Federal Deposit Insurance v. Pharaon

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee,
v.
Ghaith R. PHARAON, Defendant-Appellant.
No. 98-4166.
United States Court of Appeals,
Eleventh Circuit.
June 22, 1999.
Appeal from the United States District Court for the Southern District of Florida. (No. 95-517-CV-SH),
Shelby Highsmith, Judge.
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
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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 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, 135 L.Ed.2d 102 (1996). FDIC v.
Pharaon, No. 96-4844, 121 F.3d 722 (11th Cir.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.
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).
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).
2
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, 24 L.Ed.2d 586 (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 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
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).
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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 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 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
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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 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
III. CONCLUSION
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.
5
See Opinion, at 2942 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.
5
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.
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