and believed that he had impressed upon the client the necessity of producing the documents; however, he was unable to give the court assurance as to when discovery would be completed or any hope that the case would be resolved by settlement in the near future.

The court granted plaintiff's motion for default judgment stating that "without taking very strong action at this time ... this case will just be further delayed and your client will just assume that in the process of things it will go on indefinitely." J.A. 329. The court further explained:

I'll just state in closing that I will entertain a motion to set that aside if there are reasons why I should do so. Possibly you can look to bringing the necessary persons together or parties in an attempt to resolve it. But short of that, plaintiff will have their [sic] judgment.

J.A. 329 (emphasis added).

The court instructed counsel for Amernational to prepare a proposed default judgment and submit it to Electro for consideration. When the parties disagreed as to the content of the proposed order, the district court drafted its own and entered judgment for plaintiff on August 29, 1989. However, for reasons which are not clear, Electro did not receive notice of entry of the judgment until October 2, 1989. At this time the thirty-day period for filing a notice of appeal had expired, and Electro failed to seek an extension of the appeals period.

The default judgment as entered awarded damages in the sum of $11,070,000 plus interest, attorney's fees and costs. The judgment did not explain the methodology by which the court arrived at the damage award; however, it appears to be the product of tripling plaintiff's lost profits of $3,690,000 as calculated by plaintiff's president, Casimir Rygiel. Rygiel submitted an affidavit in which he stated that Electro's breach of contract and associated antitrust violations caused plaintiff to lose $16,200,000 in sales, with resulting lost profits of $3,690,000. However, Rygiel recognized that the cost of sales component of his calculations was only an approximation.

On November 6, 1989, following plaintiff's motion for execution on the judgment, Electro filed a motion to set aside the judgment and to stay execution. On December 21, 1989, the district court held a hearing on the respective motions. In the meantime, Electro's local counsel had furnished what it claimed to be the balance of the requested documents under cover of letters dated July 31, 1989, November 4, 1989, and November 10, 1989. Electro's counsel served and filed a formal response to Amernational's production request on December 21, 1989, immediately after the hearing.

At the hearing, counsel for Electro asserted three reasons why the default judgment should be set aside under Federal Rule of Civil Procedure 60(b)(1) ⁴. First, counsel argued that the default judgment should be set aside because of procedural irregularities in that the judgment was entered on the basis of non-compliance with a production request that was never served on counsel of record and, furthermore, was made even before Electro formally became a party to the litigation.

Second, counsel argued that there was justifiable excuse for the non-compliance. Testimony to this effect was tendered but was unnecessary because "[p]laintiff's counsel stipulated for purposes of the hearing to Defendant's recitation of the reasons why there had been a delay in the document production, agreeing that there had been a flood, that there had been a move and that Electro's records were in a disarray." Appellee's Brief at 10. To Amernational's assertion that there had been no prior mention of the difficulties encountered in producing the documents, Electro's counsel explained that because of...