Valner v. O'Brien (In Re O'Brien)

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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Nos. 02-3716EM, 02-3717EM, 02-3799EM, 02-3802EM
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No. 02-3716EM, 02-3717EM *
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In re Denis J. O'Brien, *
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Debtor. *
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Nicholas Valner and Kenneth Sidney *
Roberts, as Executors of the Will of *
George Harrison, *
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Appellees, * On Appeal from the United
* States District Court
v. * for the Eastern District
* of Missouri.
Denis J. O'Brien, *
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Appellant. *
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No. 02-3799EM *
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In re Denis J. O'Brien, *
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Debtor. *
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Nicholas Valner and Kenneth Sidney *
Roberts, as Executors of the Will of *
George Harrison, *
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Appellants, *
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v. *
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Denis J. O'Brien, *
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Appellee. *
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No. 02-3802EM * On Appeal from the United
_____________ * States District Court
* for the Eastern District
In re Denis J. O'Brien, * of Missouri.
*
Debtor. *
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Nicholas Valner, *
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Appellant, *
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v. *
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Kenneth Sidney Roberts, as Executor *
of the Will of George Harrison, and *
Denis J. O'Brien, *
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Appellee. *
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Submitted: September 12, 2003
Filed: December 12, 2003
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Before SMITH, RICHARD S. ARNOLD, and BEAM, Circuit Judges.
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RICHARD S. ARNOLD, Circuit Judge.
This is a bankruptcy case. The debtor is Denis J. O'Brien. He had been
business manager for George Harrison.1 Mr. Harrison objected to Mr. O'Brien's
discharge in bankruptcy, and the Bankruptcy Court dismissed the objection on the
ground that Mr. Harrison had willfully disobeyed an order to submit himself to
deposition. This dismissal was with prejudice, so the discharge was granted. On
appeal, the District Court reversed, holding that the Bankruptcy Court had abused its
discretion. We respectfully disagree, and reverse the judgment of the District Court,
reinstating that of the Bankruptcy Court.
I.
In 1996, Mr. Harrison obtained an $11.7 million judgment against Mr. O'Brien,
Mr. Harrison's former business manager. In July 2000, Mr. O'Brien filed for
bankruptcy and sought to have the judgment debt discharged. In January 2001, Mr.
Harrison filed an adversary proceeding objecting to the discharge, pursuant to 11
U.S.C. § 727.
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Mr. Harrison has died, and Nicholas Valner and Kenneth Sidney Roberts are
now parties to this case as executors of his estate.
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On February 1, 2001, the debtor served his first notice to depose Mr. Harrison
and scheduled the deposition for February 26, 2001, in St. Louis, Missouri.
Appendix 367. Four days before the deposition was set to occur, Mr. Harrison
moved for a protective order to avoid the deposition, claiming he had no personal
knowledge relevant to his own complaint objecting to the discharge. App. 34. At a
hearing held on February 26, the Bankruptcy Court denied Mr. Harrison's motion
without prejudice to an opportunity for him to amend it. App. 57. One month later,
on March 26, the Court denied Mr. Harrison's amended motion after another hearing
on the matter. App. 157, 193.
Before the Court's first order, Mr. Harrison sought the grant of another
protective order to avoid a live deposition in St. Louis. During a hearing held
April 19, Mr. Harrison cited several reasons, including personal security concerns and
a vague reference to health issues, to support his claim that traveling to St. Louis from
the United Kingdom, his place of residence, was impractical. App. 242-43. Although
Mr. Harrison did not explain with any specificity the health issues he mentioned, he
offered to the Court, subject to its admittance under seal, an affidavit from his
physician that he claimed set forth sufficient reasons why he could not be deposed at
that time. App. 255. Both the Court and Mr. O'Brien's attorney reviewed the
affidavit off the record in chambers and returned it to Mr. Harrison. App. 339-40.
After the Court refused to admit the affidavit under seal, Mr. Harrison withdrew it
from the Court. App. 256, 339-40.
Following the April 19 hearing, the Court issued its first order compelling Mr.
Harrison to appear for deposition no later than May 31, 2001, in London, England.
App. 258-59. Mr. O'Brien noticed the deposition for May 29. App. 269.
On May 4, Mr. Harrison filed another motion for a protective order and to
authorize the filing of documents under seal. App. 271, 288. The Court denied this
motion on May 15. App. 288-89. Also on May 15, Mr. Harrison filed another
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motion, this time seeking to modify the Court's order compelling him to appear for
deposition no later than May 31. In this motion, Mr. Harrison claimed exigent
circumstances existed to warrant the delay, and he stated that an affidavit from his
physician, which Mr. Harrison offered to the Court subject to its admittance under
seal, would explain the exigent circumstances. App. 282. The Court denied this
motion on May 17, and the affidavit was not admitted into evidence. App. 294.
By letter dated May 22, 2001, Mr. Harrison notified Mr. O'Brien that he would
not appear for the May 29 deposition in London "due to health reasons." App. 322.
It was later revealed that Mr. Harrison had flown to the United States to attend his
son's college graduation on May 29. App. 342-43.
On June 18, during a hearing before the Bankruptcy Court, Mr. Harrison again
offered an affidavit from his physician to explain his health condition. This time,
only the Court, and not Mr. O'Brien's attorney, reviewed the affidavit. When the
Court again refused to admit the affidavit under seal, Mr. Harrison withdrew it from
the Court. App. 347. After this hearing, the Court issued its second order,
compelling Mr. Harrison to appear for deposition on July 10, 2001, in St. Louis. In
this order, the Court warned Mr. Harrison that it would dismiss his case with
prejudice if he failed to appear on this date. App. 350-51.
Mr. Harrison failed to appear for deposition on July 10 and, as it had warned
it would do, the Court granted Mr. O'Brien's motion to dismiss with prejudice in an
order dated July 13, 2001. App. 360, 363. Mr. Harrison appealed this judgment to
the District Court, which concluded that the dismissal was an abuse of discretion and,
therefore, reversed the Bankruptcy Court judgment. App. 381-82. Mr. O'Brien
appealed the District Court's judgment to us.
We apply the same standard of review, on this second appeal as of right, as the
District Court did. We review the Bankruptcy Court's legal conclusions de novo and
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its findings of fact for clear error. Haden v. Pelofsky, 212 F.3d 466, 470 (8th Cir.
2000). The Bankruptcy Court's dismissal of an adversary proceeding (the form the
objection to discharge took in this case) for failure to comply with a court order is
reviewed for abuse of discretion. Schoffstall v. Henderson, 223 F.3d 818, 823 (8th
Cir. 2000).
II.
Fed. R. Bankr. P. 7037(b), the bankruptcy counterpart of Fed. R. Civ. P. 37(b),
authorizes a court to sanction a party who disobeys a discovery order with dismissal
if the disobedience is willful and prejudices another party. Keefer v. Provident Life
and Accident Ins. Co., 238 F.3d 937, 940 (8th Cir. 2000). In the context of Rule 37
motions, a court may find willful disobedience sufficient to support dismissal when
a party employs stall tactics and disregards court orders. Schoffstall, 223 F.3d at 824.
The Bankruptcy Court concluded that Mr. Harrison's failure to appear for the
two court-ordered depositions was willful disobedience. App. 360. The record
supports this conclusion. This case raises an unusually sharp conflict between deep
personal concerns and the demands of the law. For that reason, we choose to explain
our holding fully. We focus on the two orders of the District Court, neither of which
was obeyed, directing Mr. Harrison to appear for deposition, the first time in London,
and the second time in St. Louis. As we have explained above, Mr. Harrison took the
position, at a hearing on April 19, that it was not practical to travel to St. Louis from
the United Kingdom to have his deposition taken. Reasons of health, among others,
were assigned to support this position, but no specifics were given in open court.
Instead, a declaration of Ian D. Hay, M.D., was offered, but only on the condition that
it be received under seal. The declaration stated that Dr. Hay was a Professor of
Medicine at the Mayo Clinic in Rochester, Minnesota, and went on as follows:
2. I am Mr. George Harrison's physician.
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[3.] I have had the privilege of looking after the
health of Mr. Harrison since August 4, 1997, and most
recently dismissed him from St. Marys Hospital (a Mayo
hospital) in Rochester on April 2, 2001, after a stay of
twelve days. Since Mr. Harrison's departure from St.
Marys Hospital, I have remained in regular contact with
him to provide input on his further medical management
and the supervision of his medical care.
[4.] I am in no doubt that at the present time,
because of his current medical condition, it would be
advisable for Mr. Harrison to avoid speaking, particularly
in the circumstances of a court or similar proceeding in
which he would be required to give testimony. Mr.
Harrison continues to undergo medical treatments, and I
cannot at this time predict when his condition will improve
to the point that he could participate in such a proceeding
without serious risk to his health.
Appellee’s App. 45-46.
We note several important things about this declaration. First of all, it does not
reveal the disease or condition from which Mr. Harrison was suffering. It simply
states, in conclusory fashion, that, in the opinion of the physician, it would not be
advisable for Mr. Harrison to speak, or give testimony, because of his current
(unspecified) medical condition. Second, and perhaps more important, the
declaration never got into evidence. It was viewed, off the record, by the Bankruptcy
Court and by opposing counsel, but the declaration was offered only on the condition
that it be received under seal. The Bankruptcy Court denied this motion, and it is not
argued on appeal that the Court, in this respect, abused its discretion. Accordingly,
for purposes of appellate review, the declaration has to be disregarded, even assuming
it would have been sufficient to convince the Bankruptcy Court. It was not part of
the record before the Bankruptcy Court. It did somehow become part of the record
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in the District Court, but that Court, like this one, is an appellate court in this type of
proceeding. It is without authority to consider a matter that was not properly before
the trial court.
So far, there is no fault to find with what the Bankruptcy Court did. Following
the April 19 hearing, it issued an order compelling Mr. Harrison to appear for
deposition no later than May 31, 2001, the date to be selected by the opposing side.
May 29 was selected for the date. The location was to be in London, in deference to
Mr. Harrison’s wishes.
As noted above, on May 22 Mr. Harrison notified the opposing party that he
would not appear for deposition in London on May 29, “due to health reasons.” App.
322. Instead, Mr. Harrison traveled to the United States to attend his son’s college
graduation. It is perfectly true, as the District Court observed, that it is much less
stressful to attend the graduation of one’s child than to be deposed. However,
attending the graduation did involve two flights across the Atlantic Ocean. If we
assume (a fact not of record) that Mr. Harrison flew in a private plane, not a
commercial one, such travel is still not without stress. When we add to this the fact
that it was not until later that counsel for Mr. Harrison revealed where his client had
been at the time of the ordered deposition, we can understand why the Bankruptcy
Court regarded the allegations concerning his health with some skepticism. It was for
that Court, in the first instance, not the District Court or this Court, to assess the
relative stressfulness of the deposition in London, on the one hand, and the travel to
the United States for the graduation, on the other. We believe the conclusion reached
by the Bankruptcy Court was within permissible limits.
Thereafter, the Bankruptcy Court held another hearing. Again, representations
with respect to Mr. Harrison’s health were made by his lawyers. Another declaration
of Dr. Hay was offered, this one a good deal more detailed. The declaration stated,
in part, as follows:
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2. I am Mr. George Harrison's physician.
3. I have a specialty in treating patients with
cancer. In 1997, Mr. Harrison underwent surgery for a
malignancy. That surgery involved removal of a portion of
one of Mr. Harrison's lungs. I was involved with treating
Mr. Harrison for that procedure and for follow-up
treatments.
4. In March 2001, I discovered that Mr. Harrison
was suffering from another malignancy. In late March,
another surgery was performed and more of Mr. Harrison's
lung was removed. Following the surgery, Mr. Harrison
remained in the hospital for twelve days.
5. Mr. Harrison is currently undergoing post-
surgical treatment and therapy under my direction. It is
uncertain how long this treatment and therapy will
continue; it will depend upon Mr. Harrison's condition.
This type of treatment is both physically and emotionally
debilitating to cancer patients and can interfere
substantially with their ability to function mentally and
physically in situations requiring concentration or
circumstances imposing stress. In my medical opinion, Mr.
Harrison will not be well enough to participate in any sort
of meeting or proceeding which would be stressful or
require him to devote substantial thought or attention to
issues in a legal proceeding for at least the next 45 days or
longer. The debilitating effects of the ongoing treatment
and therapy will prevent Mr. Harrison from participating
meaningfully in such events. Forcing Mr. Harrison to
participate in such a meeting or proceeding would pose a
serious risk to Mr. Harrison's recovery at the present time.
Appellee’s App. 97.
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This declaration might well have been sufficient to convince us, and perhaps
the Bankruptcy Court itself, had it been properly before that Court. However, like the
first declaration, it was offered only on the condition that it be received under seal.
When the Bankruptcy Court exercised its discretion not to receive the declaration
under these conditions, it was withdrawn from the Court, by direction of the client.
Again, it is not claimed that refusing to file the declaration under seal was an abuse
of discretion. Perhaps more seriously, the declaration was never shown to the
opposing side. It would have been a violation of the Due Process Clause of the Fifth
Amendment for the Bankruptcy Court to consider it.
Even then, the Court did not impose any sanctions. It gave Mr. Harrison
another chance, instructing him to appear for deposition on July 10, 2001, in St.
Louis, and clearly warned him that the case would be dismissed with prejudice if this
order was not obeyed. Mr. Harrison failed to appear, and his adversary proceeding
was thereupon dismissed with prejudice.
All of this can be viewed as unfortunate. Mr. Harrison had evidence from
which a court could well conclude that the deposition should be postponed, but he
never properly presented this evidence to the Bankruptcy Court. This was a personal
choice, which he had the power to make. As a famous person, he well knew that, if
the declarations of Dr. Hay were filed with the Court in the ordinary manner, they
would be spread abroad in the public prints. Most people would not want this kind
of information about their health made public. We must remember, however, that Mr.
Harrison had himself, by filing the adversary proceeding, invoked the processes of
the Bankruptcy Court. He was bound to obey the orders of that Court, absent a good
reason, properly presented. No such reason was properly presented, and therefore,
whatever might have occurred otherwise, the litigant must bear the legal
consequences of his action. The law did not compel the Bankruptcy Court to dismiss
the adversary proceeding with prejudice, but it did permit it to do so. The finding of
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willful disobedience was not clearly erroneous, and our duty is to review this finding
on the basis of the record properly before the trial court.
In order to sustain the sanction of dismissal with prejudice, a finding of
prejudice to the opposing party from the failure to appear for deposition is also
required.
A finding of "prejudice" under Rule 37(b) is proper if the failure to make
discovery impairs an opponent's ability to determine the factual merits of a party's
claim. Avionic Co. v. General Dynamics Corp., 957 F.2d 555, 559 (8th Cir. 1992).
Mr. Harrison's failure to appear for two court-ordered depositions impaired Mr.
O'Brien's ability to explore the validity of Mr. Harrison's objection to the discharge.
Thus, we conclude Mr. Harrison's conduct "prejudiced" Mr. O'Brien as the term is
used in the context of Rule 37(b). Mr. Harrison claims that no prejudice could have
occurred, because he had no knowledge of relevant facts. Thus, the deposition would
not have done Mr. O’Brien any good. We believe the Bankruptcy Court was within
its rights in rejecting this position. The sworn testimony of a party, especially a party
who occupies the position of a plaintiff, will hardly ever be so irrelevant that it should
be dispensed with on that party’s mere say-so. Here, the objection to discharge was
based on the theory that the debtor had committed fraud on the Bankruptcy Court.
The debtor, in turn, had filed a motion for sanctions, claiming that the assertion of
fraud on his part was completely without basis. To ask the person charging fraud,
here Mr. Harrison, what he knew about his own accusation could hardly be pointless.
Mr. Harrison asserted that he in fact knew nothing, that everything relevant to the
case was within the knowledge of his lawyers. Perhaps this was true, but the
assertion was subject to being tested by oral examination. We reject the contention
that Mr. O’Brien was not prejudiced by the failure of the opposing party to submit
himself to deposition.
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III.
Though dismissal under Rule 37 is an admittedly harsh sanction, its application
"is entrusted to the sound discretion of the [trial] court." Avionic Co., 957 F.2d at
558, citing National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S.
639, 643 (1976). Though a less onerous sanction may have been available, the
Bankruptcy Court was not constrained to impose it. Keefer, 238 F.3d at 941. Thus,
even if this Court would have imposed a less onerous sanction, we cannot substitute
our judgment for that of the Bankruptcy Court, and we limit our review to whether
the evidence supports the chosen sanction. Boogaerts v. Bank of Bradley, 961 F.2d
765, 768 (8th Cir. 1992).
We conclude that the Bankruptcy Court did not abuse its discretion in granting
the Rule 37 motion to dismiss. The conduct of Mr. Harrison rose to the level of
willful disobedience, and once this had been determined, the Bankruptcy Court's
selection of a proper sanction, including dismissal, was within its discretion. Avionic
Co., 957 F.2d at 558.
IV.
The judgment of the District Court is reversed, and this cause is remanded to
that Court with instructions to enter judgment affirming the order of the Bankruptcy
Court.
It is so ordered.
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