Select Creations, Inc. v. Paliafito America, Inc., 91-C-1240

• Decision Date: 19 August 1993
• Docket Number: No. 91-C-1240,92-C-214.,91-C-1240
• Citation: 830 F. Supp. 1223
• Court: U.S. District Court — Eastern District of Wisconsin
• Parties: SELECT CREATIONS, INCORPORATED, a Wisconsin corporation, Plaintiff, v. PALIAFITO AMERICA, INCORPORATED, an Illinois corporation, Defendant, Counterplaintiff and Third-Party Plaintiff, v. Miryoung (or "Mi Ryoung") LEE, a/k/a "Joy Lee", "Melody Lee", "Miryoung Song", "Miryoung Deering", "Miryoung Deering Song" and "Miryoung Melody Lee", an alien (No. A 36510736); Jong Sik (a/k/a "Jerry") Lee, an alien; Mantae Company Limited, a Korean corporation; Many Amazing Ideas, Incorporated, f/k/a "Mantae America, Incorporated", a New York corporation; Mai Limited, a Korean corporation; Puff Pac Production, Limited, a Korean corporation; Best International Corporation, a Korean corporation; Chusik Hosea Kyongyong a/k/a "Marue Joint Stock Trading Company", d/b/a "Best General Merchandise Corporation" and "Best General Merchandise (USA)", a Korean corporation; Grip Toys, Incorporated, f/k/a "MAI, Limited", a Nevada corporation; Bertrand A. Levesque, a California, citizen; Keith D. Nowak, a New Jersey citizen; Lieberman, Rudolph & Nowak, a New York partnership; Samuel Petrovich, a Wisconsin citizen; Thomas Meisenheimer, a Wisconsin citizen; Paul Moss, a Minnesota citizen; Paul Moss & Company, Incorporated, a Minnesota corporation; Robert C. Hooper, a California citizen; Steven Composto, a New York citizen; Forman Marketing & Sales Corporation, a New York corporation; Keith Andes, individually and d/b/a Andes and Company, a Tennessee citizen; Andes America, Incorporated, a Tennessee corporation; Dayton Hudson Corporation, d/b/a "Target Stores", a Minnesota corporation; and John Does I-XX, non-Illinois, citizens; Third Party Defendants, and Select Creations, Incorporated, a Wisconsin corporation, Counterdefendant. PALIAFITO AMERICA, INCORPORATED, an Illinois corporation, Plaintiff, v. DAYTON HUDSON CORPORATION, a Minnesota corporation doing business through Target Stores, a division of Dayton Hudson Corporation, Defendant and Third-Party Plaintiff, v. MANTAE AMERICA, INCORPORATED, a/k/a Many Amazing Ideas, Incorporated, a New York corporation, Third-Party Defendant.

830 F. Supp. 1223

SELECT CREATIONS, INCORPORATED, a Wisconsin corporation, Plaintiff, v. PALIAFITO AMERICA, INCORPORATED, an Illinois corporation, Defendant, Counterplaintiff and Third-Party Plaintiff, v. Miryoung (or "Mi Ryoung") LEE, a/k/a "Joy Lee", "Melody Lee", "Miryoung Song", "Miryoung Deering", "Miryoung Deering Song" and "Miryoung Melody Lee", an alien (No. A 36510736); Jong Sik (a/k/a "Jerry") Lee, an alien; Mantae Company Limited, a Korean corporation; Many Amazing Ideas, Incorporated, f/k/a "Mantae America, Incorporated", a New York corporation; Mai Limited, a Korean corporation; Puff Pac Production, Limited, a Korean corporation; Best International Corporation, a Korean corporation; Chusik Hosea Kyongyong a/k/a "Marue Joint Stock Trading Company", d/b/a "Best General Merchandise Corporation" and "Best General Merchandise (USA)", a Korean corporation; Grip Toys, Incorporated, f/k/a "MAI, Limited", a Nevada corporation; Bertrand A. Levesque, a California, citizen; Keith D. Nowak, a New Jersey citizen; Lieberman, Rudolph & Nowak, a New York partnership; Samuel Petrovich, a Wisconsin citizen; Thomas Meisenheimer, a Wisconsin citizen; Paul Moss, a Minnesota citizen; Paul Moss & Company, Incorporated, a Minnesota corporation; Robert C. Hooper, a California citizen; Steven Composto, a New York citizen; Forman Marketing & Sales Corporation, a New York corporation; Keith Andes, individually and d/b/a Andes and Company, a Tennessee citizen; Andes America, Incorporated, a Tennessee corporation; Dayton Hudson Corporation, d/b/a "Target Stores", a Minnesota corporation; and John Does I-XX, non-Illinois, citizens; Third Party Defendants, and Select Creations, Incorporated, a Wisconsin corporation, Counterdefendant.

PALIAFITO AMERICA, INCORPORATED, an Illinois corporation, Plaintiff, v. DAYTON HUDSON CORPORATION, a Minnesota corporation doing business through Target Stores, a division of Dayton Hudson Corporation, Defendant and Third-Party Plaintiff, v. MANTAE AMERICA, INCORPORATED, a/k/a Many Amazing Ideas, Incorporated, a New York corporation, Third-Party Defendant.

Nos. 91-C-1240, 92-C-214.

United States District Court, E.D. Wisconsin.

August 19, 1993.

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Robert H. Storm, Canellos & Storm, Wauwatosa, WI, for Select Creations, Inc., Samuel Petrovich and Thomas Meisenheimer.

Harold A. Laufer, Davis & Kuelthau, Milwaukee, WI, David E. Springer, John K. Lyons, Skadden, Arps, Slate, Meagher & Flom, Chicago, IL, for Paliafito America, Inc.

David F. Loeffler, Krukowski & Costello, Milwaukee, WI, for Joy and Jerrold Lee.

Scott W. Hansen, Patrick Hodan, Reinhardt, Boerner, Van Druren, Norris & Rieselbach, Milwaukee, WI, for MCL.

Thomas G.A. Herz, Grant Killoran, Michael, Best & Friedrich, Milwaukee, WI, for Target/Dayton-Hudson.

Arnold M. Quittner, Alison Zirn, Stroock & Stroock & Lavan, Los Angeles, CA, for MAI.

Stephen P. Juech, Mary Flanner-Strack, Frisch Dudek, Ltd., Milwaukee, WI, for Keith D. Nowak, Lieberman, Rudolph & Nowak.

DECISION AND ORDER

WARREN, Senior District Judge.

Before the Court is defendant-counter-plaintiff Paliafito's¹ motion for entry of judgment against the Mantae defendants pursuant to the First Supplemental Writ of Attachment, Preliminary Injunction, and Appointment of Receiver ("First Supplemental Writ"). For the following reasons, Paliafito's motion is granted as to all but MCL.

I. BACKGROUND

This proceeding arises from a dispute over an agreement to distribute the Grip Ball game in the United States. The facts, which involve multiple foreign parties, are complex. See Select Creations, Inc. v. Paliafito America, Inc., et al., 828 F.Supp. 1301, 1305-54 (E.D.Wis.1992). (Order of December 1, 1992 at FF ¶¶ 1-570). For purposes of the motion now before the Court, however, only the following procedural history is relevant.

On April 7, 1993, this Court entered the First Supplemental Writ, which required, inter alia, that the Mantae defendants deposit $8 million in cash and marketable securities with Firstar Trust Co. ("the Receiver") by April 15, 1993. (First Supplemental Writ at ¶ 6.) The Mantae defendants were also required to post a bond of $50,000 plus an affidavit of surety. (Id. at ¶ 7.) In turn, Paliafito was required to deposit $1.43 million in cash or marketable securities with the Receiver. (Id. at ¶ 4; Stannard Dec. at ¶ 2.) The First Supplemental Writ stated, however, that if either party failed timely to deposit the required funds, the Court would, upon motion by the nonviolating party, "enter judgment against the violating party in the amount of the attachment assessed against the violating party and dismiss with prejudice the claims of the violating party." (First Supplemental Writ at ¶ 17.)

The Mantae defendants failed to make the required deposit. (Stannard Dec. at ¶¶ 4-5.) As such, Paliafito was not required to, and did not, deposit anything with the Receiver. Thereafter, on April 19, 1993, Paliafito brought this motion.

At a hearing on April 27, 1993, the Court ordered, inter alia, that all prosecution of this action, including Paliafito's motion for judgment, be held in abeyance for a period of sixty (60) days in light of MAI's bankruptcy filing in the Central District of California. (See Court's letter of April 27, 1993 at 2.)

At a subsequent hearing on June 25, 1993, the Court ordered, inter alia, that Paliafito's motion be further held in abeyance for fourteen (14) days to allow substitute counsel for MCL time to file any information relevant thereto. (See Court's letter to parties of June 25, 1993 at 1.) Said period having elapsed, Paliafito's motion is now before the Court for resolution.

II. DISCUSSION

A. Judgment against the Lees

1. LEGAL FRAMEWORK

Resolution of Paliafito's motion turns on the issue of whether default judgment is the appropriate sanction to be entered against Joy and Jerrold Lee ("the Lees") for their failure to comply with the First Supplemental Writ.

Rule 16(f), Fed.R.Civ.P., states, in relevant part: "if a party ... fails to obey a ... pretrial order² ... the judge, upon motion or the judge's own initiative, may make such orders with regard thereto as are just, and among others any of the orders provided in Rule 37(b)(2)(B), (C), or (D)." Fed. R.Civ.P. 16(f). Rule 37(b)(2)(C), Fed.R.Civ. P., in turn, authorizes a district judge to enter "an order ... rendering judgment by default against a disobedient party." Fed. R.Civ.P. 37(b)(2)(C). Under this regime, a district court has broad discretion to sanction a party that fails to comply with a court order. Patterson v. Coca-Cola Bottling Co., 852 F.2d 280, 283 (7th Cir.1988). See also G. Heileman Brewing Co., Inc. v. Joseph Oat Corp., 848 F.2d 1415, 1421 (7th Cir.1988).

Said discretion, however, is not unfettered. Godlove v. Bamberger, Foreman, Oswald and Hahn, 903 F.2d 1145, 1148 (7th Cir.1990), cert. denied, 499 U.S. 913, 111 S.Ct. 1123, 113 L.Ed.2d 230 (1991) (quoting Schilling v. Walworth Co. Park & Planning Com'n, 805 F.2d 272, 275 (7th Cir.1986)). A sanction must be proportionate, for instance, to the circumstances surrounding a party's failure to comply with a court order. Crown Life Ins. Co. v. Craig, 995 F.2d 1376, 1381-82 (7th Cir.1993). Thus, the harsh sanction of a default judgment, like a dismissal, should usually be employed only in extreme circumstances. Ellingsworth v. Chrysler, 665 F.2d 180, 185 (7th Cir.1981). In the Seventh Circuit, therefore, it is well-established that trial on the merits is favored over default judgment. Passarella v. Hilton Int'l. Co., 810 F.2d 674, 675 (7th Cir.1987) (relying on C.K.S. Engineers, Inc. v. White Mountain Gypsum Co., 726 F.2d 1202, 1205 (7th Cir. 1984); A.F. Dormeyer Co. v. M.J. Sales & Distrib. Co., 461 F.2d 40, 43 (7th Cir.1972)).

Recently, however, the Seventh Circuit "has moved away from the traditional position that default judgments are strongly disfavored ...," Dimmit & Owens Financial, Inc. v. United States, 787 F.2d 1186, 1192 (7th Cir.1986), and has become reluctant to reverse refusals to set them aside. See In re State Exchange Finance Co., 896 F.2d 1104, 1106 (7th Cir.1990). The precise extent of a district court's discretion to enter default judgment as a sanction has thus waxed uncertain. See Crown Life, 995 F.2d at 1381.

Some cases have required a finding of willfulness or bad faith before default judgment can be entered as a sanction. Fox v. Commissioner, 718 F.2d 251, 254 (7th Cir. 1983). See also Philips Medical Systems International, B.V. v. Bruetman, 982 F.2d 211, 214 (7th Cir.1992); Diehl v. H.J. Heinz Co., 901 F.2d 73, 75 (7th Cir.1990); Dole v. Local 1942, Int'l Brotherhood of Electrical Workers, 870 F.2d 368, 371-72 (7th Cir.1989); Anilina Fabrique de Colorants v. Aakash Chemicals and Dyestuffs, Inc., 856 F.2d 873, 877 (7th Cir.1988); Roland v. Salem Contract Carriers, Inc., 811 F.2d 1175, 1179 (7th Cir.1987); C.K.S. Engineers, 726 F.2d at 1205. Other cases have not required such a finding. Govas v. Chalmers, 965 F.2d 298, 303 (7th Cir.1992). See also Newman v. Metropolitan Pier & Exposition Authority, 962 F.2d 589, 591 (7th Cir.1992); Profile Gear Corp. v. Foundry Allied Industries, Inc., 937 F.2d 351 (7th Cir.1991) (affirms default judgments for dilatory tactics absent finding of dishonesty).

Resolving this apparent inconsistency, the Seventh Circuit recently held that before entry of default judgment there must be at least some finding of contumacious conduct, dilatory tactics, or the failure of less drastic sanctions.³ Crown Life, 995 F.2d at 1382. As the court stated in Newman:

A plaintiff's failure to comply with discovery orders is properly sanctioned by dismissal of the suit, a defendant's by entry of a default judgment. Of course the circumstances of the failure must be considered, because the judge must be guided by the norm of proportionality that guides all judicial applications

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