STAHL, Circuit Judge.
After three years of drawn-out proceedings in this contract dispute between plaintiff-appellee Companion Health Services, Inc. (Companion) and defendants-appellants George Kurtz and Mary Kay Reid and their various business entities, the district judge imposed a default as to all counts based on discovery violations by the defendants. The district court eventually lifted the default except as to Companion's veil piercing claim, allowing the substantive claims to go to trial. After a jury found for Companion and awarded over $1 million in damages, Kurtz and Reid, who were personally liable, appealed the district court's various orders pertaining to the default on the veil piercing claim. In this close case, because the district court imposed such a severe sanction based on a very limited slice of the relevant facts, we vacate the sanction and remand for further proceedings. We, however, deny Companion's cross-appeal for prejudgment interest.
This appeal relates to the discovery process during the litigation of a Massachusetts state law contract dispute between Companion and George Kurtz and Mary Kay Reid (together, the individual defendants), as well as Majors Medical, Inc., Majors Mobility, Inc., Majors Mobility-Zanesville, LLC, and MMS Northern Detroit, Inc. (the corporate defendants) stemming from a deal to sell durable medical equipment (DME) in Wal-Mart stores. Companion was authorized to license space within Wal-Mart stores to companies that sell DME. In 2005 and 2006, Companion entered into licensing agreements with the defendants for three locations in Ohio and Indiana. In January 2007, Companion contracted with the defendants to take over twenty additional locations from a failing licensee, entering into what the parties denote as "the Master Agreement."
The litigation began fairly smoothly. After the complaint and answers were filed in November and December of 2007, respectively, the district court held a scheduling conference on January 28, 2008. The parties submitted their initial disclosures on schedule on February 29, 2008. However,
Companion's attorney felt that the May 5 responses to the interrogatories and document requests, which were in large part related to the veil piercing claim, were inadequate, and relayed this concern to Hanify & King on May 14, 2008, via a discovery letter.
Four months after Hanify & King's motion to withdraw, the defendants finally succeeded in obtaining new counsel, and attorneys from Crowe & Dunn filed their appearances on September 2, 2008.
Proceeding with discovery, Companion's attorney and the defendants' attorneys from Crowe & Dunn agreed that Kurtz and Reid would be deposed on November 11 and 12, 2008, in Boston.
On December 5, while the motion to compel depositions was pending, Crowe &
On January 7, 2009, allegedly in reliance on promises by Crowe & Dunn that discovery responses beyond the December 5 supplemental response were forthcoming, Companion withdrew its motion to compel discovery responses. The motion had been filed on June 2, 2008, and was never ruled on by the district court. However, no further responses came. With little progress being made, on March 11, Companion renewed its motion to compel responses, which was opposed separately by each of the individual defendants as well as by the corporate defendants, largely for the same reasons as were stated in their initial objections.
Meanwhile, Companion had sought the names and addresses of the corporate defendants' former employees in its interrogatories; this information was never provided. Companion eventually obtained the names of two former employees from a non-involved third party and scheduled their depositions to be taken on April 3, 2009. On April 2, 2009, the defendants filed a motion for a protective order, seeking to prevent Companion from conducting the two depositions the next day. The defendants' objection to the depositions was that Kurtz and Reid allegedly would have been unavailable to listen in on the phone. On April 3, 2009, the day for which the depositions were scheduled, Companion filed its opposition to the motion for the protective order, and the judge denied the motion without explanation.
On May 20, 2009, the defendants filed five separate motions for summary judgment, arguing that it was clear that the contract with Companion did not contain all material terms and was therefore not binding on them, and further, that piercing the corporate veil was inappropriate.
On October 2, 2009, while the motions for summary judgment were still pending, Crowe & Dunn moved to withdraw as counsel for all of the defendants, citing a substantial breakdown of the attorney-client relationship and an unreasonable financial burden on the firm given that the defendants "remain[ed] in substantial arrears for their legal fees."
On November 17, 2009, the district court responded in a single order to Companion's pending motion to compel and to the recent motion to withdraw. As to Companion's motion to compel, the judge considered each of the defendants' objections, overruling both general objections
On December 2, 2009, with the summary judgment hearing set to go forward that day, Kurtz, who was in Michigan at the time, called the district court's clerk and told him that he was unrepresented and
The hearing in fact proceeded later that day. At the end of the hearing, Companion's counsel requested that a deadline be set for compliance with the order granting the motion to compel. Mindful of the fact that the defendants were unrepresented, the district court named December 11, 2009 (nine days later) as the deadline. On December 15, 2009, the district court denied the defendants' various motions for summary judgment "substantially for the reasons stated in the plaintiff's opposition memorandum."
On December 17, 2009, having received nothing by the December 11 production/response deadline, Companion filed a motion for sanctions under Federal Rule of Civil Procedure 37, requesting default on all counts. In the alternative, as most of the discovery sought pertained to veil piercing, Companion requested default on that count alone.
On January 5, 2010, while the motion for sanctions was pending but before a hearing date had been set, Kurtz again called the clerk. The clerk informed Kurtz that the summary judgment issue had been decided.
On January 15, 2010, the court scheduled a hearing on the motion for sanctions for February 3, 2010. The docket sheet noted that the corporate defendants had to be represented by counsel in order to appear and that notice of the hearing was mailed to all defendants. However, none of the defendants received the notice, as the corporate address had changed as of September 2009, and the court did not have the new address on record.
According to Kurtz, he first contacted his lawyer in Michigan about retaining a new lawyer in Boston on February 10, 2010, and got in touch with the office of his eventual third attorney, Thomas Maffei of Griesinger, Tighe & Maffei, in mid-February 2010. Maffei and Kurtz first spoke sometime between Wednesday, March 3 and Friday, March 5, 2010. Maffei then consulted PACER and realized that the damages hearing was to take place on the following Tuesday, March 9. He entered his appearance for all the defendants on Monday, March 8, 2010, and also requested that the damages hearing be continued. Companion opposed the continuance. The hearing began on March 9 as scheduled, but at the hearing, the district court agreed to continue to May 19, 2010, stating its expectation that the defendants would file a motion to lift the default.
The defendants filed their motion to lift the default on March 31, 2010. They argued that the sanction of default judgment was overly harsh, because it required "more than mere negligence," such as willfulness or bad faith. They also argued that they had substantially complied with Companion's discovery requests, and would further comply "in short order." Further, they argued that they were unaware of their obligations regarding discovery or responding to the motion for sanctions, as they were unrepresented and did not understand the implications of the information on the docket sheet. Finally, the defendants argued that they had legitimate defenses to Companion's claims on the merits. Companion opposed lifting the default, arguing that the sanction was appropriate, and that there was no good cause to lift the default under Federal Rule of Civil Procedure 55(c).
On June 9, 2010, after the agreed-upon continuance, the hearing on the motion to lift the default took place before the district court. The court heard argument from the parties and then issued a somewhat lengthy oral decision. First, the district court explicitly stated that it did not take Maffei's "benign [] view" of the situation. Instead of viewing the individual defendants as negligent, the district court found that their discovery violations had been willful. Once Kurtz had the docket in early January, "it was apparent from the docket that a deadline for complying with the document request had passed and a motion for sanctions had been filed in response to it." The district court noted that while it was not clear that Kurtz knew of the date of the hearing on the motion for sanctions, "the record indicates he was aware of the jeopardy and didn't do anything about it."
The district court then considered whether the sanction of default judgment was proportionate to the offense. Determining that the discovery sought went to the veil piercing claim, the district court decided that the "intermediate sanction" of default judgment only as to that count was appropriate. That way, the contract claims could be addressed on the merits.
After the district court announced its decision, the parties made further arguments. Maffei argued that Reid should be
Beginning on August 16, 2010, the district court presided over a seven-day jury trial. On August 25, 2010, the jury returned a verdict for Companion, awarding over $1 million in damages, including $86,073 more than Companion had requested in lost profits and other contract damages. Various post-trial motions, including Companion's motion to amend the judgment to include prejudgment interest that is now the subject of Companion's cross-appeal,
This court reviews for abuse of discretion a district court's imposition of default as a sanction under Federal Rule of Civil Procedure 37. Crispin-Taveras v. Municipality of Carolina, 647 F.3d 1, 7 (1st Cir.2011) (citing Remexcel Managerial Consultants, Inc. v. Arlequín, 583 F.3d 45, 51 (1st Cir.2009)). We review the factual findings upon which the sanction is based for clear error. Koken v. Black & Veatch Constr., Inc., 426 F.3d 39, 53 (1st Cir. 2005). A court of appeals is not concerned with whether it would have itself imposed the particular sanction chosen by the district court, Nat'l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639, 642, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976) (per
Federal Rule of Civil Procedure 37(b) provides a "veritable arsenal of sanctions" in the context of discovery, Crispin-Taveras, 647 F.3d at 7 (internal quotation marks omitted), including the imposition of "default judgment against [a] disobedient party" for failure to obey a court order, Fed.R.Civ.P. 37(b)(2)(A)(vi). The district court can also apply this sanction where a party fails to provide answers to interrogatories or produce documents for inspection, or for failure of a party to attend its own deposition. See Fed.R.Civ.P. 37(d)(3). While default judgment is considered a "drastic sanction," its entry "provides a useful remedy when a litigant is confronted by an obstructionist adversary and plays a constructive role in maintaining the orderly and efficient administration of justice." Crispin-Taveras, 647 F.3d at 7 (quoting Remexcel, 583 F.3d at 51) (internal quotation marks omitted). As this remedy is "contrary to the goals of resolving cases on the merits and avoiding harsh or unfair results," the district court, in its superior on-the-ground position, must balance these "competing considerations" before entering default. Remexcel, 583 F.3d at 51 (quoting KPS, 318 F.3d at 13) (internal quotation marks omitted). A district court need not consider or try lesser sanctions before imposing default, Diaz-Fonseca v. Puerto Rico, 451 F.3d 13, 25 (1st Cir.2006) (quoting Damiani v. R.I. Hosp., 704 F.2d 12, 15 (1st Cir.1983)), but a failure to do so can contribute to a finding that the district court abused its discretion, Benitez-Garcia, 468 F.3d at 6 (citing Crossman v. Raytheon Long Term Disability Plan, 316 F.3d 36, 39-40 (1st Cir. 2002)). As always, the goal of a sanction is both to penalize wrongful conduct and to deter future similar conduct by the particular party and others "who might be tempted to such conduct in the absence of such a deterrent." Nat'l Hockey League, 427 U.S. at 643, 96 S.Ct. 2778.
Here, the district court imposed the sanction of default as to the veil piercing count based on a combination of oral orders: first, when it granted the motion for sanctions, and second, when it denied in part the motion to lift the default. In both cases, the district judge restricted its analysis to Kurtz's and Reid's failure to respond to the December 11, 2009 production/response deadline, the only basis for Companion's motion for sanctions. That deadline had been set nine days earlier, during which time the individual defendants, here, the appellants, were unrepresented by counsel. However, the district judge found the failure to comply with the deadline to be "willful," where at least Kurtz was "aware of the jeopardy [of sanctions] and didn't do anything about it."
This sanction apparently was based on a single instance of misconduct, although arguably a continuing one. Our precedent makes clear that a severe sanction, such as default or dismissal, is inappropriate in most cases when based on one incident. See Crossman, 316 F.3d at 39 ("A single instance of prohibited conduct cannot be a basis for [a severe sanction] if the conduct was not particularly egregious or extreme.") (quoting Top Entm't, Inc. v. Ortega, 285 F.3d 115, 118 (1st Cir.2002)) (internal quotation marks omitted). The conduct here cannot qualify as "particularly egregious," where the defendants were unrepresented and unaware of the deadline at the time it was set. And while we generally "give a wide berth to the presider's judgment that, under all the circumstances, [a] proffered justification [for failure to comply with a court order] is insufficient," Tower Ventures, 296 F.3d at 47, this is a case where we must ask more of the district court before affirming the imposition of such a harsh sanction apparently based on such a thin slice of misconduct.
This would be a different case if, after allowing Kurtz and Reid to respond to a much broader charge of misconduct, the district court had supportably found that they had themselves engaged in a deliberate pattern of stonewalling with the aim of frustrating effective discovery and the progress of the case.
While the imposition of a default judgment on a veil piercing claim is not unheard of in this circuit, see Global NAPs, Inc. v. Verizon New Eng. Inc. (Verizon), 603 F.3d 71, 93-95 (1st Cir.2010), cert. denied, ___ U.S. ___, 131 S.Ct. 1044, 178 L.Ed.2d 864 (2011), in that case, the misconduct upon which the default sanction was based was significantly more extreme than missing a single production deadline. In Verizon, this court affirmed the imposition of default judgment on a veil-piercing claim, where "the [district] court made a number of factual findings that [we]re well supported in the record" showing that the counterclaim defendants had "violated [the district court's] orders and committed willful discovery misconduct," including the destruction of evidence and lying to the court. Id. at 93-94. The Second Circuit later also affirmed the same sanction in a related case, basing its holding on the willfulness behind the violations and the fact that the conduct of the sanctioned parties was "not isolated but rather formed a pattern of prolonged and vexatious obstruction of discovery with respect to highly relevant records" pertaining to the veil piercing claim. SNET, 624 F.3d at 147-48 (internal quotation marks and alterations omitted). The Second Circuit also considered important the fact that the parties were unmistakably on notice of their discovery obligations at the time of the violations, given the clarity of the district court's orders and its previous warnings. Id. at 148.
Though we by no means suggest that the defendants here were faultless, for they were not, the facts of this case suggest less egregious circumstances than those in Verizon and SNET. There was no destruction of evidence or explicit finding of false statements to the court. See SNET, 624 F.3d at 147-48; Verizon, 603 F.3d at 94. There were no clear warnings that sanctions were imminent. See SNET, 624 F.3d at 148 (basing affirmance of default sanction in part on district court's warning that default would be imposed); Remexcel, 583 F.3d at 52 (noting that repeated, stern warnings by the district court supported the appropriateness of default judgment). Kurtz and Reid were unrepresented by counsel from the time of the discovery deadline to the time the default was originally imposed and therefore were not unmistakably on notice of their discovery obligations at the time they initially violated the district court's December 2, 2009 order. See SNET, 624 F.3d at 148 (finding no abuse of discretion in imposition of default judgment where party was clearly on notice of discovery obligations). Though not in formal compliance with the local rules, Kurtz did attempt to leave a current address with the clerk when he called on January 5, 2010, but received only the single communication containing the docket sheet (in an envelope bearing a handwritten address) and thereafter, no further notifications as to the district court proceedings. Finally, the district court did not make factual findings that the defendants had engaged in a pattern of obstruction or stonewalling. See SNET, 624 F.3d at 147-48 (emphasizing importance of pattern of prolonged obstruction in the determination of default judgment as an appropriate sanction).
While the imposition of default on a veil piercing count as a Rule 37 sanction could on some evidence be appropriate, here, the factors distinguishing this case from Verizon and SNET persuade us that, on the basis of the conduct considered by the district court and the factual findings it made, such a sanction was not warranted. Unlike the district court, we do not view such a sanction as an "intermediate" one. We therefore vacate the default and remand
Companion cross-appeals the district court's order declining to amend the judgment to impose an award of prejudgment interest on a portion of the damages, as well as the original judgment "so unamended." The jury awarded Companion a total of $1,043,509 in contract damages,
Companion moved to amend the judgment under Federal Rule of Civil Procedure 60(a), which allows a district court to "correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record." A Rule 60(a) motion may only be granted where "the judgment failed to reflect the court's intention." Bowen Inv., Inc. v. Carneiro Donuts, Inc., 490 F.3d 27, 29 (1st Cir.2007) (internal quotation marks omitted). Here, Companion argues that Massachusetts state law provides for prejudgment interest on the full amount of damages awarded. See Mass. Gen. Laws ch. 231, § 6C. However, the district court found that the damages awarded above and beyond the lost profits requested amounted to an award for attorney's fees, and therefore intentionally awarded prejudgment interest on only part of the award. The district court's determination that Companion was not entitled to prejudgment interest on damages above and beyond the amount requested for lost profits was a "deliberate choice of the district judge reflect[ing] an interpretation of law which, even if erroneous, cannot be corrected under Rule 60(a)." Elias v. Ford Motor Co., 734 F.2d 463, 466 (1st Cir.1984).
However, although styled as a motion under Rule 60(a), "a post-judgment motion made within ten days of the entry of judgment that questions the correctness of a judgment is properly construed as a motion to alter or amend judgment under Fed.R.Civ.P. 59(e)." Global Naps, Inc. v. Verizon New Eng., Inc., 489 F.3d 13, 25 (1st Cir.2007) (internal quotation marks omitted). We therefore consider the motion to have been filed pursuant to Rule 59(e) and review the district court's denial for abuse of discretion, reversing only where "the original judgment evidenced a manifest error of law . . . or in certain other narrow situations." Id. We also review the district court's determination regarding the award of prejudgment interest in the initial judgment for abuse of discretion, "but legal issues relating to the prejudgment interest award are reviewed de novo." Analysis Grp., Inc. v. Cent. Fla. Inv., Inc., 629 F.3d 18, 24 (1st Cir.2010).
Under Massachusetts law, in most circumstances, prejudgment interest is not awarded for attorney's fees, even where the attorney's fees are provided for in a
It remains within the sound discretion of the district court to decide whether to consider further the adoption of a default sanction on the veil piercing issue, some other sanction such as attorneys' fees for unnecessary delays and failure to complete discovery, or any other measure deemed appropriate; and, of course, any sanction ultimately imposed should be accompanied by appropriate findings. Assuming that the issue is not one that can be otherwise resolved, a trial on the veil piercing count may be necessary.
The district court committed no error in declining to award prejudgment interest on the attorney's fees owed to Companion, so as to its cross-appeal, we affirm.
Each party shall bear its own costs.
Thereafter, on July 14, 2010, Companion filed a motion for attorneys' fees and costs incurred in connection with the motion for sanctions, requesting a total of $7,763.13. All of the defendants opposed the motion. On March 31, 2011, after trial, the district court granted the motion, awarding Companion a sum of $5,000.00.