Jones v. Uris Sales Corporation

• Decision Date: 02 March 1967
• Docket Number: Docket 30825.,No. 255,255
• Parties: Mary Rickman JONES, individually and as a stockholder of Uris Sales Corporation, suing on behalf of herself and all other stockholders of Uris Sales Corporation, Plaintiff-Appellee, v. URIS SALES CORPORATION and Morton Penn, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

373 F.2d 644 (1967)

Mary Rickman JONES, individually and as a stockholder of Uris Sales Corporation, suing on behalf of herself and all other stockholders of Uris Sales Corporation, Plaintiff-Appellee, v. URIS SALES CORPORATION and Morton Penn, Defendants-Appellants.

No. 255, Docket 30825.

United States Court of Appeals Second Circuit.

Argued January 4, 1967.

Decided March 2, 1967.

Michael R. Kleinerman, New York City (Booth, Lipton & Lipton, New York City) (Harold L. Lipton, Arnold I. Biegen and Jeffrey L. Zivyak, New York City, of counsel), for defendants-appellants.

W. Bernard Richland, New York City (O'Dwyer & Bernstein, New York City) (Leon Hershbaum, of Counsel), for plaintiff-appellee.

Before LUMBARD, Chief Judge, and FRIENDLY and HAYS, Circuit Judges.

FRIENDLY, Circuit Judge:

Mary R. Jones, a citizen of North Carolina who owns 50% of the stock of Uris Sales Corporation, a New York corporation, brought this derivative action in the District Court for the Southern District of New York against the corporation and Morton Penn, a citizen of New York, who is its president, a director and owner of the other 50% of the stock, and who managed and dominated the corporation. Uris Sales Corporation was engaged in supplying merchandise to post exchanges of the armed forces in the United States and abroad. The thrust of the complaint was that Penn had diverted plaintiff's investment and other corporate assets to his own use and had competed with Uris Sales in dealing with post exchanges.

Plaintiff served a notice pursuant to F.R.Civ.P. 30(a) that she would take the deposition of Penn and of the corporation through him on November 12, 1963. Several sessions were had, but neither Penn nor his attorney appeared at one scheduled for January 27, 1964. Plaintiff thereupon moved under F.R. Civ.P. 37(d) for an order striking the answers, entering judgment and punishing Penn for contempt; upon a representation of counsel that defendants "remain ready, willing and able to appear for a continuation of the depositions and the furnishing of any additional information" immediately upon Penn's return from Europe, Judge Wyatt granted plaintiff's motion unless the defendants appeared on April 2, 1964, "and then and there submit themselves to pre-trial deposition by the plaintiff and continue thereafter from day to day until such pre-trial deposition is fully concluded." After various occasions on which Penn appeared, but without bringing any books or records,¹ plaintiff served a subpoena duces tecum requiring Penn to produce at a session on July 21 various documents including copies of his income tax returns and of his correspondence with plaintiff from 1957 to date; all records evidencing loans from Penn to Uris Sales; records of all bank deposits by Penn in his own name, on his behalf or for his use from 1957 to date; all records, including bank deposits and deposit slips, of all monies received by Penn from plaintiff, International Sales Service Co. (the company to which Penn allegedly had diverted defendant corporation's business), the defendant corporation and others; and all records of monies, including cancelled checks, paid or advanced to International, the defendant corporation, plaintiff and others.

On July 20 defendants moved to quash the subpoena; plaintiff countered on August 3 with a motion to strike the answers because of Penn's failure to appear on July 21 as required by Judge Wyatt's order. Both motions were denied on September 21 by Judge MacMahon who directed, however, that Penn appear within ten days and thereafter until his examination was completed, and that if he wilfully failed to do this, plaintiff should have judgment by default under F.R.Civ.P. 37(d). Penn appeared on September 30 without a single record, claiming he had been unable to find any; he said, however, that he was still searching and that his efforts as to two of the required items had been hindered by his bookkeeper's absence on vacation. At an adjourned hearing on October 21 Penn again failed to produce copies of the income tax returns or the correspondence, which he insisted he had been unable to locate, of cancelled checks evidencing loans by him to Uris Sales Corporation, or any record of bank deposits, including deposit slips of monies received from International, Uris, plaintiff or various others, although he admitted he had seen some such slips on the bookkeeper's desk. His excuse for not bringing these was that he thought plaintiff's counsel did not want anything less than the complete record; he admitted not having inquired as to this even from his own attorney.

Counsel and the reporter then repaired to Judge MacMahon's chambers, where plaintiff's attorney orally moved to strike the answer and give "the relief he is entitled to." After hearing counsel argue and the reporter read his notes of that day's depositions, the judge announced he would give Penn "twenty-four hours in which to comply, twenty-four hours, and any more of this nonsense and I will grant appropriate relief," specifically the appointment of a special master to preside over the taking of the depositions at Penn's expense. He asked Penn's counsel, "Is that clear?" Counsel replied that it was, adding he would insist that Penn go back to his office "and get whatever he has got." The judge concluded by directing that Penn appear the following morning and "produce all of the documents called for in that subpoena."

When Penn appeared on October 22, he agreed to sign an authorization enabling plaintiff to obtain copies of his tax returns from the federal and state tax authorities which he had previously declined to do except by express court order, and he produced some cancelled checks and deposit slips allegedly evidencing some of Penn's loans to Uris, 44 files of business correspondence and a single letter from the plaintiff written in 1951, alleging inability to find 15 to 20 later ones. However, he produced nothing in the way of deposit slips or bank records of deposits in his own name or for his use, although he professed willingness to bring bank statements at some future time and explained his failure to produce them then on the basis that he wanted first to find out if they were suitable, although again he had not even asked his own counsel. On this being reported in a further appearance in chambers, Judge MacMahon granted plaintiff's motion to strike the answer. On November 12 he signed an order finding Penn in contempt, fining him $500, striking his answer, granting judgment by default, and appointing a special master to determine and assess the damages. Penn sought to appeal the order to this court which dismissed the appeal for lack of jurisdiction, as it quite obviously had to do. On March 30, 1966, after holding 10 hearings, the master recommended that judgment be entered directing Penn to pay Uris Sales Corporation $72,981.93, with interest of $23,607.24, a total of $96,589.17, and to pay plaintiff $20,000 for counsel fees. The...