Profile Gear Corp. v. Foundry Allied Industries, Inc., 90-2236

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Citation937 F.2d 351
Docket NumberNo. 90-2236,90-2236
PartiesPROFILE GEAR CORPORATION, Plaintiff-Appellant, v. FOUNDRY ALLIED INDUSTRIES, INC., Defendant-Appellee.
Decision Date16 July 1991

Sheldon Davidson, Donald J. Moran, and Joan G. Stevens, Pedersen & Houpt, Chicago, Ill., for plaintiff-appellant.

David Schachman, Miriam I. Pickus, John L. Feder, and Stewart Dolin, Sachnoff & Weaver, Chicago, Ill., for defendant-appellee.

Before CUDAHY and FLAUM, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge.

"For a long time courts were reluctant to enter default judgments, and appellate courts were reluctant to sustain those that were entered.... Those times are gone." Metropolitan Life Insurance Co. v. Estate of Cammon, 929 F.2d 1220, 1224 (7th Cir.1991). In the present case, the plaintiff Profile Gear Corporation ("Profile Gear") lied to opposing counsel and to the District Court and repeatedly failed to comply with discovery requests. After four times ordering lesser sanctions against Profile Gear and providing clear warning of what would come next, the District Court entered default judgment under Fed.R.Civ.P. 37(b)(2)(C). Profile Gear appeals, and we affirm.

The record shows an escalating series of sanctions by the District Court in response to Profile Gear's conduct. The story begins with Profile Gear's response to interrogatories that the defendant Foundry Allied Industries, Inc. ("Foundry") served on July 28, 1989. Instead of answering the interrogatories, Profile Gear responded "See Complaint" and "See Documents Produced," which the District Court properly characterized as evasive conduct. Transcript of Proceedings, September 14, 1989, p. 2. The District Court imposed a sanction of $250, and ordered Profile Gear to "respond to all outstanding discovery requests by September 25, 1989." Order, September 14, 1989.

Meanwhile, Profile Gear moved for cross-sanctions. Its motion stated that Foundry had offered to produce certain documents for Profile Gear's Chicago counsel only in Racine, Wisconsin. In fact, this problem had been resolved and the documents offered in Chicago. At a September 19, 1989 hearing, the District Court asked, "You told me in your motion that you have to go to Racine to see the[ ] [documents]. That is not the fact, is it?" To which Profile Gear's counsel answered, "No, no, your Honor." Transcript of Proceedings, September 14, 1989, p. 2. The District Court issued a second sanction of $250 against Profile Gear's counsel "for pursuing this motion when he knew the representations were not true," Order, September 19, 1989. (New counsel represents Profile Gear on appeal).

The District Court issued more substantial sanctions three months later, on January 17, 1990. At this point, Profile Gear had been caught in a clear lie. Profile Gear had responded "none" in answer to requests for documents concerning other disputes involving the contract language at issue in this case. Yet, in depositions, a Profile Gear employee admitted the existence of such a dispute. And when documents were finally produced, they showed that Profile Gear's counsel sent and received letters regarding this dispute just one month before stating that no documents existed. The District Court concluded that "[t]he only plausible explanation for Profile's response that no documents satisfied [the document] requests ... is that Profile and Profile's counsel lied when responding to these requests." Memorandum Opinion and Order, January 17, 1990, p. 6, 1990 WL 7152.

Two other incidents were similar. As of January 17, 1990, Profile Gear admitted receiving at least three quotations for aluminum castings. Profile Gear claimed that these quotations were missing from its files, but offered essentially no explanation for their absence. So too, Profile Gear failed to produce a two page statement that it had asked a former employee to prepare. The statement was mailed to Profile Gear, but Profile Gear's counsel denied receiving it. The District Court concluded that, "[i]n a strict credibility contest, [Profile Gear's counsel] would not prevail over the reliability of the United States mail." Id., pp. 8-9.

In addition, Profile Gear refused to disclose the minutes of meetings of its own board of directors because "they are not within the immediate control of Profile's officers or counsel," and it refused to disclose monthly and quarterly financial reports because they concerned a "unique defense" that was otherwise unspecified. Id., p. 8. Finally, Profile Gear had still failed to produce substantial documents in response to Foundry's document request, despite the District Court's prior order that all documents were to be produced by September 25, 1989.

This conduct led to a third set of sanctions. The District Court ordered Profile Gear to pay various of Foundry's attorneys' fees and "to immediately engage in a thorough search for all documents described in Foundry's document request that remain undisclosed.... These documents shall be produced by February 1, 1990." Memorandum Opinion and Order, January 17, 1990, pp. 9-10. The District Court also warned, "Should Profile fail to fully comply with this order, the court will determine whether to enter [default] judgment in favor of Foundry pursuant to Fed.R.Civ.P. 37(d)." Id., at p. 10.

Instead of complying, Profile Gear for the first time claimed that it had 100,000 documents to produce, and that this volume of material would take 30 days to assemble. See Memorandum Opinion and Order, February 23, 1990, p. 5, 1990 WL 19878. This failure by Profile Gear to meet another firm deadline led to a fourth sanction. Profile Gear had a negative net worth and continuing losses. To prevent further delay from destroying the value...

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