Brockton Sav. Bank v. Peat, Marwick, Mitchell & Co., 85-1174

Decision Date26 August 1985
Docket NumberNo. 85-1174,85-1174
Citation771 F.2d 5
PartiesBROCKTON SAVINGS BANK, Plaintiff, Appellee, v. PEAT, MARWICK, MITCHELL & CO., et al., Defendants, Appellees. First United Fund, Ltd., Defendant, Appellant.
CourtU.S. Court of Appeals — First Circuit

Edward R. Lev, Boston, Mass., with whom Louis A. Rodriques, Shelagh A. Ellman and Sullivan & Worcester, Boston, Mass., were on brief, for First United Fund, Ltd.

Michael S. Greco, Boston, Mass., with whom Richard M. Zielinski, Robert D. Richman and Hill & Barlow, Boston, Mass., were on brief, for Brockton Sav. Bank.

Before COFFIN, RUBIN * and BOWNES, Circuit Judges.

COFFIN, Circuit Judge.

This appeal raises two basic questions: first, whether the district court abused its discretion by entering a default judgment against defendant, First United Fund, Ltd. (First United), 1 for abuse of the discovery process, including the failure to comply fully with several discovery orders; and second, whether the district court erred by not considering questions of contributory or comparative negligence during a postjudgment hearing on damages.

I. BACKGROUND 2

The underlying complaint in this action was filed on February 24, 1983. Plaintiff Brockton Savings Bank (Brockton) alleged that First United, a securities broker-dealer, had acted so as to mislead Brockton into purchasing on April 28, 1982, a 90-day, $1 million Certificate of Deposit (CD) issued by Penn Square Bank, N.A. (Penn Square). Penn Square had failed shortly thereafter, causing Brockton to lose most of its investment. In its complaint Brockton charged that First United had led Brockton to believe that Penn Square had been investigated thoroughly and that its CD was a sound investment. Brockton alleged that no such analysis had been performed and that, had one been, First United would have known that the CD was not a sound investment. On the basis of these and other allegations, Brockton charged that First United had violated federal and state laws governing securities transactions, as well as state laws covering intentional and negligent misrepresentations.

At the same time that Brockton filed its complaint, it also filed a set of interrogatories and a request for the production of certain documents. For the purposes of this appeal, only a few of those interrogatories and requests for documents need concern us. First, Brockton requested that First United identify and produce copies of all original solicitation letters sent to prospective purchasers and sellers of CD's. Second, Brockton requested that First United identify all banks for which it brokered CD purchases and sales. Finally, Brockton requested that First United identify and produce all documents concerning business transactions between First United and Penn Square.

First United's initial response, at the end of April 1983, was to answer partially the interrogatories, to produce a few documents, including one undated and unaddressed "form" letter, and to register several general objections. The most significant objections were that Brockton was requesting material unrelated to its claims, that much of the material was confidential, and that to produce it would be unduly burdensome.

A motion to compel discovery followed on May 10, 1983. In its accompanying memorandum of law, Brockton argued that what it was seeking was relevant because it was likely to show what First United knew or should have known about Penn Square's financial condition, to identify First United's standard brokerage policies and procedures, to show whether First United deviated from those policies and procedures in brokering the Penn Square CD's, and to identify any other customers who were misled and thus to uncover witnesses who might testify on Brockton's behalf at trial. In its memorandum in response, First United continued to argue the irrelevancy of almost all that was requested and added that the transactions slips, those papers upon which were recorded either quotations to customers or confirmations of purchases, weighed "approximately 1500 pounds". Also, while admitting that no legal privilege protected the documents, First United continued to claim that its customers expected the documents to be kept confidential. Brockton replied that an appropriate protective order could be issued.

On August 18, 1983, a status conference was held before Judge Nelson. At that conference, First United was ordered to produce within ten days 3 a list of all Penn Square CD transactions that it had brokered. Thirty-five days later, First United produced a list of banks that it had serviced, omitting any reference to their addresses or to the types of CD's purchased. This was but the first of four instances in which First United's response to a court order was both untimely and partial.

Brockton renewed its motion to compel and the matter was referred to a magistrate. In the hearing that followed on October 18, 1983, First United continued to object to discovery on the grounds of burdensomeness and confidentiality. Brockton responded that it would undertake the burden of going through the requested documents at First United's offices in Long Island and that, if confidentiality were perceived to be a problem, First United needed only to accept the protective order that Brockton had offered. First United gave no indication that it would accept that offer; nor did it request a protective order from the magistrate. At the end of the hearing, the magistrate granted Brockton's motion to compel. After consulting with First United to ensure that it would be given enough time to comply, the magistrate ordered it to produce supplemental answers by November 23, 1983, and the balance of the requested documents by December 5, 1983. To reduce First United's burden, he ordered that the documents be produced at its offices in Long Island, rather than in Boston.

On November 23, 1983, First United filed supplemental answers under seal but did not serve a copy of them on Brockton. First United also moved for a protective order to ensure the confidentiality of all the documents that a month earlier it had been ordered to produce. Brockton opposed the motion on the twin grounds that it came too late and that the proposed order was so broad that it would be used by First United to frustrate discovery in the future. There appeared to be reason for the latter concern, for in the supplemental hearing of December 2, 1983, First United represented that "virtually all of the documents that have been requested" were confidential, including the "confirmation slips, invoices, and letters". The magistrate rejected this argument and denied the motion, except with regard to the list of Penn Square transactions, which Brockton agreed could be kept confidential. First United subsequently appealed the denial of a broader protective order and filed for a stay of production of documents until Judge Nelson decided the appeal. The stay was granted. On December 5, 1983, twelve days late, First United served its supplemental answers on Brockton.

On January 18, 1984, Judge Nelson held a brief hearing and entered a one-sentence protective order requiring each party to use only for litigation purposes whatever information was provided by the other party. This protective order was much simpler than the one requested by First United and appears to have been responsive to Brockton's fears that First United's draft order would permit it to continuously challenge Brockton's discovery demands. Judge Nelson ordered First United to produce all requested documents within ten days and denied First United's request to produce only "exemplars" or "forms" of requested letters.

Although some documents were produced within the ten days, First United failed to produce all of the transaction slips that had been ordered and again submitted only form solicitation letters. Frustrated by this response, Brockton filed a motion for sanctions, including judgment by default, an order of contempt, and an award of attorney's fees. On February 16, 1984, twenty days late, the balance of the transaction slips was produced. Also on February 16, First United's attorney, by letter, suggested to Brockton for the first time that copies of the actual letters of solicitation did not exist.

This new information came to the court's attention on March 1, 1984, when the magistrate held the first of several hearings on Brockton's motion for sanctions. At that time, the magistrate was handed the affidavit of an "Executive Secretary" of First United, in which she stated that only eight form letters were used to communicate with prospective customers and that only these letters and lists of customers and their addresses were retained in First United's word processor; she claimed that no copies of letters actually sent were retained anywhere in First United's offices. The magistrate was startled by this information for two reasons: first, it did not accord with the fact that First United's attorney for months had been protesting the confidentiality of documents such as these and the burden of producing them; and second, the actual solicitation letter produced by Brockton from another First United customer, on First United's letterhead, was in significant part different from the form letters that First United had produced.

Faced with these discrepancies, and concerned that either documents had been destroyed or the court and Brockton had been purposely misled for a period of several months, the magistrate ordered First United's attorney to have the affiant-secretary and First United's president appear in court five days later. Although unsure of the president's schedule, First United's attorney gave no indication that either the president or the secretary would be unwilling to appear.

When the hearing was continued on March 6, 1984, however, neither the secretary nor the president did appear. Initially, First...

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