FDIC v. Pharaon

PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 98-4166 06/22/99
________________________ THOMAS K. KAHN
D. C. Docket No. 95-517-CV-SH CLERK
FEDERAL DEPOSIT INSURANCE CORPORATION,
Plaintiff-Appellee,
versus
GHAITH R. PHARAON,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(June 22, 1999)
Before TJOFLAT, BLACK and CARNES, Circuit Judges.
BLACK, Circuit Judge:
Appellant Ghaith R. Pharaon challenges the district court’s application of the
fugitive disentitlement doctrine to strike his answer and enter judgment against him
on the Federal Deposit Insurance Corporation’s (FDIC’s) claims. We conclude the
district court erred by applying the fugitive disentitlement doctrine in this case and
therefore reverse.
I. BACKGROUND
Appellant is a citizen of Saudi Arabia. In May 1992, a grand jury in the
Southern District of Florida indicted Appellant on multiple charges arising from his
dealings with CenTrust Bank and David L. Paul, the Chairman, CEO, and controlling
shareholder of CenTrust. Specifically, the indictment charges Appellant with
conspiracy, the object of which was “to deceive and mislead federal banking
regulators and certain investors of CenTrust Bank as to the financial condition and
long-term viability of the bank, as well as to impede and prevent the United States
from supervising and regulating the investment activities of CenTrust Bank, and
thereby to perpetuate DAVID L. PAUL’S control of the bank and to personally enrich
defendant PAUL and others,” in violation of 18 U.S.C. § 371, four counts of wire
fraud, in violation of 18 U.S.C. §§ 1343, 2, two counts of bank fraud, in violation of
18 U.S.C. §§ 1344, 2, and one count of misapplication as to subordinated debentures,
in violation of 18 U.S.C. §§ 657, 2. Appellant has never appeared in the criminal
proceedings.
On January 27, 1995, the Resolution Trust Corporation (RTC), as receiver of
CenTrust, brought this action against Appellant in state court, seeking $11 million in
damages relating to Appellant’s CenTrust dealings. Specifically, the RTC asserted
claims of common law fraud, aiding and abetting common law fraud, and aiding and
2
abetting breach of fiduciary duty. The allegations in the civil complaint are related
to those in the criminal case. Appellant removed the action to federal court.
The RTC moved to strike Appellant’s answer, arguing that since Appellant was
a fugitive from justice the fugitive disentitlement doctrine should bar him from
participating in the civil matter. The district court granted the motion and entered
judgment in favor of the FDIC, as successor to the RTC,1 in the amount of $9.7
million. On appeal, this Court remanded for reconsideration in light of the Supreme
Court’s intervening decision in Degen v. United States, 517 U.S. 820, 116 S. Ct. 1777(1996). FDIC v. Pharaon, 11th Cir., 1997 (No. 96-4844, July 31, 1997). On remand,
the district court again struck Appellant’s answer and affirmative defenses and entered
judgment in favor of the FDIC in the amount of $9.7 million.
1
On December 21, 1995, the RTC terminated and the FDIC succeeded to the RTC’s interest
in this case. See 12 U.S.C. § 1441a(m)(1).
3
II. ANALYSIS
The fugitive disentitlement doctrine is an equitable doctrine that limits access
to the courts by fugitives from justice. United States v. Barnette, 129 F.3d 1179,
1183-84 (11th Cir. 1997). Although fugitive status “does not strip the case of its
character as an adjudicable case or controversy[,] it disentitles the [fugitive] to call
upon the resources of the Court for determination of his claims.” Id., 129 F.3d at 1184(citation and quotation omitted).
The fugitive disentitlement doctrine has been applied to dismiss fugitives’
criminal and civil appeals,2 as well as fugitives’ affirmative claims for relief.3 See,
e.g., Molinaro v. New Jersey, 396 U.S. 365, 366, 90 S. Ct. 498, 498-99 (1970)
(declining to adjudicate appellant’s criminal appeal where appellant was a fugitive
from justice in that case); Barnette, 129 F.3d at 1185-86 (applying the fugitive
disentitlement doctrine to dismiss fugitives’ appeal of a civil contempt order against
them for failing to comply with a court order to enforce a forfeiture judgment entered
2
In the appellate context, this Court has stated that “to apply the fugitive disentitlement
doctrine the appellant must be a fugitive and his fugitive status must have a connection, or nexus,
to the appellate process he seeks to utilize.” Barnette, 129 F.3d at 1183.
3
In the context of considering whether a district court properly applied the disentitlement
doctrine to dismiss a Bivens action filed by a fugitive, this Court has stated “the dismissal of a civil
action on fugitive disentitlement grounds requires that (1) the plaintiff is a fugitive; (2) his fugitive
status has a connection to his civil action; and (3) the sanction employed by the district court,
dismissal, is necessary to effectuate the concerns underlying the fugitive disentitlement doctrine.”
Magluta v. Samples, 162 F.3d 662, 664 (11th Cir. 1998) (citations omitted).
4
against one of them); Empire Blue Cross and Blue Shield v. Finkelstein, 111 F.3d 278,
282 (2d Cir. 1997) (dismissing civil defendants’ appeal from a civil judgment against
them on the basis of the fugitive disentitlement doctrine where defendants failed to
comply with discovery in aid of plaintiff’s attempts to collect the judgment, failed to
comply with the court’s order to appear before the court, and failed to submit to the
bench warrants issued by the court upon their failure to appear as ordered); Prevot v.
Prevot (In re Prevot), 59 F.3d 556, 567(6th Cir. 1995) (holding district court should
have dismissed a father’s suit brought under the International Child Abduction
Remedies Act (ICARA) where the father was a fugitive felon, “inhibited the processes
of the United States District Court . . . by making unavailable to it the depth of expert
testimony that the court indicated that it needed,” and was abusing the “laudable
purposes of ICARA by employing it to further his scheme” to “escape American
justice and responsibilities while holding his children with him”).
We review a district court’s application of the fugitive disentitlement doctrine
for abuse of discretion. Magluta, 162 F.3d at 664 (citations omitted). Of course, the
district court must first be correct in its determination that the doctrine can be applied.
Tellingly, the FDIC has not cited any cases, and this Court has not found any federal
cases, applying or upholding the application of the fugitive disentitlement doctrine in
a civil case to strike a defendant’s answer and enter judgment against him. Nor has
5
the FDIC cited any appellate cases, and this Court has not found any federal appellate
cases, applying the doctrine against a fugitive appellee.
This Court recently stated the rationales for the fugitive disentitlement doctrine
“include the difficulty of enforcement against one not willing to subject himself to the
court’s authority; the inequity of allowing a fugitive to use court resources only if the
outcome is an aid to him; and the need to avoid prejudice to the nonfugitive party.”
Magluta, 162 F.3d at 664 (citations omitted). Although these rationales may seem to
apply where a fugitive in a criminal case seeks to defend himself in a civil case, we
think it is very different to bar a fugitive from affirmatively seeking relief than to bar
a fugitive from defending civil claims brought against him. Here, Appellant did not
call upon the resources of the court for determination of his claims, but rather sought
only an opportunity to be heard on the FDIC’s claims against him.
In discussing the fugitive disentitlement doctrine, the Supreme Court has stated
that “[c]ourts invested with the judicial power of the United States have certain
inherent authority to protect their proceedings and judgments in the course of
discharging their traditional responsibilities,” but “[t]he extent of these powers must
be delimited with care, for there is a danger of overreaching when one branch of the
Government, without benefit of cooperation or correction from the others, undertakes
to define its own authority.” Degen v. United States, 517 U.S. at 823, 116 S. Ct. at
6
1780 (citations omitted). “Principles of deference counsel restraint in resorting to
inherent power and require its use to be a reasonable response to the problems and
needs that provoke it.” Id. at 823-24, 116 S. Ct. at 1781 (internal citation omitted)
(citations omitted).
We conclude that application of the fugitive disentitlement doctrine in this case
to bar Appellant, a fugitive in a criminal case, from defending himself in a civil case,
albeit a related one, would not be “a reasonable response to the problems and needs
that provoke[d]” the doctrine. If such application of the doctrine were permitted,
virtually anyone might be able to obtain a judgment against a fugitive simply by filing
a claim and moving for judgment based on the fugitive disentitlement doctrine. Such
judgments likely would be viewed with much skepticism. As the Supreme Court has
stated, “[t]he dignity of a court derives from the respect accorded its judgments. That
respect is eroded, not enhanced, by too free a recourse to rules foreclosing
consideration of claims on the merits.”4 Degen, 517 U.S. at 828, 116 S. Ct. at 1783.
We therefore hold that the fugitive disentitlement doctrine, without more, may not be
4
We note that in a pre-Degen decision upholding the application of the fugitive
disentitlement doctrine to bar a defendant from contesting a civil forfeiture, a holding no longer
good law after the Supreme Court’s decision in Degen, 517 U.S. at 829, 116 S. Ct. at 1783, the
Second Circuit stated that “[e]ven were appellant in a purely defensive posture procedurally, such
is not a relevant consideration for purposes of the disentitlement doctrine.” United States v. Eng,
951 F.2d 461, 466 (2d Cir. 1991). This language was merely dicta, however, as the court pointed
out the fugitive sought “affirmatively to litigate his as yet unidentified ‘interest’ in the defendant
properties.” Id. Even were the language not dicta, we find it unpersuasive.
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applied to strike a civil defendant’s answer and enter judgment against him. Since the
fugitive disentitlement doctrine is inapplicable, it necessarily follows that the three-
factor test of Magluta and the nexus requirement of Barnette are inapposite to this
case and, for that matter, to any civil case where the fugitive is the defendant.5
We note in closing, however, that Appellant’s absence does not entitle him to
any advantage. If his “unwillingness to appear in person results in non-compliance
with a legitimate order of the court respecting pleading, discovery, the presentation
of evidence, or other matters, he will be exposed to the same sanctions as any other
uncooperative party.” Degen, 517 U.S. at 827, 116 S. Ct. at 1782. Such sanctions
may include striking his answer and entering judgment against him. See, e.g., Fed. R.
Civ. P. 37(b)(2)(C).6
IV. CONCLUSION
The district court’s decision to strike Appellant’s answer and enter judgment
against him was not a permissible exercise of the court’s authority. We therefore
reverse and remand to the district court for further proceedings.
REVERSED AND REMANDED.
5
See Opinion, at 4 nn.2-3.
6
We do not mean to imply by our holding that we do not have discretion to dismiss this
appeal under the fugitive disentitlement doctrine. The FDIC simply did not move for such dismissal
and we choose not to dismiss the appeal sua sponte.
8
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