Dove v. Atlantic Capital Corp.

• Decision Date: 28 April 1992
• Docket Number: No. 960,D,960
• Citation: 963 F.2d 15
• Parties: Guy O. DOVE, III, Appellant, Spargos Mining NL, Plaintiff, v. ATLANTIC CAPITAL CORPORATION, Defendant-Appellee. ocket 91-9010.
• Court: U.S. Court of Appeals — Second Circuit

Page 15

963 F.2d 15

22 Fed.R.Serv.3d 874

Guy O. DOVE, III, AppellantSpargos Mining NL, Plaintiff, v.ATLANTIC CAPITAL CORPORATION, Defendant-Appellee.

No. 960, Docket 91-9010.

United States Court of Appeals Second Circuit.

Argued Feb. 5, 1992.

Decided April 28, 1992.

Daryl J. Hudson, III, Washington, D.C., for appellant.

H. Barry Vasios, New York City(Gilbert, Segall and Young, of counsel), for appellee.

Before: OAKES, Chief Judge, MESKILL and CARDAMONE, Circuit Judges.

MESKILL, Circuit Judge:

This is an appeal from an order of the United States District Court for the Southern District of New York, Patterson, J., citing Guy O. Dove III for contempt of court because of his refusal to comply with a discovery order.Dove contends that the district court had erred in refusing to issue a protective order pursuant to Fed.R.Civ.P. 26(c) and that, therefore, the finding of contempt was erroneous.We conclude that the district court did not abuse its discretion in failing to issue a protective order and thus affirm the order of contempt.

BACKGROUND

In January 1991 Spargos Mining NL (Spargos), an Australian corporation, commenced the underlying diversity action against Atlantic Capital Corporation(Atlantic), a Delaware corporation.Spargos alleged in its complaint that Claremont Petroleum (Claremont), had deposited eight million Australian Dollars (A$8,000,000) with Atlantic, repayable on demand with interest.Claremont's interest had allegedly been assigned to Spargos.The complaint further alleged that, despite demand for full repayment, Atlantic had repaid only A$6,000,000 and that Atlantic therefore owed Spargos A$2,904,657.35, plus continually accruing interest.

Atlantic asserted several affirmative defenses.Some of these defenses alleged that the deposit was part of a transaction that violated Australian law and was therefore unenforceable.Another affirmative defense alleged that the transfer was intended as security for a loan made by Atlantic to an entity called Consulmar Stiftung.In order to support these defenses, Atlantic sought discovery from Dove, who, at the time of the Claremont transaction, was a member of the investment committee of Atlantic's then-parent company, Clarendon Group Ltd.

Before Spargos brought this action, Atlantic had brought an action against Dove and others in the United Kingdom (the UK litigation).The complaint in that action alleged, among other things, that Dove had breached his fiduciary duties to Atlantic by negotiating and implementing high risk loans on behalf of Atlantic.Dove presented to the district court a letter from a London solicitor indicating that there is no established practice in the UK of examining potential witnesses under oath prior to trial and that any pretrial discovery in the UK litigation would not occur soon.

Atlantic maintained that it intended to use any relevant discovery material in the UK litigation.Dove therefore requested that the district court issue a protective order preventing Atlantic from using the fruits of discovery in connection with the UK litigation.Dove asserted that, in the absence of such an order, he would be subject to unequal discovery in the UK litigation.This, he argued, was sufficient "good cause" to justify a protective order under Fed.R.Civ.P. 26(c).He further argued that Atlantic sought the discovery in bad faith for the sole purpose of gaining unequal discovery rights in the UK litigation and that the discovery therefore ought not be allowed.

The district court found that Dove had failed to show sufficient good cause for a protective order.The district court therefore ordered discovery to proceed, with the understanding that it would be limited to the transactions related to the instant action.Dove refused to comply with the discovery requests and the district court held him in contempt of court, finding that he had failed to show that discovery would prejudice him.The district court stayed the imposition of sanctions to permit Dove to appeal to this Court.

Dove brought this appeal, contending that the district court erred by refusing to issue a protective order.We disagree and affirm the order citing Dove for contempt.

DISCUSSION

1.Appellate Jurisdiction

Generally, federal courts of appeals have jurisdiction only over final decisions of the district courts.28 U.S.C. § 1291.A non-party witness ordinarily may not appeal directly from an order compelling discovery but must instead defy the order and be found in contempt in order to obtain review of the court's initial order.SeeAlexander v. United States, 201 U.S. 117, 122, 26 S.Ct. 356, 358, 50 L.Ed. 686(1906)("This power to punish being exercised the matter becomes personal to the witness and a judgment as to him.Prior to that the proceedings are interlocutory in the original suit.").The finding of contempt sufficiently severs the production order from the underlying case, but the final decision requirement of section 1291 remains.The contempt order itself, in theory, must be final in order to support an appeal.

In this case, Dove was adjudged in contempt of court but the imposition of sanctions was stayed and no sanctions were formulated prior to the entry of the stay.We have stated on at least two occasions that a finding of contempt unaccompanied by sanctions is not final and thus cannot support an appeal.SeeIn re Irving, 600 F.2d 1027, 1031 n. 1(2d Cir.)("[I]t is true that a contempt order is not final until sanctions have been imposed."), cert. denied, 444 U.S. 866, 100 S.Ct. 137, 62 L.Ed.2d 89(1979);Comptone Co. v. Rayex Corp., 251 F.2d 487, 488(2d Cir.1958)(per curiam)("[N]o penalty has been imposed, and the contempt order remains merely a finding, without judgment thereon, subject to modification, prior to judgment.Since the contempt finding ... is not a final decision, it is not appealable under 28 U.S.C. § ... 1291.")(citation omitted);see alsoInternational Silver Co. v. Oneida Community, Ltd., 93 F.2d 437, 440-41(2d Cir.1938)(order adjudging defendant in contempt but not imposing fine not appealable).Authority from other jurisdictions supports this view as well.See, e.g., Don's Porta Signs v. City of Clearwater, 829 F.2d 1051, 1053 n. 7(11th Cir.1987), cert. denied, 485 U.S. 981, 108 S.Ct. 1280, 99 L.Ed.2d 491(1988);Petroleos Mexicanos v. Crawford Enterprises, 826 F.2d 392, 398(5th Cir.1987);Motorola v. Computer Displays Int'l, 739 F.2d 1149, 1154(7th Cir.1984);Weyerhaeuser Co. v. Int'l Longshoremen's and Warehousemen's Union, Local 21, 733 F.2d 645, 645(9th Cir.1984);United States Steel v. Fraternal Ass'n of Steel Haulers, 601 F.2d 1269, 1273(3d Cir.1979);SEC v. Naftalin, 460 F.2d 471, 475(8th Cir.1972).

As illustrated by this case, requiring the formulation of sanctions prior to appeal makes sense.After we affirm the finding of contempt in this case, any sanction imposed could then be challenged on appeal as an abuse of discretion.See, e.g., United States v. City of Yonkers, 856 F.2d 444, 459-60(2d Cir.1988)(district court abused its discretion in imposing open ended fine that doubled daily and would exceed $1 million per day after two weeks), rev'd on other grounds sub nom.Spallone v. United States, 493 U.S. 265, 110 S.Ct. 625, 107 L.Ed.2d 644(1990).It is just such piecemeal appellate practice, with its concomitant delay of the underlying action, that the final decision rule was designed to prevent.SeeCobbledick v. United States, 309 U.S. 323, 324-27, 60 S.Ct. 540, 540-42, 84 L.Ed. 783(1940).

However, as we will explain, our Circuit has adopted a rule allowing for an appeal from a finding of contempt prior to the imposition of sanctions.This rule has its genesis in United States v. Nixon, 418 U.S. 683, 94 S.Ct. 3090, 41 L.Ed.2d 1039(1974), where the Supreme Court created an exception to the traditional requirement that appeal of a discovery order requires a judgment of contempt.Noting that for a district court to hold the President of the United States in contempt merely in order to trigger appellate review of a court order involving a claim of executive privilege "would present an unnecessary occasion for constitutional confrontation between two branches of the Government,"the Supreme Court allowed an appeal directly from a discovery order without even a finding of contempt.Id. at 691-92, 94 S.Ct. at 3099.

We later rejected a proposal similarly to dispense with the contempt requirement in all cases in which the government asserts a privilege.National Super Spuds v. New York Mercantile Exchange, 591 F.2d 174, 177(2d Cir.1979).Noting the difficult position in which a government employee is placed when directed by a court to produce information and by his agency supervisors to withhold such information, however, we"softened the requirement of submission to contempt" in such cases.Id. at 180.We held that "[w]hen a present or former Government employee makes a non-frivolous assertion of governmental privilege at his agency's request, citation for civil contempt without any other immediate sanction pending prompt application for review will ordinarily suffice" to support an appeal.Id.

Nine years later, in In re Three Grand Jury Subpoenas Dated January 5, 1988, 847 F.2d 1024(2d Cir.1988), we transformed the limited exception for government employees asserting a nonfrivolous governmental privilege at the request of a government agency into a "general rule ... that only a citation for contempt, not the imposition of sanctions, is necessary for appellate review."Id. at 1028.In that case, an individual and two related businesses were adjudicated in contempt for refusing to permit in camera inspection of certain tapes that were the subject of a grand jury subpoena.The contempt order did not state whether the contempt was civil or criminal, nor did it state what sanctions were contemplated.Nonetheless, quoting Nixon and citing National Super Spuds, we concluded that ...