Govas v. Chalmers

• Decision Date: 07 October 1992
• Docket Number: No. 91-1687,91-1687
• Parties: Fed. Sec. L. Rep. P 96,852, 22 Fed.R.Serv.3d 729 Nicholas GOVAS and Andrew Yiannias, Plaintiffs-Appellants, v. Shirley CHALMERS, Executor of the Estate of Hymen P. Chalmers, Andy Nanos and Electronic, Missiles & Communications, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 298

965 F.2d 298

Fed. Sec. L. Rep. P 96,852, 22 Fed.R.Serv.3d 729

Nicholas GOVAS and Andrew Yiannias, Plaintiffs-Appellants, v. Shirley CHALMERS, Executor of the Estate of Hymen P Chalmers, Andy Nanos and Electronic, Missiles &amp Communications, Incorporated Defendants-Appellees.

No. 91-1687.

United States Court of Appeals Seventh Circuit.

Argued Jan. 16, 1992.

Decided June 2, 1992.

Rehearing Denied Oct. 7, 1992.

Daniel F. Webb, Chicago, Ill. (argued), for plaintiff-appellant.

Ronald L. Marmer, Howard R. Barron, Howard S. Suskin (argued), James A. Geocaris, Jenner & Block, William M. McErlean, Rudnick & Wolfe, Chicago, Ill., for defendants-appellees.

Before BAUER, Chief Judge, KANNE, Circuit Judge, and WOOD, JR., Senior Circuit Judge.

HARLINGTON WOOD, JR., Senior Circuit Judge.

This case illustrates the proverbial straw that broke the camel's back. Judge Williams dismissed the plaintiffs' claims for discovery violations. Plaintiffs argue that we should reverse Judge Williams because dismissal is too harsh a sanction on these facts. As Judge Williams recognized, the plaintiffs' conduct was "dilatory and evasive" throughout the course of litigation. December 3, 1990, Memorandum Opinion and Order at 5, 1990 WL 205275. Moreover, Judge Williams forewarned plaintiffs after repeated discovery violations that any further evasive conduct would result in dismissal. Despite this admonition, the plaintiffs again failed to comply with discovery requests. This was understandably the final straw and we affirm this dismissal.

I.

In 1986 Nick Govas and Andrew Yiannias filed a suit for violations of the Securities Exchange Act of 1934, the Racketeer Influenced and Corrupt Organizations Act, and common law fraud against Hymen Paul Chalmers, Andy Nanos and Electronics, Missiles & Communications, Incorporated (collectively referred to as "EMC"). (Tina Parakevopoulos was also a plaintiff in this suit, however, she has not joined in the appeal before us today.) In May 1987, EMC served the plaintiffs with the first set of interrogatories and requests for documents. Govas and Yiannias belatedly served written responses to these discovery requests and then refused for nearly two years to release their documents for defendants' inspection. Throughout this period EMC sought to compel discovery.

On February 7, 1989, the district court issued a minute order in response to EMC's motion to dismiss Parakevopoulos's claims. Although denying this motion, the district court admonished all the plaintiffs that a continuation of their pattern of dalliance and delay would not be tolerated. In April of 1989 EMC served plaintiffs with second requests for document production and second sets of interrogatories.

Despite the February 1989 admonishment, the plaintiffs came before the district court again on a motion for dismissal for discovery violations. This time the motion for dismissal was directed at all three plaintiffs. Judge Williams responded to this motion on December 21, 1989. Judge Williams's December 1989 Memorandum Opinion and Order is replete with examples of plaintiffs' continued evasive and dilatory tactics. Even more startling than the incidents of delay is the district court's indication that Govas and Yiannias tried to hide evidence which weakened their claims. For example, this order indicates that Govas failed to disclose information about substantial profits received from the sale of a large amount of EMC stocks before November 1985--a fact that seems to contradict Govas's allegations that he incurred substantial losses as a result of retaining EMC stock, and a fact that directly contradicts Govas's prior allegation that he retained his EMC shares until around November 1985. Apparently, Yiannias was also guilty of conveniently failing to disclose potentially harmful information. For example, in response to an interrogatory asking for disclosure of his bank accounts, Yiannias revealed only two accounts. It was later revealed, however, that Yiannias had eleven other accounts. The district court did not buy Yiannias's argument that this misstatement was unintentional. Indeed, we cannot help but question whether Yiannias in making this misstatement was hiding financial information that could have weakened his argument that he suffered large losses as a result of holding EMC stock.

Despite the district court's clear recognition that the plaintiffs had engaged in dilatory and evasive discovery tactics, the district court patiently refrained and, therefore, denied EMC's motion for dismissal. The district court did, however, award costs and a $1,000 sanction against plaintiffs. And, more importantly, the district court warned the plaintiffs, in this December 1989 order, that "any other dilatory, evasive or improper conduct whatsoever will result in the dismissal of [the plaintiffs'] case with prejudice." December 21, 1989, Memorandum Opinion and Order at 8, 1989 WL 157506.

On January 8, 1990, after receiving this warning, plaintiffs supplemented their interrogatory responses. In doing so, plaintiffs informed EMC that they had further documents in response to interrogatories. On January 31, 1990, defense counsel went to plaintiffs' attorneys' offices to inspect these extra documents. Plaintiffs' counsel then presented defense counsel with 8,957 documents. Plaintiffs presented this mass of documents in response to Interrogatory No. 2--an interrogatory served on plaintiffs in May of 1987. The instructions to the interrogatories made it clear that plaintiffs were to identify which plaintiffs, if any, received each document. The plaintiffs did not comply with these instructions. Because this information was important to EMC's case, EMC repeatedly requested plaintiffs to identify these documents. Plaintiffs have yet to identify the great majority of these documents.

Finally, on March 15, 1990, EMC filed a renewed motion to dismiss, alleging that plaintiffs' failure to identify the thousands of new documents violated discovery rules and the court's December 21, 1989, order. Judge Williams referred this motion to Magistrate Judge Bucklo for a report and recommendation. Magistrate Judge Bucklo found that the plaintiffs' depositions and answers to Interrogatory No. 8 provided defendants with sufficient information regarding these voluminous documents. Moreover, Magistrate Judge Bucklo determined that the plaintiffs' failure to comply with Interrogatory No. 2 was not willful. Magistrate Judge Bucklo then recommended that the district court deny the motion to dismiss.

The district court did not agree with Magistrate Judge Bucklo's characterization of the plaintiffs' conduct. To the contrary, the district court concluded that the plaintiffs' failure to identify these 9,000 documents constituted a willful continuance of dilatory and evasive discovery tactics despite explicit warnings. For this reason, on December 3, 1990, the district court granted EMC's renewed motion for dismissal, and on March 11, 1991, the district court denied the plaintiffs' motion for reconsideration. Govas and Yiannias appeal. We affirm.

II.

The first argument raised in plaintiffs' brief to this court is that Judge Williams applied the wrong standard of review when evaluating the magistrate judge's recommendation to deny dismissal. Namely, plaintiffs argue in this brief that Judge Williams should have reviewed the magistrate judge's order under the clearly erroneous or contrary to law standard rather than the de novo standard. However, as the plaintiffs seemed to concede at oral argument, the district court reviews de novo a magistrate judge's recommendations on dispositive motions. See 28 U.S.C. § 636(b)(1)(B), (C); Fed.R.Civ.P. 72(b). A motion to dismiss is a dispositive motion, and therefore the district court appropriately applied the de novo standard of review.

EMC moved for dismissal under Rules 37 and 41(b) of the Federal Rules of Civil Procedure. Rule 41(b) is a general provision allowing dismissal for violations of court orders, whereas Rule 37 allows dismissal for violations of discovery rules and discovery orders. Because Rule 37 is tailored to the discovery context, the Supreme Court has indicated that Rule 37, and not Rule 41(b), applies to dismissals in this context. Societe Internationale v. Rogers, 357 U.S. 197, 206-07, 78 S.Ct. 1087, 1092-93, 2 L.Ed.2d 1255 (1957). Plaintiffs' dilatory and evasive discovery tactics lead to Judge Williams's dismissal, and we will, therefore, review this dismissal under Rule 37.

Rule 37(b) of the Federal Rules of Civil Procedure authorizes the district court to dismiss an action or proceeding when a litigant fails to obey a court order directing discovery. Moreover, Rule 37(d) authorizes dismissal when a party fails to serve answers or objections to interrogatories submitted under Rule 33. We review Rule 37 dismissals for abuse of discretion, Hindmon v. National-Ben Franklin Life Insurance Corp., 677 F.2d 617, 620 (7th Cir.1982), and we review the factual findings underlying such dismissals under the clearly erroneous standard, id. at 621.

As the above facts make clear, the district court did not dismiss this case for an isolated discovery violation. To the contrary, the plaintiffs demonstrated evasive and dilatory discovery tactics for several years before this dismissal. The record lists several incidents where the plaintiffs delayed in turning over records and in otherwise responding to interrogatories--including the nearly three-year delay in turning over the 9,000 documents which lead to the dismissal of this case. Moreover, as we indicated above, plaintiffs conveniently withheld information which might have been harmful to their case.

The plaintiffs' tactics did not go without warning. In fact, the district court gave one warning in a February 1989 minute order, and in December of 1989, Judge Williams issued a more direct and explicit admonition that "any other dilatory, evasive or improper...