General Insurance Co. of America v. Eastern Consolidated Utilities, Inc.

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
9-22-1997
Gen Ins Co of Amer v. E Consol Util Inc
Precedential or Non-Precedential:
Docket
96-1882
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Filed September 22, 1997
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-1882
GENERAL INSURANCE COMPANY OF AMERICA
v.
EASTERN CONSOLIDATED UTILITIES, INC.; MID-
ATLANTIC PIPELINE, INC.; EASTERN EXCAVATING, INC.;
JOHN L. DADDONA; JUDY DADDONA; DONALD A.
DADDONA; EVA DADDONA; FRANK P. DADDONA;
KATHERINE M. DADDONA
John L. Daddona, Judy L. Daddona
and David Gubitosi,
Appellants.
*Pursuant to Rule 12(a), FRAP
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civil No. 94-cv-04388)
ARGUED JUNE 16, 1997
BEFORE: STAPLETON, LEWIS and ALDISERT,
Circuit Judges.
(Filed September 22, 1997)
John P. Karoly, Jr. (ARGUED)
Law Offices of John Karoly
1555 North 18th Street
Allentown, PA 18104
Attorney for Appellants
Henry S. Perkin
Perkin & Feldman
532 Walnut Street
P.O. Box 686
Allentown, PA 18105-0686
Benjamin D. Lentz (ARGUED)
Hart & Hume
10 East 40th Street
New York, NY 10016
Attorneys for Appellee
OPINION OF THE COURT
LEWIS, Circuit Judge.
In this case, a defendant and a nonparty deponent were
held in contempt of court, pursuant to Federal Rule of Civil
Procedure 37(b), for failing to appear at their respective
depositions. As one of the sanctions imposed, the district
court took as established certain facts relating to both the
defendant and nonparty deponent. The issue we confront
on appeal is whether the district court abused its discretion
in holding the defendant and the nonparty deponent in
contempt and in fashioning sanctions with respect to its
contempt order.
We will hold that the district court abused its discretion
in holding the defendant in contempt for failure to appear
because the plaintiff failed to set a time and place for his
deposition, as required by the district court's order. We
further find that the district court did not err in holding the
nonparty deponent in contempt, inasmuch as he failed to
attend a scheduled deposition. However, we conclude that
2
the district court abused its discretion in sanctioning the
nonparty deponent by binding him to the established facts.
As a result, we will remand to the district court so it may
reconsider appropriate sanctions consistent with this
opinion.
I.
The Underlying Action
In 1994, Appellee General Insurance Company of
America sued John L. Daddona ("Daddona"), Eastern
Consolidated Utilities, Inc., Mid-Atlantic Pipeline, Inc.,
Eastern Excavating, Inc., Judy Daddona, Frank P. Daddona
and Katherine M. Daddona. Daddona and the other
defendants had executed an indemnity agreement and
other agreements in which they essentially promised to
reimburse General for potential losses arising from its
issuance of certain bonds connected to several construction
projects. The contractor, and the principal on the bonds,
was defendant Eastern Consolidated Utilities, Inc., a
company affiliated with Daddona. General had lost several
million dollars as a result of issuing those bonds.
Daddona employed extraordinary delaying tactics during
pre-judgment discovery. As a result, the court, by Order
filed May 10, 1995, granted a motion compelling Daddona
to submit to a deposition and produce documents. After the
deposition, General moved for summary judgment on all of
its claims in the amount of $3,993,566.96 against Daddona
and certain of the other defendants (Eastern Consolidated
Utilities, Inc., Mid-Atlantic Pipeline, Inc., Eastern
Excavating, Inc. and Judy Daddona). Final judgment was
entered on August 30, 1995, against these defendants.
Prior to entry of judgment, General settled with the
remaining defendants, Frank P. Daddona and Katherine M.
Daddona, and the case was dismissed as to them.
General sought postjudgment discovery because the
judgment remained unsatisfied. Daddona has neither
appealed the judgment nor sought a stay of enforcement.
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Enforcement of the Judgment
On November 21, 1995, in aid of its enforcement of the
judgment, General took the deposition of Charles Hair, an
attorney Daddona retained to incorporate various entities.
Daddona was given notice of the deposition, but did not
attend. Hair testified that he incorporated Five-Star, Ltd.;
Par-3, Ltd.; D.G. Holding, Inc.; The Master at Shepherd
Hills, Inc.; and The Golf Course at Shepherd Hills, Inc. He
also testified that Five-Star was owned in three equal
shares by Gubitosi, the Culnen Family Trust and the Dadd
Partnership. The Dadd Partnership was owned in equal
parts by Daddona and his two brothers. Five-Star owned
100% of the shares in Par-3, Ltd. Five-Star also owned 85%
of the shares in D.G. Holding, Inc.; The Dadd Partnership
owned 10% and Gubitosi 5% of the remainder. D.G.
Holding, in turn, owned The Masters at Shepherd Hills, Inc.
and The Golf Course at Shepherd Hills, Inc. Together, Par-
3, Ltd. and D.G. Holding, Inc. operated a golf course and
country club known as Shepherd Hills. Hair also testified
that he had owned 5% of D.G. Holding which he later
transferred to Gubitosi. Hair's testimony was limited to the
events surrounding the incorporation of these entities; he
did not purport to describe their current ownership
structure.
General also noticed Daddona's deposition. The notice
demanded certain documents and designated November 21,
1995, as the date for the deposition. Daddona did not
provide the requested documents and did not attend the
deposition. General then moved for an order compelling
Daddona to comply with the notice. On January 19, 1996,
the district court, apparently pursuant to Federal Rule of
Civil Procedure 37(a)(2) and (4), granted General's motion
and ordered Daddona to pay a sanction of $100 by
February 5, 1996 and to attend his deposition "at a time
and place designated by Plaintiff within thirty (30) days
. . . ." General Ins. Co. of Am. v. Eastern Consol. Utils., Inc.
et al., slip op. at 1, dated January 19, 1996 (No. 94-4388)
(A. at 1). General never sent a letter setting a date for a
deposition and Daddona never attended one.
Appellant David M. Gubitosi, Daddona's business
partner, was not a defendant in the underlying action and
4
became involved only after judgment was entered. Seeking
to acquire information concerning Daddona's business
interests, General served Gubitosi with a subpoena on
December 29, 1995. The subpoena called for Gubitosi's
deposition and document production on January 10, 1996.
On January 4, 1996, General's attorneys wrote to
Gubitosi's attorney, John P. Karoly, Jr. to confirm this
plan. Because of bad weather, however, it was mutually
agreed that the deposition would be briefly delayed. Karoly
failed to respond to telephone calls regarding a new date.
General then wrote a letter, dated February 2, 1996, to
suggest new dates. Gubitosi failed to respond. As a result,
upon General's motion pursuant to Fed.R.Civ.P. 45(e), the
district court found Gubitosi to be in contempt and ordered
him to produce documents and attend his deposition "at a
time and place designated by plaintiff, within 30 days of the
date of this Order."1 General Ins. Co. of Am. v. Eastern
Consol. Utils., Inc. et al., slip op. at 2, dated May 15, 1996
(No. 94-4388) (emphasis in original) (A. at 4).
On May 22, 1996, General wrote to John P. Karoly, Jr.,
Gubitosi's attorney, designating June 3, 1996, as the date
for his deposition. Gubitosi then fired Karoly and hired a
new attorney, James L. Heidecker. (He later replaced
Heidecker with Karoly). Heidecker requested and received a
brief adjournment. On June 17, 1996, General sent a letter
to Heidecker regarding the contempt order and the
deposition. Neither Heidecker nor Gubitosi responded.
General wrote to Heidecker again on June 25, 1996, and
designated July 31, 1996, as the new date for the
deposition. Gubitosi requested yet another adjournment,
and General wrote again on July 23, 1996, designating July
24 as the date for document production and August 15 as
the date for the deposition. But Gubitosi did not produce
any documents by the 24th. By letter dated July 29, 1996,
General informed Gubitosi that if the documents were not
produced by July 31, 1996, the deposition would not go
_________________________________________________________________
1. Rule 45(e) (1996) provides in relevant part:"Contempt. Failure by any
person without adequate excuse to obey a subpoena served upon that
person may be deemed a contempt of the court from which the subpoena
issued."
5
forward and another motion for sanctions would be
presented to the court. On August 15, Gubitosi arrived at
the offices of General's lawyer, claiming that he was there
for the deposition; however, General had canceled the
deposition, and General's attorneys were not present
because it had not received the requested documents by
July 31, 1996. Thus, once again, the deposition did not go
forward.
On August 16, 1996, General, pursuant to Federal Rule
of Civil Procedure 37(b), requested the district court to
issue an order declaring Daddona to be in contempt for
failure to obey the Order dated January 19, 1996, and
directing him to attend his deposition and produce
documents by February 19, 1996; declaring Gubitosi to be
in contempt for failure to obey the Order dated May 15,
1996, and directing him to attend his deposition and to
produce documents by June 15, 1996; requiring Daddona
and Gubitosi to pay $500 each to General for its expenses
and attorney's fees; and declaring the following facts (which
were drawn from Hair's deposition) to be established as
against both Daddona and Gubitosi:
(i) Five-Star Holding, Limited (a/k/a Five-Star Ltd.),
D.G. Holding, Inc. (a/k/a D.G. Holding, Inc.), Par-3,
Ltd., The Masters at Shepherd Hills, Inc. and The Golf
Course at Shepherd Hills, Inc. are all Pennsylvania
corporations;
(ii) Gubitosi, the Dadd Partnership and [Culnen]
Family Trust each own one third of the shares of stock
in Five-Star Limited;
(iii) Five-Star Limited owns 85% of the shares of stock
in D.G. Holding, Inc., the Dadd Partnership owns 10%
and Gubitosi owns 5%;
(iv) Five-Star Limited owns 100% of the shares of
stock in Par-3, Ltd.;
(v) D.G. Holding, Inc., owns 100% of the shares of
stock in The Masters at Shepherd Hills, Inc. and the
Golf Course at Shepherd Hills, Inc.;
(vi) The Dadd Partnership is a Pennsylvania
partnership; and
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(vii) Judgment debtor Daddona owns, either
individually or jointly with judgment debtor Judy
Daddona, a one third interest in the Dadd Partnership,
Donald A. Daddona owns, either individually or jointly
with Eva Daddona, a one third interest and Frank P.
Daddona owns, either individually or jointly with
Katherine Daddona, a one third interest.
S.A. at 27-28.
General's motion was granted in its entirety by an Order
filed August 28, 1996.
II.
The district court had jurisdiction pursuant to 28 U.S.C.
S 1331. A postjudgment order of contempt as to a party is
final, so long as the district court has completely disposed
of the matter. Sportmart, Inc. v. Wolverine World Wide, Inc.,
601 F.2d 313 (7th Cir. 1979); see Cromaglass Corp. v.
Ferm, 500 F.2d 601 (3d Cir. 1974) (order establishing facts
pursuant to Rule 37(b)(2) as to some claims is not final
order if it does not adjudicate all claims in complaint); see
also Ohntrup v. Firearms Center, Inc., 802 F.2d 676 (3d Cir.
1986) (quoting Sportmart approvingly). Here, the district
court granted General's motion in its entirety, and thereby
disposed of all of General's postjudgment discovery
requests. Thus, the order is final as to Daddona. An order
for contempt or expenses against a nonparty, such as
Gubitosi, is immediately appealable. United States Catholic
Conf. v. Abortion Rights Mobilization, Inc., 487 U.S. 72, 76
(1988) ("The right of a nonparty to appeal an adjudication
of contempt cannot be questioned."); United States v.
Bertoli, 994 F.2d 1002, 1012 (3d Cir. 1993). Thus, we have
jurisdiction to hear this final order as to both Daddona and
Gubitosi pursuant to 28 U.S.C. S 1291.
III.
Daddona and Gubitosi argue that the district court
abused its discretion in holding them in contempt and in
fashioning its sanctions. Specifically, the district court held,
pursuant to Rule 37(b) of the Federal Rules of Civil
7
Procedure ("Failure to Make Disclosure or Cooperate in
Discovery: Sanctions"), that (1) Daddona was "in contempt
of Court for failure to obey this Court's Order dated
January 19, 1996, directing him to pay a sanction of $100,
attend his deposition and produce documents by February
19, 1996;" and (2) Gubitosi was "in contempt of Court for
failure to obey this Court's Order dated May 15, 1996,
directing him to attend his deposition and to produce
documents by June 15, 1996." Order, filed August 28,
1996, at 1. Daddona and Gubitosi argue that because they
did not receive proper notice of their depositions, the
court's finding of contempt and imposition of sanctions
were improper.2
We review the granting of a motion for sanctions for
failing to comply with a Rule 37 discovery order for abuse
of discretion. Quality Prefabrication, Inc. v. Daniel J. Keating
Co., 675 F.2d 77, 78 (3d Cir. 1982); see Petrucelli v.
Bohringer and Ratzinger, GMBH, 46 F.3d 1298, 1310 (3d
Cir. 1995) ("We apply the abuse of discretion standard
when reviewing orders regarding the scope and conduct of
discovery.").
Rule 37(b) ("Failure to Comply With Order") provides in
relevant part:
(1) Sanctions by Court in District Where
Deposition is Taken. If a deponent fails to be sworn or
to answer a question after being directed to do so by
the court in the district in which the deposition is
being taken, the failure may be considered a contempt
of that court.
(2) Sanctions by Court in Which Action is Pending.
If a party or an officer, director, or managing agent of
a party or a person designated under Rule 30(b)(6) or
31(a) to testify on behalf of a party fails to obey an
order to provide or permit discovery, including an order
_________________________________________________________________
2. The Appellants also argue that the Order violates their right to "due
process" (presumably that which is guaranteed by the Fifth Amendment).
Appellants' Br. at 18. Because of the result we reach, we need not decide
that issue as to Daddona, and because we find that Gubitosi had proper
notice, his due process claim is without merit.
8
made under subdivision (a) of this rule or Rule 35, or
if a party fails to obey an order entered under Rule
26(f), the court in which the action is pending may
make such orders in regard to the failure as are just,
and among others the following:
(A) An 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; . . .
(D) In lieu of any of the foregoing orders or in
addition thereto, an order treating as a contempt of
court the failure to obey any orders except an order to
submit to a physical or mental examination; . . .
In lieu of any of the foregoing orders or in addition
thereto, the court shall require the party failing to obey
the order or the attorney advising that party or both to
pay the reasonable expenses, including attorney's fees,
caused by the failure, unless the court finds that the
failure was substantially justified or that other
circumstances make an award of expenses unjust.
Fed.R.Civ.P. 37(b) (1996).
The Appellants argue that "Daddona received no notice at
all and Appellee General admits that there was no
deposition even scheduled." Appellants' Br. at 13. It is
undisputed, both in the briefs and at oral argument, that
General never scheduled a deposition after the court issued
its January 19, 1996 Order, and our review of the record
leads us to the same conclusion. Thus, we hold that
Daddona did not violate the express terms of that Order
because General never set a time and place for a
deposition. While it is clear from the record that Daddona
has engaged in extraordinary delaying tactics, he did not
violate the terms of that particular Order.
Appellants also argue that Gubitosi "had previously
appeared for a deposition that had been unilaterally
canceled without notice." Id. at 14. Here, the record does
not support the Appellants' position. General wrote to
Gubitosi's attorney on July 23, 1996, designating July 24
9
as the date of document production and August 15 as the
date of the deposition. Gubitosi did not produce any
documents by July 24. By letter dated July 29, 1996,
General informed Gubitosi that if the documents were not
produced by July 31, 1996, the deposition would not go
forward and another motion for sanctions would be
presented to the court. On August 15, Gubitosi arrived at
the offices of General's lawyer and stated that he was there
for the deposition. Of course, by then General had canceled
the deposition because it had not received the requested
documents by July 31, 1996. Thus, the deposition did not
go forward.
The July 29 letter provided Gubitosi notice that the
deposition would be canceled if he failed to comply with the
document production request. Moreover, the Order
indicated that document production was to occur "at a time
and place designated by" General. A. at 4 (emphasis in
original). Gubitosi, therefore, violated the express terms of
the May 15, 1996 Order.
Pursuant to Rule 37(b), the district court again declared
Gubitosi in contempt in its August 28 Order. The court
held that the Established Facts were binding on him (and
Daddona) and ordered him to pay General's expenses and
Attorney's fees.3
The district court did not specify whether it was acting
pursuant to 37(b)(1) or (2). On its face, however, Rule
37(b)(2) applies only to parties, and we have found no case
that has applied Rule 37(b)(2) to a nonparty.4 We conclude
_________________________________________________________________
3. The Appellants argue that the district court only had authority to
issue an order punishing a party or nonparty for failing to attend a
deposition pursuant to Rule 37(d). They are mistaken.
Gubitosi could be sanctioned pursuant to Rule 37(b)(1), which grants
a district court the authority to punish a nonparty for failing to follow
the court's directions. See Miller v. Transamerican Press, Inc., 709 F.2d
524, 531 (9th Cir. 1983) (noting that Rule 37(b)(1) sanctions may be
available against nonparty deponent who fails to appear at deposition).
Moreover, on its face, Rule 37(d) applies only to parties.
If Daddona had violated the January 19 Order, the court had the
authority to sanction him under both Rule 37(b)(2) and Rule 37(d).
4. Rule 37(b)(2) does allow limited sanctions to be imposed upon a
party's attorney.
10
that Rule 37(b)(1) provides the appropriate means to
sanction a nonparty. See Miller v. Transamerican Press,
Inc., 709 F.2d 524, 531 (9th Cir. 1983) (noting that Rule
37(b)(1) sanctions may be available against nonparty
deponent who fails to appear at deposition); see also 7
Moore's Federal Practice S 37.40 (3d Ed. 1997) ("[O]nly Rule
37(b)(1), governing a deponent's failure to be sworn or to
answer a question after being directed to do so by the
court, applies to nonparties. Rule 37(b)(2), governing all
other failures to obey discovery orders, does not apply to
nonparties."); 9 Moore's Federal Practice S 45.04[7] (3d Ed.
1997) ("Rule 37(b) sanctions are in their nature usually
applicable to parties.").
The only sanction available under Rule 37(b)(1) is to hold
a deponent in contempt of court. The record indicates that
Gubitosi engaged in extraordinary dilatory tactics regarding
his deposition and failed to comply with the clear
requirements of the May 15 Order. Thus, we conclude that
the district court did not abuse its discretion infinding that
Gubitosi was in contempt of court. See Richmark Corp. v.
Timber Falling Consultants, 959 F.2d 1468 (9th Cir. 1992)
(upholding finding of contempt pursuant to Rule 37 where
party failed to comply with court's order to allow discovery).
We also find that the court did not abuse its discretion
when it required Gubitosi to pay $500 to General for its
expenses and attorney's fees, caused by his failure to
comply with the May 15, 1996 Order. See Robin Woods Inc.
v. Woods, 28 F.3d 396, 400 (3d Cir. 1994) (requiring party
found to be in contempt for violating injunction to pay
opposing party's attorney's fees).
Nonetheless, we find that the district court abused its
discretion when it purported to bind Gubitosi to the
Established Facts. As the Supreme Court explained in
Insurance Corp. v. Compagnie Des Bauxites, 456 U.S. 694,
705 (1982), Rule 37(b)(2) "embodies the standard[s]
established in Hammond Packing Co. v. Arkansas, 212 U.S.
322 (1909), for the due process limits on" rules providing
for discovery sanctions. Those "two standards -- one
general and one specific -- . . . limit a district court's
discretion. First, any sanction must be ``just'; second, the
sanction must be specifically related to the particular
11
``claim' which was at issue in the order to provide
discovery." 456 U.S. at 707. Thus, a court, under Rule
37(b)(2)A, cannot direct that designated facts be taken as
true when those facts are unrelated to the claim or defense
with respect to which the discovery is being sought. Rule
37(b)(2)A; Wright & Miller, 8A Federal Practice & Procedure,
S 2283.
As we have noted, Rule 37(b)(2) on its face applies only to
sanctions against parties. Rules 37(b)(1) and 45(e), which
allow a court to treat the failure of a non-party under
subpoena to provide discovery as a contempt, do not
provide for a sanction comparable to the one authorized by
Rule 37(b)(2)A and, in light of Hammond Packing, we believe
that omission was advertent. A non-party, by definition, is
not a participant in the litigation and, when a non-party
refuses to provide discovery, no claim has been asserted by
or against it. Accordingly, we believe that neither Rule
37(b)(1) nor Rule 45(e) was intended to authorize an order
that would effectively preclude a non-party from asserting
in the future a claim that has not yet been made.
The district court's order in this case states only that
Gubitosi will be bound by certain facts. It does not, in
conformity with Rule 37(b)(2)(A), contain the limitation "for
the purposes of the action." Even if we assume, however,
that the district court's order was intended to bind Gubitosi
only in the course of further proceedings to collect the
judgment against Dadonna in this action, we would
nevertheless conclude that the order was not authorized by
Rule 37(b)(1) or Rule 45(e). The only effect that we can
perceive as possibly intended by the order in this context
would be preclusion of Gubitosi from asserting any claim of
ownership of a present interest in property levied upon that
would be inconsistent with the stipulated facts. Since such
a claim would not have been the subject of the pending
litigation or the discovery sought, we cannot uphold the
district court's sanction order in its current form.
IV.
For the reasons discussed above, we will reverse the
order of the district court to the extent it holds plaintiff
12
Daddona in contempt. As to the nonparty deponent,
Gubitosi, we will affirm the order of the district court
holding him in contempt, but remand so that the court may
fashion appropriate sanctions consistent with this opinion.5
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
5. On remand, the district court should ensure that it documents its
reasons for finding Gubitosi in contempt, the type of contempt applicable
(civil or criminal) and its rationale for the particular sanctions that it
ultimately imposes. See generally Harris v. City of Philadelphia, 47 F.3d
1311 (3d Cir. 1995).
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