952 F.2d 1364 (Fed. Cir. 1991), 90-5055, Hendler v. United States

Docket Nº:90-5055.
Citation:952 F.2d 1364
Party Name:Henry HENDLER, Paul Garrett, Tillie Goldring, as Trustees, and Henry Hendler and Irving Gronsky, Plaintiffs-Appellants, v. The UNITED STATES, Defendant-Appellee.
Case Date:December 31, 1991
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit
 
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Page 1364

952 F.2d 1364 (Fed. Cir. 1991)

Henry HENDLER, Paul Garrett, Tillie Goldring, as Trustees,

and Henry Hendler and Irving Gronsky, Plaintiffs-Appellants,

v.

The UNITED STATES, Defendant-Appellee.

No. 90-5055.

United States Court of Appeals, Federal Circuit

December 31, 1991

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[Copyrighted Material Omitted]

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Michael M. Berger, of Fadem, Berger & Norton, Los Angeles, Cal., argued for plaintiffs-appellants.

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Elizabeth Ann Peterson, of the Dept. of Justice, Washington, D.C., argued for defendant-appellee. With her on the brief were Richard B. Stewart, Asst. Atty. Gen., David F. Shuey and Anne S. Almy, attorneys.

Before ARCHER, PLAGER and CLEVENGER, Circuit Judges.

PLAGER, Circuit Judge.

I. INTRODUCTION

This is a takings case. It involves an almost decade-long dispute between the Government and the property owners over the distinction between a regulatory taking and a taking by permanent physical occupation, and what the scope of proper discovery should be in such a case. The case began with the efforts of the United States, acting through the U.S. Environmental Protection Agency (Government or EPA), to combat ground water pollution from a major hazardous waste site, the Stringfellow Acid Pits in California. Utilizing its authority under CERCLA, 1 commonly known as Superfund, the Government, in conjunction with the State of California, undertook a broad-ranging attack on the problem.

As part of this attack, the Government decided to locate ground water wells and associated equipment in the general area of the acid pits to monitor the movement of contaminated ground water. The area of concern included not only the site of the acid pits, but nearby properties as well. Plaintiffs own one of those nearby properties. This case is about the Government's enlistment of plaintiffs' property, without plaintiffs' consent, in the battle against pollution, and plaintiffs' efforts to be recompensed for that use.

In 1983 the Government first undertook activities on plaintiffs' land. In 1984 plaintiffs filed suit in the Claims Court for just compensation for the alleged taking of plaintiffs' property. The suit dragged on for years, with two different trial judges. Extensive discovery was undertaken. Before the first trial judge, the Government moved for summary judgment that there had been no regulatory taking, and that the United States was not responsible for the activities on the property undertaken by the State of California. The court granted both motions. The plaintiffs moved for summary judgment that there had been a physical occupation amounting to a taking. The court denied plaintiffs' motion, and ordered trial. (Hendler v. United States, 11 Cl.Ct. 91 (1986) (Hendler I )).

Then the matter took a sudden and rather unusual turn. Plaintiffs and the Government became embroiled in a heated quarrel over whether plaintiffs' responses to certain interrogatories were sufficiently detailed and forthcoming. At the Government's insistence, the Claims Court ordered the plaintiffs to submit additional and more complete responses to the Government's questions. Plaintiffs responded that they were answering fully in light of the information available to them, and that since certain of the Government's questions focused on finding out more about the activities of the Government itself, plaintiffs were continuing discovery of Government witnesses. The Government, and ultimately the court, were not satisfied, and in December of 1989 the suit, now before a second Claims Court judge, was dismissed under Rule 37--the court granted the Government's motion to sanction plaintiffs by dismissing the case with prejudice and awarding court costs and attorney fees to the Government. Hendler v. United States, 19 Cl.Ct. 27 (1989) (Hendler II ).

Plaintiffs ask that we review the correctness of that dismissal, as well as the correctness of the earlier rulings on the motions for summary judgment. The Government is of the view that the dismissal was fully deserved and should be upheld. And even should we disagree, the Government urges, the Claims Court's decisions on the earlier summary judgment motions did not

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themselves finally dispose of the case and therefore are not properly before us.

We find the dismissal sanction was improvidently granted--it is reversed. And, for the reasons we shall shortly explain, we conclude that the merits of the rulings in Hendler I are before us, and should be decided. On the merits, we conclude that the partial summary judgment in favor of the Government on the question of the role of the State of California was also in error, and it is reversed. The ruling that no regulatory taking occurred is not disturbed, but, as we shall explain, only in so far as it is limited to the EPA Order per se.

The denial of plaintiffs' motion for summary judgment on a taking by physical occupancy is reversed; judgment is ordered in favor of plaintiffs. The case is remanded to the Claims Court for further proceedings consistent with this opinion.

II. THE SCOPE OF REVIEW

As a general proposition, when a trial court disposes finally of a case, any interlocutory rulings 'merge' with the final judgment. Thus both the order finally disposing of the case and the interlocutory orders are reviewable on appeal. Some courts have carved out an exception: if the final order is a dismissal resulting from bad faith or dilatory conduct, then the interlocutory orders do not 'merge' and do not become reviewable. 2 To hold otherwise would open up a back door route to review of interlocutory orders and would reward bad conduct.

The Government argues that that is the case here. And it is true that the trial judge in Hendler II characterized plaintiffs' responses as indicating bad faith. The record is devoid, however, of any factual underpinning for that characterization beyond the apparent conclusion that in the court's judgment plaintiffs should have had more to tell. But failure to set forth in discovery facts sufficient to establish a cause of action is not proof of bad faith, and is not a basis for a Rule 37 sanction. 3 Ingalls Shipbuilding, Inc. v. United States, 857 F.2d 1448, 1451 (Fed.Cir.1988).

Further, the trial judge in Hendler II necessarily viewed plaintiffs' answers to the interrogatories in the light of the issues remaining before him. Since we are of the view that those issues had been skewed by erroneous rulings in Hendler I, this case is not one in which plaintiffs acted wrongly, but rather one in which errors of law led to an erroneous dismissal. No Rule 37 sanction is appropriate when a litigant's failure is not the result of bad faith or misconduct. Societe Int'l v. Rogers, 357 U.S. 197, 212, 78 S.Ct. 1087, 1095, 2 L.Ed.2d 1255 (1958).

When errors of law in the underlying orders sent the trial court down the wrong path, courts have reviewed the merits of the underlying decisions, as well as the final dismissal sanction. For example, in Familias Unidas v. Briscoe, 544 F.2d 182 (5th Cir.1976), the trial court dismissed the plaintiffs after they refused to answer interrogatories seeking to establish the identities of members of an unincorporated body organized to address deficiencies in the local public school system. Prior to the Rule 37 dismissal, the trial court had denied plaintiffs' requests for a temporary restraining order, a three-judge court, and for declaratory judgment.

The action was originally filed as a class action, but was amended to name only one party in interest after the trial court denied plaintiffs' motion to strike these interrogatories. The Fifth Circuit found the dismissal to be an abuse of discretion, particularly in light of the amended complaint which dropped the class action allegations. 544

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F.2d at 192. This abuse of discretion had as its source an erroneous interpretation of a Supreme Court decision, N.A.A.C.P. v. Alabama, 357 U.S. 449, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958), which the Fifth Circuit corrected. The Fifth Circuit then went on to review the merits of the other rulings. It affirmed the trial court's decisions regarding the denial of injunctive relief and a three-judge court, but reversed and remanded with regard to the declaratory judgment issue.

In Allied Air Freight v. Pan American World Airways, Inc., 393 F.2d 441 (2d Cir.), cert. denied 393 U.S. 846, 89 S.Ct. 131, 21 L.Ed.2d 117 (1968), the Second Circuit reversed the calendar judge's dismissal for failure to prosecute, vacated the trial court's stay pending exhaustion of administrative remedies, and remanded to the trial court for further proceedings. Here, the legal error lay in the initial stay. The Second Circuit explicitly rejected Pan Am's contention that the appellate court should limit itself to reversing the dismissal:

[I]n the interests of efficient judicial administration, we conclude that we should review the interlocutory stay order in this appeal from a final order dismissing the action....

Id. at 443.

The ... error that we see in the issuance of the 90 day order and the dismissal under its terms was that requiring exhaustion of available administrative remedies as a condition precedent to further action in the district court, in accordance with the terms of the stay, was an erroneous application of the doctrine of primary jurisdiction which imposed an undue burden upon Allied. Therefore we consider the merits of appellant's argument that the district court erred in issuing the interlocutory stay order.

Id. at 445.

Our facts are directly analogous to the situation in Allied Air Freight. The underlying rulings were the basis for the conclusions that led to the dismissal. Following the Government's proposed course of action would result in...

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