Atlantic Federal Sav. & Loan Ass'n of Ft. Lauderdale v. Blythe Eastman Paine Webber, Inc.

• Decision Date: 11 December 1989
• Docket Number: No. 89-5785,89-5785
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: ATLANTIC FEDERAL SAVINGS & LOAN ASSOCIATION OF FT. LAUDERDALE, Plaintiff-Appellee, v. BLYTHE EASTMAN PAINE WEBBER, INCORPORATED, Defendant-Appellant, Ruden, Barnett, McClosky, Smith, Schuster & Russell, Appellant.

Page 371

890 F.2d 371

ATLANTIC FEDERAL SAVINGS & LOAN ASSOCIATION OF FT.

LAUDERDALE, Plaintiff-Appellee, v. BLYTHE EASTMAN PAINE WEBBER, INCORPORATED, Defendant-Appellant, Ruden, Barnett, McClosky, Smith, Schuster & Russell, Appellant.

No. 89-5785.

United States Court of Appeals, Eleventh Circuit.

Dec. 11, 1989.

John H. Schulte, Miami, Fla., for Blythe Eastman Paine Webber, Inc.

Woodrow Melvin, Jr., Miami, Fla., C.B. Rogers, Richard H. Sinkfield, Paul W. Stivers, Atlanta, Ga., for Ruden, Barnett, McClosky, Smith, Schuster & Russell.

Alan H. Fein and Eugene E. Stearns, Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson, P.A., Miami, Fla., for Atlantic Federal Sav. & Loan Ass'n of Ft. Lauderdale.

Appeal from the United States District Court for the Southern District of Florida.

Before FAY and KRAVITCH, Circuit Judges, and CASTAGNA ^*, District Judge.

FAY, Circuit Judge:

Blythe Eastman Paine Webber Inc., n/k/a PaineWebber Inc. ("PaineWebber"), and Ruden, Barnett, McClosky, Smith, Schuster & Russell, P.A. ("Ruden Barnett") appeal the imposition of sanctions under F.R.C.P. 37(b). Because we find their appeal of the district court's interlocutory order to be premature, we DISMISS for lack of jurisdiction.

FACTS

BankAtlantic, f/k/a Atlantic Federal Savings and Loan Association of Fort Lauderdale ("BankAtlantic"), brought suit against PaineWebber in August 1987. In its complaint, BankAtlantic alleged that it had hired PaineWebber to be BankAtlantic's financial advisor in 1984 and that PaineWebber had abused its position to derive benefits at BankAtlantic's expense. In particular, BankAtlantic contended that PaineWebber had advised BankAtlantic to undertake transactions known as "interest rate swaps" as a hedge against interest rate risk. Relying on that advice, BankAtlantic allowed PaineWebber to arrange two such swaps with Homestead Savings ("Homestead"), a financial institution in California.

BankAtlantic asserts that PaineWebber knew that the swap arrangements would not benefit BankAtlantic and that, further, Homestead was an inappropriate partner for a swap transaction. BankAtlantic believes PaineWebber advocated the arrangement because PaineWebber also serviced Homestead, unbeknownst to BankAtlantic, and Homestead was seeking partners with which to make interest rate swaps. BankAtlantic alleged ongoing losses then totalling $12,341,141.29.

The papers served on PaineWebber included a request for production. The two paragraphs which give rise to this appeal asked for:

8. All correspondence between you and Homestead Savings.

9. All documents relating to your association with Homestead Savings, including, but not limited to any contracts or engagement letters and any written or typed drafts of those contracts or engagement letters between you and Homestead Savings, and any correspondence, internal correspondence, notes or memoranda relating to your association with Homestead Savings. ¹

Earlier in the request for production, the terms "you" and "your" were defined to mean

the party or parties to which this request is addressed, including its divisions, departments, subsidiaries, affiliates, predecessors, present or former officers, directors, owners, agents, attorneys, and all other persons acting or purporting to act on its behalf, as well as each partnership in which it is a partner. ²

In response to the production request, PaineWebber made a blanket objection to producing any documents protected by the attorney-client privilege or that constituted work product. PaineWebber further objected to paragraphs 8 and 9, describing them as overbroad. Instead PaineWebber agreed to produce correspondence between itself and Homestead related to the interest swap agreements arranged by PaineWebber. PaineWebber filed amended responses and objections to BankAtlantic's request for production in late April 1988. Regarding paragraphs 8 and 9, PaineWebber reiterated its belief that those paragraphs were overbroad in demanding documents "neither relevant nor within the proper scope of discovery" and reasserted the attorney-client privilege and protection of work product. ROA 1-65, Exh. C at 4.

BankAtlantic thereupon moved the district court to compel PaineWebber to produce the documents requested. After reviewing the parties' memoranda and holding a hearing on the issue of document production, the district court ordered that PaineWebber produce all the documents within its ³ possession and control sought under paragraphs 8 and 9 from 1983 until the present time. However, the court denied BankAtlantic's motion to compel production of documents from PaineWebber's affiliates and instead recommended that BankAtlantic subpoena those documents directly from the affiliate corporations.

After the hearing, discovery and other pre-trial activities ran smoothly until a few weeks before the date set for the trial. At that point, when BankAtlantic had concluded all of its discovery and considered itself ready for trial, one of its paralegals doing a routine NEXIS TM ⁴ search happened upon a journal article describing an acrimonious litigation battle between Homestead and various PaineWebber Group ⁵ affiliates, including PaineWebber, involving three separate lawsuits which had taken place from 1985 through 1987 in the Northern District of California. Not even a hint of this litigation had ever been mentioned by PaineWebber to BankAtlantic. Upon further research into the court file in California, BankAtlantic uncovered information regarding Homestead's financial state and the association between Homestead and PaineWebber directly relevant to facts at issue in BankAtlantic's suit against PaineWebber. However, much of the file was unavailable to BankAtlantic, as the case had settled, the court had placed a lot of the file under seal, and the trial and deposition exhibits had been removed. BankAtlantic moved the court to strike PaineWebber's pleadings and enter a default judgment in favor of BankAtlantic as a sanction for what BankAtlantic viewed as contumacious abuses of discovery.

PaineWebber countered that it had fully obeyed the trial court's discovery order of July 25, 1988, in which it was required to produce all documents within its control regarding its relationship with Homestead, but not documents regarding the relationship of other PaineWebber affiliates with Homestead. PaineWebber stated that the main body of the California litigation and the bulk of the documents complained of by BankAtlantic concerned the relationship between Homestead and PaineWebber Real Estate Securities ("PWRES"), a completely separate corporate entity from which PaineWebber had no duty to produce documents. According to PaineWebber, PaineWebber and other affiliates were only drawn into the suit two years after it had been because Homestead hoped to recover from them as alter egos for PWRES. PaineWebber accused BankAtlantic of intentionally misleading the court that the California documents were responsive to the request to produce and the grant of the motion to compel in order to cover up BankAtlantic's failure to subpoena the documents from PWRES. Finally, PaineWebber questioned the relevance of the information contained in the California files, asserting that the problems which PWRES had with Homestead were entirely unrelated to the propriety of matching Homestead with BankAtlantic as an interest rate swap partner.

BankAtlantic replied that at the very least, PaineWebber had an obligation to provide the documents from the California suit in which it was a named party, ⁶ the complaint in which alleges that PWRES was a mere shell corporation, controlled and operated by PaineWebber, PaineWebber Group, and other PaineWebber affiliates and through which they conducted their business and commingled their assets. BankAtlantic maintained that PaineWebber had withheld this complaint and the other California documents to sustain the fiction that PWRES and PaineWebber were completely separate entities carrying on separate operations, that PaineWebber had no control or possession over documents relating to the association between Homestead and PWRES, and that the relationship between Homestead and PWRES had nothing to do with the relationship between Homestead and PaineWebber.

In its order of July 10, 1989, a footnote that reads: BankAtlantic v. Blyth Eastman PaineWebber, Inc., 127 F.R.D. 224, (S.D.Fla.1989), the trial court determined that PaineWebber had withheld documents from BankAtlantic, in defiance of the court's order, in order to mask the relationship between PaineWebber, PWRES and Homestead. The court found that PaineWebber had, at minimum, the obligation to disclose documentation on the California case in which PaineWebber was a named party, which would have led BankAtlantic to the first suit against PWRES. Further, given testimony by California counsel for PWRES and PaineWebber in-house counsel that PaineWebber had the right of access to attorney files for all defendants in the California litigation, and given that in other areas of discovery by BankAtlantic PaineWebber had produced documents regarding relationships between Homestead and other PaineWebber affiliates, the court found that PaineWebber had custody and control over all the documents relating to the California litigation. PaineWebber therefore had the duty of producing such documents when requested by BankAtlantic and ordered by the trial court to do so.

The trial court also addressed PaineWebber's local counsel, Ruden Barnett, which claimed that it did not know of PaineWebber's direct involvement in the California lawsuits. While Ruden Barnett did admit knowledge of the first California suit against PWRES and actually went to California to review some of the pleadings there, Ruden Barnett asserted that, upon advice of California counsel that PaineWebber was not involved in the suit, it did not search for any documents responsive to BankAtlantic's request. The court...