Opinion
C.A. #2:98-2929-23
February 1, 2001
ORDER
This matter is before the court upon Defendants PGI's and Bonlam's Motion for Sanctions, Defendant BHF's Motion to Dismiss, and the court's own motion for lack of subject matter jurisdiction.
MOTION FOR SANCTIONS
Defendants PGI and Bonlam move for sanctions seeking dismissal of PVD's claims against them and seeking an award of their attorneys fees and costs. Magistrate Judge Carr issued a Report and Recommendation ("R R") in accordance with 28 U.S.C. § 636 (b)(1)(B), advising this court to grant the Motion. PVD timely objected to the R R.
This court is charged with conducting a de novo review of any portion of a magistrate judge's R R to which a specific objection is registered and may accept, reject, or modify, in whole or in part, the recommendations contained in that report. 28 U.S.C. § 636 (b)(1). PVD's objections are sufficiently detailed to require of this court a complete review of the findings and conclusions necessary for granting the Motion for Sanctions with one exception. PVD does not object to the amount or reasonableness of PGI's and Bonlam's request for attorneys fees and costs. However, this court must be satisfied the request is reasonable. Therefore, this court reviews de novo PVD's specific objections and the entire record. The Motion for Sanctions is granted.
BACKGROUND
Discovery in this case was initiated by PGI and Bonlam serving First and Second Requests for Production in January 1999. PVD refused to produce documents relating, inter alia, to its damages. PGI and Bonlam sent a consultation letter dated September 9, 1999, specifically requesting documents on PVD's financial condition and on its relationship with prior customers and explaining these documents' significance to merits of the lawsuit. Because PVD had not produced any documents relating to these areas, PGI and Bonlam filed its first Motion to Compel on December 7, 1999, complaining that responsive documents had been admitted and referenced in PVD's discovery responses but not produced.
On December 21, 1999, Magistrate Judge Carr held a hearing and orally granted the first motion to compel. Specifically, the court ordered PVD to produce all responsive documents in ten days, which was January 6, 2000, under the Federal Rules, or a written statement that no documents existed. Counsel for PVD acknowledged the import of such an order by responding to the court: "I want to make sure the clients understand the significance of my representation before I make it." (Tr. 12/21/99, at 33)
On January 3, 2000, PVD produced more documents that proved to be inadequate but made no representation about other documents. The next day at the deposition of PVD's Chairman, Pravin Sheth, counsel for PVD stated on the record that PVD "ha[s] responded full[y] and in keeping with the federal rules." (Sheth Depo. 1/4/00, at 5) During that deposition, PGI and Bonlam elicited admissions about documents regarding accounts, loans, minutes, and bank statements that had not been produced because according to PVD's Chairman, "[i]t's a privileged document which we would not like to show. . . ." (Sheth Depo. 1/4/00, at 75) These admissions prompted PGI and Bonlam to file a Third Request for Production on January 12, 2000. In their Third Request, PGI and Bonlam asked specifically for corporate minutes and documents relating to prior customers, litigation involving PVD, loans secured by PVD's assets, PVD's financial condition, and damages for the pending claims.
On March 6, 2000, counsel for PVD produced some documents relating to three loans, three other banks — one being in litigation with PVD — and one prior customer. (Ltr. from counsel for PVD 3/2/00) However, deposition testimony of PVD's Chairman had revealed other documents existed and that he would produce them upon request. Thus, PGI and Bonlam filed a second Motion to Compel after the March 6 document production. On March 8, 2000, "given lack of progress in preparing this matter for trial," Magistrate Judge Carr issued a unique scheduling order with procedures to resolve future discovery disputes, including mandatory monthly status conferences, and that stated: "An agreement by the parties on the record in open court to produce discovery within a specified period of time shall be construed as a Consent Order of the court consistent with the agreement, and sanctions will be imposed for failure to comply with orders of the court with regard to discovery." (Order Mar. 8, 2000) This scheduling order was a lesser sanction imposed for PVD's noncompliance to that date. See infra Part II.C.4.
Also on March 8, 2000, PVD delivered to PGI and Bonlam a document titled "Consolidated Response to Defendants' Requests for Production," which apparently was the overdue response to Magistrate Judge Carr's oral order to PVD at the December 21, 1999, hearing that "[y]ou either give him the statement or documents" within ten days. (Tr. 12/21/99, at 39-40) In response to this Consolidated Response, PGI and Bonlam supplemented its second Motion to Compel on March 13, complaining of incomplete and inadequate responses.
During the week of March 20, 2000, counsels for both parties traveled to India and deposed representatives of PVD. These depositions revealed the existence of additional responsive documents not previously produced. Although at the end of this trip to India PVD's counsel searched PVD's corporate offices and found additional, responsive documents and produced them, this production was still inadequate given the deposition testimony by PVD's officers. Thus, PGI and Bonlam filed a Fourth Request for Production on March 30, 2000, requesting more specifically documentation of additional loans on PVD property, at least four lawsuits in which PVD was involved since 1997, internal accounts information relevant to claims, and corporate minutes, all of which had been requested but not disclosed. PVD did not respond to this Fourth Request or ask for an extension, and PGI and Bonlam were again forced to supplement their second Motion to Compel on April 27.
At the May 10, 2000, status conference, Magistrate Judge Carr granted PGI's and Bonlam's second Motion to Compel, clearly warning PVD again that "[i]f you've got [responsive documents], produce them; if you don't have them, give him a statement that you don't have them, and that's the end of it." (Tr. 5/10/00, at 19) He scheduled production of the responsive documents that PGI and Bonlam had identified through the depositions in India and had requested in their Fourth Request. Specifically, Magistrate Judge Carr allowed staggered production of these documents by PVD: debt documentation by that Friday, litigation documents in ten days, corporate minutes in twenty days, and the internal accounts on computers would be made available for PGI's and Bonlam's inspection in India at the next round of depositions. No objection to this procedure was made. This specific and direct scheduling order of production was the second lesser sanction imposed by Magistrate Judge Carr. See infra Part II.C.4.
On June 22 and July 17, 2000, PGI and Bonlam filed its third Motion to Compel because PVD had not responded to the Fourth Request for Production or the Second Interrogatories, both of which had been filed on March 30, 2000, and because PVD had not complied with Magistrate Judge Carr's May 10 order compelling production of specific groups of documents. At the July 10 status conference, counsel for PVD admitted the discovery ordered by the court in May had not been produced, and Magistrate Judge Carr granted the third Motion to Compel and then allowed counsel for PVD to set the date for compliance. PVD's counsel assured the court all discovery orders would be honored by August 1, 2000, and PVD was ordered to execute and file a statement of compliance with this deadline. The court also gave definite warnings that the consequences of noncompliance or of an inaccurate statement of compliance would result in sanctions including striking the complaint. (Tr. 7/10/00, at 10, 13)
"To date, there are three outstanding classes of documents, and the first is company minutes. Now, we have requested the minutes from our client and have received company minutes, which we will produce to the Defendants today . . . I do not believe we have yet made a full production on litigation documents or debt documents." (Tr. 7/10/00, at 7-9 (Counsel for PVD))
PVD filed its statement of compliance on August 8, 2000. On August 28, PGI and Bonlam moved for sanctions based on their allegations that this statement of compliance was inaccurate and that PVD had not complied with all discovery requests. At a hearing held on September 15 by Magistrate Judge Carr on the motion for sanctions, counsel for PVD argued he had conveyed the import of the court ordering compliance with discovery but conceded that PVD had not complied. (Tr. 9/15/00, at 145-48, 150-54) PVD's counsel sought to justify his client's failure to comply with court orders because PVD did not want to produce documents it felt were irrelevant and because Indian law made disclosure of some corporate documents punishable. Both justifications had been overruled previously.
Magistrate Judge Carr filed a R R on October 13, 2000, recommending this action be dismissed and the requested fees and costs be awarded to PGI and Bonlam. This court held a hearing on December 20, 2000, to receive further evidence and arguments on the Motion for Sanctions. At this hearing, Counsel for PVD requested a future evidentiary hearing for PVD to demonstrate its good faith. The request was denied. See infra Part II.C.1. This court has also reviewed de novo the entire record, and PGI's and Bonlam's Motion for Sanctions is granted; PVD's claims against PGI and Bonlam are dismissed with prejudice; and attorneys fees and costs are awarded to PGI and Bonlam.
PVD requested an evidentiary hearing from Magistrate Judge Carr in writing just before the September 15 hearing and again on the record at the hearing. Specifically, PVD sought to have testimony from prior counsel and PVD's Chairman on the issues in the pending motion for sanctions. Magistrate Judge Carr denied these requests because the rules did not require live testimony and because affidavits are more appropriate. In addition, the court noted during the hearing that nothing had prevented these witnesses from appearing at the hearing and proffering testimony. However, the witnesses were not present.
DISCUSSION
I. Rule 37 Standard
Under Rule 37(b) of the Federal Rules of Civil Procedure, a district court may impose sanctions, including dismissal of claims, for a party's failure to comply with the court's discovery orders. Fed.R.Civ.P. 37(b)(2)(C); see National Hockey League v. Metropolitan Hockey Club, 427 U.S. 639, 642 (1976); Hathcock v. Navistar Int'l Transp. Corp., 53 F.3d 36, 40 (4th Cir. 1995). "While the imposition of sanctions under Rule 37(b) lies within the trial court's discretion, `it is not a discretion . . . without bounds or limits.'" Hathcock, 53 F.3d at 40 (quoting Wilson v. Volkswagon of America, 561 F.2d 494, 503 (4th Cir. 1977)); see also Anderson v. Foundation for Adv., Educ. Emp't of Am. Indians, 155 F.3d 500, 504 (4th Cir. 1998) ("[The Fourth Circuit] review[s] the district court's grant of sanctions under Rule 37, including the imposition of a default judgment, for abuse of discretion."). However, with the sanction of dismissal, "the range of discretion is more narrow" than for less severe sanctions which the court may impose. See Hathcock, 53 F.3d at 40 (citing Wilson, 561 F.2d at 503).
II. Fourth Circuit Requirements
The Fourth Circuit has stated that district courts must consider the following factors before imposing such a sanction: (1) whether the noncomplying party acted in bad faith; (2) the amount of prejudice the party's noncompliance caused the opposing party, which necessarily includes an inquiry into the materiality of the evidence that the noncomplying party failed to produce; (3) the need for deterrence of the particular sort of noncompliance; and (4) the effectiveness of less drastic sanctions. Mutual Fed Sav. Loan Ass'n v. Richards Assocs., 872 F.2d 88, 92 (4th Cir. 1989). To warrant dismissal, the offending party's conduct in the litigation must demonstrate a "pattern of indifference and disrespect to the authority of the court." Id. at 93; see also Wilson v. Volkswagen of America, 561 F.2d 494, 499-516 (4th Cir. 1977). In addition, the Fourth Circuit has emphasized the significance of providing a party with a clear warning regarding the possibility of a default before entering such a sanction. Hathcock, 53 F.3d at 40; see also Mutual Fed Sav. Loan Ass'n, 872 F.2d at 92 (internal citations omitted).
A default judgment, like dismissal, is appropriate where the failure to comply with discovery "materially affects the substantial rights of the adverse party and is prejudicial to the presentation of his case." Wilson, 561 F.2d at 504. In Wilson the Fourth Circuit reversed a default judgment on liability because the plaintiffs had contributed significantly to the delays. The district court in that case had issued two orders compelling discovery requested by the plaintiffs and had extended the discovery deadline, but the plaintiffs still had only received incomplete responses to interrogatories and requests for documents. However, Judge Russell found that plaintiffs had delayed discovery and noticed two new experts at the close of discovery, which required the defendants to ask for the discovery extension. Moreover, the plaintiffs had not presented a theory of the defect for which it was claiming until near the end of discovery.
The Fourth Circuit has affirmed a dismissal with prejudice for a plaintiff's willful and repeated failure to obey discovery orders. Robinson v. Yellow Freight Sys., 132 F.R.D. 424 (W.D.N.C. 1990), aff'd, 923 F.2d 849 (4th Cir. 1991). In Robinson the district court gave a pro se plaintiff three opportunities over six months to appear for a deposition under the court's orders. The plaintiff attempted to justify his failure to comply by claiming he did not have enough money to travel thirteen miles to the county seat where his deposition was to be taken. After reviewing the four factors for imposing sanctions, the court concluded that dismissal was warranted and would be the only effective sanction.
The circumstances in this case are more egregious because PVD is a sophisticated international business entity represented by local counsel. Magistrate Judge Carr issued three orders over ten months compelling discovery, and now two years after the first requests to produce were served, PVD still has not produced all responsive documents that PGI and Bonlam have shown exist and that the court has ordered PVD to produce. At least some of these documents relate directly to damages claimed by PVD. As discussed in Part II.C.1 below, PVD attempts to deny noncompliance and to excuse its delays in production.
PVD claims the cultural, linguistic, and legal differences justify its noncompliance. Instead of PVD remedying its noncompliance, it has continued to argue even at the December 2000 hearing that it has produced all responsive documents that are relevant. The court has ruled against both arguments for over a year. As in Robinson, PVD has not complied with direct court orders, and "Plaintiff has utterly failed to come forward with any legitimate reason that explains [its] refusal to [comply with the magistrate judge's orders to comply with discovery]." Id. at 428.
A. Client not Lawyer is Blameworthy
Importantly, PVD itself is to blame for its failure to comply with the discovery requests and orders of this court and the magistrate judge. If only counsel for PVD was blameworthy, dismissal would place the greatest burden on PGI and Bonlam to prove such a sanction is necessary. In this case, this greatest burden is not on PGI and Bonlam; however, they have demonstrated the necessity of dismissal.
The magistrate judge addressed the possibility of PVD's counsel being the cause for noncompliance by certifying to this court an order of contempt for PVD's previous trial counsel. This court allowed counsel to withdraw his representation, but PVD continued its same course of conduct and continued to forward its only two justifications, i.e., cultural, linguistic, and legal differences and PVD has produced all responsive documents that are relevant.
In December 1999, counsel for PVD requested and received additional time to convey the significance of his representation to the court that all responsive documents had been produced. (Tr. 12/21/99, at 33) At the September 15, 2000, hearing on the Motion for Sanctions, Magistrate Judge Carr again addressed this issue directly:
The Court: So, if you have asked them to do something, say the court has ordered something to be done, you have conveyed that order to them, and if it hasn't been done . . . it was their own decision not to do what you asked them to do.
Mr. LeClercq: That's correct, Your Honor.
The Court: . . . [B]ut you have conveyed to them all the warnings that I have given you to you in court?
Mr. LeClercq: We have kept our clients apprised at all times of the rulings of the court and have at all times told them exactly what's happened in each hearing and have copied them with correspondence, and kept them apprised of the status of discovery and communicated with them regarding extra documents or other documents that have been needed.
(Tr. 9/15/00, at 151-53)
Counsel for PVD deserves some credit for the extraordinary efforts expended on PVD in this case. At the May 10, 2000, status conference, counsel for PVD stated: "When we were in India, Ben [LeClercq] and I stayed and went through every office of PVD, and as a result [of] that effort [we] have identified additional documents [and] produced them." This search by PVD's counsel resulted in another 2400 documents being produced.
However, the volume of documents is not conclusive on compliance, and these documents did not satisfy the requests or the first order compelling discovery. Furthermore, in the affidavit of PVD's Chairman, he admits that "[i]t is possible that I may be somewhat at fault for not reviewing our discovery responses in as much detail as I should have and communicating with my counsel as to their exact meaning." (Sheth Aff. 10/27/00, ¶ 191) Therefore, as the magistrate judge found in recommending dismissal, PVD and not its counsel bears the responsibility for failing to comply with the court's orders and abusing the discovery process.
B. Clear Warning
PVD had ample notice that the court would not only entertain a motion for sanctions but also grant dismissal if PVD did not change its erroneous interpretation of the orders for discovery and comply with the court's orders. Magistrate Judge Carr granted PGI's and Bonlam's first Motion to Compel in December 1999, and his first clear statement about sanctions came in the written order dated March 8, 2000, which gave notice to the parties that oral orders on the record were court orders nonetheless and that "sanctions will be imposed for failure to comply with orders of the court with regard to discovery." (Order 3/8/00, at 2) Although these statements are not the clear warning that dismissal would be ordered as a sanction, the written order certainly should have alerted PVD to pay careful attention to the monthly status conferences.
Predictably as PVD continued its noncompliance with discovery orders, Magistrate Judge Carr gave PVD clear warnings at several successive status conferences that he would entertain a motion for sanctions, including striking the complaint. One glaring example was at the May 10, 2000, status conference Magistrate Judge Carr, addressing counsel for PVD, stated: "Then tell [your client] to produce [the litigation documents] or they will be sanctioned." (Tr. 5/10/00, at 33) Also on May 10 in response to PVD's representation that it had produced all responsive documents, Magistrate Judge Carr warned:
"Then, Mr. Collins, make your motion for sanctions, and I will impose sanctions. . . . If [PVD's counsel] hasn't produced something that's relevant and he has told you he has, you produce for me the answer where he says he has given them to you, you produce for me the documents or your evidence that he didn't give them to you and ask for sanctions, and I will award it. . . . And if you [PVD] have then you're okay; if you haven't then you are not okay."
(Tr. 5/10/00, at 23) On July 10, Magistrate Judge Carr clearly warned PVD of the possibility of dismissal: "If they're not produced, sir, feel free to make a motion to do whatever you think is appropriate; strike the complaint, strike whatever causes of action relate to those documents; whatever you think is appropriate." (Tr. 7/10/00, at 10)
PVD's counsel acknowledged the warnings during the status conferences and in his affidavit in support of Motion for Relief from Judgment dismissing the claims against Ernst Young Defendants. Counsel for PVD also acknowledged that Magistrate Judge Carr repeatedly warned PVD in open court on the record. (Obj. at 30) Even with these clear warnings, PVD did not comply with court orders.
C. Four Factors
PVD has shown a pattern of indifference and disrespect for orders of the court and the Federal Rules on Civil Procedure. Rule 37(a)(3) states that "an evasive or incomplete disclosure, answer, or response is to be treated as a failure to disclose, answer, or respond." PVD's disclosures and responses failed to comply with court orders and materially prejudiced PGI's and Bonlam's preparation and defense of the lawsuit. A review of the factors supports the decision to dismiss with prejudice PVD's claims against PGI and Bonlam.
1. Bad Faith of Offender
The first factor is whether PVD failed to comply with court's discovery orders in bad faith. PVD argues that it has produced to Defendants all documents in its possession, custody and control which are responsive to Defendants' requests to Plaintiff in this litigation, with the exception of those documents that Defendants' counsel (on invitation) chose not to inspect during his last trip to India. (Obj. at 4) PGI and Bonlam have proved otherwise in their Motion for Sanctions and at the December 20, 2000, hearing on PVD's objections to the magistrate judge's R R. All PVD's discovery misconduct — including delay, unresponsiveness, inadequate production, and inaccurate representations to the court — is properly considered in deciding to dismiss these claims, including conduct which has been the subject of earlier sanctions. See Payne v. Exxon Corp., 121 F.3d 503, 508 (9th Cir. 1997).
At the December hearing, Counsel for PVD requested an evidentiary hearing for PVD's Chairman to testify live and demonstrate PVD was not acting in bad faith. The request would have contributed only to further delay and was denied. First, the credibility of PVD in complying with discovery requests and court orders can be ascertained without live testimony, particularly where the proffered witness has been deposed in both individual and corporate capacities. See Hundley v. Rite Aid of S.C., 529 S.E.2d 45, 56 (S.C.Ct.App. 2000). Deposition answers of PVD's officers and its counsel's representation in court are binding on PVD as are its actions. This court finds the incongruence among these statements and actions by PVD reveals a serious lack of credibility. See Part II.A supra.
Second, Magistrate Judge Carr advised counsel for PVD in September that "Mr. Sheth could have been here today. You knew when the motion was filed [on August 28] what you were dealing with." (Tr. 8/15/00, at 18) In spite of this advice, the same request was made by PVD's counsel to this court in the December 20 hearing and again without the presence of the witnesses. Nothing prevented PVD's Chairman from attending the December hearing, particularly after Magistrate Judge Carr advised PVD's counsel in September. In addition, PVD's Chairman Pravin Sheth filed an affidavit that provided his testimony to the court.
In live testimony, PVD's Chairman presumably would have demonstrated PVD's credibility and good faith by explaining PVD's efforts to comply with discovery requests and court orders and by describing the document retention policies and actions. However, even if he satisfied these ambitious purposes, his testimony could not have changed PVD's delay and failure to comply with court orders on discovery for the past two years. Since January 1999 when PGI and Bonlam served their First and Second Requests to Produce and since December 1999 when the court first ordered compliance with these discovery requests, PVD has failed to timely answer the requests; failed to adhere to deadlines set by the rules, the court, and its own counsel; and failed to comply with the court's orders.
In fact, PGI and Bonlam had requested in March 2000 documents and information on PVD's location, collection, and review of documents requested by PGI and Bonlam during this litigation in specific contemplation of this motion for sanctions. Now, more than nine months after PGI and Bonlam asked for this information and four months after they filed this Motion, and after PVD's detailed responses to the Motion and objections to the R R and after two hearings on the Motion, the record is complete. No further evidence would aid this court in deciding this Motion.
At the hearing on PVD's Objections to the magistrate's R R, this court conducted a de novo review of the discovery process in this case, of PVD's compliance with the magistrate judge's orders, and of its statement of compliance with the self-imposed deadline of August 1, 2000. Counsel for PGI and Bonlam presented several examples of responsive documents they have sought from PVD for over one year. PVD responded to each example by attempting to justify the client's position of why the documents were not relevant or could not be produced. PVD continues to interpret the Rules and court orders in its favor and refuses to comply with the clear mandates of the court.
PVD has consistently demonstrated that it is not to be trusted with its interpretation of the rules and court orders. PVD's interpretation of the orders and rules detrimentally affects this court's administration of justice. PVD was under court orders and clear warnings of sanctions for the last nine months and then after being requested for more than a year to produce documents directly relevant to its claims. Therefore, PVD's bad faith is apparent in its actions.
In addition, PVD characterizes the substance of the Motion for Sanctions as "only past delays in production and documents that Defendants ethnocentrically imagine must exist." (Obj. at 4) The issue is not whether PVD eventually produced the responsive documents it was ordered to produce — although PVD has not complied completely — or whether PVD is now willing to provide them — as it currently maintains yet has not done — but the issue is whether PVD's repeated failure to provide documents and information in a timely fashion was done in bad faith.
PVD attempts to justify past delays by arguing PVD's cultural, linguistic, and legal differences and that the India Companies Act "contains strict, criminal prohibitions on the disclosures of certain documents." (Obj. at 9) For the first justification, counsel for PVD argues the "client itself . . . has had difficulty comprehending the need to produce documents it feels to be irrelevant." (Response to Motion for Sanctions at 3) The record does not support its argument. PVD is not a poorly educated pro se plaintiff as in Robinson. PVD's Chairman is a sophisticated businessman and accountant and has been a corporate director in India for over fifteen years. Moreover, his deposition and affidavit reveals a deponent that understands the english language, business documents, discovery requests, and this Motion for Sanctions. The affidavit of PVD's Chairman dated October 27, 2000, and submitted with Plaintiff's Objections to R R has 232 paragraphs and illustrates his sophistication and understanding of the proceedings, including this Motion for Sanctions.
This excuse of cultural, linguistic, and legal differences is not wholly without merit, and the court recognizes India is not equivalent to the United States, particularly in civil litigation. However, our legal systems have a common origin, and similarities are not lacking between the India Code of Civil Procedure and our Federal Rules of Civil Procedure and between our corporate laws. In addition, this justification is substantially undermined not only by the affidavit and deposition of PVD's Chairman but also because this excuse is raised for the first time after eighteen months of litigation. PVD is a foreign litigant and entitled to the additional consideration for that condition, but it is not exempt from obeying court orders. In this case, cultural, linguistic, and legal differences have not impaired the litigation, PVD's actions have.
PVD's Chairman filed an affidavit signed October 27, 2000, with PVD's Objections to the magistrate judge's R R. Its stated purpose was "to describe in detail PVD's understanding of attempts to comply with the orders of the Court and Defendant's discovery requests." (Sheth Aff. 10/27/00, ¶ 7) However, the affidavit does little more than support dismissal of PVD's claims. PVD's Chairman has extensive business experience and qualifications. Although Sheth conclusorily complains of cultural, linguistic, and legal differences with the United States, he acknowledges PVD's noncompliance with court orders and his implication.
PVD's Chairman also maintains Indian privileges and legal prohibitions to disclosure of some responsive documents. He argues that if PVD's counsel has not preserved those objections to producing certain documents, then waiver of its objections were caused by a "failure of communication between PVD and counsel." (Sheth Aff. 10/27/00, ¶¶ 66 16, 20, 29, 49, 66, 67, 191, 194, 195, 208) Even though attorney-client miscommunication is blamed, Sheth admitted "it was PVD's understanding that documents we withheld under claim of privilege would not have to be revealed, even with the entry of a Consent Order." (Sheth Aff. 10/27/00, ¶ 39) The documents to which he was claiming privilege were bank statements not attorney-client communications, and Magistrate Judge Carr overruled that privilege.
In addition, PVD's Chairman vigorously argues PVD's privilege for "company accounts and minutes and other internal confidential documents" is protected by the India Companies Act and its criminal penalties for violating this privilege. (Sheth Aff. 10/27/00, ¶¶ 38 16, 18, 23, 28, 29, 30, 39, 43, 47, 53, 73, 191, 192, 197, 210, 212, 227) The privilege does not exist. PGI and Bonlam submitted an affidavit of J.P.F. Shroff, signed November 9, 2000. Shroff is a qualified advocate and solicitor from India. Shroff's affidavit refutes PVD's claims of privilege and its advocate's affidavit. (Shroff Aff. 11/9/00, ¶¶ 4-10; Underkat Aff. 11/9/00, ¶¶ 6-23) The India Companies Act, upon which PVD relies for its privileges, reveals no support for PVD's interpretations, particularly when it is under court orders to produce the documents.
Sheth has also extrapolated Magistrate Judge Carr's May 10, 2000, order for the computer account records to be examined in India to mean all business records that PVD claims are privileged. This assertion is not supported by the record.
In support of the second justification for delays, PVD attaches an affidavit of Kantilal Underkat, an advocate in Bombay, dated September 21, 2000, that gives his opinion on various provisions of Indian Law. Specifically, Mr. Underkat summarized sections 193-96 and 209, but because the parties stipulated to the submission of a text of the India Companies Act, the court is not required to rely on the affidavit submitted by PVD. See Rule 44.1, F.R.C.P.
Taxmann's Corporate Laws (New Delhi: August 1999).
PVD's arguments on this issue evidence its bad faith. PVD distorts several statements by Mr. Underkat. For example, Mr. Underkat opines that "[n]o outsider can ask for inspection [of the Board Minutes book]. There is no provision in the Act which permits submission of copy of minutes book to outsider," and PVD argues these documents, as well as others, "are privileged and highly confidential documents under Indian law, and Plaintiff's Directors believe that they are liable for disclosure of the same." (Response to Motion for Sanctions at 3) While these statements by Mr. Underkat are true, the negative inferences — i.e., penalties and punishments await Directors providing copies of the minutes to outsiders — drawn and argued by PVD are not supported in the Act. Nothing prohibits PVD's Chairman from obtaining these documents and producing them in this lawsuit, and nothing in the Act — either pointed out by PVD or discovered by this court — establishes any liability for providing corporate information to PGI and Bonlam. In this case, the India Companies Act simply highlights the prejudice caused by PVD's abuse of the discovery process, i.e., the documents are probably not otherwise discoverable by PGI and Bonlam. The same analysis is true for the other corporate records. PVD's distorted and biased interpretation of the India Companies Act parallels its deficient execution of the court's discovery orders.
The India Companies Act does not punish the disclosure of corporate documents that the court ordered PVD to produce in this case. See India Companies Act of 1956 §§ 143-44, 193-96, 209. In fact, the Act requires corporate officers to maintain the records under penalty of fines. See India Companies Act §§ 143(2), 193(6), 196(3), 209(5) (7). In addition, some sections require the records to be open for inspection by any person or members or directors for at least two hours a day under penalty of fines. See India Companies Act §§ 144(3), 196(1)(b), 209(4).
143. Company's register of charges.
(1) Every company shall keep at its registered office a register of charges and enter therein all charges specifically affecting property of the company, and all floating charges on the undertaking or on any property of the company, giving in each case —
(i) a short description of the property charged;
(ii) the amount of the charge; and
(iii) except in the case of securities to bearer, the names of the persons entitled to the charge.
(2) If any officer of the company knowingly omits, or wilfully authorises or permits the omission of, any entry required to be made in pursuance of subsection (1), he shall be punishable with fine which may extend to five hundred rupees.
144. Right to inspect copies of Instruments creating charges and company's register of charges.
(1) The copies of instruments creating charges kept in pursuance of section 136, and the register of charges kept in pursuance of section 143, shall be open during business hours (but subject to such reasonable restrictions as the company in general meeting may impose, so that not less than two hours in each day are allowed for inspection) to the inspection of any creditor or member of the company without fee, at the registered office of the company.
(2) The register of charges kept in pursuance of section 143 shall also be open, during business hours but subject to the reasonable restrictions aforesaid, to the inspection of any other person on payment of a fee of [such sum as may be prescribed] for each inspection, at the registered office of the company.
(3) If inspection of the said copies or register is refused, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees and with a further fine which may extend to twenty rupees for every day during which the refusal continues.
(4) The Company Law Board may also by order compel an immediate inspection of the said copies or register.
193. Minutes of proceedings of general meetings and of Board and other meetings.
(1) Every company shall cause minutes of all proceedings of every general meeting and of all proceedings of every meeting of its Board of directors or of every committee of the Board, to be kept by making within thirty days of the conclusion of every such meeting concerned, entries thereof in books kept for that purpose with their pages consecutively numbered.
(1A) Each page of every such book shall be initialled or signed and the last page of the record of proceedings of each meeting in such books shall be dated and signed —
(a) in the case of minutes of proceedings of a meeting of the Board or of a committee thereof, by the chairman of the said meeting or the chairman of the next succeeding meeting;
(b) in the case of minutes of proceedings of a general meeting, by the chairman of the same meeting within the aforesaid period of thirty days or in the event of the death or inability of that chairman within that period, by a director duly authorised by the Board for the purpose.
(1B) In no case the minutes of proceedings of a meeting shall be attached to any such book as aforesaid by pasting or otherwise.
(2) The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.
(3) All appointments of officers made at any of the meetings aforesaid shall be included in the minutes of the meeting.
(4) In the case of a meeting of the Board of directors or of a committee of the Board, the minutes shall also contain —
(a) the names of the directors present at the meeting; and
(b) in the case of each resolution passed at the meeting, the names of the directors, if any, dissenting from, or not concurring in, the resolution.
(5) Nothing contained in sub-sections (1) to (4) shall be deemed to require the inclusion in any such minutes of any matter which, in the opinion of the chairman of the meeting, —
(a) is, or could reasonably be regarded as, defamatory of any person;
(b) is irrelevant or immaterial to the proceedings; or
(c) is detrimental to the interests of the company.
Explanation: The chairman shall exercise an absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified in this sub-section.
(6) If default is made in complying with the foregoing provisions of this section in respect of any meeting, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees.
194. Minutes to be evidence.
Minutes of meetings kept in accordance with the provisions of section 193 shall be evidence of the proceedings recorded therein.
195. Presumptions to be drawn where minutes duly drawn and signed.
Where minutes of the proceedings of any general meeting of the company or of any meeting of its Board of directors or of a committee of the Board have been kept in accordance with the provisions of section 193, then, until the contrary is proved, the meeting shall be deemed to have been duly called and held, and all proceedings thereat to have duly taken place, and in particular, all appointments of directors or liquidators made at the meeting shall be deemed to be valid.
196. Inspection of minute books of general meetings.
(1) The books containing the minutes of the proceedings of any general meeting of a company held on or after the 15th day of January, 1937, shall —
(a) be kept at the registered office of the company, and
(b) be open, during business hours, to the inspection of any member without charge, subject to such reasonable restrictions as the company may, by its articles or in general meeting impose, so however that not less than two hours in each day are allowed for inspection.
(2) Any member shall be entitled to be furnished, within seven days after he has made a request in that behalf to the company, with a copy of any minutes referred to in sub-section (1), on payment of such sum as may be prescribed for every one hundred words or fractional part thereof required to be copied.
(3) If any inspection required under sub-section (1) is refused, or if any copy required under sub-section (2) is not furnished within the time specified therein, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees in respect of each offence.
(4) In the case of any such refusal or default, the Company Law Board may, by order, compel an immediate inspection of the minute books or direct that the copy required shall forthwith be sent to the person requiring it.
209. Books of account to be kept by company.
(1) Every company shall keep at its registered office proper books of account with respect to —
(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;
(b) all sales and purchases of goods by the company;
(c) the assets and liabilities of the company; and
(d) in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account: Provided that all or any of the books of account aforesaid may be kept at such other place in India as the Board of directors may decide and when the Board of directors so decides, the company shall, within seven days of the decision, file with the Registrar a notice in writing giving the full address of that other place.
(2) Where a company has a branch office, whether in or outside India, the company shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarised returns, made up to dates at intervals of not more than three months, are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).
(3) For the purposes of sub-sections (1) and (2), proper books of account shall not be deemed to be kept with respect to the matters specified therein, —
(a) if there are not kept such books as are necessary to give a true and fair view of the state of affairs of the company or branch office, as the case may be, and to explain its transactions; and
(b) if such books are not kept on accrual basis and according to the double entry system of accounting.
(4) The books of account and other books and papers shall be open to inspection by any director during business hours.
(4A) The books of account of every company relating to a period of not less than eight years immediately preceding the current year together with the vouchers relevant to any entry in such books of account shall be preserved in good order: Provided that in the case of a company incorporated less than eight years before the current year, the books of account for the entire period preceding the current year together with the vouchers relevant to any entry in such books of account shall be so preserved.
(5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company thereunder, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both:
Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeing that those requirements were complied with and was in a position to discharge that duty:
Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.
(6) The persons referred to in sub-section (5) are the following, namely: —
(a) where the company has a managing agent, secretaries and treasurers or managing director or manager, such managing agent, secretaries and treasurers or managing director or manager and all officers and other employees and agents as defined in sub-section (6) of section 240 but excluding bankers, auditors and legal advisers of such managing agent or secretaries and treasurers;
(b) where such managing agent or secretaries and treasurers are a firm, every partner in the firm;
(c) where such managing agent or secretaries and treasurers are a body corporate, every director of such body corporate;
(d) where the company has neither a managing agent nor secretaries and treasurers nor managing director nor manager, every director of the company; and
(e) whether or not a company has a managing agent or secretaries and treasurers, every officer and other employee and agent (defined as aforesaid) of the company.)
(7) if any person, not being a person referred to in sub-section (6), having been charged by the managing agent, secretaries and treasurers, managing director, manager or Board of directors, as the case may be, with the duty of seeing that the requirements of this section are complied with, makes a default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.
In particular, PGI and Bonlam complain that PVD has not produced loan documentation or its Register of Charges, which are required to be kept as business records. See India Companies Act §§ 136, 143, 144. PVD has not produced all documents relating to loans or its Register of Charges. PVD argues in its Objections to the R R that such documents are irrelevant to the product line at issue, privileged, and that "[m]ore importantly, . . . the Indian Companies Act and the criminal sanctions it establishes for violations" prevented disclosure of these documents. The magistrate judge ordered the documents produced negating the relevancy argument. The privilege argument must be predicated upon the Indian Companies Act though PVD does not specify the source of the privilege. The India Companies Act cannot be interpreted as PVD represents to this court. PVD bases its argument on the premise that the India Companies Act punishes disclosure of the documents. In fact, the Act protects those seeking the information not the companies wishing to hide it. Therefore, the court finds PVD has mischaracterized Indian law, which further evidences its bad faith in seeking to excuse noncompliance with court orders.
Section 136. Copy of instrument creating charge to be kept by company at registered office.
Every company shall cause a copy of every instrument creating any charge requiring registration under this Part to be kept at the registered office of that company: Provided that, in case of a series of uniform debentures, a copy of one debenture of the series shall be sufficient.
In another example of specific documents not produced by PVD, PGI and Bonlam have proved PVD still has not complied with their request for minutes. See Mot. for Sanctions at 88-96. PVD objects to PGI's and Bonlam's proof in three ways: (1) honest miscommunication, (2) "strictures of Indian law," and (3) all responsive documents have been produced. Firstly, Sheth's deposition belies miscommunication. See Sheth Depo. 1/4/00, at 56. Secondly, although "Sheth believes very strongly in the privilege attaching to these minutes," this belief is not reasonable. The India Companies Act clearly requires companies to keep minutes and to make them available for inspection. Nothing in the Act prevents disclosure to PGI and Bonlam by the company. Also, Sheth's deposition on January 4, 2000, reveals his initial willingness to disclose at least the portions of the minutes that supported his statements: "Yeah, I can give you the minutes of the meeting if you want, that portion of it." (Sheth Depo. 1/4/00, at 56) Lastly, PVD has offered no evidence that it produced minutes beyond the delayed and partial production after the July 10 conference. See Rule 37(a)(3), F.R.C.P.
Based on the court's de novo review of the entire record, PVD acted with bad faith in abusing the discovery process and in not complying with orders of the court. Thus, dismissal is warranted on this factor.
2. Prejudice to Movant
The second factor is the amount of prejudice suffered by PGI and Bonlam because of PVD's noncompliance. While it is true that "the district court's desire to enforce its discovery orders is confronted head-on by the party's rights to a trial by jury and a fair day in court," Mutual Fed. Sav. Loan Ass'n, 872 F.2d at 92 (citing Wilson, 561 F.2d at 503-04), the court finds that PVD's failure to provide PGI and Bonlam with the requested information — after repeated requests from both opposing and its own counsel, as well as the court's orders — was aimed at preventing PGI and Bonlam from having fair access to relevant discoverable information and prejudiced the ability of PGI and Bonlam to prepare their case for trial.
PVD's abuse of the discovery process has caused unnecessary expense, annoyance, and delay. PGI and Bonlam have been unable to file substantive motions because of PVD's refusal to comply with the discovery process. Most significantly, PVD refused to disclose documents relating to its indebtedness and financial condition, which determine its damages and can either support or undermine PGI's and Bonlam's justification for aborting its relationship with PVD. These documents clearly relate to the heart of this litigation, and PVD's failure to produce prejudices PGI and Bonlam.
In addition, PGI and Bonlam have expended significant time and energy simply to pin down PVD's failure to comply as its unwillingness to abide by the Federal Rules. PGI and Bonlam have been forced to make four requests to produce, four motions to compel beginning in December 1999, and attend monthly status conferences since March 2000 simply to deal with the "lack of progress in preparing this matter for trial." (Order of Mar. 8, 2000) Moreover, PVD's representations now that it has produced all responsive documents that exist is difficult to believe, especially because PVD refused to produce some financial documents in January 2000 because its Chairman believed them to be privileged. PVD still has not produced adequate financial records that PVD employees have admitted exist, and PVD still maintains disclosure is punishable under the India Companies Act.
The status conference in April was cancelled to review a document production made following the trip to India for depositions.
PVD's discovery abuse imposed additional prejudice on PGI and Bonlam because most of the documents and information is in India and is not available to PGI and Bonlam from other sources. Accordingly, the court finds PGI and Bonlam suffered significant prejudice, and that dismissal is warranted under this factor.
3. Deterrence
The third factor is the need to deter the type of conduct in which PVD engaged by ensuring PVD will not benefit from its own failure to comply and by deterring similar conduct in this case and in other litigation. Any litigant's disregard for court orders that require disclosure of information directly related to claims and damages is behavior that must be deterred. See Mutual Fed. Sav. Loan Ass'n, 872 F.2d at 93 (upholding the district court's finding that similar tactics by a party "must obviously be deterred"). As stated by the Fourth Circuit, "[i]n such cases, not only does the noncomplying party jeopardize [the] adversary's case by such indifference, but to ignore such bold challenges to the district court's power would encourage other litigants to flirt with similar misconduct." Id. at 92 (citing National Hockey League, 427 U.S. at 643; Wilson v. Volkswagen of America, Inc., 561 F.2d 494, 504 (4th Cir. 1977)); see also Anderson, 155 F.3d at 505 ("[T]he continued abuses . . . [that are] evidence of the [noncomplying party's] bad faith demanded some punishment."). The need for deterrence in this case is not insignificant. PVD has demonstrated its unwillingness to conform to the federal rules and to abide by the orders of the court. Without dismissal of PVD's claims against PGI and Bonlam, judicial resources and authority becomes worthless, and litigants are potentially required to endure more than a year of delay and partial responses to discovery. Therefore, deterrence supports dismissal.
4. Less Severe Sanctions
The fourth factor is whether less severe sanctions could be effective in deterring PVD's future disrespect for the judicial system. Rule 37(b)(2) in subsections (A)-(E) recites permissible sanctions in pending cases including dismissal and reasonable attorneys fees and costs. The Fourth Circuit has recognized lesser sanctions can include any court orders that clearly contemplate punishment for noncompliance and that pursue subsequent conformity. See Anderson v. Foundation for Adv., Educ. Emp't of Amer. Indians, 155 F.3d 500, 505 (4th Cir. 1998) ("The district court noted that the first sanction [was] the entry of the protective order . . . until [the noncomplying party] should supply discovery. . . . The [offender] denies that the protective order was a sanction because it was entered into with the consent of . . . counsel, but this argument is a red herring. The court's rationale for the order's imposition was clearly punitive.").
In this case, lesser sanctions have been ineffective. The magistrate judge entered several lesser sanctions against PVD over the course of eight months: (1) ordered depositions in India over PVD's Motion for Protective Order, (2) required monthly status conferences to closely monitor discovery compliance, (3) issued a certification of contempt to the district court for PVD's previous counsel that resulted in his withdrawal from the case, and (4) ordered PVD to execute and file a statement of compliance with the ultimate discovery deadline. These lesser sanctions did nothing to motivate compliance by PVD. Even clear warnings of dismissal and the Motion for Sanctions have not motivated PVD to bring itself into compliance. Therefore, this court is convinced that any lesser sanction would fail to cure PVD's determined obdurateness.
III. Attorneys Fees and Costs
In addition to dismissing PVD's claims against PGI and Bonlam, they are entitled to reasonable attorneys fees and costs. PVD did not object to the amount of the request, but any award must be reasonable. PGI and Bonlam submitted claims for $57,403.87. This overall figure is reasonable considering PVD's abuse of the discovery process and its duration. However, the court awards only $42,722.18 because some of the expenses were not related to the abuse. Specifically, the court reporter charges and attorney time for the depositions should be reduced by the amount that counsel for PGI and Bonlam conceded the depositions were beneficial to his preparation in the case. In addition, the travel costs and travel time for the March depositions in India are not awarded because they are fixed costs and could not be affected by the discovery abuse. The award is supported in the September 11, 2000, affidavit by counsel for PGI and Bonlam.
This figure represents the sum of 202.58 hours of attorney time billed at $190 per hour for a subtotal of $38,547.58 and transcript and court reporter costs of $4,174.60.
PGI's and Bonlam's counsel submitted that 75% of the January deposition was wasteful and that 66.6% of the March depositions in India were wasteful. PVD did not challenge or object to these assertions.
SUBJECT MATTER JURISDICTION
Defendant BHF Bank moves to dismiss PVD's claims. Magistrate Judge Carr issued a Report and Recommendation ("R R") in accordance with 28 U.S.C. § 636 (b)(1)(B), advising this court to grant the Motion. PVD timely objected to the R R. This court is charged with conducting a de novo review of any portion of a magistrate judge's R R to which a specific objection is registered and may accept, reject, or modify, in whole or in part, the recommendations contained in that report. 28 U.S.C. § 636 (b)(1). Therefore, this court reviews de novo PVD's specific objections and the entire record. The claims are dismissed without prejudice.
BACKGROUND
PVD amended its Complaint on June 15, 2000, adding Defendants Batliboi and BHF Bank, among others, to its original lawsuit against PGI and Bonlam. PVD is claiming against Batliboi for negligent misrepresentation, professional negligence, tortious interference with contract, and defamation. PVD is claiming against BHF Bank for tortious interference with contract, defamation, and breach of confidentiality. PVD's Amended Complaint avers subject matter jurisdiction on the bases of diversity jurisdiction and supplemental jurisdiction. PVD alleges BHF Bank is incorporated and existing in Germany and has its principal place of business in the United States in New York. PVD alleges Batliboi is organized and existing in India. PVD also alleges its claims against BHF Bank arise from the same case or controversy as its sole federal question claim against the original defendants. On a motion for sanctions by the original Defendants in this case, all PVD's claims against the original Defendants, PGI and Bonlam, were dismissed. After PVD added the pendant parties, PVD dismissed the federal question claim. BHF moves to dismiss the claims, and Batliboi has not made an appearance in this case.
DISCUSSION
Subject matter jurisdiction may be raised at any time and sua sponte. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990). The only remaining claims are state law claims that were joined under 28 U.S.C. § 1367 (a) as "claims that involve the joinder . . . of additional parties." Subject matter jurisdiction in this case is based on supplemental jurisdiction of pendant parties. 28 U.S.C. § 1367 (a).
The court does not have original jurisdiction over the remaining parties or claims. Diversity jurisdiction does not provide a basis for subject matter jurisdiction over state law claims among foreign national corporations. See Franceskin v. Credit Suisse, 214 F.3d 253, 25 (2d Cir. 2000) (quoting and applying the rule from International Shipping Co. infra); Faysound Ltd. v. United Coconut Chem., Inc., 878 F.2d 290, 294 (9th Cir. 1989) ("Where an alien is made co-defendant with a citizen-defendant by an alien plaintiff . . .: there is no jurisdiction over the alien."); International Shipping Co. v. Hydra Offshore, Inc., 875 F.2d 388, 392 (2d Cir. 1989) ("[A] corporation organized under the laws of a foreign nation remains an alien corporation under § 1332, even if its principal place of business is in one of the states."); Cabalceta v. Standard Fruit Co., 853 F.2d 1553, 1557 (11th Cir. 1989) ("[T]he presence of at least one alien on both sides of an action destroys diversity."); Eze v. Yellow Cab Co. of Alexandria, Va., 782 F.2d 1064, 1065 (D.C. Cir. 1986) ("A diversity suit . . . may not be maintained in federal court by an alien against a citizen of a state and a citizen of some other foreign country."); Giannakos v. M/V BRAVO TRADER, 762 F.2d 1295, 1298 (5th Cir. 1985) ("Diversity does not exist where aliens are on both sides of the litigation."); Cheng v. Boeing Co., 708 F.2d 1406, 1412 (9th Cir. 1983) ("Diversity jurisdiction does not encompass foreign plaintiffs suing foreign defendants.").
BHF and Batliboi are foreign national corporations. PVD's Amended Complaint admits BHF is a German bank and Batliboi is an Indian company. The caselaw cited above clearly rejects PVD's effort to plead diversity for a foreign corporation with a principal place of business in the United States. BHF remains an alien corporation for purposes of diversity. Further, BHF has proven it does not have its principal place of business in New York. Therefore, subject matter jurisdiction could only rest on supplemental jurisdiction.
If a federal court has supplemental jurisdiction over claims, and no party objects to its deciding those claims, the court is not required to consider sua sponte whether it should exercise its discretion under § 1367(c) to refrain from hearing the claims. 13B Wright Miller, Fed. Prac. Proc.2d Juris. § 3567.1 (2000). However, BHF has objected to subject matter jurisdiction, and this court raised it at the December 20, 2000, hearing.
Title 28 of U.S. Code, section 1367(a) makes supplemental jurisdiction mandatory over claims against pendant parties that are part of the same case or controversy as the claims over which the district court has original jurisdiction. Magistrate Judge Carr found PVD's claims against BHF were not so related to PVD's antitrust claim against the original defendants. PVD objected to this finding, and for the purposes of this motion this court accepts that an interpretation extending the meaning of "same case or controversy" to the limits of Article III of the U.S. Constitution would allow such claims as part of a common nucleus of operative fact. See United Mine Workers v. Gibbs, 383 U.S. 715 (1966); Frye v. Pioneer Logging Machinery, Inc., 555 F. Supp. 730, 732 (D.S.C. 1983). Thus, this court has supplemental jurisdiction over PVD's claims against BHF and Batliboi.
Section 1367(c) gives this court the discretion to decline exercising jurisdiction over claims against pendant parties if "the claim substantially predominates over the claim or claims over which the district court has original jurisdiction, the district court has dismissed all claims over which it has original jurisdiction, or in exceptional circumstances, there are other compelling reasons for declining jurisdiction." 28 U.S.C. § 1367 (c)(2)-(4). Any one of these bases would support declining to exercise supplemental jurisdiction.
First, the state law claims against the pendant parties substantially predominate the antitrust claim. The allegations and proof for the remaining claims against BHF and Batliboi relate to the contractual relations between the original parties not the antitrust allegations. Although the antitrust claim would have been legally complex, it was only one part of PVD's theory, and it was affected only by the original defendants. Seventeen other claims addressed PVD's contractual relationship, which was the common nucleus of operative fact, i.e., the contractual dealings and actions leading up to the contract and its alleged breach not the industry consolidation or consumer effects targeted or resulting from the joint venture. Although numbers alone are not conclusive, the factual basis for PVD's lawsuit shows the antitrust claim was not significant. PVD dismissed its antitrust claim after it became clear that the claim was unsupportable on the facts. Thus, the court declines to exercise supplemental jurisdiction over the remaining claims because state law claims overwhelmingly predominate the dismissed antitrust claim.
Second, subsections 1367(c)(3) and (4) also support declining to exercise supplemental jurisdiction. The commentary after section 1367 explains this discretion for the last two bases:
Whether a dismissal of the touchstone claim should bring about a dismissal . . . of the dependent claim for want of supplemental jurisdiction should hinge on the moment within the litigation when the dismissal of the touchstone claim takes place, and on the other surrounding circumstances. . . .
Finally, clause (4). The Report also said that clause (4) was being included just to be sure that the court can decline supplemental jurisdiction in other "exceptional circumstances" that present "compelling reasons." While appearing to constitute a separate category for declining supplemental jurisdiction, distinct from the first three, the language of clause (4) would also appear to indicate that all declinations of supplemental jurisdiction should be reserved for situations in which there are "compelling reasons."
David D. Siegel, Commentary on 1988 Revision of 28 U.S.C. § 1367. In determining when reasons argued are compelling, a district court should look to considerations of judicial economy, convenience, and fairness to litigants. If these values were not met, the district court should refrain from exercising the jurisdiction that existed when federal and state claims arose from a common nucleus of operative fact. "When the balance of these factors indicates that a case properly belongs in state court, as when the federal-law claims have dropped out of the lawsuit in its early stages and only state-law claims remain, the federal court should decline the exercise of jurisdiction by dismissing the case without prejudice." Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988).
The antitrust claim and all claims giving this court original jurisdiction have been dismissed. The touchstone claims supporting original jurisdiction were filed two years ago in January 1999. PVD filed claims against Batliboi and BHF in June 2000. PVD's claims against BHF Bank have not consumed judicial time or resources to the extent that judicial economy or fairness counsels exercising jurisdiction over these new claims and parties. These claims have not been prosecuted with vigor because of the discovery problems with the original defendants. The remaining claims have not proceeded beyond Rule 12(b) motions, and in fact, Batliboi has not appeared in this case. These claims would essentially begin proceeding now. Judicial economy is not preserved by retaining jurisdiction over these claims among foreign national corporations. For this court to require the parties to litigate these claims in this forum is not convenient to the parties. In the same way, it simply is not fair to the foreign litigants to force adjudication in this court, particularly where the foreign defendants have not yet answered PVD's claims.
Supplemental jurisdiction remains after the dismissal of the related federal claim. See Rosado v. Wyman, 397 U.S. 397, 405 (1970).
Furthermore, PVD's claims against Batliboi and BHF are only a small part of the common nucleus of operative fact. In fact, PVD has admitted its case is really against PGI. PVD did not sue the Batliboi and BHF until after eighteen months of discovery in its original lawsuit, and PVD's Brief on Subject Matter Jurisdiction — requested by the court at the December 2000 hearing — does not mention these remaining defendants. Dismissal of the original defendants before these claims have been answered certainly presents exceptional circumstances. Under these exceptional circumstances, this court finds these reasons compelling justification to decline exercising supplemental jurisdiction over claims that would not otherwise be justiciable in the district courts.
CONCLUSION
It is, therefore,
ORDERED, for the foregoing reasons that the Motion for Sanctions by Defendants PGI and Bonlam is GRANTED, and Plaintiff PVD's claims against PGI and Bonlam are DISMISSED with prejudice, and the court hereby AWARDS attorneys fees and costs against PVD in the amount of $42,722.18. It is
FURTHER ORDERED, that PVD's claims against Batliboi and BHF are DISMISSED without prejudice.