Ehrenhaus v. Reynolds

• Citation: 965 F.2d 916
• Decision Date: 29 May 1992
• Docket Number: No. 90-1216,90-1216
• Parties: Jack EHRENHAUS, Plaintiff-Appellant, v. James R. REYNOLDS, Kalman Lifson, Paul E. Grinager, Alan S. Leibel, Kay Leibel, Robert W. Martin, John R.P. Wheeler, Russ Kraft, Bud Abrahamson, James Barash, R. Tim McKenna, Deloitte Haskins & Sells, a general partnership, Richard Arnold and John Does, individually and as partners doing business as Deloitte Haskins & Sells, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 916

965 F.2d 916

22 Fed.R.Serv.3d 1214

Jack EHRENHAUS, Plaintiff-Appellant, v. James R. REYNOLDS, Kalman Lifson, Paul E. Grinager, Alan S.

Leibel, Kay Leibel, Robert W. Martin, John R.P. Wheeler,

Russ Kraft, Bud Abrahamson, James Barash, R. Tim McKenna,

Deloitte Haskins & Sells, a general partnership, Richard

Arnold and John Does, individually and as partners doing

business as Deloitte Haskins & Sells, Defendants-Appellees.

No. 90-1216.

United States Court of Appeals, Tenth Circuit.

May 29, 1992.

Lawrence J. Kaiser, Lord Day & Lord, Barrett Smith, New York City (Asher Fensterheim, James M. Felix, and Elisabeth Seieroe Maurer, Fink Weinberger, P.C., with him, on the brief), for plaintiff-appellant.

Richard W. Casey, Giauque, Crockett & Bendinger, Salt Lake City, Utah, and Edwin S. Kahn, Kelly/Haglund/Garnsey & Kahn, Denver, Colo. (Ann B. Frick, Kelly/Haglund/Garnsey & Kahn, Joseph B. Dischinger, Mosley, Wells, Johnson & Ruttum, P.C., Denver, Colo., Gary F. Bendinger, Giauque, Crockett & Bendinger, Salt Lake City, Utah, Kurt Lewis and Barry Weinert, Lewis, Weinert & Powell, P.C., Denver, Colo., Christopher M. Weil and Anthony A. Petrocchi, Weil & Petrocchi, P.C., Dallas, Tex., with them, on the brief), for defendants-appellees.

Before EBEL, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and JENKINS, District Judge. ^*

EBEL, Circuit Judge.

In this appeal, we consider the scope of a district court's discretion to dismiss a complaint with prejudice pursuant to Rule 37(b)(2)(C) of the Federal Rules of Civil Procedure as a sanction for the intentional violation of a discovery order. The court had ordered the appellant to appear for a scheduled deposition and had warned him that the court would dismiss his complaint if he did not comply. The appellant failed to attend the deposition and subsequently declared bankruptcy. The case was assigned to a different judge, who then dismissed the complaint with prejudice when he found that the appellant advanced no good cause to excuse his nonattendance. It is within a court's discretion to dismiss a case if, after considering all the relevant factors, it concludes that dismissal alone would satisfy the interests of justice. We hold that the court adequately considered these factors and accordingly affirm the judgment below.

In May 1989, the appellant, Jack Ehrenhaus, filed a complaint alleging securities fraud in the United States District Court for the District of Colorado. As part of pretrial discovery, the appellees, defendants in the action below, deposed Ehrenhaus for three days in November 1989, during which time Ehrenhaus repeatedly invoked the attorney-client privilege. The parties agreed to complete the deposition at a later date. Disagreement between Ehrenhaus and his counsel led the latter to move to withdraw from the representation in December 1989. The district court had not ruled on that motion as of the time that the sanction of dismissal was ordered. Hence, during all relevant times, Ehrenhaus was represented by counsel.

The appellees scheduled the remainder of Ehrenhaus' deposition for March 12, 1990. At a hearing on March 2, 1990, Judge Carrigan the judge originally assigned to hear the case, expressed impatience with Ehrenhaus' conflicts with his attorneys because the judge viewed such conflicts as a delaying tactic. Judge Carrigan ordered the parties to hold the deposition in the Denver federal courthouse so that he could rule immediately on any assertions of attorney-client privilege raised by Ehrenhaus. In addition, the judge warned Ehrenhaus' counsel that if Ehrenhaus failed to attend the deposition, he would "expect a motion from the defendants that [the] case be dismissed for failure to cooperate in discovery." ¹

On March 8, Ehrenhaus moved for a protective order to delay the scheduled deposition for five days to allow him to attend a business meeting in New York. Ehrenhaus' business was in severe financial trouble, and he asserted that it was essential that he attend this meeting, scheduled for March 12, in order to save his business from bankruptcy. A magistrate denied the motion and warned that Ehrenhaus would subject himself to sanctions provided under Fed.R.Civ.P. 37 if he failed to attend the deposition.

Ehrenhaus did not appear at the March 12 deposition, although his counsel did attend. Ehrenhaus met instead with bankruptcy counsel in New York. The next day, he filed for protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. Within several days, the appellees moved to have the complaint dismissed with prejudice pursuant to Fed.R.Civ.P. 37(b)(2)(C). The court immediately issued an order to show cause why it should not dismiss the suit and ordered Ehrenhaus' counsel to "serve notice of this order on [Ehrenhaus] personally." R., Vol. I, Doc. 26.

The case was transferred to Judge Sparr in May 1990. In June 1990, the court held a hearing on the motion to dismiss. At this hearing, Judge Sparr stated he was sitting "as a court reviewing the evidence and the arguments of counsel to determine if good cause is shown why the Court should not dismiss" the case for Ehrenhaus' violation of the order to appear for the deposition. R., Vol. VI, at 10. Subsequently, Judge Sparr issued an order dismissing the complaint with prejudice. In this order, the judge made specific findings of fact that Ehrenhaus had willfully violated the court's order to appear.

Ehrenhaus filed a timely notice of appeal. ² We have jurisdiction under 28 U.S.C. § 1291.

On appeal, we must consider three issues. First, what effect did Ehrenhaus' filing for bankruptcy have on the court's ability to impose a sanction? Second, what factors should a court ordinarily consider in determining whether to dismiss an action as a sanction? Third, did the district court consider these factors before deciding to dismiss?

I.

When Ehrenhaus filed for bankruptcy, his estate became the successor-in-interest to the lawsuit. In re Ozark Restaurant Equip. Co., 816 F.2d 1222, 1225 (8th Cir.), cert. denied, 484 U.S. 848, 108 S.Ct. 147, 98 L.Ed.2d 102 (1987). However, the estate's property interest in the lawsuit did not come unencumbered. Prior to filing for bankruptcy, Ehrenhaus engaged in conduct that subjected the lawsuit to the risk of dismissal. Because the trustee's interest is no greater than that of the debtor, Paul v. Monts, 906 F.2d 1468, 1473 (10th Cir.1990) (per curiam); see Pearlman v. Reliance Ins. Co., 371 U.S. 132, 135, 83 S.Ct. 232, 234, 9 L.Ed.2d 190 (1962), the trustee took possession and control of a lawsuit encumbered by Ehrenhaus' misconduct and, as successor-in-interest, was subject to sanction for that misconduct. Although the sanction now affects parties other than the one who engaged in the wrongful conduct, the nature of the property interest transferred cannot be altered. Nonetheless, it would not exceed a district court's discretion to consider whom the sanction affected in determining what sanction was appropriate. Cf. In re Sanction of Baker, 744 F.2d 1438, 1442 (10th Cir.1984) (en banc) (impact of sanction should be lodged with either counsel or client, depending on which was at fault), cert. denied, 471 U.S. 1014, 105 S.Ct. 2016, 85 L.Ed.2d 299 (1985).

II.

Rule 37(b)(2)(C) of the Federal Rules of Civil Procedure permits a court to issue "[a]n order ... dismissing the action" "[i]f a party ... fails to obey an order to provide or permit discovery." Determination of the correct sanction for a discovery violation is a fact-specific inquiry that the district court is best qualified to make. Therefore, we review the district court's decision to dismiss for discovery violations under an abuse of discretion standard. National Hockey League v. Metropolitan Hockey Club, 427 U.S. 639, 642, 96 S.Ct. 2778, 2780, 49 L.Ed.2d 747 (1976) (per curiam); In re Standard Metals Corp., 817 F.2d 625, 628 (10th Cir.), modified on other grounds sub nom Sheftelman v. Standard Metals Corp., 839 F.2d 1383 (10th Cir.1987) (per curiam), cert. dismissed, 488 U.S. 881, 109 S.Ct. 201, 102 L.Ed.2d 171 (1988).

At the outset, we recognize that dismissal represents an extreme sanction appropriate only in cases of willful misconduct. Meade v. Grubbs, 841 F.2d 1512, 1520 (10th Cir.1988); M.E.N. Co. v. Control Fluidics, Inc., 834 F.2d 869, 872-73 (10th Cir.1987); Standard Metals, 817 F.2d at 628-29. In many cases, a lesser sanction will deter the errant party from further misconduct. "Because dismissal with prejudice 'defeats altogether a litigant's right to access to the courts,' it should be used as 'a weapon of last, rather than first, resort.' " Meade, 841 F.2d at 1520 n. 6 (citations omitted). ³

The district court's discretion to choose a sanction is limited in that the chosen sanction must be both "just" and "related to the particular 'claim' which was at issue in the order to provide discovery." Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707, 102 S.Ct. 2099, 2106, 72 L.Ed.2d 492 (1982). Before choosing dismissal as a just sanction, a court should ordinarily consider a number of factors, including: "(1) the degree of actual prejudice to the defendant; (2) the amount of interference with the judicial process; ... (3) the culpability of the litigant," Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1465 (10th Cir.1988) (quoting Meade, 841 F.2d at 1521 n. 7 (10th Cir.1988)); (4) whether the court warned the party in advance that dismissal of the action would be a likely sanction for noncompliance, see, e.g., Willner v. University of Kansas, 848 F.2d 1023, 1030 (10th Cir.1988) (per curiam), cert. denied, 488 U.S. 1031, 109 S.Ct. 840, 102 L.Ed.2d 972 (1989); Standard Metals, 817 F.2d at 629; Moon v. Newsome, 863 F.2d 835, 837 (11th Cir.), cert. denied, 493 U.S. 863, 110 S.Ct. 180, 107 L.Ed.2d 135 (1989); Spiller v. U.S.V. Labs., Inc., 842 F.2d 535, 538 (1st Cir.1988); and (5)...