Dependahl v. Falstaff Brewing Corp.

• Decision Date: 27 July 1981
• Docket Number: 80-1861 and 80-1900,80-1714,Nos. 79-2050,s. 79-2050
• Citation: 653 F.2d 1208
• Parties: 2 Employee Benefits Ca 1521 Charles W. DEPENDAHL, Jr. and William J. Healy, Appellees, Cross-Appellants, v. FALSTAFF BREWING CORPORATION, a Delaware corporation, and Paul Kalmanovitz, Appellants, Cross-Appellees. John C. CALHOUN, Appellee, Cross-Appellant, v. FALSTAFF BREWING CORPORATION, a Delaware corporation, and Paul Kalmanovitz, Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1208

653 F.2d 1208

2 Employee Benefits Ca 1521

Charles W. DEPENDAHL, Jr. and William J. Healy, Appellees, Cross-Appellants, v. FALSTAFF BREWING CORPORATION, a Delaware corporation, and Paul Kalmanovitz, Appellants, Cross-Appellees.

John C. CALHOUN, Appellee, Cross-Appellant, v. FALSTAFF BREWING CORPORATION, a Delaware corporation, and Paul Kalmanovitz, Appellants, Cross-Appellees.

Nos. 79-2050, 80-1714, 80-1861 and 80-1900.

United States Court of Appeals,

Eighth Circuit.

Submitted March 11, 1981.

Decided June 30, 1981.

Rehearing and Rehearing En Banc Denied July 27, 1981.

Theodore F. Schwartz (argued), Barry S. Ginsburg, Clayton, Mo., for appellants/cross-appellees.

Carroll J. Donohue, Harry B. Wilson, Mark G. Arnold (argued), Husch, Eppenberger, Donohue, Elson & Cornfeld, St. Louis, Mo., for appellees, cross-appellants.

Before BRIGHT, Circuit Judge, GIBSON, Senior Circuit Judge, and ROSS, Circuit Judge.

FLOYD R. GIBSON, Senior Circuit Judge.

This appeal concerns federal issues arising under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (1976) (ERISA), together with pendent state claims for tortious interference and fraud. Falstaff Brewing Corporation and Paul Kalmanovitz, controlling shareholder of Falstaff, appeal the district court's ¹ findings that Kalmanovitz interfered with the contractual relationship between Falstaff and three former executive officers, Charles W. Dependahl, Jr., William J. Healy, and John C. Calhoun, resulting in tortious Missouri common-law and ERISA statutory violations. Falstaff and Kalmanovitz also appeal the district court's award of punitive damages, attorney fees, and prejudgment interest. Finally, Falstaff and Kalmanovitz appeal the district court's discovery sanction of dismissing their counterclaims and affirmative defenses. The former executive officers cross-appeal the district court's failure to find fraud and tortious interference by Kalmanovitz with respect to their employment contracts. With respect to the direct appeal, we affirm the district court on its findings of ERISA violations, the award of attorney fees, and the imposition of discovery sanctions. We reverse the court on its award of punitive damages and its computation of prejudgment interest. With respect to the cross-appeal, we affirm the district court.

I.

A.

In late 1974, Falstaff was experiencing severe financial difficulties. Kalmanovitz, a brewer and entrepreneur, was contacted by Falstaff, which was in need of new capital. After a series of meetings, Kalmanovitz and Falstaff signed an agreement on March 10, 1975, whereby Kalmanovitz would purchase ten million dollars of newly issued preferred stock and would personally guarantee ten million dollars of Falstaff's debts, in return for voting control of the corporation.

In order for the deal to go through, the articles of incorporation had to be amended by the shareholders. On April 28, 1975, the stockholders met and approved the deal.

On May 1, 1975, Kalmanovitz terminated Dependahl, former vice-president and director of marketing, and Healy, former vice-president, secretary, and treasurer of Falstaff. Later, on August 8, 1975, Calhoun, secretary and treasurer since May 1, was terminated by Kalmanovitz.

Prior to the terminations, these former officers appear to have been under the impression that because the takeover by Kalmanovitz was not opposed, top management would be retained. Following the terminations, Kalmanovitz directed that severance payments to Healy and Dependahl be stopped. Falstaff subsequently made an offer to each that the severance payments would be resumed if Healy and Dependahl would waive their rights to the CBS plan, a whole-life insurance program for executives. The former executives refused and severance payments were never resumed.

Calhoun, at the time of his termination, had not been employed by Falstaff for the required period of fifteen years necessary to receive severance payments. Calhoun, therefore, did not receive any payments after his termination. The severance plan, however, had only recently been amended in June 1975 to provide for a fifteen-year employment period.

B.

Dependahl and Healy filed suit against Falstaff and Kalmanovitz on August 8, 1975. A few months later, on January 13, 1976, Calhoun brought suit. Essentially, all three sought both common-law and ERISA statutory relief resulting from the termination of the severance payments and alleged interference with the CBS plan. In 1977, the parties entered into a settlement agreement which was enforced, pursuant to the terminated executives' petition, by the district court. Dependahl v. Falstaff Brewing Corp., 448 F.Supp. 813 (E.D.Mo.1978). Pending appeal to this court, the parties both stated that they wished to try the case on its merits. This court then vacated the settlement order. Dependahl v. Falstaff Brewing Corp., 594 F.2d 869 (8th Cir. 1979).

On December 10, 1979, the district court, upon the former executives' motion, imposed discovery sanctions on Falstaff pursuant to Federal Rule of Civil Procedure 37(b). Dependahl v. Falstaff Brewing Corp., 84 F.R.D. 416 (E.D.Mo.1979). The court struck Falstaff's affirmative defenses and counterclaims, due to Falstaff's refusal to properly and timely respond to interrogatories. Falstaff filed a timely notice of appeal from the order. On January 10, 1980, this court granted Falstaff leave to stay its appeal until the district court entered final judgment in the case.

On December 17, 1979, trial was commenced before the court, without a jury, and continued for six days. On February 15, 1980, after trial briefs were filed, the court took the matter under submission. On June 9, 1980, the court entered its order granting relief to the former executives on the ERISA and tortious-interference-with-contract claims, but denied relief on a fraud claim. Dependahl v. Falstaff Brewing Corp., 491 F.Supp. 1188 (E.D.Mo.1980). Post-trial motions were denied by the court on July 2, 1980.

On July 15, 1980, the district court conducted a hearing on the amount of attorney fees to be awarded the former executives under the ERISA attorney fees statute. 29 U.S.C. § 1132(g) (1976). On August 28, 1980, the court entered its order and memorandum opinion awarding $149,175 in attorney fees, and expenses of $13,000. Dependahl v. Falstaff Brewing Corp., 496 F.Supp. 215 (E.D.Mo.1980).

C.

In its memorandum opinion of June 9, 1980, concerning the merits of the case, the district court found both the severance policy and the CBS plan to be within the coverage of ERISA. 491 F.Supp. at 1194, 1196. The court then concluded that Falstaff violated its fiduciary duty to Calhoun by changing the terms of the plan in contemplation of mass terminations. With respect to the CBS plan, the court enjoined Falstaff from borrowing against the cash values of the life insurance policies. Id. at 1196-97. The court awarded prejudgment interest on the severance payments at the rate of nine percent per annum.

Next, the court found Kalmanovitz liable for punitive damages in the amount of $50,000 to each former executive for tortious interference with contract involving the severance payments and the CBS plan. The trial court concluded that Kalmanovitz did not act in good faith in terminating the former executives. Accordingly, the court refused to grant Kalmanovitz any common-law privilege to induce a breach of contract. Finally, the court dismissed Dependahl's and Healy's claims that Kalmanovitz fraudulently misrepresented that they would be retained after the takeover. The court found that no misrepresentations on continuing employment were made. Id. at 1198-99.

II.

We first address the issue of whether the district court abused its discretion in ordering that Falstaff's affirmative defenses and counterclaims be stricken as a discovery sanction pursuant to Federal Rule of Civil Procedure 37(b). ² Falstaff argues that the trial court's sanctions were unduly harsh, given the factual circumstances surrounding the interrogatories posited by the former executives. Falstaff also contends that a Rule 37(b) sanction may be imposed only if a Rule 37(a) order is in force. In Falstaff's view, no such order was in effect. Our review of the record leads us to a different conclusion concerning the factual circumstances surrounding the discovery sanctions.

The district court's reported memorandum concerning the sanctions contains ample factual findings to support the imposition of sanctions. On March 27, 1978, Falstaff was ordered, pursuant to Rule 37(a), to respond to the former executives' interrogatories. The settlement negotiations then intervened. See ante at 1211. After the settlement was vacated, the three former executives again tried to obtain discovery. Finally, on October 11, 1979, Falstaff filed answers. These answers had been prepared a year and a half earlier. The district court concluded that

(t)here is absolutely no excuse, however, for defendant's not having served the answers when plaintiffs renewed their request in March of 1979. To delay seven additional months during which time the answers were already prepared and ready for service is clearly inexcusable, especially in light of the obviously incomplete and evasive nature of these answers. Defendant clearly sought to delay and obstruct plaintiffs' legitimate discovery requests, a tactic which can not be tolerated under the voluntary scheme of discovery envisioned by the Federal Rules of Civil Procedure.

It is apparent to this Court that defendant has engaged in a continuous pattern of delay and obstruction. It is also apparent that this delay has been caused as much by defendant itself as by its counsel. Falstaff has changed counsel numerous times, each change further delaying the orderly disposition of this lawsuit. Though this Court normally does not question a litigant's desire to change counsel, when it is done as repeatedly as has defendant in this case, ...