Bank One of Cleveland, N.A. v. Abbe

Decision Date17 October 1990
Docket NumberNo. 89-3559,89-3559
Citation916 F.2d 1067
Parties, RICO Bus.Disp.Guide 7611, 31 Fed. R. Evid. Serv. 780 BANK ONE OF CLEVELAND, N.A., and Bank One of Akron, N.A., Plaintiffs-Appellees, v. Lowell L. ABBE; Atwater Enterprises, Inc.; Portage Angus Farms, Inc.; Norman M. Abbe; Maria F. Abbe; Carolyn J. Strouse; Portage Angus Farms Trust; Boot & Saddlery, Inc.; Black Bull Inn, Inc.; Western Reserve Saddlery, Inc.; W.R.S., Inc.; Amerind International, Inc.; Triad Investment Corporation; and Revere Pinnacle Group, Inc., Defendants-Appellants.
CourtU.S. Court of Appeals — Sixth Circuit

Douglas L. Talley, George W. Rooney (argued), Jonathan D. Fishbane, Roetzel & Andress, Akron, Ohio, for plaintiffs-appellees.

Kenneth L. Gibson (argued), Warren W. Gibson, Weick, Gibson & Lowry, Cuyahoga Falls, Ohio, for defendant-appellant Revere Pinnacle Group, Inc.

Before JONES and RYAN, Circuit Judges, and BROWN, Senior Circuit Judge.

RYAN, Circuit Judge.

In this civil action brought under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Sec. 1961, et seq., the district court entered default judgments against all of the defendants as sanctions, under Fed.R.Civ.P. 37(b)(2)(C), for noncompliance with the court's discovery orders. All defendants appeal. Two of the individual defendants claim the lower court erred in entering the default judgment sanction against them since their refusal to answer discovery deposition questions was grounded in the fifth amendment privilege against self-incrimination. The remaining defendants claim it was error for the court to enter judgment against them for a variety of mitigating reasons. All of the defendants raise a host of additional issues.

We conclude that the district court erred in entering default judgment against the two individual defendants who invoked the fifth amendment privilege against self-incrimination. However, we also conclude that the default judgment sanction was not an abuse of discretion as to the other defendants. We resolve the additional issues as discussed below.

I.

On August 12, 1985, Bank One of Cleveland, N.A. and Bank One of Akron, N.A. ("the banks") sued numerous individuals and corporations for civil damages under RICO and common law claims of fraud in the United States District Court. The elements of a civil RICO action parallel those in a RICO criminal prosecution, and, if proven, entitle a claimant to treble damages. See 18 U.S.C. Sec. 1964(c). 1 As part of their RICO claim, the banks alleged that defendants obtained loans from the banks through a variety of illegal means, including 1) mail fraud, in violation of 18 U.S.C. Sec. 1341; 2) wire fraud, in violation of 18 U.S.C. Sec. 1343; 3) transportation of fraudulently obtained property between states, in violation of 18 U.S.C. Sec. 2314; and 4) bankruptcy fraud, in violation of Title 11 of the United States Code.

In May 1986, two of the individual defendants, Lowell Abbe ("Abbe") and Carolyn Strouse ("Strouse"), were indicted on twenty-eight counts of bank fraud related to many of the activities the banks alleged in their civil RICO complaint. Counts one to twenty-five of the indictment charged that Abbe and Strouse had filed fraudulent loan applications violating 18 U.S.C. Sec. 1014. Count twenty-six alleged that they fraudulently concealed mortgaged property in violation of 18 U.S.C. Sec. 658. Counts twenty-seven and twenty-eight accused them of concealing assets during bankruptcy proceedings, in violation of 18 U.S.C. Sec. 152.

After permitting the banks to amend their complaint, the district court, on October 15, 1986, stayed proceedings in the civil suit as to Abbe and Strouse "until further order of this court" because of the pendency of the criminal charges. The banks attempted, with little success, to engage in discovery without the involvement of Abbe and Strouse.

Almost two and one-half years later, on February 21, 1989, the district court lifted its stay of the proceedings as to Abbe and Strouse after learning that they had entered pleas of nolo contendere in the criminal proceedings before another district judge and had been granted a continuance of their sentencing for one year. On March 17, 1989, the banks filed notices scheduling the depositions of Abbe and Strouse within the month. Abbe failed to appear at his April 20, 1989, deposition, and although Strouse appeared at her April 21, 1989, deposition, she refused to answer any questions until she spoke with the attorney representing her in the criminal proceedings.

Strouse then decided that she wanted to engage in some discovery of her own. She filed a motion asking that she be permitted to record the depositions she intended to take on audiotape rather than have them taken down by a reporter and later transcribed. At an April 26, 1989, hearing on this issue, the court promised to consider Strouse's request, but said such an accommodation was not yet required since Strouse would not be permitted to depose anyone as long as she exercised "her continuing refusal to be deposed." The court rejected Strouse's allegation that she was being punished for exercising her fifth amendment rights, and the court suggested the possibility of sanctions if Strouse's noncooperation continued.

On the same day, April 26, 1989, the banks filed a motion for default judgment against Abbe under Fed.R.Civ.P. 37 for his failure to appear at any of the deposition hearings they had rescheduled for him for April 24, 25, 26, or 28, 1989. The district court declined to address the motion at that time in order to give Abbe further opportunity to comply with discovery. The banks again scheduled depositions for Abbe and Strouse, this time for May 8 and 9, 1989, respectively.

On May 8, 1989, Abbe and Strouse filed a joint motion for a protective order. They requested that the court restrict discovery concerning the criminal matters to which they had previously pleaded nolo contendere, since they had not yet been sentenced and "discovery ... could bring about additional federal charges or state prosecution involving the same transactions." The district court did not immediately rule on this motion, and Abbe and Strouse appeared as requested at their respective depositions.

Abbe prefaced his May 8, 1989, deposition with the statement that he would answer only those questions that had nothing to do with his past and potential criminal prosecutions. He then invoked the fifth amendment in response to questions about the location of documents, the whereabouts of other defendants, and his alleged transactions with the banks. Strouse likewise began her May 9, 1989, deposition with the statement that she would not answer questions relating to her past or potential criminal prosecution. She declined to answer most of the questions asked regarding the other defendants. 2

On May 15, 1989, the banks filed another motion for default judgment, this time against both Abbe and Strouse. The next day, despite its knowledge that Strouse had not had an opportunity to respond to the banks' motion, the district court ordered Abbe and Strouse to be deposed again, to answer fully questions to be put to them, and to release documents the banks had been requesting. The court required all these things be accomplished by noon on May 19, 1989, under penalty of entry of a default judgment.

Abbe and Strouse were not deposed, and they released no documents by noon of May 19, 1989. That afternoon, relying upon Fed.R.Civ.P. 37, the district court entered a default judgment against them and against other defendants it deemed to have failed to comply with discovery. 3 Bank One of Cleveland, N.A. was awarded judgment against Abbe, Strouse, Norman M. Abbe, Maria F. Abbe, Atwater Enterprises, Inc., Black Bull Inn, Inc., Portage Angus Farms Trust, Portage Angus Farms, Inc., Amerind International, Inc. ("Amerind"), and Triad Investment Corporation ("Triad"), jointly and severally, for $1,896,723.15 plus per diem interest at a rate of $414.27 beginning on January 31, 1989. Bank One of Akron, N.A. was given judgment against Abbe, Strouse, Portage Angus Farms, Inc., Atwater Enterprises, Inc., Boot & Saddlery, Inc., W.R.S., Inc., Western Reserve Saddlery, Inc., and Triad, jointly and severally, for $513,367.11 plus interest at $100.47 per day from and after January 31, 1989.

The district court cited defendants' "flagrant and repeated failures to cooperate with discovery in this action over an extended period of time" as the basis for its entering the judgment. It relied on its May 16, 1989, order to chronicle the discovery violations of Abbe and Strouse, referred to the failure of the other defendants to do anything to "remove the grounds for default" the banks had asserted in a February 9, 1989, motion for default judgment, and noted specifically defendants Norman and Maria Abbe's failure to respond to written discovery requests served on them December 27, 1988.

As part of its May 19, 1989, default judgment, the district court granted the banks' motion to add Revere Pinnacle Group, Inc. ("Revere Pinnacle") to the group of defendants against which it entered default judgment. Although it did not enter judgment against Revere Pinnacle by name, the judgment set aside a conveyance of real estate to which Revere Pinnacle was a grantee in the chain of title. The court also entered a marginal order denying Abbe and Strouse's May 8, 1989, motion for the protective order.

Abbe and Strouse and the other sanctioned defendants now appeal the default judgment, collectively assigning seven errors:

1) Abbe and Strouse assert that the district court erred in entering a default judgment against them for their refusal to answer questions which would have required them to waive their fifth amendment rights;

2) The remaining defendants claim the court erred in entering judgment against them, given the mitigating circumstances in their...

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