Opinion
03 Civ. 7752 (RMB).
February 9, 2006
DECISION AND ORDER
I. Background
On or about February 25, 2004, Anthony M. Lavely ("Plaintiff") filed an amended complaint ("Am. Compl.") against Redheads, Inc. ("Redheads"), Sogevalor, S.A. ("Sogevalor"), Paolo Matteuzzi ("Matteuzzi"), Rodolfo Oechslin ("Oechslin"), and Dumont Investments, Inc. ("Dumont") (collectively, "Defendants") asserting, among other things, breach of contract, breach of guarantee, fraud, unjust enrichment, quantum meruit and estoppel, in connection with consulting services rendered by Plaintiff from 1999 to 2001 for which he was apparently paid only in part. (Am. Compl. ¶¶ 23-77.)
On April 23, 2004, upon the Court's finding that Defendant Redheads had not "appeared, answered or otherwise moved with respect to the . . . Complaint," default judgment was entered pursuant to Rule 55 of the Federal Rules of Civil Procedure, holding Redheads jointly and severally liable on Plaintiff's claim for $515,023.12. (April 23, 2004 Order.) The "remaining causes of action asserted by plaintiff against Redheads" were "severed and dismissed without prejudice." (April 23, 2004 Order.)
Since this case commenced, there have been numerous instances where Defendants have failed to comply with the specific discovery orders of this Court and of Magistrate Judge Kevin Nathaniel Fox, to whom the Court referred all discovery disputes. Examples include (but are not limited to):
a) Defendants failed to attend a mediation session scheduled for September 13, 2004, in contravention of the Court's explicit direction. (See Memo Endorsement, dated July 30, 2004 ("Yes, principals to attend mediation (and I am dead serious). See FRCP 11.").)
b) Defendants failed to appear for depositions by the December 3, 2004 deadline set by Magistrate Judge Fox, despite the Court's warning on November 19, 2004 that if they failed to do so, Plaintiff could move for default. (See November 4, 2004 Order of Magistrate Judge Fox ("The parties must be mindful that all depositions shall be completed on or before December 3, 2004.").)
c) Defendants (again) failed to appear for depositions (and to produce documents) by the June 29, 2005 deadline set by Magistrate Judge Fox, despite an explicit warning by the Court that they would be subject to default. (See February 24, 2005 Order ("The parties are to return to Magistrate Judge Fox to resolve the issue of compliance with discovery orders, including the setting of definitive dates for depositions, etc. If Defendants or their counsel fail to adhere to deposition dates set by Magistrate Judge Fox, then, the parties are hereby notified, this Court, upon application by Plaintiff, may strike the answer of any offending Defendant(s) and enter a default order pursuant to Fed.R.Civ.P. 37(d) and 55.") (emphasis added).)
On October 3, 2005, Plaintiff moved for default judgment pursuant to Rule 37 of the Federal Rules of Civil Procedure, "based upon the Defendants' wilful disregard of their discovery obligations and the Orders of this Court." (Plaintiff Anthony M. Lavely's Memorandum of Law in Support of Motion for Default Judgment Pursuant to Fed.R.Civ.P. 37 ("Pl. Mem.") at 1.) On or about October 19, 2005, Defendants filed an opposition. (Defendants' Memorandum of Law in Opposition to Plaintiff's Motion for Default Judgment and Sanctions ("Def. Mem.").) On or about October 26, 2005, Plaintiff filed a reply. (Plaintiff Anthony M. Lavely's Memorandum of Law in Further Support of His Motion for a Default Judgment Pursuant to Fed.R.Civ.P. 37 ("Reply").)
Plaintiff's motion for default judgment is dismissed without prejudice, subject to the conditions set forth below.
II. Legal Standard
Rule 37 of the Federal Rules of Civil Procedure provides that if a party "fails to obey an order to provide or permit discovery," the Court may render "a judgment by default against the disobedient party" and "shall require the party failing to obey the order . . . to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust." Fed.R.Civ.P. 37(b); see also Fed.R.Civ.P. 37(d).
"Although entry of a default judgment is an extreme measure, discovery orders are meant to be followed." Bambu Sales, Inc. v. Ozak Trading Co., Inc., 58 F.3d 849, 853 (2d Cir. 1995); see Nat'l Hockey League v. Metro. Hockey Club, Inc., 427 U.S. 639, 643 (1976) (per curiam) ("[T]he most severe in the spectrum of sanctions provided by statute or rule must be available to the district court in appropriate cases, not merely to penalize those whose conduct may be deemed to warrant such a sanction, but to deter those who might be tempted to such conduct in the absence of such a deterrent."); Update Art, Inc. v. Modiin Publ'g, Ltd., 843 F.2d 67, 73 (2d Cir. 1988) ("A party who flouts [discovery] orders does so at his peril.").
III. Analysis
Plaintiff argues that a default judgment should be entered because "Defendants have failed to produce documents and interrogatory responses, refused to appear at depositions, and ignored orders of this Court mandating Defendants' compliance with their discovery orders." (Pl. Mem. at 1.) Defendants respond that they "have been unable to comply with certain discovery obligations due to circumstances beyond their control," in that "Defendants Matteuzzi and Oechslin had been indicted in Switzerland . . . as part of a criminal investigation unrelated to the instant matter" and were subject to "travel restrictions imposed abroad." (Def. Mem. at 1-3.) Defendants further contend that "no corporate documentation beyond that which has already been produced is available since both Dumont and Sogevalor are no longer operating entities." (Def. Mem. at 3.)
Defendants also argue that "Plaintiff's action, as against Sogevalor, should be dismissed on the grounds of international comity," because "on August 20, 2004, the Swiss Federal Banking Commission placed Sogevalor in bankruptcy." (Def. Mem. at 3.) Plaintiff responds that he "is not participating in the Swiss proceeding, did not receive timely notice of the proceedings and has not been notified of any laws in Switzerland that would prohibit this action." (Reply at 8.) Plaintiff also notes that Defendants have not "submitted any current information on the status of the proceedings in Switzerland" or "information regarding Swiss law." (Reply at 7.) "Since comity is an affirmative defense, the moving party has the burden of proving that it is appropriate." United Overseas Bank v. Marchand, No. 87 Civ. 8572, 1996 WL 695902, at *8 (S.D.N.Y. Dec. 4, 1996). Given the absence of information and authorities from Defendants or their counsel, dismissal of Plaintiff's case on the grounds of international comity is inappropriate. See In re: Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 209 (2d Cir. 2003) ("The dearth of evidence offered by SKM prevents this court from properly considering its request for dismissal based on an issue of foreign law. While courts are not precluded from engaging in their own information gathering with regard to issues of foreign law . . . we do not believe it is appropriate for this court to do so in these circumstances.").
"In considering whether to impose the `litigation-ending sanction' of a default judgment for discovery abuse, courts have considered the following factors: (a) willfulness or bad faith on the part of the noncompliant party; (b) the history, if any, of noncompliance; (c) the effectiveness of lesser sanctions; (d) whether the noncompliant party had been warned about the possibility of sanctions; (e) the client's complicity; and (f) prejudice to the moving party." Am. Cash Card Corp. v. ATT Corp., 184 F.R.D. 521, 524 (S.D.N.Y. 1999), aff'd 210 F.3d 354 (2d Cir. Apr. 6, 2000) (table).
Here, the only default factor that remains unresolved and, at this point in time, prevents default judgment from being entered, is Defendants' willfulness or bad faith, about which the Court needs more detailed information. See Star Shoulder Pads, Inc. v. La Doux, No. 87 Civ. 0011, 1987 WL 14643, at *2 (S.D.N.Y. Oct. 30, 1987) ("This Court finds it difficult to evaluate whether La Doux failed to answer the interrogatories because of `inability,' or, if instead, the failure was due to `willfulness, bad faith or . . . fault' on its part."). Defendants have raised the possibility that their failure to comply with discovery is based upon circumstances beyond their control, although they have not yet offered adequate proof of such circumstances. See Cine Forty-Second St. Theatre Corp. v. Allied Artists Pictures Corp., 602 F.2d 1062, 1066 (2d Cir. 1979) ("Where the party makes good faith efforts to comply, and is thwarted by circumstances beyond his control . . . an order dismissing the complaint would deprive the party of a property interest without due process of law. . . . Accordingly, `Rule 37 should not be construed to authorize dismissal of [a] complaint because of petitioner's noncompliance with a pretrial production order when it has been established that failure to comply has been due to inability, and not to willfulness, bad faith, or any fault of petitioner.'") (quoting Societe Internationale Pour Participations Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 212 (1958)).
Defendants have a significant history of noncompliance. (See supra pp. 1-2.) The Court believes that lesser sanctions would be ineffective. See In re Sumitomo Copper Litig., 204 F.R.D. 58, 60 (S.D.N.Y. 2001) ("Issuing a second order compelling Nishi to submit to a deposition would be of questionable value, and would not further the goal of allowing this case to be decided on its merits rather than by default. Little useful purpose would be served by requiring his opponents to go through the expense and delay of giving this recalcitrant party yet another warning and chance to comply."). Also, Defendants have repeatedly been warned about the possibility of sanctions, including default. (See February 24, 2005 Order ("If Defendants or their counsel fail to adhere to deposition dates set by Magistrate Judge Fox, then, the parties are hereby notified, this Court, upon application by Plaintiff, may strike the answer of any offending Defendant(s) and enter a default order pursuant to Fed.R.Civ.P. 37(d) and 55.").) "The client itself, as opposed to counsel, is responsible for the noncompliance in this case," as Defendants' counsel claims to have communicated the Court's orders to Defendants. See Yucyco, Ltd. V. Ljubljanska Banka d.d., No. 96 Civ. 4274, 2001 WL 699135, at *7 (S.D.N.Y. June 20, 2001). Finally, Plaintiff has clearly been prejudiced, and "has had to devote extensive time and resources to trying to obtain the most basic discovery and the case has been delayed." See Am. Cash Card Corp., 184 F.R.D. at 525.
While Plaintiff's case for default is a relatively strong one, the Court will give Defendants one final opportunity to avoid default by submitting adequate proof that their failure to comply with discovery was not in bad faith. That is, Defendants are directed to produce, by March 1, 2006: (i) documentary evidence that Matteuzzi and Oechslin are, in fact, subject to "travel restrictions imposed abroad" that have prevented them from attending the scheduled depositions in New York; (ii) a description of the legal nature (with citations) of such restrictions, supported by counsel's declaration as to Swiss law; (iii) an explanation of the time and dates such restrictions went into effect and when they end; and (iv) specific evidence that the documents sought by Plaintiff in connection with Dumont and Sogevalor are no longer available to them. Defense counsel is required to submit a separate verification that client statements and/or submissions are accurate.
Notice
If Defendants do not produce satisfactory responses to this order by 5:00 P.M. on March 1, 2006, Plaintiff may submit for the Court's approval a proposed order of default pursuant to Rule 37, including documented reasonable costs and attorneys' fees incurred by Plaintiff. See On Stage Cosmetics, Inc. v. Make-Up Ctr. of 55th St., Ltd., No. 89 Civ. 7160, 1990 WL 138980, at *3 (S.D.N.Y. Sept. 21, 1990) ("This Order ensures that [Defendants'] procedural rights to a fair warning have been protected by this Court. It is further hoped that . . . the potential granting of the [Motion for Default Judgment] will serve as more than a specific reprimand, but also as a general deterrent to parties who actively ignore discovery deadlines and opposing parties' reasonable requests. If any party believes that it can engage in a `continuous saga of dilatory conduct,' it should be assured that this Court will respond with sharp disapproval."); Star Shoulder Pads, 1987 WL 14643, at *3.
IV. Conclusion and Order
For the foregoing reasons, Plaintiff's motion for default judgment is dismissed without prejudice, subject to the conditions set forth above.