Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_03-cv-01968/USCOURTS-caed-2_03-cv-01968-4/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1331 Fed. Question: Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

COMMUNICATIONS CENTER, INC., a

District of Columbia

corporation,

NO. CIV. S-03-1968 WBS KJM

Plaintiff, 

v. MEMORANDUM AND ORDER RE:

MOTION TO ORDER PAYMENT OF

MONETARY SANCTIONS UNDER 

PENALTY OF DEFAULT JUDGMENT

MATTHEW J. HEWITT, an

individual; and PACIFIC CREST

RESEARCH CORPORATION, a

Washington corporation,

Defendants.

----oo0oo----

The question before the court is what should be done

where defendants were ordered to pay attorneys’ fees pursuant to

a Federal Rule of Civil Procedure 37 sanction and where

defendants represent to the court that they will be unable to pay

that sanction any time soon. Plaintiff seeks an order requiring

defendants to pay at least half the sanction imposed by this

court’s order of June 27, 2005 in cash and post a bond for the

remainder within 21 days. Plaintiff further moves the court to

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impose the penalty of default should defendants not comply with

that proposed order. 

I. Factual and Procedural Background

Defendant Hewitt was formerly employed by plaintiff

Communications Center, Inc. (“CCI”). After his departure, Hewitt

started his own business, defendant Pacific Crest Research

Corporation. (“Pacific Crest”). Plaintiff alleges that

defendants committed fraud, misappropriated trade secrets,

interfered with prospective economic advantage, engaged in unfair

competition, illegally intercepted communications, and breached

confidentiality and confidence. (Compl.). In its prayer for

relief in the complaint, plaintiff seeks injunctive and monetary

relief. (Id.).

Defendant Hewitt willfully used Evidence Eliminator to

eliminate some files on computer hard drives he was under court

order to turn over to plaintiff. (June 27, 2005 Order at 3, 5). 

As a sanction, the court ordered that the parties may present

evidence of Hewitt’s use of Evidence Eliminator and that the jury

may form a negative inference from this behavior. (Id. at 8-9). 

Further, the court ordered defendants to pay $145,811.75 in

attorneys’ fees to plaintiff. (Id. at 9). 

Defendants inform the court that they are unable to pay

the $145,811.75. (Hewitt Decl. in Supp. of Opp’n to Pl.’s Mot. to

Collect ¶¶ 2, 3). Defendant Hewitt and his wife, a member of the

Air Force, live on Travis Air Force Base. They own one home, in

Spokane, Washington, but only have $26,000 in equity in that

home. (Id. ¶ 3). Both Hewitt and Pacific Crest are considering

filing for bankruptcy. (Id. ¶¶ 2, 3). Hewitt attaches to his

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1 There is much confusion about this point on the part of

plaintiff and defendants. Both cite cases dealing with default

under Federal Rule of Civil Procedure 37.

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declaration a letter from a collection agency seeking $56,372.76

from Pacific Crest, and two letters denying Hewitt credit. (Id.

Exs. A-C). Hewitt declares that if he or Pacific Crest had the

ability to pay $145,811.75 presently, the amount would be paid. 

Hewitt offers to pay monthly installments of $1,000 beginning

January 1, 2006. (Id. ¶ 5). Plaintiff disputes defendants’

claim of poverty, stating that defendant Pacific Crest produced a

sales journal covering the period between January 1, 2004 and

September 28, 2004 that shows sales totaling $963,457.96 (Daponde

Decl. in Supp. of Mot. to Compel Payment ¶ 2; id Ex. 1 (sales

journal). 

Plaintiff moves the court to set a definite date by

which defendants must pay the fees they owe or suffer default on

all causes of action except the causes for fraud and breach of

the employment agreement. 

II. Discussion

The court notes that plaintiff’s motion proposing that

the court penalize defendants with default should they not pay

promptly is not directly based on any discovery misconduct by

defendants. This court has already issued an order sanctioning

defendants for their discovery misconduct. (See June 27, 2005

Order). That issue is settled. Plaintiff’s motion relies

instead on defendants’ failure to pay the sanctions they were

ordered to pay. Thus, plaintiff essentially requests that the

court enter default against defendants for contempt.1

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2 Seaboard does not plainly state that Spellman also

produced the requested documents, but implies that he did because

the court only mentioned Spellman’s failure to pay the $790 in

making the decision regarding the appropriateness of the default

judgment. See 666 F.2d at 416-17.

4

In SEC v. Seaboard Corp., 666 F.2d 414 (9th Cir. 1982),

the district court, pursuant to Federal Rule of Civil Procedure

37(a), ordered cross-defendant Spellman to produce requested

documents, attend a deposition, and pay sanctions of $790. 666

F.2d at 415, 416. “He then gave his deposition, but refused to

pay the $790.” Id. at 415.2 The district court struck

Spellman’s answer to the cross-complaint and entered default

judgment against him. Id. Spellman moved to set aside the

judgment pursuant to Federal Rule of Civil Procedure 60(b), and

the district court denied his motion. Id. at 415. 

On appeal, the Ninth Circuit held that default was

inappropriate, citing Hovey v. Elliott, 167 U.S. 409 (1897), for

the proposition that “a court may not strike an answer and enter

a default merely to punish a contempt of court.” Seaboard, 666

F.2d at 416. The court then noted that Hammond Packing Company

v. Arkansas, 212 U.S. 322 (1909), limited the reach of Hovey by

holding that “a court had the power to strike an answer and enter

default when a party failed to produce evidence.” Seaboard, 666

F.2d at 416-17. The court noted that the misconduct of Spellman

was the failure to pay the monetary sanction, not any failure to

produce evidence, and thus concluded that “the default judgment

entered against Spellman was void for want of jurisdiction.” Id.

at 417.

This court follows Seaboard. There can be no dispute

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3 Hewitt’s proposal that defendants be permitted to pay

plaintiff $1,000 a month starting January 2006 is rejected. 

4 Plaintiff might argue that this case falls within the

Hammond limitation to Hovey in that defendants did not eventually

produce the evidence they were ordered to produce. However, such

an argument is really one to reconsider the nature of the

sanctions imposed pursuant to Rule 37 in the June 27, 2005 order. 

That issue is settled. What the court is dealing with in this

order is defendants’ inability to pay the attorneys’ fees

awarded; the issue is not the appropriate sanction for

defendants’ underlying misconduct.

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that defendants currently owe plaintiff $145,811.75.3 There may

be several ramifications to the existence of that debt. However,

one ramification that does not follow from the existence of the

debt is default judgment against defendants. The court finds

that the threat of default judgment in this case for defendants’

failure to pay the sanction is not available.4

However, plaintiff raises sufficient questions as to

defendants’ ability to pay to justify an order permitting

plaintiff to do further investigation. This investigation may

take the form of, or be similar to, a debtor’s exam typically

required during bankruptcy proceedings. The court does not

impose a date by which this discovery must be completed.

IT IS THEREFORE ORDERED that plaintiff’s motion to

impose a date by which defendants must pay the $145,811.75 they

currently owe or suffer default be, and the same hereby is,

DENIED;

IT IS FURTHER ORDERED that the scheduling order in this

case is hereby amended to allow plaintiff to conduct discovery on

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defendants’ ability to pay the $145,811.75 as if a judgment had

issued on that amount. 

DATED: August 9, 2005

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