Wanderer v. Johnston, 88-15759
| Decision Date | 09 August 1990 |
| Docket Number | No. 88-15759,88-15759 |
| Citation | 910 F.2d 652 |
| Parties | , RICO Bus.Disp.Guide 7551 Ted WANDERER, individually as a general partner of Ray De Los Conejos, Ltd., and on behalf of those similarly situated, Plaintiffs-Appellees, v. David B. JOHNSTON; Dennis A. Leatherman; J. Richard Rampton; Agricultural Services Associates; David B. Johnston, Inc.; Promorex Corporation, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Thomas M. Burton, Burton, Brunt & Robbins, Pleasanton, Cal., for defendants-appellants.
Jon R. Vaught, Day Law Corp., Oakland, Cal., for plaintiffs-appellees.
Appeal from the United States District Court for the Northern District of California.
Before HUG, SKOPIL and SCHROEDER, Circuit Judges.
This is an appeal from a very substantial monetary default judgment entered in favor of the plaintiffs-appellees as sanctions under Federal Rule of Civil Procedure 37 for flagrant discovery violations by the defendants-appellants. 1 Defendants appeal, contending the judgment constituted an abuse of discretion amounting to a violation of due process because of claimed inaccuracies and omissions in the findings proposed by the magistrate and adopted by the district court. We have reviewed the record in light of those contentions and conclude that the magistrate's findings were fully supported by the evidence in every material respect. The severe sanction of default was justified by the defendants' repeated and inexcusable obstructions of every type of discovery attempted by the plaintiffs. See National Hockey League v. Metro Hockey Club, Inc., 427 U.S. 639, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976). We reach the same conclusion that District Judge Weigel reached when he imposed the sanctions upon the recommended findings of fact and conclusions of law of Magistrate Joan Brennan.
Appellants now, and belatedly, also object to the amount of the damages which was awarded, $25 million. The record reflects that those damages were imposed pursuant to a proposed order to which the defendants never objected and after a hearing at which the defendants chose not to appear. We affirm the judgment of the district court in all respects.
The plaintiffs in the underlying litigation are members of a group of investors who alleged that they had been defrauded by a limited partnership scheme to breed rabbits for meat and pelts. The promoters of the scheme were the individual defendants, David B. Johnston, Dennis A. Leatherman and Richard Rampton. Also involved and named as defendants were corporations whose principal or sole owners were the individual defendants. Plaintiffs claimed that they were fraudulently induced to invest in the scheme upon misrepresentations by the defendants of the value of the rabbits and the market for such rabbits. The plaintiffs apparently invested more than $3 million in cash and $18 million in promissory notes.
Plaintiffs filed the case in July 1985 alleging causes of action under the Securities Act, 15 U.S.C. Secs. 77a-77aa (1988), the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968 (1988), and pendent claims for fraud and deceit. The complaint sought actual damages of $25 million, additional interest, additional unspecified damages, and treble damages under RICO. In response, the defendants filed counterclaims for breach of contract, interference with prospective economic advantage and inducing breach of contract.
Plaintiffs' discovery efforts began in May 1986. The magistrate's findings document the sorry obstacle course defendants required plaintiffs to undergo for the next two years. The defendants' conduct with respect to depositions is illustrative. For example, on July 29, 1986, defendants failed to appear for their noticed depositions. The only excuse offered by their counsel was that another attorney was ill and could not accompany them. On August 7, 1987, defendant Leatherman failed to appear at a scheduled deposition. Leatherman again did not appear on the rescheduled date of August 10. On August 11, 1987, defendant Rampton failed to appear at his scheduled deposition. His lawyer indicated an inability to reach Rampton. On August 13, 1987, defendant Johnston failed to appear at a noticed deposition. In the end, Rampton, Johnston and Leatherman each failed to appear for three properly noticed depositions. The defendants never obtained a protective order relieving them of any obligation to appear, and they did not even inform opposing counsel on most occasions of their intention not to appear.
The record with respect to other discovery is no better. Between May 27, 1986 and January 13, 1988, there were eleven hearings and at least nine orders compelling production of documents described in the plaintiffs' first request for production of documents. Although District Judge Weigel on September 9, 1986 held that the defendants had waived any objections to the production by their failure to make any timely effort to seek a protective order, the defendants continued to withhold the documents under various claims of privilege. The correctness of Judge Weigel's ruling and the unavailability of any privilege to the defendants has never been seriously disputed in the case. A second request for production, on June 16, 1987, yielded no response whatsoever from the defendants.
The record on interrogatories is similar. On June 16, 1987, plaintiff served a first set of interrogatories on all the defendants. Johnston and Rampton did not respond that year. The response of the remaining defendants was untimely, and purported to be a "joint answer" which did not enable the plaintiffs to determine the position of each defendant, in apparent contravention of the requirement of Federal Rule of Civil Procedure 33 that interrogatories be answered "separately and fully," and "by the party served." Similarly, the corporate defendants did not verify their interrogatories in contravention of the requirement of Rule 33 that answers be signed.
The magistrate summarized in the following language:
21. Since this case was filed, defendants have done nothing, as far as discovery is concerned, in a timely fashion. The record discloses that defendants have consistently failed to respond, not only to discovery requests from plaintiffs but also to the orders of this court. Defendants have been given repeated opportunities to comply with this court's discovery orders and thereby avoid entry of default judgment. Defendants have twice been warned, first by Judge Weigel and again by Magistrate Brennan, of the possible consequences of their failure to comply with this court's orders or the applicable rules of discovery. However, defendants have exhibited complete indifference to these warnings, the orders of this court and their discovery obligations, thereby thwarting plaintiffs' every attempt to secure basic, legitimate discovery. We are therefore of the opinion that the record vividly demonstrates defendants' flagrant bad faith and willful disregard of their discovery responsibilities, justifying entry of judgment against defendants and dismissal of the counterclaims herein.
Magistrate's Proposed Findings of Fact, Conclusions of Law and Recommendations ("Findings of Fact") 24-25 (citations omitted).
The magistrate's proposed order recognized the drastic nature of the default sanction imposed, and the need to be sure that less stringent sanctions would be unavailing. See United States for Use of Wiltec Guam v. Kahaluu Const., 857 F.2d 600, 604 (9th Cir.1988) (citing Malone v. United States Postal Service, 833 F.2d 128, 131 (9th Cir.1987), cert. denied, 488 U.S. 819, 109 S.Ct. 59, 102 L.Ed.2d 37 (1988)). She concluded:
in this case however the record demonstrates the defendants have been given numerous opportunities to comply and that in fact the lesser sanctions imposed by the magistrate have been met with complete indifference by defendants. There is therefore no reason to suppose that the imposition of lesser sanctions to a future noncompliance will be any more successful than in the past.
Findings of Fact 26. The district judge then approved the magistrate's recommendations to enter default judgment in favor of the plaintiffs as the sanction for defendants' discovery evasion.
As Professor Rosenberg has said, Rule 37 sanctions were intended to "punish[ ] evasion of pretrial discovery." Rosenberg, Sanctions to Effectuate Pretrial Discovery, 58 Colum.L.Rev. 480, 482 (1958); see 8 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2281 at 753 (1970) (). The leading Supreme Court decision under modern Rule 37 is National Hockey League, which the circumstances of this case regrettably echo. The facts in that case were as follows:
After seventeen months where crucial interrogatories remained substantially unanswered despite numerous extensions granted at the eleventh hour and, in many instances, beyond the eleventh hour, and notwithstanding several admonishments by the Court and promises and commitments by the plaintiffs, the Court must and does conclude that the conduct of the plaintiffs demonstrates the callous disregard of responsibilities counsel owe to the Court and to their opponents. The practices of the plaintiffs exemplify flagrant bad faith when after being expressly directed to perform an act by a date certain, viz, June 14, 1974, they failed to perform and compounded that noncompliance by waiting until five days afterwards before they filed any motions. Moreover, this action was taken in the face of warnings that their failure to provide certain information could result in the imposition of sanctions under Fed.R.Civ.P. 37.
Id. 427 U.S. at 640-41, 96 S.Ct. at 2779-80.
The Court in National Hockey League granted district...
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