U.S. for Use and Ben. of Wiltec Guam, Inc. v. Kahaluu Const. Co., Inc.

• Decision Date: 15 September 1988
• Docket Number: Nos. 87-1862,87-1863,s. 87-1862
• Citation: 857 F.2d 600
• Parties: UNITED STATES of America for the Use and Benefit of WILTEC GUAM, INC., Plaintiff-Appellee, v. KAHALUU CONSTRUCTION CO., INC., and Industrial Indemnity Co., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 600

857 F.2d 600

12 Fed.R.Serv.3d 367

UNITED STATES of America for the Use and Benefit of WILTEC GUAM, INC., Plaintiff-Appellee, v. KAHALUU CONSTRUCTION CO., INC., and Industrial Indemnity Co., Defendants-Appellants.

Nos. 87-1862, 87-1863.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 6, 1988.

Decided Sept. 15, 1988.

Russell H. Tansey, Agana, Guam, for defendant-appellant Kahaluu Const. Co., Inc.

Charles H. Witherwax, Honolulu, Hawaii, for defendant-appellant Indus. Indem. Co.

John C. Dierking, Agana, Guam, for plaintiff-appellee Wiltec Guam, Inc.

Appeal from the United States District Court for the Territory of Guam.

Before WALLACE, REINHARDT and NOONAN, Circuit Judges.

REINHARDT, Circuit Judge:

This appeal challenges sanctions imposed by the district court under Rule 37(b)(2) of the Federal Rules of Civil Procedure. Following several violations of the rules of procedure by the appellants, the court prohibited them from defending against the appellee's claim, dismissed the counterclaim, and awarded judgment for the appellee. We affirm in part and reverse in part.

FACTS AND PROCEDURAL HISTORY

Defendant-appellant Kahaluu Construction Company, Inc. ("Kahaluu") entered into a contract with the United States Navy for the installation of sprinkler systems in several buildings at the Naval Ship Repair Facility on Guam. Defendant-appellant Industrial Indemnity Company ("Industrial"), as surety, executed a payment bond. Kahaluu then contracted with plaintiff-appellee Wiltec Guam, Inc. ("Wiltec") for the provision of materials, services, and supplies for use in the sprinkler installation project.

On April 4, 1986, Wiltec filed a complaint against Kahaluu and Industrial under the Miller Act, 40 U.S.C. Secs. 270a et seq. (1982), alleging that Kahaluu failed to pay for services and materials Wiltec provided under its contract. Kahaluu and Industrial filed a joint answer and Kahaluu also counterclaimed against Wiltec. Wiltec served a document production request, and a pretrial scheduling order was entered.

On October 31, 1986, Wiltec filed a motion for sanctions alleging that the defendants had violated the scheduling order and had failed to comply with the document production request. Wiltec asked that the allegations in its complaint be taken as established and that the defendants be precluded from opposing the complaint. A hearing on this motion was set for November 14. On November 7, the district court entered an order compelling production of the requested documents by November 12. The court also awarded sanctions to Wiltec in the amount of $300, based on the defendants' failure to comply with the request. ¹

On November 14, the court heard argument on Wiltec's motion for sanctions. Following the hearing, the court found that the defendants had committed the following violations:

1. Wiltec's counsel was not timely informed of the appearance of Industrial's counsel.

2. No one appeared at the noticed deposition of Kahaluu.

3. The defendants filed their pretrial statement and memorandum of contentions of law and fact after the date set by the pretrial scheduling order. The memorandum also failed to comply with certain local rules.

4. The defendants failed to produce documents relating to Kahaluu's counterclaim against Wiltec, in violation of the order compelling production.

5. Industrial's counsel signed the defendants' opposition to the motion for sanctions on behalf of both Industrial and Kahaluu, in violation of Rule 11 of the Federal Rules of Civil Procedure.

Based on these violations, the district court invoked Rule 37 of the Federal Rules of Civil Procedure and Local Rule 235-6, and issued an order declaring that all of the allegations in Wiltec's complaint were to be taken as established for purposes of the action and that Wiltec's claim would not be subject to opposition. The court also dismissed Kahaluu's counterclaim. Subsequently the court awarded judgment for Wiltec against Kahaluu in the amount of $101,394 and against Industrial jointly and severally with Kahaluu in the amount of $93,235.50.

Kahaluu and Industrial appealed from the district court's order. At oral argument before this court, the appellants conceded that Wiltec did not receive discovery materials relating to Kahaluu's counterclaim, and withdrew their objection to the district court's dismissal of the counterclaim. We therefore affirm that part of the order. However, the appellants continue to contest the part of the order that prohibits them from defending against Wiltec's claim. They contend that this sanction is not authorized by the Federal Rules of Civil Procedure, that it constitutes an abuse of the district court's discretion, and that it violates the defendants' due process rights. We reverse this part of the district court's order.

DISCUSSION

Rule 37(b)(2) of the Federal Rules of Civil Procedure authorizes sanctions against a party who "fails to obey an order to provide or permit discovery" or who "fails to obey an order entered under Rule 26(f)"--that is, a discovery scheduling order. Fed.R.Civ.P. 37(b)(2). Such sanctions may include: "[a]n order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order," id. 37(b)(2)(A); "[a]n order refusing to allow the disobedient party to support or oppose designated claims or defenses," id. 37(b)(2)(B); or "[a]n order ... dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party," id. 37(b)(2)(C). ²

In order to assess the district court's action, we must examine the five violations listed above. As the appellants now concede, the failure to provide discovery relating to Kahaluu's counterclaim was appropriately sanctioned by dismissal of the counterclaim. However, that failure cannot justify any additional sanction involving Wiltec's claim, because due process considerations require that the sanction be "specifically related to the particular 'claim' which was at issue in the order to provide discovery." Wyle v. R.J. Reynolds Industries, Inc., 709 F.2d 585, 591 (9th Cir.1983) (quoting Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 707, 102 S.Ct. 2099, 2106, 72 L.Ed.2d 492 (1982)). Here, the order compelling production involved only documents relating to the counterclaim; therefore any sanction for violation of the order must also relate to the counterclaim. Nor can the Rule 11 violation or the delayed notification of the appearance of Industrial's counsel be a basis for the sanction, because Rule 37(b)(2) authorizes sanctions only for failure to obey a discovery order or a pretrial scheduling order. Therefore we are left with two violations: the failure to appear at the deposition of Kahaluu and the late and defective filing of pretrial documents. ³ In reviewing the sanction, the question is not whether we would have imposed a different sanction had we considered the matter originally, but whether the district court "exceeded the limits of its discretion." Halaco Engineering Co. v. Costle, 843 F.2d 376, 379 (9th Cir.1988); Wyle, 709 F.2d at 591. ⁴ We hold that it did.

Dismissal and default judgment are authorized only in "extreme circumstances." Fjelstad v. American Honda Motor Co., Inc., 762 F.2d 1334, 1338 (9th Cir.1985). So, too, are orders taking the plaintiff's allegations as established and awarding judgment to the plaintiff on that basis. ⁵ While we cannot condone the defendants' conduct during the course of trial preparation, we have difficulty concluding that the violations that occurred here constitute "extreme circumstances." Moreover, in order to warrant imposition of these severe sanctions, the violation(s) must be "due to willfulness, bad faith, or fault of the party." Wyle, 709 F.2d at 589. The district court did not make any specific findings as to the appellants' willfulness or bad faith, stating only that "the failure to comply with the rules and to supply the required documents was not due to any inability on the part of the Defendants."

In addition, we have identified five factors that a district court must weigh in determining whether to dismiss a case as a punitive measure: "(1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the defendants; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions." Malone v. United States Postal Service, 833 F.2d 128, 130 (9th Cir.1987) (quoting Thompson v. Housing Authority, 782 F.2d 829, 831 (9th Cir.), cert. denied, 479 U.S. 829, 107 S.Ct. 112, 93 L.Ed.2d 60 (1986)). The district court need not make explicit findings regarding these factors; however, if it does not (as in this case), we review the record independently to determine whether the sanction was an abuse of discretion. Id. Even assuming that the conduct of Kahaluu and Industrial meets the extreme circumstances and willfulness requirements, our review of the five Malone factors leads us to conclude that in this case the sanction imposed by the district court was not within the "acceptable range." Id.

The first two factors--expeditious resolution of litigation and docket management--weigh in favor of the sanction, but not heavily. Wiltec filed its complaint in April 1986; the trial was set for November. At the hearing on the motion for sanctions, defendants' counsel expressed their willingness to comply with that schedule. At that point the defendants had filed their pretrial documents, allowing Wiltec to go ahead with its own preparation. Thus the case was proceeding to trial in a timely fashion. By contrast, cases in which we have upheld orders of dismissal have often involved serious disruptions of the district court's...