Britton v. Co-op. Banking Group

• Decision Date: 18 April 1990
• Docket Number: CO-OP,No. 89-15143,89-15143
• Parties: Fed. Sec. L. Rep. P 95,613 Joseph BRITTON; Clifford Conway; Connie Laborin; Steven Ryan, for themselves and all others similarly situated, Plaintiffs-Appellees, v.BANKING GROUP, an integrated group of companies including Co-op Investment Bankers, G/P, C.C.G.F., Exploration and Mining Company, Defendants, and Jeff Liebling, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1405

916 F.2d 1405

Fed. Sec. L. Rep. P 95,613

Joseph BRITTON; Clifford Conway; Connie Laborin; Steven

Ryan, for themselves and all others similarly

situated, Plaintiffs-Appellees, v. CO-OP BANKING GROUP, an integrated group of companies

including Co-op Investment Bankers, G/P, C.C.G.F.,

Exploration and Mining Company, Defendants,

and

Jeff Liebling, Defendant-Appellant.

No. 89-15143.

United States Court of Appeals, Ninth Circuit.

Submitted April 18, 1990. ^*

Decided Oct. 11, 1990.

Jeff Liebling, Irvine, Cal., pro se.

Andrea M. Miller, David C. Adams, Attia, Bartel, Eng & Torngren, Sacramento, Cal., for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of California.

Before LIVELY, ^** FLETCHER and REINHARDT, Circuit Judges.

FLETCHER, Circuit Judge:

This appeal is one component of a larger securities fraud litigation. Appellant, Jeff Liebling, appeals pro se the district court's denial of his motion to compel arbitration in an action brought in federal court by appellees for damages caused to them by Liebling's alleged fraudulent activities. We hold that the district court erred in finding that Liebling waived his right to arbitration. We remand, however, for consideration of whether Liebling is within a class of persons entitled to arbitration under the contract containing the arbitration clause.

FACTS AND PROCEDURAL HISTORY

In the underlying action, plaintiffs-appellees, as representatives of a plaintiff class, alleged that Liebling and other defendants engaged in a securities fraud scheme by selling a fraudulent tax shelter investment. Appellees had purchased securities from Gold Depository and Loan Company ("Gold Depository"), one of the Co-op Banking Group Companies. The contract of sale between appellees and Gold Depository included an arbitration provision. ¹

Appellees filed their original complaint against Liebling on June 2, 1987, and filed a third amended complaint on August 7, 1989. The sole defense Liebling offered was to assert a fifth amendment privilege against self-incrimination. ² According to Liebling, he informally tried to reach a settlement of the claims against him, and on May 31, 1988, when it became apparent At the same time appellant was seeking arbitration and stay, appellees continued to push for discovery, Liebling all the while resisting. This culminated in a default judgment entered against Liebling. On March 8, 1988, Appellees served their First Request for Production of Documents upon Liebling. Liebling neither produced the documents sought nor allowed the plaintiffs to inspect and copy them. His explanation for resisting discovery was that to comply would violate his fifth amendment privilege and, further, that he should continue to assert that privilege until he could obtain counsel. In May 1988, plaintiffs moved the court to compel production. After a hearing on the motion, the magistrate entered an order on June 28, 1988, compelling production of all documents requested by plaintiffs. Liebling contested this order to the end: he moved for reconsideration of the magistrate's order, which the district court denied on July 29; he appealed the discovery order to this court which dismissed it on October 31, 1988.

                that a settlement was unlikely, he wrote to appellees demanding arbitration on the basis of the arbitration clause contained in the investment contract.  Appellees promptly refused.  In early October, Liebling filed a motion pursuant to the Federal Arbitration Act, 9 U.S.C. Sec. 4, seeking to compel arbitration. 3   After conducting a hearing on the motion, the district court denied Liebling's motion on the ground that he had waived any right to arbitration by actively pursuing litigation, and that those actions prejudiced appellees.  The court did not reach the issue of whether Liebling, not a party to the contract containing the arbitration clause, had standing to seek to compel arbitration.  On January 30, 1989, Liebling filed a notice of appeal from that denial.  It is this appeal that is before us.  On April 28, 1989, another panel of this court denied Liebling's motion for a stay of all trial court proceedings pending his appeal from the court's refusal to compel arbitration
                

Nevertheless, Liebling continued to refuse to comply with discovery. On December 27, 1988, plaintiffs again requested the magistrate to direct immediate production of documents, strike Liebling's Answer to the First Amended Complaint, enter a default judgment against him, and find him in contempt of court. The magistrate held a hearing on this motion, and on February 3, 1989, issued proposed findings that Liebling willfully and in bad faith failed to comply with the June 28 order compelling production of documents. The magistrate recommended that Liebling's answer be stricken and a default judgment be entered against him pursuant to Fed.R.Civ.P. 37.

Liebling filed objections to these proposed findings and recommendations. On April 11, 1989, the district court entered an Order directing Liebling to appear on May 5, 1989, to show cause why he should not be held in contempt and to bring with him all responsive documents in his possession and control. The parties appeared on May 5, but Liebling failed to produce the documents on the grounds that they were in remote locations, that he could not afford to retrieve them, and that some of them were subject to fifth amendment privilege. Finding that Liebling was at risk for incarceration due to his continued failure to obey a court order, the district court appointed a public defender, and scheduled another hearing for June 16. At the scheduled hearing, plaintiffs reported that they had transported at their expense documents from various locations identified by Liebling, that the documents were in the Federal Defender's office under Liebling's control, and that counsel was in the process On June 30, 1989, the district court held a hearing on Liebling's Motion for Reconsideration of the Magistrate's proposed findings and recommendations. On July 19, 1989, finding that Liebling had offered no credible basis for refusing to comply with the court order directing him to respond to discovery and that his refusal was an attempt to obstruct justice, the district court ordered a default judgment entered against Liebling on the first amended complaint and further ordered that Liebling be held in custody for 18 months unless and until he complied with the court's discovery order. ⁴ The district court further found that Liebling had been given ample opportunities to either substantiate his asserted privileges or otherwise to offer a credible reason for his refusal to comply with the court's order or to comply with discovery. Additionally, the court found that Liebling had offered to sell the responsive documents but refused to turn them over pursuant to the Federal Rules of Civil Procedure without payment. Liebling takes exception to this characterization. ⁵ Based on the above, the court found that Liebling's actions were willful, intentional and in bad faith, and constituted contempt. Liebling appealed this order and the default judgment but his appeal subsequently was dismissed by our court for failure to file an opening brief.

                of drafting a Stipulation and Order according to which the documents would be exchanged, thereby complying with the Request for Production.  Ten days later, Liebling's counsel requested that he be excused from representing Liebling.  (The record does not reveal the reason for the request.)    The court granted the request, appointed another counsel, and rescheduled the return on the Order to Show Cause
                

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction over this timely appeal pursuant to Sec. 15(a)(1)(A) and (B) of the Federal Arbitration Act, 9 U.S.C. Sec. 15(a)(1)(A) and (B) (providing for appellate review of denial of application to compel arbitration and refusal to stay judicial proceedings pending arbitration). See Delta Computer Corp. v. Samsung Semiconductor & Telecommunications Co., 879 F.2d 662, 664-665 (9th Cir.1989); Delmay v. Paine Webber, 872 F.2d 356 (11th Cir.1989).

We review jurisdictional challenges de novo. Kruso v. International Telephone & Telegraph, 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, --- U.S. ----, 110 S.Ct. 3217, 110 L.Ed.2d 664 (1990). The denial of a motion to compel arbitration also is reviewed de novo. Pipes Trades Council, Local 159 v. Underground Contractor's Ass'n, 835 F.2d 1275, 1273 (9th Cir.1987). Finally, we review de novo the issue of whether the undisputed facts of defendant's participation in litigation and delay in seeking arbitration constitute a waiver of arbitration. Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 693 (9th Cir.1986).

DISCUSSION

Appellees contend that this appeal has been mooted by the district court's subsequent entry of a default judgment against Liebling for refusal to comply with the court's discovery order. On appeal Liebling argues that his appeal from the denial of the motion to compel arbitration divested the court of jurisdiction over the case, and therefore, that the district court lacked jurisdiction to enter a default judgment. Liebling also contends that the district court erred in finding that he had waived his right to arbitration. We address each argument in turn.

I. Mootness.

Appellees argue that the default judgment entered against Liebling on July 20 Fed.R.Civ.P. 37(b)(2)(C) empowers a district court to enter a default judgment as a sanction against a party who fails to comply with a discovery order. A default judgment entered pursuant to Rule 37 is an appealable final order, United States v. Procter & Gamble, 356 U.S. 677, 78 S.Ct. 983, 2 L.Ed.2d 1077 (1958); 8 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2006 (1970), and a dismissal of an action for failure to comply with discovery operates as an adjudication on the merits. Wyle v. R.J. Reynolds...