Davis v. Fendler

• Decision Date: 17 July 1981
• Docket Number: No. 79-3691,79-3691
• Citation: 650 F.2d 1154
• Parties: Richard DAVIS, et al., Plaintiffs-Appellees, v. Robert H. FENDLER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1154

650 F.2d 1154

Richard DAVIS, et al., Plaintiffs-Appellees, v. Robert H. FENDLER, Defendant-Appellant.

No. 79-3691.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 10, 1981.

Decided July 17, 1981.

E. Reid Southern, Southern & Mulhall, Phoenix, Ariz., for defendant-appellant.

Robert Schachter, New York City, argued for plaintiffs-appellees; Patricia I. Avery, Kass, Goodkind, Wechsler & Labaton, New York City, John E. Lundin, Jack S. Emery, Wentworth & Lundin, Phoenix, Ariz., on brief.

Appeal from the United States District Court, District of Arizona.

Before KILKENNY and SNEED, Circuit Judges, and HANSON, District Judge. ^*

KILKENNY, Circuit Judge:

This is an appeal from a default judgment which was entered against appellant for the sum of $37,929,368.00.

BACKGROUND

This class action was filed by appellees on December 5, 1975, on behalf of all persons who had investments in Lincoln Thrift Association and U.S. Thrift Association as of November 28, 1975. The complaint charged the appellant and others with federal securities fraud violations and pendent state claims. Appellant was chief executive officer and major stockholder of both thrift companies (thrift companies being somewhat similar in character to savings and loan associations). The companies had raised over $50,000,000.00 from approximately 22,000 persons. The thrift associations and their subsidiaries and affiliates have been in a receivership during the entire course of the litigation. The primary thrust of the complaint is that appellant fraudulently induced investment in the thrift companies and that the funds were used to speculate in private enterprises for appellant's personal benefit. Appellant timely filed an answer and counterclaimed. On February 1, 1977, appellees propounded 115 interrogatories to appellant. ¹ On March 7, 1977, appellant, in a 11/2 page response, objected to answering the interrogatories, without making a claim of privilege. ²

There was a delay of approximately one year before appellees formally moved for an order to comply with their discovery request. During this period, appellees had made numerous informal attempts to resolve the discovery dispute. On August 9, 1977, counsel for appellees wrote to appellant's attorney in an attempt to resolve the impasse. Counsel noted that appellant's response had been untimely, that the blanket objections were insufficient and totally without merit, and stated that if complete answers were not received by August 18, 1977, appellees would take steps to ensure compliance. Appellant did not respond to the August 9th letter. On August 19, 1977, counsel for appellees wrote to appellant's attorney and requested a response to the discovery problem. On or about August 24, 1977, counsel discussed the objections with appellant's attorney, who refused to serve any answers. Appellees did not take formal steps to induce compliance because appellant's attorney advised them that he was involved with appellant's defense in a related state criminal trial and that he would attend to the interrogatories as soon as the trial was completed or he could devote sufficient time to the subject. Consequently, appellees did not take additional steps to compel answers to the interrogatories until On April 25, 1978, appellees moved to compel answers to the interrogatories. In response, appellant moved for a protective order to stay further civil proceedings, pending final adjudication of a state criminal action (appellant's conviction, after a trial at which he testified, was on appeal), and all federal proceedings (a grand jury was investigating the thrift associations and was expected to culminate in an indictment of appellant). Appellant alleged that, because the subject matter of the civil and criminal proceedings overlapped, a stay was necessary to prevent an abridgement of his Fifth Amendment privilege against self-incrimination. In addition, appellant reasserted the substance of his earlier objections. See note 2, supra.

they learned that counsel for appellant was not solely, if at all, engaged in the defense of appellant's criminal action. On April 12, 1978, appellees' attorney contacted appellant's attorney to determine whether appellant had decided to answer the interrogatories. Appellant's attorney indicated that appellant would not comply.

On May 22, 1978, the district court granted appellees' motion to compel answers and denied appellant's motion for a protective order. In order to comply with this order, appellant was required to answer the interrogatories or to set forth his claims of privilege specifically as to each interrogatory so that the judge would have a basis upon which to assess the merits of the particular objection. Inasmuch as appellant failed to comply with this order, appellees, on June 1, 1978, moved for an order requiring him to comply within a specified period. On June 2, 1978, appellant moved to reconsider the court's May 22nd order. The court denied the motion to reconsider, and, on June 19, 1978, set a July 28, 1978, deadline for compliance with its order compelling discovery. Appellant filed his "answers", specifying four numbered responses 2 claiming various privileges, 1 claiming oppression and irrelevancy, and 1 specifying various places where the requested information could be found. ³ (These "answers", in substance, were a restatement of appellant's earlier objections). Appellant then "answered" each interrogatory with one or more of the numbers corresponding to the 4 "responses". Appellant asserted the blanket claim of privilege to virtually every interrogatory.

On August 16, 1978, appellees' counsel wrote to appellant's attorney and, after noting that appellant's "answers" simply restated the objections which the district judge had found insufficient, demanded answers and threatened to move for sanctions. No response was received, and appellees, on October 16, 1978, moved to strike appellant's answer and to enter default judgment. On November 6, 1978, appellant again asserted that, because of the pendency of state criminal proceedings and the federal grand jury, any further discovery would violate his Fifth Amendment privilege against self-incrimination. After a hearing, the district court, on November 20, 1978, granted appellees' motion to strike appellant's answer and entered default against him.

Subsequently on June 12, 1979, appellees applied to the court for judgment by default pursuant to FRCivP 54(b) and 55(b) in the sum of $37,929,368.00. In response, appellant sought recusal of the district judge, claimed that Rules 54(b) and 55(b) were unconstitutional, requested that the default be set aside and that the proceedings be stayed, demanded a jury trial, and asserted that judgment was premature because damages On September 18, 1979, the date scheduled for the hearing on the application for default judgment, appellant requested that the matter be submitted for decision upon the pleadings filed. The application for judgment by default was then granted. The judgment was actually filed on September 27, 1979.

could not be calculated with certainty. Appellant requested that the default be set aside because a federal indictment had been returned on June 14, 1979. The federal indictment involved similar issues to those in this action, and thus allegedly confirmed the validity of appellant's claim of privilege. Appellant sought recusal of the district judge because the judge had withdrawn from the criminal action. In appellant's mind, this withdrawal raised questions concerning the judge's ability to proceed impartially, and, therefore, compelled his recusal in the civil case as well.

ISSUES

It is our consensus that the appeal presents two principal issues.

I. Whether the district court abused its discretion in entering the default judgment as a sanction for violations of discovery orders, and

II. Whether it was error to enter judgment in the sum of $37,929,368.00 without conducting a full hearing.

Incidental contentions include:

A. Whether it was error for the district judge not to recuse himself,

B. Whether the district judge erred in failing to hold the hearing on the constitutionality of FRCivP 54(b) and 55(b), prior to the entry of judgment,

C. Whether it was error to enter judgment despite the existence of appellant's counterclaim.

DISCUSSION

I.

We have recently discussed the standards to be applied in reviewing the entry of default judgment as a sanction for violation of discovery orders in the context of a party's assertion of a Fifth Amendment privilege. Baker v. Limber, 647 F.2d 912 (CA9 1981). In Baker, we applied a two-part inquiry: (1) did the party resisting discovery properly assert his Fifth Amendment privilege, ⁴ and (2) if not, did the district judge abuse his discretion in imposing the sanction involved.

In Baker, we stated that the following principles were applicable in assessing whether a Fifth Amendment privilege had been properly invoked:

" '(T)he privilege normally is not asserted properly by merely declaring that an answer will incriminate.' Brunswick Corp. v. Doff, 638 F.2d 108, 110 (9th Cir. 1981).

It is not necessary, of course, that the person to whom the question has been put establish the precise manner in which he will incriminate himself by responding. This would make the privilege useless. As the Supreme Court said in Hoffman v. United States, 341 U.S. 479, 486-87, (71 S.Ct. 814, 818, 95 L.Ed. 1118), :

'To sustain the privilege, it need only be evident from the implications of the question, in the setting in which it is asked, that a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result.'

Id. The trial court must make this determination from the facts as well as from 'his personal perception of the peculiarities of the case.' Hoffman v. United States, supra, 341 U.S. at 487, (71 S.Ct. at 818...