TeleVideo Systems, Inc. v. Heidenthal, 86-2129
Decision Date | 02 September 1987 |
Docket Number | No. 86-2129,86-2129 |
Citation | 826 F.2d 915 |
Parties | , RICO Bus.Disp.Guide 6729 TELEVIDEO SYSTEMS, INC.; K. Philip Hwang; C. Gemma Hwang, Plaintiffs-Appellees, v. Fred P. HEIDENTHAL, individually and dba South Harbor Investors and West Cliff Securities, Defendant-Appellant. |
Court | U.S. Court of Appeals — Ninth Circuit |
John S. Siamas, Debra S. Belaga and Joseph S. Faber, San Francisco, Cal., for plaintiff TeleVideo Systems, Inc.
Allen Ruby, San Jose, Cal., for plaintiffs-appellees.
David Van Hoesen, San Francisco, Cal., for defendant-appellant.
Appeal from the United States District Court for the Northern District of California.
Before FLETCHER, BEEZER and THOMPSON, Circuit Judges.
Appellant, Fred Heidenthal, appeals a default judgment entered against him as a sanction for his perjury during depositions and the false pleadings he filed with the court. The district court struck his answer and allowed the appellees to proceed with proof of their case unopposed. The court entered a judgment in excess of $11,000,000 for securities fraud and violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961 et. seq. (RICO). We affirm.
TeleVideo Systems, Inc. and its principal shareholders brought suit against Heidenthal a vice-president of the company, for securities fraud and RICO violations after discovering evidence of his substantial fraudulent activities. Heidenthal allegedly participated in the diversion of company funds to several fictitious businesses that he had "created."
In depositions, Heidenthal did not deny orchestrating the diversion of corporate funds. Rather, he claimed that he acted at the behest of Mr. Hwang, the President of TeleVideo, to divert money from TeleVideo for Mr. Hwang's personal use. Heidenthal testified extensively and in great detail about a pseudo-gambling scheme (playing both sides of a bet) that he used as a vehicle to accomplish the diversion, and about other secret transfers of cash to Hwang. Much of the energies of appellees in preparing their case for trial necessarily was diverted to disproving these allegations.
On the day of trial, Heidenthal appeared in court and filed a written declaration that he had testified falsely in his depositions. Specifically, he admitted that he had not participated in a pseudo-gambling scheme but rather had lost $700,000 of appellees' money in gambling. He also stated that he did not transfer large sums of cash to Hwang. Appellees filed a motion for sanctions and for default judgment on their claims against Heidenthal. The court granted appellees' motion for sanctions. It struck Heidenthal's answer and then proceeded to hear appellees' proof in support of their claims against Heidenthal. At the conclusion of the hearing, the court awarded appellees $3,427,392.60 in actual damages together with $766,630.31 in attorneys fees. It directed that the damage award be trebled and that all stock in TeleVideo acquired by Heidenthal be restored to TeleVideo and that the stock purchase agreement between TeleVideo and Heidenthal be rescinded.
Appellant claims that the district court abused its discretion in striking his answer and entering a default judgment against him. We disagree. Courts have inherent equitable powers to dismiss actions or enter default judgments for failure to prosecute, contempt of court, or abusive litigation practices. See Roadway Express, Inc. v. Piper, 447 U.S. 752, 764, 100 S.Ct. 2455, 2463, 65 L.Ed.2d 488 (1980); Link v. Wabash R.R., 370 U.S. 626, 632, 82 S.Ct. 1386, 632, 8 L.Ed.2d 734 (1962); United States v. Moss-American, Inc., 78 F.R.D. 214, 216 (E.D.Wis.1978). Although the inherent powers have been criticized as "nebulous" see Eash v. Riggins Trucking, Inc., 757 F.2d 557, 561 (3d Cir.1985), they are necessary to enable the judiciary to function. See Michaelson v. United States, 266 U.S. 42, 65, 45 S.Ct. 18, 19, 69 L.Ed. 162 (1924) ( ).
There are limits, however, on the power of courts to impose sanctions. The need for the orderly administration of justice does not permit violations of due process. See Phoceene Sous Marine, S.A. v. U.S. Phosmarine, Inc., 682 F.2d 802, 805-06 (9th Cir.1982) ( ); Securities and Exchange Commission v. Seaboard Corp., 666 F.2d 414, 416-17 (9th Cir.1982) ( ); see also Hammond Packing Co. v. Arkansas, 212 U.S. 322, 349-54, 29 S.Ct. 370, 379-81, 53 L.Ed. 530 (1909) ( ); Hovey v. Elliott, 167 U.S. 409, 413-14, 17 S.Ct. 841, 843, 42 L.Ed. 215 (1897) ( ).
Appellant's elaborate scheme involving perjury clearly qualifies as a willful deceit of the court. Although the perjury occurred before the trial began, it infected all of the pretrial procedures and interfered egregiously with the court's administration of justice. The court sanctioned Heidenthal not only to punish him, but to enable the court to proceed to hear and decide the case untainted by further interference and possible further perjury on the part of Heidenthal.
Appellant argues that a default judgment of this magnitude was far too severe a penalty. He argues that he mitigated the harm by admitting before trial commenced that he had perjured himself; he urges that his confession warrants some favorable consideration and argues that this court should be lenient towards him in order not to deter future perjurers from making such admissions. In other words, appellant believes that his belated candor should be rewarded. In some circumstances we might agree that lesser sanctions would be appropriate where a defendant has admitted his falsehoods and they have not tainted the entire pretrial process. This is not such a case.
Appellant's recantation was not motivated by a desire to repent and set the record straight. Under questioning by the district judge, appellant revealed that even his admission was part of his elaborate scheme to prevail at trial. In answer to the district judge's question as to why he testified falsely in the depositions, appellant responded: "[b]ecause I was making sure that I would have him and Phil [Hwang] to the point where they thought they had me by the short ones, and they would get me in here and then, when I get in here, I am going straight...
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