Ilan-Gat Engineers, Ltd. v. Antigua Intern. Bank, ILAN-GAT
| Decision Date | 27 July 1981 |
| Docket Number | No. 80-1951,ILAN-GAT,80-1951 |
| Citation | 212 U.S.App.D.C. 188,659 F.2d 234 |
| Parties | ENGINEERS, LTD., A.G./S.A., Appellant, v. ANTIGUA INTERNATIONAL BANK, et al. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Appeal from the United States District Court for the District of Columbia (D.C. Civil Action No. 79-02639).
William J. Conti, Washington, D.C., with whom Judson A. Gould, Washington, D. C., was on the brief, for appellant.
Before ROBINSON, Chief Judge, and TAMM and MIKVA, Circuit Judges.
Opinion for the Court filed by Circuit Judge MIKVA.
The plaintiff, Ilan-Gat Engineers, Ltd. (Ilan-Gat), a Swiss corporation whose principal place of business is in Israel, brought this action against the defendants on alternate theories of liability. If Antigua International Bank (AIB) is a bona fide corporation and Siegel its authorized agent, the plaintiff seeks relief from the corporation for breach of a settlement agreement. If not, Ilan-Gat seeks relief from Siegel, AIB's putative agent and only known shareholder, in his individual capacity. In addition, AIB counterclaims for its damages attributable to the plaintiff's alleged breach of the same agreement. 1
In the proceedings below, the plaintiff was unable to obtain discovery of certain information, even after the court ordered compliance. On the eve of trial, at a hearing on sanctions, the defendants argued for the first time that the court should dismiss the case on the ground that the corporate defendant was both an indispensable party and an alien whose presence destroyed diversity jurisdiction. The magistrate hearing the case delayed the imposition of sanctions to allow the defendants to file that motion in writing. She ultimately granted it and dismissed the case because she thought she had no power to impose sanctions in a case in which she lacked subject matter jurisdiction over the controversy.
We find that the magistrate erred both in failing to impose appropriate sanctions and in concluding that the corporate defendant was an indispensable party given the situation before her. We therefore reverse and remand for further proceedings not inconsistent with this decision.
On May 1, 1978, in Jerusalem, Israel, Ilan-Gat entered into a contract with AIB executed "For and on behalf of Antigua International Bank By s/Stanley Z. Siegel." See Appendix of Appellant (App.) at 110-12. The contract called for Ilan-Gat to perform construction and certain related sewage work on three sites in Antigua, West Indies. Two of the sites are hotels owned by the government of Antigua for which AIB is purportedly financing the construction. The third site is a banking facility on land purportedly owned by AIB and from which AIB intends to conduct a commercial banking business some day.
On February 22, 1979, this contract, which was then partially performed, was superseded by a second agreement. This settlement agreement detailed Ilan-Gat's remaining duties and terminated its participation in construction effective April 4, 1979, and defined all other rights, duties, and liabilities of the parties vis-a-vis one another. See App. at 120-22. The agreement, which had been drafted by Siegel, a Washington, D. C., lawyer, was signed in Antigua; Siegel signed it on behalf of AIB.
Pursuant to the settlement, between February 22, 1979, and April 4, 1979, the date on which Ilan-Gat's responsibilities under the contract were to end, AIB paid Ilan-Gat $100,000 in three payments. The agreement called for four additional payments between May 5, 1979, and August 5, 1979, totalling $150,000. These payments have never been made.
Ilan-Gat filed a complaint on October 2, 1979, seeking the $150,000 still due under the terms of the settlement agreement, plus an additional $15,000 in consequential damages such as travel costs and attorneys' fees. Ilan-Gat seeks relief from either Siegel or AIB depending on whether Siegel acted as the authorized agent of a bona fide corporation when he signed the settlement agreement.
In their answer, the defendants admit the existence of the settlement contract and their failure to make the final payments to Ilan-Gat. They maintain, however, that their liability for these payments was contingent upon Ilan-Gat's performance of its final duties. They allege that Ilan-Gat failed to perform these duties properly, and counterclaim for $150,000 in damages.
On November 6, 1979, at the first status call, the judge set a discovery deadline of March 31, 1980, and a trial date of May 28, 1980. Thereafter, the defendants failed to comply with the plaintiff's discovery requests; at one point Siegel even refused to allow the plaintiff to complete his deposition.
On March 10, 1980, the plaintiff filed a motion for an order compelling discovery and for sanctions. On March 31, 1980, the day discovery was to end, the defendants' lawyers moved for permission to withdraw from the case. They gave as their reason the inability of "the movant" and the defendants to "coordinate their efforts during the discovery and trial preparation stage of these proceedings" and resultant "irreconcilable differences ... which make it impossible to maintain an effective attorney-client relationship." Motion for Withdrawal of Appearance (Mar. 31, 1980). On April 3, the magistrate handling discovery ordered compliance by April 14, and the judge granted the motion for withdrawal as counsel but noted that the trial date remained May 28.
Thereafter, the defendants continued to refuse to comply with two major discovery requests. They refused to identify the owners of AIB other than Siegel, who purportedly owns forty percent of the corporation. The defendants assert that disclosure would breach the attorney-client privilege. They also maintain that Siegel is a fiduciary for the other owners, although they have made contradictory assertions about the existence of any trust document.
Plaintiff contends that information about the other owners of AIB is needed for two reasons. The defendants have filed a report, prepared by a small engineering firm, giving a negative evaluation of the plaintiff's work. If the members of this firm, or any of the defendants' other witnesses on the counterclaim, are also owners of AIB, the plaintiff will be able to use the witnesses' financial interest to impeach their testimony.
In addition, depending on the number and identity of the other owners, AIB may not be a bona fide corporation. It may be that the other owners are members of Siegel's family and that he has not treated the corporation as a distinct entity. Or the corporation may have fewer than the minimum number of shareholders required by Antiguan law. Or some of the shareholders may, in violation of Antiguan law, be officials of the Antiguan government. According to the plaintiff, under Antiguan law, Siegel and any other shareholders will be individually liable for AIB's debts if the corporation lacks the requisite number of qualified shareholders.
The plaintiff was also unsuccessful in obtaining more particular information about the defendants' counterclaim so that a defense could be prepared. In their answer, the defendants claimed damages due to the plaintiff's failure to perform certain construction work and purchase certain materials, and they attached a report prepared by Gordon, Belizaire and Partners, an engineering firm. During discovery, the defendants said they could not make any more particular statements describing the plaintiff's breach. The report was very short and conclusory, and it included many unsubstantiated statements. With few exceptions, it did not evaluate plaintiff's work in light of the technical drawings, plans, and blueprints, which would have indicated the work plaintiff was expected to perform and, therefore, whether plaintiff had failed to perform under the terms of the agreement.
Ilan-Gat was unable to analyze the conformance of the finished work with the specifications because, on April 4, 1979, at the insistence of the defendants, the plans, drawings, and blueprints were transferred to defendants' authorized representatives; according to Siegel's own testimony, Ilan-Gat was expected to transmit all these papers to the defendants and was not to retain copies. Thereafter, defendants relied on the non-conformance of the plaintiff's work to these specifications in making the counterclaim and made repeated assertions that they could not turn over the documents because the documents no longer existed. In his last deposition, however, Siegel, who had denied their existence in his earlier deposition, admitted the existence of the documents. The defendants also failed to turn over other papers, including accounting records, relevant to the counterclaim. 2
On May 2, 1980, defendants' new counsel consented to proceed before a magistrate, and trial was scheduled for July 14, 1980. On June 6, 1980, there was a hearing on the plaintiff's April 18, 1980, motion for entry of a default judgment and other sanctions, and the magistrate was inclined to enter a default judgment against both defendants and dismiss the counterclaim. Because the defendants argued that AIB was an indispensable party whose presence destroyed jurisdiction, the magistrate deferred entry of any formal ruling on sanctions to give the defendants time to file a written motion on that point.
On June 17, 1980, less than a month before the new trial date, the motion was filed. The plaintiff opposed the motion and argued that there was jurisdiction over AIB, and that, if there was not, the plaintiff should be allowed to amend the complaint and proceed against Siegel alone because AIB was not an indispensable party.
On July 1, 1980, the magistrate entered a memorandum opinion granting the defendants' motion and dismissing the action. The magistrate held that her lack of subject matter jurisdiction...
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