DUNCAN, Circuit Judge.
This appeal arises from the district court's entry of default judgment in the amount of $3,832,832 against John Acord and his mother, Marcella Ortega (collectively, the "Appellants"), pursuant to Federal Rules of Civil Procedure 16(f) and 37(b)(2)(A)(vi). In addition to appealing the default judgment, Acord appeals the district court's earlier award of Rule 11 sanctions against him in the amount of $24,357 and the order incarcerating him for civil contempt for his refusal to pay that amount. For the reasons that follow, we affirm. We find that Appellants were adequately put on notice as to the consequences of their actions, and that their intransigence warranted no lesser sanctions.
On August 20, 2003, Young Again Products, Inc. ("Young Again") filed a complaint in the U.S. District Court for the District of Maryland against Acord and Young Again Nutrition ("Nutrition")
Young Again filed a motion for a preliminary injunction to enjoin Appellants from using Young Again's trademarks, the name of Young Again's president, Roger Mason, and Mason's copyright-protected works. The court granted Young Again's motion on March 25, 2005. Thereafter, on March 29, 2005, Acord filed counterclaims against Young Again and Mason for, inter alia, libel, defamation, and tortious interference with Appellants' business. Young Again filed an amended complaint on May 26, 2004 naming Ortega as an additional defendant.
On April 16, 2004, Young Again filed its first motion to enforce the preliminary injunction and for contempt against Acord, alleging that he was continuing to use Young Again's trademarks and Mason's name, despite the injunction. Thereafter, on May 25, 2004, the parties entered into a consent injunction in which Appellants agreed to cease using Young Again's trademarks and Mason's name, both parties agreed to refrain from making disparaging remarks about the other, and Mason agreed not to interfere in Appellants' business in any way.
Young Again filed a second motion to enforce and for contempt on Jun 21, 2004. This time, Young Again alleged that Appellants violated the May 25 consent injunction by sending a memorandum to their distributors that Young Again had not approved and that contained derogatory remarks about Mason. Although the district court found that Appellants' distribution of the unilaterally prepared memorandum did not violate the express terms of the consent injunction, it warned them that the memorandum was "neither in form nor in substance what the court contemplated would have been sent in accordance with the applicable provision of the Consent Injunction." J.A. 509. On August 5, 2004, the district court entered an order instructing the parties to work together to draft a notice to the Appellants' distributors explaining that they were permanently enjoined from using certain trademarks.
As the litigation lurched forward, Young Again sought to have the district court reconsider its August 5th order and both parties moved to extend the discovery deadline. In an August 24, 2004 order, the district court denied Young Again's motion to reconsider, but since the parties had not agreed on a notice to Appellants' distributors, did specify the notice that Appellants had to send to their distributors. The court also granted the joint motion to extend discovery deadlines, but in bolded, underlined, and italicized text, warned the parties that "no further extensions will be granted." J.A. 523.
On September 3, 2004, Young Again filed its third motion to enforce and request for an "order to show cause why [Appellants] should not be held in contempt for willful violation of the injunction and the decrees of this court, and for expenses, including attorney's fees." J.A. 526. Appellants responded that they had not received proper notice of the violations. Acord also submitted a declaration explaining how he and Nutrition had "used [their] best efforts to remove all of the Young Again Products goods from the Internet web sites operated by Young Again Nutrition" in order to comply with the injunction. Young Again maintained that the ongoing violations were too blatant to be oversights. J.A. 555-58.
At a hearing on November 9, 2004, the court "reluctantly" denied Young Again's motion because Appellants did not have sufficient notice to correct the alleged violation. J.A. 3556. The court stated that it was "not exactly pleased with [Appellants'] approach to compliance with this injunction." J.A. 3555. The court complained that Appellants were "playing the bubble game, pushing a bubble down one place that pops up in another." J.A. 3556. The court contemplated sanctions but noted instead that it did not
J.A. 3557-58. The court continued:
J.A. 3558-59. The court stated that the Appellants had "seven days to fix this problem" and that "if this stuff continues to happen then we will be back here and we will be talking about imposing sanctions, because I just don't think that this can go on any further." J.A. 3559.
The court's November 12 order reiterated the frustration it expressed at the hearing. It stated that the court found that the Appellants' compliance had been "less than exemplary" and that "any failure by the [Appellants] to conform their on-line activities to the requirements of the consent injunction within seven days . . . may result in the levying of civil penalties against the [Appellants]." J.A. 621.
Appellants ignored this seven-day deadline. On November 19, 2004, Young Again filed its fourth motion to enforce and request for sanctions. The court held another hearing on February 3, 2005 to determine whether the Appellants or third-parties not under the Appellants' control were responsible for the continued misuse of Young Again's intellectual property. Although concerned that some of the ongoing noncompliance was not innocent, but was the product of "`wink, wink; nod, nod' relationships with some of the[] so-called retail customers," the court declined to impose sanctions. J.A. 3384. The court was nonetheless clear in its warning to the Appellants:
J.A. 3384 (emphasis added). The court then addressed Appellants' counsel, Lawrence E. Laubscher,
The discovery process progressed slowly at best. On April 15, 2005, Young Again filed its first motion to compel Appellants to produce documents. Although the parties reached an agreement resolving this first discovery dispute, the court had to intervene repeatedly.
The court originally planned to rule on Young Again's fourth motion to enforce and request for sanctions after the completion of discovery on June 1, 2005. When the discovery deadline was extended into 2006, however, the court denied the motion without prejudice, citing Congress's "disapprobation of stagnant motions that remain pending for an abnormally long time." J.A. 909.
In the middle of discovery, on April 24, 2006, Laubscher moved to withdraw from representation of Acord and the court granted his motion.
The court finally decided Young Again's July 7, 2006, motion on June 19, 2007. The court explained that it had spent 28 hours reviewing documents only to find that many were blank, consisted of advertisements, or otherwise lacked any confidential information, much less information warranting the "attorneys' eyes only" designation. J.A. 1043-44. The order noted that Laubscher "conceded that he has not reviewed all of the electronically stored documents because of the volume of the records," yet he let Acord, who was ostensibly proceeding pro se, designate them "attorneys' eyes only." J.A. 1043-44. The court struck Appellants' designation.
Not having an attorney did not deter Acord from vigorously litigating. In an email, he characterized his own conduct as "filing numerous motions to quash, discovery requests on Mason, and other actions that will hopefully deplete his war chest." J.A. 1106A.
On December 7, 2007, Acord filed a pro se motion to enforce, requesting sanctions against Young Again, and seeking to dismiss the suit against him. In response, Young Again moved for sanctions against Acord under Federal Rule of Civil Procedure 11, stating that the purpose of Acord's motion was harassment and delay. On August 28, 2008, the district court denied Acord's motion, finding that he came before the court "with, at best, unclean hands" and that his motion was "utterly devoid of any merit whatsoever." J.A. 2174. At a hearing on November 17, 2008, the district court ruled on Young Again's motion and ordered sanctions assessed against Acord in the amount of $24,357. The court found that his motion "was filed for an improper purpose of harassment, causing unnecessary delay, and/or needlessly increasing the costs of litigation, and that his pleading contained numerous factual allegations without evidentiary support." J.A. 2306.
Both Laubscher and Acord were present at the November 17, 2008, hearing. In addition to sanctioning Acord, the court scheduled a jury trial in the case and imposed a strict pretrial schedule for the parties to follow. The court told the parties: "[Y]ou need . . . to read our rule on pretrial procedures. I take that very seriously . . . [T]he pretrial preparation process is one that involves a significant level of joint endeavor with people operating in good faith with each other and not playing around." S.J.A. 118-19. The court instructed the parties to submit a pretrial order by March 2, 2009.
Despite the court's admonition about the need for the parties to cooperate and the local rules governing the pretrial process, Ortega did not respond to Young Again's efforts to make pretrial arrangements. Instead, Laubscher waited until one business day before the filing deadline for the pretrial order, a Friday, to begin emailing his proposals. Even then, he failed to attach anything to his email. The next Monday, he waited until 4:20 pm on the filing date to forward the remainder of his proposed joint pretrial order. Laubscher complained that Young Again's counsel did not notify him that the attachment was missing or respond to his emails on Saturday. Laubscher later testified that he had repeatedly attempted to contact Ortega but that she never responded, so he proceeded without guidance from his client. In any event, Laubscher's belated filing left no time for the parties to negotiate the order. As a result, Young Again did not incorporate any material from Ortega into its order.
On March 2, 2009, Young Again filed a motion for default judgment against Acord, alleging that he failed to communicate in preparing for pretrial and that he had failed to pay the sanctions assessed against him. On March 17, 2009, Young Again filed a motion for default judgment against Ortega, alleging that she too had failed to participate in the pretrial process.
On March 19, 2009, the court sent the parties the following reminder about the pretrial proceedings:
J.A. 2602 (emphasis in original). Relevant to this appeal, Paper No. 256 is Young Again's motion for default judgment against Acord; Paper No. 258 is Young Again's motion for sanctions and civil contempt against Acord; Paper No. 259 is Young Again's motion for default judgment against Ortega.
At the scheduled pretrial hearing on March 23, 2009, the court heard extensive testimony about the failure of Appellants to cooperate in the pretrial process. Laubscher admitted that he knew that Appellants missed the deadline to comment on the pretrial order, but having not received any instructions from Ortega he made the 4:20 pm filing in an effort to preserve her rights. He maintained that Ortega wanted to defend the case, but the court disagreed. The court stated that it was "attributing what took place in this case directly to Marcella Ortega" and that he could not fault her counsel, Laubscher, because "it's clear[] his indifference to his obligations . . . are because he was in effect disabled by his client from being able to perform the obligations that he had to this court." J.A. 3329. Acord admitted that he had no excuse for his failure to participate in the pretrial process other than "it just boggles my mind and I don't know how to do it. I don't have an attorney up here." J.A. 3305.
The court found that both Acord and Ortega had failed to participate meaningfully in the litigation and granted default judgment against them in the amount of $3,832,832.40.
At that same hearing, Laubscher requested and was granted permission to withdraw from his representation of Ortega, citing Ortega's failure to communicate with him or pay him since November 2008. The record contains three letters from Laubscher to Ortega dated December 29, 2008, February 23, 2009, and March 4, 2009, explaining his need for direction during the pretrial process. The first two letters also gave Ortega notice that he would withdraw as counsel if not paid. The third informed Ortega that she was in violation of their Representation and Fee Agreement and that Laubscher would be moving to withdraw under Local Rule 101.2 for nonpayment of fees and "failure to cooperate in your defense." J.A. 2871. Laubscher also emailed Acord about his inability to continue representing Ortega without payment.
The court ordered Acord to pay the sanctions against him— or explain the financial circumstances that rendered him unable to pay—within thirty days of March 25, 2009. Acord did neither. Consequently, the court ordered him to appear at a hearing on July 7, 2009, to show cause why he should not be held in civil contempt and incarcerated. Acord moved for a continuance but the district court denied his motion. Acord failed to appear as ordered. On August 6, 2009, the district court held Acord in contempt and ordered him incarcerated until he purged himself of the contempt.
Appellants claim that the district court abused its discretion when it entered default judgment for $3,832,832.40 against them. In addition, Acord argues that the district court abused its discretion when it awarded Young Again sanctions pursuant to Federal Rule of Civil Procedure 11. Acord also appeals the district court's order holding him in civil contempt for failure to pay the sanction. Finally, Appellants claim that the district court erred in its March 14, 2004, order finding that venue in the District of Maryland was proper and denying their request to transfer venue. We will consider each issue in turn.
We turn first to the default judgment. This court reviews for abuse of discretion a district court's grant of sanctions under Rule 37, including the imposition of a default judgment.
The district court imposed a default judgment on the defendants pursuant to Rules 16(f) and 37(b)(2)(A)(vi) based primarily on their failure to participate in the pretrial process. Under Rule 16(f)(1),
Fed. R. Civ. P. 16(f)(1). Rule 37(b)(2)(A)(ii)-(vii) lists a variety of sanctions, including "prohibiting the disobedient party from supporting or opposing designated claims," "striking pleadings in whole or in part," "staying further proceedings until the order is obeyed," "dismissing the action or proceeding in whole or in part," and "rendering a default judgment against the disobedient party." Fed. R. Civ. P. 37(b)(2)(A)(ii)-(vi). We have previously upheld default judgment as a sanction for discovery abuses under Rule 37.
Recognizing the seriousness of the imposition of default judgment, we have instructed district courts to apply a four part test when determining appropriate sanctions under 37(b): "(1) whether the noncomplying party acted in bad faith; (2) the amount of prejudice his noncompliance caused his adversary . ..; (3) the need for deterrence of the particular sort of noncompliance; and (4) the effectiveness of less drastic sanctions."
We emphasize, however, that our review of the district court's determination is a deferential one, in recognition that "it is the district court judge who must administer (and endure)" the proceedings.
Appellants Acord and Ortega argue that the district court abused its discretion when it entered the default judgment because it did not properly apply the
First, the record reflects a pattern of noncompliance suggesting bad faith.
While Ortega's behavior may have been less egregious than Acord's, it nevertheless manifested an identical posture of resistance. Moreover, her efforts to pin the blame on her former attorney are unpersuasive. The record contains three letters from Laubscher to Ortega, as well as emails from Laubscher to Acord, in which Laubscher explains that he needs both Ortega's cooperation and payment for his services. Laubscher continued to represent Ortega even after warning that he was going to withdraw if his date for payment came and went. Moreover, we have previously upheld a district court's entry of default judgment against defendants who so failed to communicate with their attorney that their attorney withdrew from the representation.
Turning to the second
J.A. 3329. Moreover, we note that this is an intellectual property case in which Appellants allegedly continued to use Young Again's property despite injunctions to the contrary. Given the impermanence of the internet, over which Appellants traded Young Again's work, each day of delay is a day over which evidence of the original infringement may degrade. Moreover, Acord himself stated that his goal was to force Mason to "deplete his war chest" defending this litigation. J.A. 1106(A)
With respect to the third
Turning to the fourth
Appellants argue that default judgment is improper because the district court did not warn them of the possibility of default judgment. As an initial matter, we believe that the court's March 19, 2009, memorandum to the parties in which it said that it planned to rule on Young Again's motions for default judgment, gave Appellants notice that default judgment was a possibility.
While it is true that the district court did not explicitly warn Appellants that it would definitely enter a default judgment at the March 23 hearing, we find that they surely had constructive notice that it might: the district court had expressed its displeasure about poor compliance with the injunctions;
While we believe that Ortega had sufficient notice of the possibility of default, it is even clearer that Acord did. On at least two additional occasions the district court warned Acord that it was unhappy with his behavior. The first was the May 25, 2004, hearing at which the court departed from the traditional American rule of each side paying its own costs and ordered Acord to pay Young Again's costs and fees related to its first motion to enforce.
Appellants contend that the award of $3,832,832.40 was improper. We disagree. The district court took this sum from Young Again's expert Richard S. Hoffman, whose report described Young Again's damages from Appellant's infringement, and which Young Again included as an exhibit in its pretrial submissions. Appellants never objected to this report either during the March 23, 2009, hearing, during which Young Again presented it as evidence, or during the pretrial process during which the Appellants were supposed to be cooperating with Young Again. Appellants now contend that the report was hearsay and claim that the district court is relying on the statements of lawyers, which "are not evidence." Appellant's Br. 54. Federal Rule of Civil Procedure 26(a)(3)(B) dictates that a party waives any objections to pretrial disclosures unless it raises them within 14 days. Since Appellants failed to object to the report within 14 days, they have waived any objections. Accordingly, we find that the district court did not abuse its discretion when it awarded Young Again the sum specified in its expert's report.
We now turn to Acord's contention that the district court erred when it entered Rule 11 sanctions against him and that it committed further error when it order him incarcerated for failure to pay these sanctions. Rule 11 provides that a court may sanction a party for "presenting to the court a pleading, written motion, or other paper . . . presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation," or for making factual contentions without evidentiary support. Fed. R. Civ. P. Rule 11(b). We review the imposition of Rule 11 sanctions for abuse of discretion.
The district court imposed sanctions both because it found that the purpose of Acord's motion was to harass, delay, and increase the costs of litigation and because his motion "contained numerous factual allegations without evidentiary support." J.A. 2306. Acord disagrees with the district court's assessment of his motion and contends that the allegations were true and that the motion was necessary to prevent Mason from defaming Acord. Acord points to no evidence in the record to support this contention.
Furthermore, this does not appear to be a case like
The district court held Acord in contempt on August 6, 2009, when he skipped a hearing that the district court ordered him to attend after he failed to pay the Rule 11 sanctions within thirty days of March 25, 2009. To establish civil contempt, a movant must demonstrate: "(1) the existence of a valid decree of which the alleged contemnor had actual or constructive knowledge; (2) . . . that the decree was in the movant's `favor'; (3) . . . that the alleged contemnor by its conduct violated the terms of the decree, and had knowledge (at least constructive knowledge) of such violations; and (4) . . . that [the] movant suffered harm as a result."
Finally, we turn to the sole non-sanctions issue in this appeal. Appellants claim that the district court erred in its March 14, 2004, order finding that venue in the District of Maryland was proper and denying their request to transfer. We review the district court's denial of a motion to transfer venue for abuse of discretion.
We begin by noting that venue is a personal privilege of the defendant that may be waived.
As to Acord, we find that venue in the District of Maryland was proper under 28 U.S.C. § 1391(b)(2), which states that venue is proper in "a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated." Young Again argues that it entered into an agreement with Acord and Nutrition to resell its products. When ruling on Acord's motion, the district court found that it "must accept for purposes of this motion, the contract between the parties, which underlies the breach of contract claim, was entered into in Maryland, and Internet traffic was directed into Maryland and resulted in sales. Therefore, venue is proper in Maryland."
Acord has not contested the district court's finding that the parties formed the contract in Maryland. Indeed, Appellants now rest their venue argument entirely on the claim that Young Again was not a Maryland corporation in good standing when it filed the original complaint. Since Acord has waived any argument that the parties did not enter into the contract in Maryland, and the injury to Young Again—both from the breach of contract and the intellectual property claims—has occurred in Maryland, we hold that the district court did not abuse its discretion in holding that venue is proper in Maryland.
For the reasons discussed above, we find that the Appellants' bad faith throughout this litigation process was sufficiently egregious to justify the extraordinary sanctions imposed on them. Accordingly, we hold that the district court did not abuse its discretion.
Acord did not pay the sanction, and was therefore not released, until November 17, 2009.
