Filed: Mar. 03, 2000
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Summary: PUBLISH IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ FILED U.S. COURT OF APPEALS No. 97-5483 ELEVENTH CIRCUIT MAR 03 2000 _ THOMAS K. KAHN CLERK D. C. Docket No. 92-01600-CV Bankruptcy Court Nos. 91-14561-SMW/92-578A IN RE: SOUTHEAST BANKING CORPORATION, Debtor. JEFFREY H. BECK, as Trustee of Southeast Banking Corporation Plaintiff-Appellant, versus FLORENCE S. BASSETT, as Personal Representative of the Estate of Harry Hood Bassett, DONALD N. BOYCE, et al., Defendants-Interve
Summary: PUBLISH IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ FILED U.S. COURT OF APPEALS No. 97-5483 ELEVENTH CIRCUIT MAR 03 2000 _ THOMAS K. KAHN CLERK D. C. Docket No. 92-01600-CV Bankruptcy Court Nos. 91-14561-SMW/92-578A IN RE: SOUTHEAST BANKING CORPORATION, Debtor. JEFFREY H. BECK, as Trustee of Southeast Banking Corporation Plaintiff-Appellant, versus FLORENCE S. BASSETT, as Personal Representative of the Estate of Harry Hood Bassett, DONALD N. BOYCE, et al., Defendants-Interven..
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PUBLISH
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_______________ FILED
U.S. COURT OF APPEALS
No. 97-5483 ELEVENTH CIRCUIT
MAR 03 2000
_______________
THOMAS K. KAHN
CLERK
D. C. Docket No. 92-01600-CV
Bankruptcy Court Nos. 91-14561-SMW/92-578A
IN RE: SOUTHEAST BANKING CORPORATION,
Debtor.
JEFFREY H. BECK, as Trustee of Southeast Banking Corporation
Plaintiff-Appellant,
versus
FLORENCE S. BASSETT, as Personal Representative of the Estate of Harry Hood
Bassett, DONALD N. BOYCE, et al.,
Defendants-Intervenor-
Defendants-Appellees.
______________________________
Appeal from the United States District Court
for the Southern District of Florida
______________________________
(March 3, 2000)
Before EDMONDSON and BIRCH, Circuit Judges, and OWENS*, Senior District
Judge.
*
Honorable Wilbur D. Owens, Jr., Senior U.S. District Judge for the Middle District of
Georgia, sitting by designation.
BIRCH, Circuit Judge:
Plaintiff-Appellant Jeffrey H. Beck ("Beck"), as Trustee of Debtor Southeast
Banking Corporation ("Debtor" or "Southeast"), appeals the district court's order
dismissing the complaint against Defendants-Appellees ("Defendants"), who were
directors and/or officers of Debtor. Beck argues that the district court erred in
dismissing this case as a sanction for discovery violations. We REVERSE and
REMAND for consideration and implementation of less harsh sanctions.
I. Background
On June 17, 1992, William A. Brandt (“Brandt”), then Trustee of Debtor, filed
an adversary proceeding against Defendants in bankruptcy court pursuant to a
bankruptcy reference of all cases related to Debtor's estate. See R1-1-2 at ¶¶ 1-2. On
June 24, 1992, Brandt filed a motion to withdraw the reference as to the adversary
proceeding against Defendants. See R1-1. On September 22, 1992, the district court1
granted Brandt's motion to withdraw the reference as to the adversary proceeding
against Defendants (“September 1992 Order”). See R2-32-2 (stating that the district
1
The late Judge Sidney Aronovitz had this case from its filing until May 4, 1994, when it
was transferred to Judge Edward Davis, as part of a Multi-District Litigation (“MDL”)
consolidation. Judge Davis referred the case to Magistrate Judge Linnea R. Johnson, who
recused herself on October 10, 1995. See R14-349 (vacating any oral statements that she had
made indicating that sanctions were appropriate). The case was referred to Magistrate Judge
Barry L. Garber, who ultimately recommended that the case be dismissed for discovery
violations.
2
court withdraws the reference and “hereby takes jurisdiction of this alleged non-core
jury case”). This adversary proceeding is the case now before us. On July 22, 1993,
the district court granted Defendants' motions to dismiss, see R5-117, but gave Brandt
leave "to amend his Complaint to state more specifically and succinctly" his direct
claims, i.e., claims not founded on derivative liability, R5-117-4. As part of the order
dismissing Brandt's initial complaint (“July 1993 Order”), the district court stated:
"Until the Amended Complaint is filed, and attacks on the Amended Complaint, if
any, are heard, discovery is hereby STAYED, so that the proper scope of discovery
may be first determined." R-1-17.
On July 26, 1993, less than a week after the district court dismissed the initial
complaint and stayed discovery, Brandt issued Bankruptcy Rule 2004 subpoenas "on
two likely third party witnesses in the present action --- Southeast's former lawyers,
Steel Hector & Davis . . . and former accountants, Deloitte & Touche" (collectively,
“July 1993 Subpoenas”). R5-119-3-4. Defendants filed a motion to compel Brandt
to comply with the court's September 23, 1992 and July 22, 1993 orders; this motion
argued that the Rule 2004 subpoenas "represent an obvious attempt by the Trustee to
circumvent the Court's Omnibus Order which explicitly stayed discovery and
dismissed the derivative claims related to the Bank" and that the subpoenas likewise
were "in contravention of the September 23, 1992 Order of this Court assuming
3
jurisdiction of this non-core jury case." R5-119-5. On August 16, 1993, the district
court issued an “Order Again Staying Discovery” (“August 1993 Order”).2 R6-123.
In the August 1993 Order, the district court stated that it “reinforces its July 21, 1993
Omnibus Order staying all discovery,” and that “[a]ny and all notices of any kind of
discovery whatsoever shall be stayed, nunc pro tunc, effective July 21, 1993.” R6-
123-2. The district court reserved ruling on the question of sanctions. R6-123-2.
On September 23, 1993, the district court held a hearing about the July 1993
Subpoenas. At this hearing, J. Joseph Bainton ("Bainton"), counsel for Brandt, stated
that Brandt had filed a separate lawsuit against Deloitte & Touche. See R20-26; see
also R20-6 (district court's noting that a number of other cases had been filed,
including a suit against Deloitte & Touche).3 Bainton conceded that the Rule 2004
subpoena as to Deloitte & Touche was "inappropriate by reason of the commencement
of the action in this Court," R20-29, and withdrew that subpoena, see R20-31-32.
Additionally, the court noted that "there is already on record a stipulation between
Steel, Hector and Davis and the Trustee to allow the taking of a 2004 deposition,"
R20-4, and Bainton stated that Brandt and Steel, Hector, and Davis would work out
2
Judge Aronovitz handwrote the word “Again” into the Order's caption and underscored it
for emphasis. See R6-123.
3
Brandt requested that the court take judicial notice of eleven related actions. See R6-134;
R6-135; R6-136; R6-137; R6-138; R6-139; R6-140; R6-141; R6-144.
4
the discovery issues, see R20-32. Finally, Bainton asked the court "not to tie the
Trustee's hands and not to deprive the Estate of the use of bankruptcy rule 2004 as a
discovery tool, only on the basis that that which we might discover through 2004
discovery is potentially relevant to the claims in this case" and requested that the court
clarify its orders related to discovery. R20-40. The court then orally requested that
the parties work together "to categorize the documents that should be discovered
under the 2004 subpoenas issued and before the Court at this time, and get that all
organized and ready." R20-55. On October 12, 1993, the district court issued a
written order (“October 1993 Order”) regarding the July 1993 Subpoenas. In that
order, the court stated that the withdrawal of the Deloitte & Touche subpoena
rendered moot Defendants' motion to compel as to that subpoena. See R6-146-2.
Addressing the other subpoena, he noted the interests of both parties; while
encouraging the parties to cooperate in preparing to produce relevant materials, he
reiterated that the stay in discovery remained in place:
The Court further notes that a First Amended Complaint was filed
recently by the Plaintiff Trustee on September 20, 1993. As the parties
are aware, the Court has twice stayed discovery, until the objections, if
any, to the Amended Complaint are filed and heard, so that the Court
may be better able to define the scope of discovery. This stay of
discovery remains in effect; however, such stay does not affect the
aforementioned alternative means of discovery now in place.
5
R6-146-3-4. The alternative means included stipulations between the parties that had
already been made. See R6-146-3.
On January 4, 1994, Brandt served a Rule 2004 subpoena (“January 1994
Subpoena”) on Lazard Freres & Company, Debtor's former investment bankers. See
R8-186-2. On February 22, 1994, Brandt served a Rule 2004 subpoena (“February
1994 Subpoena”) on Shearman & Sterling, Defendants' counsel in this action and
special counsel to the Defendant outside directors from May 1991 until Debtor failed
in September 1991. See R8-189-2. On February 28, 1994, Defendants filed an
emergency motion to compel Brandt to comply with the September 1992, July 1993,
and October 1993 Orders; this motion addressed the January 1994 Subpoena. See R8-
186. On March 7, 1994, the Defendant outside directors filed a second motion to
compel; this motion addressed the February 1994 Subpoena. See R8-189. On March
9, 1994, Defendants withdrew their motion as to the January 1994 Subpoena, on the
ground that Lazard Freres had withdrawn its objection to producing the requested
documents; Defendants emphasized that they would “welcome the opportunity” to
address the larger issues raised in the motion, namely their request that the court
“enjoin[ ] the Trustee from taking any further action in contravention of this Court's
orders staying discovery. . . .” R8-191-3.
6
On March 14, 1994, the district court conducted a hearing on Defendants'
motions regarding the January 1994 and February 1994 Subpoenas. At the end of that
hearing, the court noted that its intent had always been to stay discovery until there
was a viable complaint. See R21-41. The court then stated:
Now, I consider the effort to proceed with the 2004 discovery methods
really to be an end run. It's designed to cause the stay for discovery to
be rendered ineffectual. . . . In the view of the Court, it is causing this
Court to be hamstrung in its ability to proceed this case toward trial.
And I consider the use of the 2004 proceeding to be in violation of the
original order that I entered taking back the jurisdiction in this case. . .
. [T]here are at least two other orders that I entered subsequently, which
reaffirm the original order and which reaffirm the stay that had been
entered.
R21-42 (alterations added). The district court then reaffirmed the stay “on all
discovery except as specifically authorized by an order of this Court. And that
includes any discovery attempted under Rule 2004.” R21-42-43. Defendants
emphasized that they did not seek to stay discovery not related to this case. See R21-
44. At the end of the hearing, Bainton stated: “Maybe I'm not smart enough. I
honestly, Your Honor, don't understand. If I thought that I shouldn't have served 2004
. . . in light of Your Honor's order, I wouldn't have.” R21-46-47. On March 17, 1994,
the district court issued an order which “again” stayed discovery (“March 1994
Order”). See R9-199. This order stated that the January and February 1994
7
Subpoenas violated the September 1992, July 1993, August 1993, and October 1993
Orders. See R9-199-3 & n.3, 5. The order again reaffirmed the stay:
[U]ntil the Motion to Dismiss the Second Amended Complaint is ruled
upon, the stay on discovery shall remain in effect. The scope of this stay
encompasses any and all discovery relating to the allegations made
against the named defendants as set forth in the Second Amended
Complaint, including discovery initiated under Bankruptcy Rule 2004 or
otherwise, except as specifically authorized by this Court. The Court
will entertain motions for contempt and/or for sanctions should any party
to this action violate this stay as reaffirmed and clarified herein.
R9-199-4-5 (footnote omitted).
On June 10, 1994, the Defendant outside directors filed a motion to compel
Brandt to obey the September 1992, July 1993, August 1993, October 1993, and
March 1994 Orders. See R11-264. This motion asserts that Brandt had sought to
enforce the February 1994 Subpoena by filing motions to enforce the subpoena
against Shearman & Sterling and to hold Shearman & Sterling in contempt for failure
to obey the subpoena. In his recommendation of dismissal, the magistrate judge
found that, on April 29, 1994, Brandt filed a motion in bankruptcy court (“April 1994
Motion”) to hold Shearman & Sterling in contempt for failing to obey the February
1994 Subpoena. See R16-380-4 (citing R11-264); R11-264-7. Beck disputes this
claim, noting: “On April 14, 1994, the Bankruptcy Court granted a motion by Mr.
Brandt, as trustee, to stay enforcement of the Rule 2004 subpoena that the trustee had
served on Shearman & Sterling in February” until the district court either vacated the
8
March 1994 Order or gave Brandt permission “'to take discovery of Shearman &
Sterling.'” Brief of Appellant at 20-21; see also Brief of Appellant at Ex. D (order
staying enforcement of subpoena). The record does not include a copy of the April
1994 Motion but does include correspondence showing that Brandt was seeking in
May 1994 to enforce a Rule 2004 subpoena against Shearman & Sterling. See R11-
270-Ex. 4, Ex. 5.
On May 3, 1994, the district court granted in part and denied in part Defendants'
motion to dismiss Brandt's Second Amended Complaint.4 See R10-243-15-16 (listing
surviving claims), In re: Southeast Banking Corp., 855 F. Supp. 353, 361 (S.D. Fla.
1994), aff'd,
69 F.3d 1539 (11th Cir. 1995) (“May 1994 Order”).5 Because claims
from the Second Amended Complaint had survived the motion to dismiss, the district
court lifted the stay of discovery that had been in effect since the September 1992
Order. See R11-266-2 (“June 15, 1994 Order”). In the June 15, 1994 Order that
lifted the stay, the district court denied the Defendant outside directors' motion to
compel as moot. See R11-266-2-3. On reconsideration, the district court enjoined
Brandt “from seeking discovery through the use of Rule 2004 subpoenas on matters
4
On February 2, 1994, Brandt filed the Second Amended Complaint, see R7-163, which was
the operative complaint when the district court dismissed the case for discovery violations.
5
The portions of this order that dismissed certain averments of the Second Amended
Complaint were appealed by Brandt; addressing only those findings appealed, we affirmed in
part and reversed in part. See In re Southeast Banking Corp., 69 F.3d 1539 (11th Cir. 1995).
9
that relates or may relate to the allegations made by the Trustee in the Second
Amended Complaint.” R11-271-2 (“June 21, 1994 Order”). The district court applied
that injunction to the February 1994 Subpoena. See R11-271-2. The district court
emphasized that “[a]ll discovery that relates or may relate to the allegations made by
the Trustee in the Second Amended Complaint shall be governed by the Federal Rules
of Civil Procedure and shall take place in the District Court.” R11-271-2.
Subsequently, the district court denied an emergency motion to expedite discovery of
Shearman & Sterling filed by Brandt on the ground that “no good faith basis exists for
taking discovery of Shearman & Sterling.” R12-284-3 (“August 1994 Order”).
On October 28, 1994, Brandt, through Bainton, served a Fed. R. Civ. P. 30
subpoena (“October 1994 Subpoena”) on Shearman & Sterling. See R13-297-Ex. G.
This subpoena was filed in the Southern District of New York, rather than in the
Southern District of Florida. See R13-297-Ex. G. On November 14, 1994, the
Defendant Outside Directors filed a motion for sanctions and fines against both Brandt
and Bainton and for rescission of Bainton's pro hac vice admission “for failure to
comply with courts orders and for discovery abuses.” R13-297-1. This motion
alleged that the October 1994 Subpoena violated the August 1994 Order. See R13-
297-2. The Defendant Outside Directors emphasized that they sought “sanctions
against the Trustee and his counsel” – but that “[i]n order that the creditors of
10
[Debtor's] bankruptcy estate should not suffer from the misconduct of the Trustee and
his counsel . . . any sanctions imposed shall not be reimbursed, directly or indirectly,
through application to the Bankruptcy Court.” R13-297-9-10.6
On April 1, 1996, Brandt moved to file a Third Amended Complaint; in his
memorandum in support of this motion, Brandt stated that the majority of the
materials underlying the additions to the complaint came from materials produced by
the FDIC and by Steel Hector & Davis. See R15-357- 2 n.2. In opposition to this
motion, Defendants noted that the FDIC was challenging Brandt's right to possess a
number of documents produced by the FDIC. See generally R15-361. The FDIC's
motion to require Brandt to return “Inadvertently Produced, Privileged Documents”
was filed in a separate action, 92-2602-CIV-DAVIS. See R15-361-Ex.A. In response
to that motion, the magistrate judge ordered:
The plaintiff Trustee, his employees and counsel shall not utilize,
directly or indirectly, any of the Post-Closing Privileged Documents or
the information contained therein for any purpose whatsoever until
further Order of this Court. Such documents or the information
contained therein shall not be made available, directly or indirectly, to
any third parties including but not limited to the media. Any violation
of this provision shall result in the imposition of sanctions.
R15-361-Ex. B at 2 (“April 1996 Order”).
6
We note with interest that Defendants, while arguing before us that the creditors' interests
were not raised in the district court, did, in fact, raise that very argument themselves.
11
On May 2, 1996, Brandt and Bainton were quoted in a Miami Daily Business
Review article entitled “Trustee: I'd love to show smoking gun.” See R16-367-Ex. H.
The article addresses the disputed FDIC documents, which Brandt likened to the
“'Pentagon Papers'” and which Bainton likened to “'the gun in a murder
investigation.'” R16-367-Ex. H at 1. Brandt noted his disagreement with the April
1996 Order barring him from using the documents. See R16-367-Ex. H at 2. Based
on Brandt's use of the FDIC documents in preparing the Third Amended Complaint
and on the Miami Daily Business Review article, Defendants filed an Emergency
Motion to Dismiss the Action and for Monetary Sanctions. See R16-366.
The magistrate judge held a hearing on Defendants' motion to dismiss. At this
hearing, Defendants' counsel focused on the fact that Brandt “isn't an ordinary
opponent. . . . This is the Court's trustee, you, meaning the Southern District, [are]
responsible for this person, you appointed him. . . . [T]his is the Southern District's
appointee. He's a fiduciary.” R25-10; see also R25-18 (“The trustee just doesn't get
it. He is a fiduciary. His lawyer's an officer of the Court. He's an officer of the
Court.”). Defendants argued that it would be insufficient merely to remove Bainton
because “the trustee is responsible for [Bainton's]” conduct and because “we have here
not only a pattern of the misconduct, we have a pattern of approval and ratification.”
12
R25-24. Bainton argued both that he and Brandt had not engaged in misconduct and
that there were innocent creditors who deserved their day in court:
I don't think we've done anything wrong other than being overzealous in
our representation of a client who's got important people to protect.
Judge, you've lived in Miami all your life. People who bought Southeast
Bank stock didn't think they were buying Alaskan gold mining stock.
There's been a catastrophe here and the people who are responsible for
it should be held accountable.
R25-59-60.
The magistrate judge recommended dismissal. See R16-380. Specifically, the
magistrate judge found:
that Plaintiff [Brandt] and his counsel [Bainton] have willfully violated
orders of this Court on six separate occasions:
1. Plaintiff and his counsel, on August 12, 1993, served Bankruptcy
Rule 2004 subpoenas on Steel, Hector & Davis and Deloitte &
Touche contrary to an order of this Court [September 1992
Order].
2. Plaintiff and his counsel violated this Court's original order
staying discovery [July 1993 Order], as well as two subsequent
orders staying discovery [the August 1993 and October 1993
Orders] when Plaintiff and his counsel served a Bankruptcy Rule
2004 subpoena on Shearman & Sterling.
3. Plaintiff and his counsel violated this Court's order of March 17,
1994 staying discovery by their continued efforts to use Rule 2004
subpoenas.
4. Plaintiff and his counsel violated this Court's past orders by filing
in Bankruptcy Court a Motion to Enforce Bankruptcy Rule 2004
subpoena on Shearman & Sterling.
13
5. Plaintiff and his counsel again violated this Court's past discovery
orders when on October 28, 1994 they served another Bankruptcy
Rule 2004 subpoena on Shearman & Sterling in direct violation of
this Court's [June 21, 1994 Order] enjoining the use of Rule 2004
subpoenas.
6. Plaintiff and his counsel violated this Court's [April 1996 Order]
restricting the utilization of privileged FDIC documents within the
possession of Plaintiff and his counsel when Plaintiff and his
counsel made various prejudicial statements relating to documents
whose use had been barred by the Court and which appeared in
the May 2, 1996 edition of the Miami Daily Business Review.
In re Southeast Banking Corp. Sec. & Loan Loss Reserves Litig., 212 B.R. 397, 405
(S.D. Fla. 1997) (alterations added). After discussing Brandt's and Bainton's history,
the court concluded “that [Brandt's] and [Bainton's] misconduct was willful, that it
was unfairly prejudicial to Defendants in this cause, that they had been amply warned
by this Court to comply with court orders, and that lesser sanctions would be
unavailing.”
Id. at 407 (alterations added). Accordingly, the magistrate judge
recommended dismissing the case with prejudice and awarding Defendants attorneys'
fees and costs caused by Brandt's and Bainton's misconduct. See id..
The district court held a hearing on Brandt's objections to the recommendation.
Brandt's new counsel7 argued that the remedy for discovery abuses should not fall on
the innocent creditors of Debtor:
[Brandt's] not a man who represents his own interest in this proceeding.
7
Bainton withdrew from all of the cases that were part of the MDL. See R26-52.
14
What he does is he's a fiduciary [sic] for literally thousands of
shareholders and creditors and many others, all of whom suffered, in
some cases, catastrophically, when Southeast Holding Corporation when
into Chapter 7 proceedings.
...
[T]he question is more what is the remedy. And if there are possible
sanctions that could involve money, then why would it be fashioned or
recommended that the remedy ought to fall devastatingly upon the rights
of everyone who is represented by that estate.
R26-9-10 (alterations added); see also R26-36-37 (“The collapse of Southeast Bank,
Your Honor, was a tragedy to this community. . . . Maybe it's a truth that people don't
want to know, but I think there has to be the right for that story to be told. And
whatever mistakes were made, they can be remedied.”).
On August 1, 1997, the district court issued the order at issue in this appeal.
See In re Southeast Banking Corp. Sec. and Loan Loss Reserves Litig., 212 B.R. 397
(S.D. Fla. 1997) (“August 1997 Order”). In the August 1997 Order, the district court
found that:
Plaintiff [Brandt] and his counsel [Bainton] willfully violated this Court's
orders through the following actions:
1. On July 26, 1993, Plaintiff and his counsel served Bankruptcy
Rule 2004 subpoenas on Steel Hector & Davis and Deloitte &
Touche, in violation of [the July 1993 Order] (staying discovery).
2. On January 5, 1994, Plaintiff and his counsel served Bankruptcy
Rule 2004 subpoenas on Lazard Freres, in violation of the [July
1993, August 1993, and October 1993 Orders] (staying
discovery).
15
3. On February 24, 1994, Plaintiff and his counsel served
Bankruptcy Rule 2004 subpoenas on Shearman & Sterling, in
violation of the [July 1993, August 1993, and October 1993
Orders] (staying discovery).
4. On April 29, 1994, Plaintiff and his counsel continued to pursue
discovery through the enforcement of Bankruptcy Rule 2004
subpoenas against Shearman & Sterling, in violation of the [July
1993, August 1993, October 1993, and March 1994 Orders]
(staying discovery).
5. Plaintiff and his counsel made various prejudicial statements
relating to documents whose use had been barred by this Court
and which appeared in the May 2, 1996 edition of the Miami
Daily Business Review, in violation of the [April 1996 Order]
(restricting Plaintiff and his counsel's use of these documents,
including disclosure, directly or indirectly, to the media).
Id. at 399(bracketed text added; parenthetical text in original). The district court held
that Brandt and Bainton had otherwise “engaged in abusive litigation practices”
including “pursu[ing] discovery with no good faith basis for doing so” and
“improperly obtain[ing] certain privileged documents from the FDIC, but continu[ing]
to litigate the turnover proceedings and conceal[ing] their actions.”8 Id.(alterations
added; emphasis in original). The district court noted that Brandt and Bainton had
received “numerous warnings throughout this litigation” about the risk of sanctions,
id., and then concluded that “Plaintiff and his counsel's misconduct in this case and
other litigation gives no indication to this Court that lesser sanctions would be
8
In support of this latter “abusive litigation practice,” the district court cites to an order
issued in a separate but related case. In re Southeast Banking Corp., 212 B.R. at 399.
16
effective,” id. at 399-400. After finding that the misconduct had both prejudiced
Defendants “in that they have suffered delay in attempting to clear their names” and
had “interfered with this Court's ability to effectively resolve this litigation, as well
as the other cases the Court is charged with overseeing,” the court dismissed the action
with prejudice.
Id. at 400.
II. Analysis
The district court adopted the magistrate judge's recommendation that this case
be dismissed pursuant to Fed. R. Civ. P. 41(b).9 “An appellate court reviewing the
exercise of this power is constrained by the abuse of discretion standard.” State Exch.
Bank v. Hartline, 693 F.2d 1350, 1352 (11th Cir. 1982) (citing Rule 41(b) and the
“inherent . . . authority [of the trial court] to enforce its orders and ensure prompt
disposition of legal actions”).
The district court's order addressed seven acts of alleged misconduct: Issuance
of the July 1993 Subpoenas; issuance of the January 1994 Subpoena; issuance of the
February 1994 Subpoena; filing of the April 1994 Motion in bankruptcy court;
9
Rule 41(b) states, in relevant part:
For failure of the plaintiff to prosecute or to comply with these rules or any order
of court, a defendant may move for dismissal of an action or of any claim against
the defendant. Unless the court in its order for dismissal otherwise specifies, a
dismissal under this subdivision . . . operates as an adjudication upon the merits.
(alterations added).
17
attempts to engage in discovery of Shearman & Sterling with “no good faith basis” for
such discovery; obtaining and retaining the disputed FDIC documents; and the
comments made by Brandt and Bainton in the May 2, 1996 edition of the Miami Daily
Business Review. Beck does not dispute the district court's finding in the March 1994
Order that issuance of the January 1994 and February 1994 Subpoenas violated the
July 1993, August 1993, and October 1993 Orders staying discovery, see Appellant's
Brief at 32, but argues that the district court erred (1) in finding that the issuances of
the July 1993, January 1994, and February 1994 Subpoenas were willful violations,
(2) in finding that Brandt had attempted to enforce the Rule 2004 subpoena against
Shearman & Sterling on April 29, 1994, (3) in considering the comments from the
Miami Daily Business Review article, and (4) in dismissing the case rather than
issuing lesser sanctions that would not have injured innocent creditors. We consider
these arguments in turn.
A. July 1993, January 1994, and February 1994 Subpoenas
Beck argues that it was inappropriate for Judge Davis to rule in 1996 that
Brandt's issuances of the July 1993, January 1994, and February 1994 Subpoenas were
willful. Beck notes that Judge Aronovitz, who had the case at the time that those
subpoenas were issued, did not find that Brandt acted willfully in issuing the
18
subpoenas. Beck argues that it was wrong for Judge Davis to decide, years after the
fact, that Brandt acted willfully where Judge Aronovitz made no such a finding.
An interesting question not discussed by Beck is whether Beck would view
such a belated finding as inappropriate if Judge Aronovitz had been the judge to make
it. Beyond terming Judge Davis's ruling as “ex post facto,” Appellant's Brief at 46,
Beck's argument is based on the fact that Judge Aronovitz never found that Brandt's
actions were willful but, instead, issued new orders clarifying his rulings. Beck did
not offer, nor did we find, any case law to support the conclusion that a judge cannot
consider the entire history of a case – even conduct that occurred two years before –
to determine if a litigant's conduct was willful. Accordingly, mere passage of time
does not bar a district court from considering whether particular conduct amounted to
willful violation of court orders.10 We also reject any intimation that a judge who
replaces another judge on a case cannot address whether conduct committed prior to
the transfer was willful.11
10
We do not discount the fact that passage of time without further wrongdoing is relevant to
the question of whether dismissal is an appropriate remedy for wrongful conduct.
11
Beck argues (without case support) that the standard of review should be different for a
“judge who 'inherited' this case well after four of the five events that were alleged to have been
violations of court orders had occurred.” Appellant's Brief at 32. While Beck argues that the
timing of Judge Davis's receiving the case means that he “was not in any position superior to that
of this Court,” id., we are concerned that such a rule would provide a windfall to the fortunate
malfeasant litigant whose case is transferred due to the retirement, recusal, or death of the initial
judge or by the confirmation of new judges on the district court. Because we find that the
district court erred in dismissing the case, rather than using a lesser sanction, we need not
19
Having rejected the broader interpretations of Beck's argument, we are left with
two subtler, more case-specific questions: First, did Judge Aronovitz's failure to find
that Brandt's issuances of the July 1993, January 1994, and February 1994 Subpoenas
were willful bar Judge Davis's later finding of willfulness? Second, does the fact that
Judge Aronovitz's issued orders “clarifying” his prior orders bar a finding of
willfulness on the ground that the prior orders were unclear? The answer to each of
these questions is “No.” As to the first question, we agree with Defendants that Judge
Aronovitz was never asked to determine whether Brandt's issuances of the July 1993,
January 1994, and February 1994 Subpoenas were willful. Thus, Judge Davis's later
findings of willfulness do not contradict prior findings. As to the second question,
we find that the fact that Judge Aronovitz issued orders “clarifying” his prior orders
does not mean that Judge Davis was incorrect in finding that Brandt willfully violated
those prior orders. It is true that a finding of willfulness is inappropriate where a
litigant's “[v]iolation of a discovery order [is] caused by simple negligence,
misunderstanding, or inability to comply.” Malautea v. Suzuki Motor Co., 987 F.2d
1536, 1542 (11th Cir. 1993); see also E.E.O.C. v. Troy State Univ.,
693 F.2d 1353,
1357 (11th Cir. 1982) (“A party's simple negligence or other action grounded in a
misunderstanding of a court order does not warrant dismissal.”). Sanctions, like a
address Beck's novel argument regarding standard of review.
20
finding of contempt, for violation of an order are only appropriate if “the order stated
in specific and clear terms what acts were required or prohibited.” E.E.O.C. v.
General Dynamics Corp., 999 F.2d 113, 116 (5th Cir. 1993). That said, the fact that
Judge Aronovitz chose to state in his subsequent orders that he was clarifying the prior
orders staying discovery did not bar Judge Davis from concluding that the prior orders
were sufficiently clear to justify a finding of willfulness. The July 1993, August 1993,
and October 1993 Orders made clear that all discovery related to this case was stayed
until a viable complaint survived a motion to dismiss; these orders also made clear
that this case was to be ruled by the Federal Rules of Civil Procedure, not by the
Bankruptcy Rules. Beck has proffered no explanation for why these orders were
unclear, nor has he given any justification for why the subpoenas where not covered
by the stay in the July 1993, August 1993, and October 1993 Orders. If the Orders
were unclear or unduly impeded Brandt's duties as trustee to investigate other cases
against other defendants, Brandt could have sought clarification of the prior orders –
but he never did. This situation is similar to that of Malautea, where we affirmed a
finding of willfulness and the granting of a default judgment under Rule 37 because:
[n]either defendant has provided a credible explanation of how it
interpreted the discovery orders not to encompass the General Motors
information. Neither defendant asked Judge Edenfield to clarify the
orders, as a genuinely confused litigant, twice-threatened with the
sanction of a default judgment, would have done. In particular, the
defendants never asked Judge Edenfield to explain whether the orders
21
covered the plaintiff's interrogatory that requested the General Motors
information.
987 F.2d at 1543. Accordingly, we find that the district court did not err in holding
that the issuances of the July 1993, January 1994, and February 1994 Subpoenas were
willfully in violation of the July 1993, August 1993, and October 1993 Orders staying
discovery and reaffirming the district court's jurisdiction over this case.
B. April 1994 Motion
Beck argues that the finding regarding the April 1994 Motion is unsupported.
We have been unable to find any documentation of the April 1994 Motion despite a
thorough search of the record. However, Brandt filed a motion in the district court
that appended correspondence between Bainton's law firm and Shearman & Sterling
about a hearing to be held in June 1994 in the bankruptcy court regarding a motion to
compel production of documents, see R11-270-Ex.4, Ex.5; while the brief in support
of that motion is dated March 11, 1994, see R11-270-Ex. 6, the correspondence
regarding the hearing is dated May 1994, see R11-270-Ex. 4, Ex. 5. Taken together,
the correspondence and brief in support support the finding that Brandt was
attempting in May 1994 to enforce a Rule 2004 subpoena against Shearman &
Sterling in bankruptcy court. See R11-270-Ex.4, Ex. 5, Ex. 6. Thus, while there is
no record support for the specific finding that Brandt moved on April 29, 1994 to
enforce a Rule 2004 subpoena against Shearman & Sterling, there is record support
22
for a finding that Brandt moved to enforce a Rule 2004 subpoena against Shearman
& Sterling at some point in time after issuance of the March 1994 Order. We find
that, to the extent that the district court erred in its finding that Brandt filed a motion
on April 29, 1994 to enforce a Rule 2004 subpoena, that error was harmless.
C. Miami Daily Business Review article
The impetus for the imposition of sanctions was the Miami Daily Business
Review article. Beck argues that it was inappropriate for the district court to sanction
the estate for the article where (1) the order allegedly violated by the article was from
another case and (2) the article was published two years after the last discovery
violation occurred in this case. We find that it is not error for a district court to
consider violation of an order from a separate case where that wrongdoing is related
to the case at hand.12 Cf. Chambers v. NASCO, Inc., 501 U.S. 32, 57,
111 S. Ct. 2123,
2139,
115 L. Ed. 2d 27 (1991) (affirming sanctions imposed by district court “for
conduct before other tribunals, including the FCC, the Court of Appeals, and this
Court”; “As long as a party receives an appropriate hearing . . . the party may be
12
The Ninth Circuit has held that prior incidents of wrongdoing may be considered in
assessing later incidents of wrongdoing but, where the later incidents are not “a continuation” of
the earlier incidents, it is error to use the prior incidents “as a fulcrum to elevate the final
incident of misconduct to a level that would allow dismissal of the action with prejudice.”
United States v. National Med. Enters., Inc., 792 F.2d 906, 913 (9th Cir. 1986). Similarly, we
find that the district may “consider . . . the long pattern of conduct [including] . . . several
failures by plaintiffs to obey court rules and orders.” Jones v. Graham,
709 F.2d 1457, 1462
(11th Cir. 1983).
23
sanctioned for abuses of process occurring beyond the courtroom, such as disobeying
the court's orders.”). Here, in a related case, Brandt and Bainton received disputed
documents. They were told not to use the documents in any way – including direct
or indirect contact with the media. Brandt and Bainton used the documents (1) to
draft a complaint in this case and (2) to comment publicly on Defendants' liability.
While the order was issued in another case, the wrongdoing affected this case. We
need not answer the question of whether the district court erred in dismissing the case
based on the article where no misconduct occurred in this case for a substantial period
of time, because we find that lesser sanctions should have been levied in this case.13
D. Failure to utilize lesser sanctions
We find that the district court should have used lesser sanctions to resolve the
problems caused by Brandt's and Bainton's misconduct without barring innocent
creditors from pursuing their claims against Defendants. As Defendants themselves
emphasized throughout the proceedings in this case, Brandt was a trustee of a
bankruptcy estate, while Bainton was serving pro hac vice as attorney to Brandt in his
role as trustee. This situation raises the concern that innocent parties who were unable
to choose their own representatives might be injured through no fault of their own.
13
We also need not address Beck's claim that the district court erred in dismissing this case
when the case in which the April 1996 Order was issued was not similarly dismissed.
24
“We have viewed dismissal as particularly harsh when the parties whose interests are
at stake are not the named plaintiffs who have complete control of the litigation.”
Hartline, 693 F.2d at 1353. This principle is compatible with the Third Circuit's
requirement that a district court consider whether a party has had personal
responsibility for the wrongdoing of its attorney. See Adams v. Trustee of the New
Jersey Brewery Employees' Pension Trust Fund,
29 F.3d 863, 873 (3d Cir. 1994)14;
see also Rogers v. Kroger Co.,
669 F.2d 317, 322 (5th Cir. 1982) (treating “direct
plaintiff culpability” as an “aggravating circumstance” that may justify dismissal as
a sanction for misconduct). This emphasis on the personal responsibility of the
parties-in-interest is reasonable, not only to preserve the rights of truly innocent
parties, but also because, where a party is personally involved in malfeasance, the
likelihood that alternative sanctions will resolve the misconduct is lower. See, e.g.,
Gratton v. Great American Communications,
178 F.3d 1373, 1375 (11th Cir. 1999)
(affirming sanction of dismissal where “the district court found that plaintiff was
culpable, and found that no other sanction would cure the harm”). Additionally, cases
that have found that dismissal was appropriate despite the lack of personal
14
The Third Circuit notes that, “[w]here . . . a party is personally responsible for
[misconduct], the effect of dismissal on third parties cannot be dispositive.” Adams, 29 F.3d at
873. Our conclusion does not contradict the Third Circuit but states that where, as here, the
misconduct is attributed to a representative party or its attorney, the district court should consider
the malfeasance (if any) of the represented party, as well as the availability of alternative
remedies caused by the fact of the representation.
25
wrongdoing on the part of the client have focused on the fact that the attorney
engaging in misconduct was the “freely selected agent” of the client. Link v. Wabash
R.R. Co., 370 U.S. 626, 633-34 & n.10,
82 S. Ct. 1386, 1390 & n.10,
8 L. Ed. 2d 734
(1962). Here, as emphasized by Defendants in the hearing before the district court,
Brandt was appointed by the district court to act as trustee for Debtor's estate.
The fact that Brandt was an appointed trustee and Bainton was acting pro hac
vice raises the possibility of alternative sanctions. Specifically, the district court could
have replaced Brandt as trustee to Debtor's estate and/or revoked Bainton's pro hac
vice status. While these sanctions are harsh, they may be used “[i]f the conduct at
issue threatens disruption of the court proceedings or is a deliberate challenge to the
authority of the district court.” Schlumberger Techs., Inc. v. Wiley, 113 F.3d 1553,
1561 (11th Cir. 1997) (addressing disqualification of an attorney admitted pro hac
vice) (citations omitted); see also 11 U.S.C. § 324(a) (“The court, after notice and a
hearing, may remove a trustee, other than the United States trustee, or an examiner,
for cause.”). Where, as here, there is no evidence that the represented parties, i.e., the
creditors, were involved in misconduct, removal of the trustee and/or the trustee's
26
attorney are viable sanctions, short of dismissal, that may resolve misconduct and
permit the litigation to continue without further disruption.15
In finding that the district court abused its discretion in dismissing this case, we
emphasize the limited nature of our holding. We do not hold that it is per se
inappropriate to use dismissal to sanction misconduct by a bankruptcy trustee (or other
representative party). Rather, in such a case, the district court should consider
whether the represented parties are innocent and whether lesser sanctions, such as
removal of the representative party, exist that could remedy the misconduct without
injuring the represented parties. We also do not belittle the strong interests that a
court has in protecting itself and litigants from abusive, contumacious conduct.
Sanctions, including dismissal or issuance of a default judgment, must be available “to
protect the ability of district courts to police discovery simply and speedily.” Phipps
v. Blakeney, 8 F.3d 788, 790 (11th Cir. 1993). “No litigant and no attorney, even if
motivated by misguided perceptions of constitutional [or statutory] privilege, may be
permitted to exhibit . . . contumacious conduct without risk of sanctions under Rule
15
Prior cases involving Brandt and Bainton have also resulted in sanctions. See Brandt v.
Schal Assocs., 960 F.2d 640, 646-47 (7th Cir. 1992) (affirming Fed. R. Civ. P. 11 sanctions
against Brandt's counsel for “an egregious and unjustified abuse of the judicial process”);
Warner Bros. v. Dae Rim Trading, Inc.,
877 F.2d 1120, 1128 (2d Cir. 1989) (dismissing
Bainton's appeal of Rule 11 sanctions against him and imposing double costs for the appeal; “In
short, in this Court, as well as in the district court, Attorney Bainton has demonstrated a blatant
disregard of the rules and regulations which permit the judicial machinery to function
smoothly.”).
27
37 [or Rule 41(b)].” Adolph Coors Co. v. Movement Against Racism & the Klan, 777
F.2d 1538, 1543 (11th Cir. 1985). We do not foreclose the possibility that, in a future
case, dismissal will be justified as a sanction for violation of court orders. We find
that, on the facts of this case, dismissal is not justified.
III. Conclusion
The district court's August 1997 Order is REVERSED insofar as it ordered
dismissal of this case. We REMAND this case for imposition of appropriate
sanctions in accordance with this opinion.
28
