Falstaff Brewing Corp. v. Miller Brewing Co.

Decision Date28 March 1983
Docket NumberNo. 81-4214,81-4214
Citation702 F.2d 770
Parties1983-1 Trade Cases 65,300 FALSTAFF BREWING CORPORATION, General Brewing Company S & P Company, Plaintiffs-Appellants, v. MILLER BREWING COMPANY, and Philip Morris, Incorporated, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Theodore F. Schwartz, Clayton, Mo., Quentin L. Kopp, Kopp & DiFranco, San Francisco, Cal., for plaintiffs-appellants.

Daniel M. Lewis, Arnold & Porter, Washington, D.C., Stephen Bomse, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Northern District of California.

Before WALLACE, HUG, and ALARCON, Circuit Judges.

ALARCON, Circuit Judge.

The Falstaff Brewing Corporation (Falstaff) has appealed from the order of the district court finding Falstaff in contempt for inter alia failing to return documents as required by a protective discovery order and imposing costs payable to Miller Brewing Co. (Miller) for the expenses incurred by Miller in an attempt to locate the missing items. We are asked to decide whether the facts support a finding of civil or criminal contempt. We conclude that they do not and reverse the contempt order. We affirm the award of expenses, including attorney's fees, attributable to the vain quest for the lost files.


Falstaff raises the following issues on this appeal:

One. If the contempt order is criminal in nature, the district court violated Falstaff's right to due process by failing to accord Falstaff proper notice and a hearing as required by Rule 42 of the Federal Rules of Criminal Procedure. Further, we are told that the evidence fails to show that Falstaff was guilty of wilful disobedience of the district court's order.

Two. If the order is construed as civil in nature, it is invalid as a compensatory contempt because the fine was not made payable to Miller, and it cannot be coercive contempt because the record shows that compliance with the court's order to return the missing documents was impossible.

Three. The award of attorney's fees as part of the expenses incurred in searching for the missing files was excessive and unsupported by a record of the hours spent, the work performed, and the hourly rate ascribed to these services.


In December, 1977, Falstaff brought an action in the district court seeking relief from Miller and others for alleged violations of sections 1 and 2 of the Sherman Act, and sections 2(c) and 7 of the Clayton Act. The parties stipulated to a protective order against disclosure of the materials produced for discovery. The order was entered on July 8, 1980. It provides in pertinent part as follows:

With the consent of all parties, it is hereby ordered that whenever any party ... deems any document or other material ... confidential, the following procedure shall be employed:

1. Confidential matter shall be produced only to outside counsel....

2. Confidential matter produced or otherwise made available to such outside counsel or its contents shall not be used by anyone for any purpose ... other than the preparation and trial....

3. Outside counsel of any party who obtains any confidential matter from any other party shall not disclose it to anyone ... and shall protect it and its contents from all disclosure....

* * *

* * *

9. Within 90 days after final settlement ..., discovering counsel shall at the option of the party from which such matter was obtained return or destroy all copies, notes, tapes, other papers, and any other medium containing, summarizing, excerpting, or otherwise embodying any confidential matter or its contents so furnished....

In the early part of June, 1980, Falstaff discharged its legal counsel, the Gordon, Thomas, Honeywell, and Malanca firm (Malanca firm) and employed the Schwartz firm. On June 18, 1980, Falstaff voluntarily dismissed its claims. On July 1, 1980, approximately two weeks after the entry of the order dismissing the case with prejudice, Cary Adams, Miller's counsel, requested that Falstaff's current counsel, the Schwartz firm, return all confidential Miller documents within ninety days as required by the discovery order. The Schwartz firm failed to return 1,169 pages of original Miller documents; it sent Miller only duplicates of the documents.

On October 4, 1980, Miller filed a motion requesting that the court issue an order holding Falstaff in contempt for violating the protective discovery order. In support of the motion, Adams submitted an affidavit in which he explained his attempts to recover the missing documents. Miller informed the court that the ninety-day period for compliance had expired on September 16, 1980. Falstaff had returned only duplicates of the original 1,169 pages of Miller documents produced for discovery purposes. Miller asserted that it was seeking the contempt order to ensure that Falstaff comply with the protective order and return the original documents.

Miller requested that the court order Falstaff to allow Miller to search all of Falstaff's files and to pay all of Miller's costs and expenses in conducting the search. Miller also asked the court to impose a fine of $5,000, to be refunded if the documents were returned within 30 days of the order. The purpose of the suggested fine was to "provide an incentive to plaintiffs to return the documents and to cooperate fully with defendants search for them."

Falstaff's former and present counsel filed affidavits in opposition to the motion. Each attorney denied that he was responsible for the loss of the documents. Falstaff also submitted the affidavit of the president of General Brewing Company. He asserted that after the Malanca firm had ceased to represent Falstaff, the firm shipped sealed cartons to Falstaff's office in Corte Madera, the contents of which were unknown to anyone at that office. According to the president of General Brewing Company, Falstaff's current counsel, Theodore Schwartz, inspected these cartons in Corte Madera and directed that all the cartons, except two be shipped to his office in St. Louis. Thereafter, Schwartz directed that the remaining cartons be shipped to his office in St. Louis.

After considering the various affidavits of counsel for both parties the district court issued the following order:

Defendants are authorized to investigate at plaintiffs' expense the circumstances relating to the present inability of plaintiffs and their past and current counsel to locate various confidential documents produced during this litigation by defendants under the protective order in effect in these cases (the "investigation"). Plaintiffs and their past and current counsel are instructed to cooperate fully with counsel for defendants in this investigation. Plaintiffs and their past and present counsel shall make themselves, their officers, employees, associates, paralegals, secretaries and others who may have knowledge about the missing documents available for interview or deposition by counsel for defendants. Plaintiffs and their past and current attorneys shall make all records and files related to this litigation [and to related pending actions] available for inspection by counsel for defendants....

2. Plaintiffs shall, subject to further order of the court, pay all reasonable expenses and attorney's fees incurred by defendants in conducting the investigation. By October 31, 1980, plaintiffs shall pay to the clerk of this court the sum of $5,000, in cash or cashier's check which sum shall be deposited in interest-bearing account and shall be used to reimburse defendants for the expenses and fees incurred by defendants.

3. Within 30 days of the entry of this order, defendants shall report to this court the results of their investigation. Such report shall include an affidavit of expenses and attorney's fees.

4. At this time, the court does not find plaintiffs or their past or present counsel in contempt. However, this court reserves all questions of further relief for defendants and/or sanctions against plaintiffs and/or their past and current counsel pending the outcome of this investigation. (emphasis supplied).

Pursuant to this order, an investigation was conducted by Gary Adams and a paralegal during a four-day period between November 3-6, 1980. On December 12, 1980, Adams filed both the results of the investigation and a renewed motion for contempt.

By affidavit, Adams explained the procedure that he followed and the results of his intensive investigation. Adams and his assistant interviewed the employees and executives of both Falstaff and its attorneys, present and former, and inspected "all documents and files relating to this litigation and the document storage areas where missing documents were kept." Adams characterized all persons interviewed as cooperative. He "was able to interview ... everyone identified as possibly having knowledge concerning the documents or their whereabouts," and he was given "ample opportunity to search all the offices and document storage areas identified as ever having housed the documents."

Adams determined that when former counsel withdrew, they shipped all of Falstaff's litigation files--including some of the confidential Miller documents--to Falstaff. Falstaff stated that it never opened the boxes sent by former counsel, and upon request, it shipped the boxes to the Schwartz firm via federal express. During the investigation, Adams determined that, after the Schwartz firm received the shipment, the labels were removed and the same boxes were shipped to Miller via federal express. Adams reported, and Falstaff's officers attested in their affidavits, that Falstaff's officers had no knowledge as to whether the boxes sent to them contained Miller documents. None of these boxes contained the missing Miller documents which were the subject of the court's coercive order.

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