Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-05242/USCOURTS-ca10-92-05242-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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PUBLISH 

FILED . United States Court of A_,pcn.J 

Tenth Circuit 

FEB 2 6 1996 

PATRICK FISHER 

UNITED STATES COURT OF APPEALS Clerlt 

FOR THE TENTH CIRCUIT 

BERNARD OLCOTT, ) 

) 

Plaintiff-Appellant, ) 

) 

v. ) 

) 

DELAWARE FLOOD COMPANY, a ) 

limited partnership under the ) 

laws of Oklahoma; LAWTON OIL ) 

COMPANY, a Kansas corporation; ) 

WILLIAM DOUGLAS LAYTON, indi- ) 

vidually and as general partner ) 

of DELAWARE FLOOD COMPANY, ) 

1976 DH; DELAWARE FLOOD COMPANY,) 

1977, EH; DELAWARE FLOOD COM- ) 

PANY, 1978, FH; DELAWARE FLOOD ) 

COMPANY, 1979, LTD, limited ) 

partnerships under the laws of ) 

Oklahoma; MICHAEL GALESI, ) 

) 

Defendants-Appellees. ) 

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) 

BERNARD OLCOTT, ) 

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Plaintiff-Appellee, ) 

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v. ) 

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DELAWARE FLOOD COMPANY, a ) 

limited partnership under the ) 

laws of Oklahoma; DELAWARE ) 

FLOOD COMPANY, 1976 DH; DELAWARE) 

FLOOD COMPANY, 1977, EH; ) 

DELAWARE FLOOD COMPANY, 1978, ) 

FH; DELAWARE FLOOD COMPANY, ) 

1979, LTD, limited partnerships ) 

No. 92-5242 

No. 93-5147 

Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 1 
under the laws of Oklahoma; 

MICHAEL GALESI, 

Defendants-Appellants, 

and 

LAYTON OIL COMPANY, a Kansas 

corporation; WILLIAM DOUGLAS 

LAYTON, individually and as 

General partner of DELAWARE 

FLOOD COMPANY, 1976, DH, 

Defendants. 

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BERNARD OLCOTT, 

Plaintiff, 

v. 

DELAWARE FLOOD COMPANY, a 

limited partnership under the 

laws of Oklahoma; DELAWARE 

FLOOD COMPANY, 1977, EH; 

DELAWARE FLOOD COMPANY, 1978, 

FH; DELAWARE FLOOD COMPANY, 

1979, LTD, limited partnerships 

under the laws of Oklahoma; 

MICHAEL GALESI, 

Defendants, 

and 

LAYTON OIL COMPANY, a Kansas 

corporation; WILLIAM DOUGLAS 

LAYTON, individually and as 

General Partner of DELAWARE 

FLOOD COMPANY, 1976, DH, 

Defendants-Appellants. 

BERNARD OLCOTT, 

Plaintiff-Appellee, 

v. 

DELAWARE FLOOD COMPANY, a 

limited partnership under the 

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No. 93-5148 

No. 94-5005 

Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 2 
laws of Oklahoma; DELAWARE ) 

FLOOD COMPANY, 1976 DH; DELAWARE) 

FLOOD COMPANY, 1977, EH; 

DELAWARE FLOOD COMPANY, 1978, 

FH; DELAWARE FLOOD COMPANY, 

1979, LTD; MICHAEL GALESI, 

Defendants-Appellants, 

and 

LAYTON OIL COMPANY, a Kansas 

corporation; WILLIAM DOUGLAS 

LAYTON, individually and as 

General Partner, 

Defendants. 

Appeal from the United States District Court 

For the Northern District of Oklahoma 

D.C. No. 83-C-179-E 

David Feinsilver, Feinsilver & Weiner, Esqs., Millburn, New 

Jersey, for Appellant Bernard Olcott. 

William C. Kellough (Reuben Davis with him on the briefs), Boone, 

Smith, Davis, Hurst & Dickman, Tulsa, Oklahoma, for Defendants/ 

Appellees and Cross-Appellants. 

Before SEYMOUR, Chief Judge; and PORFILIO and EBEL, Circuit 

Judges. 

PORFILIO, Circuit Judge. 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 3 
Today, we are called upon to resolve a fourteen year-old 

federal securities dispute raising choice of law and sanctions 

issues. Bernard Olcott brought this Rule 10b-5 securities action 

alleging he was defrauded regarding his 1976-1979 investments in 

four limited partnerships. After a lengthy pretrial and discovery 

process, the district court concluded the limitations period had 

run on Mr. Olcott's federal claims and dismissed his action in its 

entirety, including his pendent state claims. Mr. Olcott appeals 

these dismissals in No. 92-5242. 

During the pretrial process, the district court sanctioned 

the defendants for their failure to comply with a series of court 

orders concerning an accounting of the financial affairs of the 

four limited partnerships. All the defendants challenge the 

propriety of the district court's sanctions in their crossappeals.1 Delaware Flood Company and Michael Galesi appeal the 

sanctions in No. 93-5147, and Layton Oil Company and William 

Douglas Layton appeal in No. 93-5148.2 

Finally, in No. 94-5005, the defendants appeal the district 

court's disposition of two remaining issues: the court's refusal 

to release funds held in escrow gained from the sale of some of 

the limited partnerships' assets; and, the court's retention of 

the defendant's security bond to guarantee the payment of the 

court's sanctions order. 

1 Throughout this opinion, we refer to all the corporate and 

individual defendants collectively as "the defendants." When we 

refer to any of the defendants individually, we do so by name. 

2 In their brief, Layton Oil Company and William Douglas Layton 

adopt the arguments made by Delaware Flood Company and Michael 

Galesi. 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 4 
Our holdings in this case may be summarized as 

conclude the district court properly dismissed 

follows. We 

Mr. Olcott's 

federal claims based on his 1976, 1977, and 1978 investments as 

time barred by the Third Circuit's three-year statute of repose. 

However, we remand to the district court for a factual finding 

when Mr. Olcott possessed inquiry notice of the underlying facts 

relating to his 1979 investment. On remand, the district court 

must determine if Mr. Olcott brought this claim within the one 

year statute of limitation. We also remand the district court's 

dismissal of Mr. Olcott's pendent state claims for it to conduct 

the appropriate death knell analysis. We affirm the district 

court's imposition of a sanction of $402,527.98 against the 

defendants for their violations of Fed. R. Civ. P. 16(f} and 

37(b}(2}. We decline to consider the district court's $1.9 

million default judgment because the district court did not treat 

it as a final determination. We remand the issue of whether to 

release the $213,143 in proceeds from the sale of limited 

partnership assets from court supervision to the district court 

for further factual findings. Finally, we reverse the district 

court and exonerate the defendants' $50,000 bond. 

I. 

The interminable saga we have before us began when Mr. Olcott 

invested a total of $1.9 million in four oil drilling and 

exploration limited partnerships in 1976, 1977, 1978, and 1979. 

Not pleased with the results of his investment, Mr. Olcott filed 

suit, alleging the limited partnerships were operated 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 5 
fraudulently. Mr. Olcott named as defendants all four limited 

partnerships, Delaware Flood Company 1976 DH, Delaware Flood 

Company 1977 EH, Delaware Flood Company 1978 FH, and Delaware 

Flood Company 1979 LTD; and Layton Oil Company, Delaware Flood 

Company, Michael Galesi and William Douglas Layton. These 

additional defendants had various relationships with the four 

limited partnerships and each other. Delaware Flood Company was 

the general partner of all four limited partnerships. In turn, 

when Mr. Olcott filed suit, Layton Oil Company and William Douglas 

Layton were the general partners of Delaware Flood Company which 

was itself a limited partnership. Layton Oil Company subsequently 

went out of business in 1983. 

Michael Galesi was intertwined with the affairs of the other 

parties in several ways. He was a promoter of the four limited 

partnerships and a limited partner in some of them. Mr. Galesi 

also originally was a limited partner of Delaware Flood Company 

and currently is its general partner. Finally, Mr. Galesi owns 

Equinox Oil Company which purchased Layton Oil Company's assets, 

and succeeded to the general partnership interest the defunct 

company had in the four limited partnerships. 

The procedural history of this case has reached Byzantine 

proportions. Initially, on July 7, 1982, Mr. Olcott filed suit in 

federal court in the District of New Jersey. On February 18, 

1983, the court granted the defendants' forum non conveniens 

motion made pursuant to 28 U.S.C. § 1404, transferring the case to 

the Northern District of Oklahoma. A lengthy, multi-round 

pretrial dispute over an accounting of the financial affairs of 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 6 
all the players ensued. We describe this accounting imbroglio in 

detail in conjunction with our substantive discussion of the issue 

in Part IV. 

While this case was pending, the Supreme Court decided Lampf, 

Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, SOl U.S. 3SO 

(1991). In Lampf, the Court held an implied Rule lOb-S, lS U.S.C. 

§ 78j (b) , claim must be filed no more than three years after the 

underlying events and within one year after the fraud is 

discovered. Id. at 364. In so holding, the Court borrowed the 

statute of limitations period for express actions as provided 

under the 1933 and 1934 Securities Acts. Id. at 362. The same 

term the Court announced new rules developed in civil cases must 

be applied retroactively to all pending similar cases. James B. 

Beam Distilling Co. v. Georgia, SOl U.S. S29 (1991) (plurality 

opinion) . In response to Lampf and Beam, the defendants filed a 

motion to dismiss which the district court granted on 

September 2S, 1991. Mr. Olcott appealed to this court. 

While Mr. Olcott's appeal was pending, Congress amended the 

Securities Act to prevent the retroactive application of Lampf. 

The amendment provided the applicable statute of limitations 

period for pre-Lampf Rule lOb-S implied actions would be that of 

the jurisdiction where the federal court was located, lS U.S.C. 

§ 78aa-l, the position explicitly rejected in Lampf.3 Mr. Olcott 

3 The amended statute provides: 

15 U.S.C. § 78aa-1. Special prov1s1on relating to 

statute of limitations on private causes of action 

a) Effect on pending causes of action 

(Continued to next page.) 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 7 
petitioned this court to reinstate his cause of action pursuant to 

section 78aa-1. We granted his motion in an unpublished order of 

June 5, 1992, and remanded the case to the district court. 

(Continued from prior page.) 

The limitation period for any private civil action 

implied under section 78j (b) of this title that was 

commenced on or before June 19, 1991, shall be the 

limitation period provided by the laws applicable in the 

jurisdiction, including principles of retroactivity, as 

such laws existed on June 19, 1991. 

(b) Effect on dismissed causes of action 

Any private civil action implied under section 

78j (b) of this title that was commenced on or before 

June 19, 1991--

(1) which was dismissed as time barred 

subsequent to June 19, 1991, and 

(2) which would have been timely filed under 

the limitation period provided by the laws 

applicable in the jurisdiction, including 

principles of retroactivity, as such laws existed 

on June 19, 1991, 

shall be reinstated on motion by the plaintiff not later 

than 60 days after Dec. 19, 1991. 

During the pendency of this appeal, the Supreme Court 

declared at least part of this amendment unconstitutional on 

separation of powers grounds. The Court reasoned the amendment 

unconstitutionally required the federal courts to reopen final 

judgments. Plaut v. Spendthrift Farm, Inc., 115 S. Ct. 1447, 1463 

(1995). After the Court decided Plaut, we ordered the parties in 

this appeal to file supplemental briefs on the applicability of 

the new decision. We conclude Plaut has no applicability here 

because the instant case was pending within the meaning of section 

78aa-l(a). The Court's decision in Plaut, and the structural 

separation of powers concerns which animate it, apply only to 

subsection (b) of the amendment. In short, we believe nothing in 

Plaut disturbs our prior conclusion subsection (a) is 

constitutional. Anixter v. Home-Stake Prod. Co., 977 F.2d 1533, 

1543-47 (lOth Cir. 1992) (Anixter II), cert. denied, 113 S. Ct. 

1841 (1993) . See also Freeman v. Laventhol &: Horwath, 34 F. 3d 

333, 342-43 and n.3 (6th Cir. 1994) (noting the distinction 

between subsections (a) and (b) in holding subsection (a) was 

constitutional). 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 8 
On remand, the defendants renewed 

which the district court granted. 

their motion to dismiss 

The court explained its 

reasoning in two orders dated September 23, 1991, and November 12, 

1992. First, the court concluded the law of the transferor court 

applied. Because the case was originally filed in New Jersey, the 

court applied Third Circuit law. Second, the district court found 

the Third Circuit's limitations period required a cause of action 

to be filed within three years of the underlying events and one 

year from the time the plaintiff had inquiry notice of the fraud. 

In re Data Access ~s. Sec. Litig., 843 F.2d 1537 (3d Cir. 1988) 

(en bane), cert. denied, 488 U.S. 849 (1988). Third, the district 

court concluded this rule should be applied retroactively. 

Fourth, the court held Mr. Olcott's claims based on his 1976, 

1977, and 1978 investments were time barred because he brought his 

lawsuit more than three years after the underlying events. Fifth, 

the court ruled Mr. Olcott's claim based on his 1979 investment 

was also time barred because Mr. Olcott filed suit in excess of 

one year after he had notice of the alleged fraudulent activities. 

In addition, at the same time the parties litigated the 

limitations period issue, an ongoing discovery dispute concerning 

the defendants' repeated failure to provide a complete accounting 

of the financial affairs of the interlocking partnerships 

occurred. Ultimately, the defendants' continued recalcitrance in 

providing the accounting led the district court to sanction them 

in the sum of $402,527.98 for Mr. Olcott's attorney's fees and 

accounting expert expenses, and the fee for the court's expert 

accountant. 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 9 
Further, the district court ordered the proceeds from the 

sale of oil and natural gas assets of the four limited 

partnerships to be held in escrow pending the conclusion of this 

litigation. On February 22, 1990, the court approved the sale of 

limited partnership assets to Delaware Flood Company, the highest 

bidder in an open, advertised auction, for $237,143. The court 

denied the defendants' requests to release these funds. 

Finally, the district court required the defendants to post 

two bonds. First, the defendants were required to post a bond for 

$50,000 after the court's original March 17, 1987 sanctions order. 

Second, the court required the defendants to post a supersedeas 

bond in the amount of $402,527.98 after the court's final 

April 30, 1993 sanctions order.4 

II. 

Mr. Olcott argues the district court improperly dismissed his 

Rule lOb-S claims on limitations period grounds. We review the 

district court's decision on jurisdictional questions de novo. 

Laguna Gatuna, Inc. v. Browner, 58 F.3d 564, 565 (lOth Cir. 1995), 

cert. denied, 64 U.S.L.W. 3481 (U.S. Jan. 16, 1996) (No. 95-465); 

FDIC v. Hulsey, 22 F.3d 1472, 1479 (lOth Cir. 1994). We also 

review choice of law determinations de novo. Rocky Mountain 

Helicopters, Inc., v. Bell Helicopter Textron, Inc., 24 F.3d 125, 

128 (lOth Cir. 1994); Shearson Lehman Bros., Inc., v. M & L 

Investments, 10 F.3d 1510, 1514 (lOth Cir. 1993). The district 

4 In their brief, the defendants argue the supersedeas bond was 

in the amount of $400,913. Our calculation of the amount of the 

sanction matches the docket sheet's slightly greater figure. 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 10 
court's findings of jurisdictional facts are reviewed for clear 

error. Holt v. United States, 46 F.3d 1000, 1003 (lOth Cir. 

1995). 

A. 

To begin with, we must determine the proper limitations 

period. Mr. Olcott's lawsuit was reinstated pursuant to 15 u.s.c. 

§ 78aa-l. Because his appeal was pending before this court when 

the statute was amended, subsection (a) applies. 

(a) Effect on pending causes of action 

The limitations period for any private cause of 

action implied under section 78j (b) of this title that 

was commenced on or before June 19, 1991, shall be the 

limitation period provided by the laws applicable in the 

jurisdiction, including principles of retroactivity, as 

such laws existed on June 19, 1991. 

In the ordinary case, the statute calls for applying the law as it 

existed on June 19, 1991, in the jurisdiction where the dispute 

was pending. However, cases like this which have been transferred 

between jurisdictions with different limitations periods present a 

thorny choice of law problem. 

The parties dispute whether to apply the limitations period 

of the transferor jurisdiction, the Third Circuit, or the 

transferee jurisdiction, the Tenth Circuit. The defendants argue 

the Third Circuit rule should apply, while Mr. Olcott urges the 

adoption of the Tenth Circuit standard instead.s 

5 The choice of law makes a significant difference to Mr. Olcott. 

In the Third Circuit, a Rule lOb-S complaint must be filed within 

"one year after the plaintiff discovers the facts constituting the 

violation, and in no event more than three years after such 

violation." In re Data Access Sys. Sec. Litig., 843 F.2d 1537, 

(Continued to next page.) 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 11 
The district court concluded Third Circuit law governed after 

applying two Supreme Court decisions which held, in diversity 

cases, the transferor forum law applies after transfers made 

pursuant to 28 U.S.C. § 1404(a). Ferens v. John Deere Co., 494 

u.s. 516 (1990); VanDusen v. Barrack, 376 u.s. 612 (1964). We 

agree. 

In Van Dusen, the Court held, "where the defendants seek 

transfer, the transferee district court must be obligated to apply 

the state law that would have been applied if there had been no 

change of venue." Van Dusen, 376 U.S. at 639. The Court 

concluded, "[a] change of venue under§ 1404(a) generally should 

be, with respect to state law, but a change of courtrooms." Id. 

In so doing, the Court explicitly left unaddressed the question of 

whether the identical rule would apply if a plaintiff, rather than 

a defendant, initiated the transfer. Id. at 640. In Ferens, the 

Court answered this remaining question in the affirmative, holding 

"that the transferor law should apply regardless of who makes the 

§ 1404(a) motion." Ferens, 494 U.S. at 531. 

In the instant case, the defendants requested the transfer 

pursuant to § 1404(a) so the original VanDusen rule seemingly 

(Continued from prior page.) 

1550 (3d Cir.) (en bane), cert. denied, 488 U.S. 849 (1988). In 

contrast, in the Tenth Circuit, pre-~f Rule lOb-S suits were 

"subject to the appropriate limitations statute of the state in 

which the alleged violation occurred." Hackbart v. Holmes, 675 

F.2d 1114, 1120 (lOth Cir. 1982). See also Anixter v. Home-Stake 

Prod. Co., 939 F.2d 1420, 1441 (lOth Cir. 1991) (Anixter I), cert. 

granted and judgment vacated by Dennler v. Trippet, 112 S. Ct. 

1658 (1992). In this case, Oklahoma's two-year statute of 

limitations which runs from the actual or constructive discovery 

of the fraud and includes principles of equitable tolling would 

apply. Okla. Stat. tit. 12, § 95(3) (West 1995); Anixter II, 977 

F.2d at 1544 n.3. 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 12 
would apply. However, both VanDusen and Ferens were diversity 

cases. Underlying both decisions was the Court's long-standing 

federalism concern of maintaining the integrity of our dual 

federal and state systems. See, e.g., VanDusen, 376 U.S. at 638 

("Applying [Erie's] analysis to § 1404(a), we should ensure that 

the 'accident' of federal diversity jurisdiction does not enable a 

party to utilize a transfer to achieve a result in federal court 

which could not have been achieved in the courts of the State 

where the action was filed."); Ferens, 494 U.S. at 524 ("The 

policy that § 1404(a) should not deprive parties of state-law 

advantages, although perhaps discernible in the legislative 

history, has its real foundation in Erie • II ) • 

This action was grounded in Rule 10b-5 making it a federal 

question, not a diversity case. Therefore the question becomes: 

should the rule the transferor forum law applies be extended to 

this federal question case? 

While this question represents an issue of first impression 

for this court, we are not wholly without guidance. The Second 

and Seventh Circuits have previously entered the thicket with 

divergent results.6 In Menowitz v. Brown, 991 F.2d 36 (2d Cir. 

6 Of the remaining circuits, only the Eighth Circuit has also 

touched on this issue by noting the circuit split. See Kansas 

Pub. Employees Retirement v. Reimer & Kroger Assoc., Inc., 61 F.3d 

608, 611 n.4 (8th Cir. 1995) ("There is some divergence of 

authority concerning whether the transferor district's choice of 

law can ever follow the case if the underlying cause of action 

arises under federal rather than state law."), petition for cert. 

filed, 64 U.S.L.W. 3428 (U.S. Dec. 5, 1995) (No. 95-888). In 

addition, several commentators have addressed the issue of whether 

the Ferens and Van Dusen rule should apply to federal question 

cases. See generally Kimberly Jade Norwood, Double Forum Shopping 

and the Extension of Ferens to Federal Claims That Borrow State 

(Continued to next page.) 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 13 
1993) (per curiam), the Second Circuit considered whether Van 

Dusen should apply in a Rule 10b-5 case which had been 

consolidated for pretrial purposes pursuant to 28 u.s.c. 

§ 1407(a). The court concluded Van Dusen was inapplicable, and 

the law of the transferee court should apply. The court reasoned, 

"the choice of a limitations period for a federal cause of action 

is itself a question of federal law." Id. at 41 (quoting 

DelCostello v. International Bhd. of Teamsters, 462 U.S. 151, 159 

n.13 (1983) (citations omitted)). After concluding Van Dusen 

"rests upon Erie," id. at 40, the court determined its reach was 

limited to diversity cases. The court explained: 

Although federal courts sometimes arrive at 

different constructions of federal law, federal law 

(unlike state law) is supposed to be unitary. Thus, the 

rule of Van Dusen does not apply by analogy where a 

is transferred under § 1407 to a federal court that 

a different construction of relevant federal law 

case 

has 

than 

the federal court in which the action was filed. . Applying Van Dusen by analogy to issues of federal law 

also runs contrary to the principle that, until the 

Supreme Court speaks, the federal circuit courts are 

under duties to arrive at their own determinations of 

the merits of federal questions presented to them 

Menowitz, 991 F.2d at 40. 

In contrast, the Seventh Circuit reached the opposite 

conclusion in Eckstein v. Balcor Film Investors, 8 F.3d 1121 (7th 

Cir. 1993), cert. denied, 114 S. Ct. 883 (1994). There, the court 

was faced with a case which was originally transferred for 

(Continued from prior page.) 

Limitation Periods, 44 Emory L.J. 501 (1995); Robert A. Ragazzo, 

Transfer and Choice of Law: The Appellate Model, 93 Mich. L. Rev. 

703 (1995); Tom M. Fini, The Scope of the Van Dusen Rule in 

Federal-Question Transfers, 1992/1993 Ann. Surv. Am. L. 49; 

Richard L. Marcus, Conflicts Among Circuits and Transfers Within 

the Federal $ystem, 93 Yale L.J. 677 (1984). 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 14 
pretrial purposes under § 1407(a), but later permanently 

transferred pursuant to § 1404(a). Id. at 1124. The court 

acknowledged the general rule which concerned the Second Circuit 

in Menowitz. 

Are different circuits like different states for 

the purposes of VanDusen and Ferens? Usually not. In 

re Korean Air Lines Disaster, 829 F.2d 1171 (D.C. Cir. 

1987) (Ruth B. Ginsburg, J.), affirmed on other grounds 

under the name Chan v. Korean Air Lines, Ltd., 490 U.S. 

122, 109 S. Ct. 1676, 103 L.Ed.2d 113 (1989). A single 

federal law implies a national interpretation. Although 

courts of appeals cannot achieve this on their own, the 

norm is that each court of appeals considers the 

question independently and reaches its own decision, 

without regard to the geographic location of the events 

giving rise to the litigation. 

Eckstein, 8 F.3d at 1126. However, the court reasoned it must 

determine the applicability of this general rule against the 

backdrop of Congress' intent in enacting the statutory amendment 

in response to ~f. The court continued: 

We agree with Korean Air Lines that a transferee 

court normally should use its own best judgment about 

the meaning of federal law when evaluating a federal 

claim, but § 27A instructs us to act differently.? 

Section 27A recognizes that different circuits had taken 

different approaches to the appropriate statute of 

limitations in suits under§ 10(b), and it codifies this 

fractured nature of federal law for cases filed before 

June 20, 1991. Congress requires us to apply federal 

law as courts understood it at a point in the past 

rather than to make an independent judgment about what 

that law actually is. 

Eckstein, 8 F.3d at 1126. Finally, the Eckstein 

distinguished the earlier Second Circuit case: 

Menowitz 

diversity 

held that Van Dusen and Ferens apply only in 

cases. We believe that this conclusion 

court 

7 Section 27A refers to 

amended in response to 

15 u.s.c. § 78aa-1. We 

section throughout this 

the Securities Act of 1934 which Congress 

~f. This section has been codified at 

refer to this provision by its code 

opinion. 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 15 
disregards both the language of § 27A (whose reference 

to "the jurisdiction" implies a non-uniform federal law) 

and the holdings of Van Dusen and Ferens, which 

construed§ 1404(a) rather than any principle of state 

law. Although both of those cases arose under the 

diversity jurisdiction, their references to Erie R.R. v. 

Tompkins, 304 U.S. 64 (1938), do not imply a ruling 

limited to state law. Erie is itself part of national 

law, interpreting the Rules of Decision Act, 28 U.S.C. 

§ 1652. VanDusen and Ferens accordingly apply whenever 

different federal courts properly use different 

rules .... When the law of the United States is 

geographically non-uniform, a transferee court should 

use the rule of the transferor forum in order to 

implement the central conclusion of Van Dusen and 

Ferens: that a transfer under § 1404(a) accomplishes 

"but a change of courtrooms". VanDusen, 376 U.S. at 

639. Section 27A presents such a situation. 

Id. at 1127 (parallel citations omitted) . 

We agree with the Seventh Circuit's holding and analysis in 

Eckstein. We believe the clear import of Congress' enactment of 

§ 78aa-1 was to eliminate the retroactive application of ~f. 

Congress sought to reinstate the pre-~f circuit disharmony. In 

short, unlike the typical situation, Congress specifically 

intended that "the geographical location of the events giving rise 

to the litigation," id. at 1126, should explicitly be taken into 

consideration. We also agree with the Seventh Circuit that it 

therefore makes no sense for the applicable law to change simply 

as a result of a motion to transfer. Further, the legislative 

history of § 78aa-1 "certainly does not justify the rather 

startling conclusion that one might 'get a change of law as a 

bonus for a change of venue.'" Van Dusen, 376 u.s. at 636 

(quoting Wells v. Simonds Abrasive Co., 345 U.S. 514, 522 (1953) 

(Jackson, J. dissenting)). Accordingly, we hold the law of the 

Third Circuit, as the transferor forum, supplies the appropriate 

limitations period in this case. We note however the decision 

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that Van Dusen and Ferens apply in this case is a narrow one based 

on the unique language and purpose of lS U.S.C. § 78aa-l. Nothing 

in our decision should be read to imply Van Dusen and Ferens have 

any broad applicability to federal question jurisdiction cases 

generally. 

B. 

Having decided we are bound to apply Third Circuit law, we 

must determine our sister circuit's limitations period as of 

June 19, 1991. The answer to this query lies in Data Access. 

After exhaustively summarizing and analyzing the murky terrain 

concerning the proper limitations period for Rule lOb-S, the court 

concluded, "the express limitations sections of the Securities 

Exchange Act of 1934 provide the preferable source of limitations 

borrowing here." Data Access, 843 F.2d at lSSO. The court held: 

Id. 

the proper period of limitations for a complaint 

charging violation of section lO(b) and Rule lOb-S is 

one year after the plaintiff discovers the facts 

constituting the violation, and in no event more than 

three years after such violation. 

Because Mr. Olcott filed his claim in 1982, our next inquiry 

is whether Data Access should apply retroactively. The district 

court concluded it should, after applying the three-part test from 

Chevron Oil Co. v. Huson, 404 U.S. 97, lOS-07 (1971). We agree 

with the district court's ultimate conclusion, albeit with a 

slightly different analysis. 

The Supreme Court has modified the appropriate retroactivity 

analysis since Chevron was decided nearly a quarter century ago. 

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In Beam, a divided Court concluded selective prospectivity had no 

place in the civil context. 501 U.S. at 544; id. at 545-46 

(White, J. concurring in the judgment); id. at 547-48 (Blackmun, 

J. concurring in the judgment); id. at 548-49 (Scalia, J. 

concurring in the judgment) .a Subsequently, the Court has stated: 

[W]e accordingly adopt a rule that fairly reflects the 

position of a majority of Justices in Beam: When this 

Court applies a rule of federal law to the parties 

before it, that rule is the controlling interpretation 

of federal law and must be given full retroactive effect 

in all cases still open on direct review and as to all 

events, regardless of whether such events predate or 

postdate our announcement of the rule. 

Harper v. Virginia Dept. of Taxation, 113 s. Ct. 2510, 2517 

(1993); see also Plaut, 115 s. Ct. at 1450 ("A new rule of 

federal law that is applied to the parties in the case announcing 

the rule must be applied as well to all cases pending on direct 

review.") . 9 Further, in Beam, the plurality addressed 

continued validity of Chevron: 

Because the rejection of modified prospectivity 

precludes retroactive application of a new rule to some 

litigants when it is not applied to others, the Chevron 

Oil test cannot determine the choice of law by relying 

on the equities of the particular case. Once 

retroactive application is chosen for any assertedly new 

rule, it is chosen for all others who might seek its 

prospective application. The applicability of rules of 

law is not to be switched on and off according to 

individual hardship; . . . 

the 

8 Beam spawned two different broad viewpoints on the prospective 

application of new federal rules. One group of three justices 

concluded new civil rules should always be applied retroactively 

(Blackmun, Marshall, and Scalia, JJ.). Another group of three 

justices concluded selective prospectivity was wrong, but pure 

prospectivity might be appropriate with some new civil rules 

(Souter, Stevens, and White, JJ.). 

9 The Court's decisions mirror its earlier holding that selective 

prospectivity would no longer occur in criminal cases. Griffith 

v. Kentucky, 479 u.s. 314, 328 (1987). 

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Beam, 501 U.S. at 543. As a result of Beam, the analysis of 

Chevron is only relevant, if it maintains any relevance at all, in 

determining whether a new federal rule should apply retroactively 

across the board. No longer may Chevron be used to make 

individual retroactivity determinations on a case 

equitable basis. 

by case 

We believe Beam and Ba~er apply to the instant case. 

Accordingly, if the new federal rule announced in Data Access has 

previously been applied retroactively, it must also be applied 

retroactively here. 

The Third Circuit first addressed whether its new rule should 

apply retroactively in Data Access itself. The court explicitly 

declined to address whether the new limitations period should 

apply retroactively to the 

relied on the fact "[i]n 

consideration [pursuant to 

Data Access plaintiffs. The court 

certifying the questions for our 

28 u.s.c. § 1292(b)], the district 

court did not request that we address the issue of whether our 

rulings should have prospective effect only and not apply to the 

present case." Data Access, 843 F.2d at 1550. The court left the 

resolution of this issue to the district court. Id. at 1551. The 

court's refusal to address the retroactivity issue prompted three 

members of the court to dissent. The dissent applied Chevron and 

concluded, "the rule announced today [should] not be applied to 

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this case." Id. at 1553 (Seitz, J. dissenting) .10 However, four 

ensuing Third Circuit cases have had no difficulty applying Data 

Access retroactively. Westinghouse Elec. Corp. v. Franklin, 993 

F.2d 349, 354-56 (3d Cir. 1993); McCarter v. Mjtcbam, 883 F.2d 

196, 201-05 (3d Cir. 1989); Gatto v. Meridian Medical Assoc., 

Inc., 882 F.2d 840, 842-44 (3d Cir. 1989), cert. denied, 493 U.S. 

1080 (1990); Hill v. Equitable Trust Co., 851 F.2d 691, 695-99 (3d 

Cir. 1988), cert. denied, 488 U.S. 1008 (1989). Only one Third 

Circuit opinion determined, after applying Chevron, that Data 

Access should not apply retroactively to that particular 

plaintiff. Gruber v. Price Waterhouse, 911 F.2d 960, 964-69 (3d 

Cir. 1990). Mr. Olcott relies upon Gruber and two district court 

cases which refused to apply Data Access retroactively after 

applying Chevron. In re National Smelting of New Jersey, Inc. 

Bondholders' Litig., 722 F. Supp. 152 (D.N.J. 1989); Newfield v. 

Shearson Lehman Bros., 699 F. Supp. 1124 (E.D. Pa. 1988). These 

cases decided under Chevron are inapposite to our analysis under 

Beam. We believe Beam requires the retroactive application of 

Data Access in this case because the Third Circuit has applied its 

new rule retroactively on four occasions. 

10 But compare Gatto v. Meridian Medical Assoc., Inc., 882 F. 2d 

840, 843 n.4 (3d Cir. 1989) ("Often overlooked is the fact that 

the majority in Data Access in effect applied the result 

retroactively, which is evident because it was disagreement with 

that silent portion of the holding which prompted the dissent."), 

cert. denied, 493 U.S. 1080 (1990) with Gruber v. Price 

Waterhouse, 911 F.2d 960, 964 (3d Cir. 1990) ("Because the 

application of our ruling was not requested in the question 

certified to us in Data Access, we did not decide whether the 

decision should be applied retroactively. We reserved this 

determination for the district court."). It appears a 

disagreement exists among the judges of the Third Circuit on the 

proper interpretation of Data Access on this issue. 

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c. 

We now apply Data Access' one-year/three-year limitations 

period to the facts of Mr. Olcott's case. Initially, the 

timeliness of Mr. Olcott's claims is judged against the three-year 

statute of repose. In ~f, the Supreme Court described this 

three-year time period as an outside limit and declined to apply 

equitable tolling principles to extend it. 501 U.S. at 364. The 

Court wrote: 

The 1-year period, by its terms, begins after 

discovery of the facts constituting the violation, 

making tolling unnecessary. The 3-year limit is a 

period of repose inconsistent with tolling. One 

commentator explains: "[T]he inclusion of the threeyear period can have no significance in this context 

other than to impose an outside limit." ... Because 

the purpose of the 3-year limitation is clearly to serve 

as a cutoff, we hold that tolling principles do not 

apply to that period. 

Id. (citations omitted) . See generally United States v. Kubrick, 

444 U.S. 111, 117 (1979) (describing the nature of statutes of 

limitations and statutes of repose.)ll Accordingly, Mr. Olcott's 

claims based on his 1976, 1977, and 1978 limited partnership 

investments are time barred because they were not filed until 

11 While we are applying Third Circuit law in addressing this 

issue, our discussion in Anixter I is directly on point. See 

Anixter I, 939 F.2d at 1434-36 (discussing the unavailability of 

employing equitable tolling principles to extend a statute of 

repose). See also Waller v. Pittsburgh Corning Cor,p., 946 F.2d 

1514, 1515 n.l (lOth Cir. 1991) ("Statutes of limitation bar a 

claim after a time period that begins to run when the cause of 

action accrues. Statutes of repose, on the other hand, bar a 

claim after a period that is triggered by an arbitrary event 

unrelated to the accrual of the cause of action."). 

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1982, more than three years after the underlying events giving 

rise to the violation occurred. In contrast, Mr. Olcott's claim 

arising from his 1979 investment was filed within the requisite 

three years. However, the question remains whether Mr. Olcott 

brought his Rule 10b-5 cause of action within the one year statute 

of limitations period. 

The district court concluded Mr. Olcott had sufficient notice 

more than one year prior to July 9, 1982, when he filed his 

securities fraud lawsuit. The district court held, "evidence of 

Plaintiff's suspicions about the 1979 investment within the oneyear limitation period establish that his claim arising out of 

that investment is barred by the one-year rule." Unfortunately, 

the district court failed to offer any specific facts to support 

this conclusion. Therefore, we have no basis to evaluate the 

court's holding and must remand for the court to explain its 

factual determination. At this point, the factual record is 

insufficiently developed for us to determine when the statute of 

limitations began to run in this case. 

On remand, the district court must determine when Mr. Olcott 

had notice of the underlying "facts constituting the violation." 

~f, 501 U.S. at 364; Data Access, 843 F.2d at 1550. Inquiry 

notice of the underlying facts giving rise to a potential Rule 

10b-5 cause of action is sufficient. Gruber, 911 F.2d at 969. 

The statute of limitations period accrued when Mr. Olcott knew or 

should have known of the Rule 10b-5 violation. Id. at 962. See 

also In re Phar-Mor, Inc. Sec. Litig., 900 F. Supp. 777, 780-81 

(W.D. Pa. 1994); ITG, Inc. v. Price Waterhouse, 697 F. Supp. 867, 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 22 
870-71 (E.D. Pa. 1988) .12 We remind the district court the 

determination of when Mr. Olcott had notice of the underlying 

events requires an evidentiary finding. As a result, resolving 

the notice issue in the procedural context of a motion to dismiss 

is wrong. We believe it would be more appropriate to make the 

necessary determination on summary judgment, or, if a genuine 

issue of material fact remains in dispute, after an evidentiary 

hearing. 

In summary, we hold Mr. Olcott's claims based on his 1976, 

1977, and 1978 investments are time barred because he failed to 

file within the applicable three-year statute of repose. However, 

we remand to the district court to determine exactly when Mr. 

Olcott possessed inquiry notice of the underlying events giving 

rise to his claim relating to his 1979 investment. Such a factual 

finding on remand is a necessary prerequisite for determining 

whether Mr. Olcott's remaining claim is time barred by the oneyear statute of limitations. 

III. 

Next, Mr. Olcott argues the district court erred in 

dismissing his pendent state law claims after having dismissed his 

federal claims. The district court dismissed the pendent claims 

after reasoning: "The Court finds that because complete diversity 

12 Other circuits, including this one, have also adopted inquiry 

notice as the appropriate standard for triggering when the oneyear statute of limitations period begins to accrue. See, e.g., 

Whirlpool Fin. Corp. v. GN Holdings, Inc., 67 F.3d 605, 609-10 

(7th Cir. 1995); Jackson Nat'l Life Ins. Co. v. Merrill Lynch & 

Co., 32 F.3d 697, 700-01 (2d Cir. 1994); Anixter v. Home-Stake 

Prod. Co., 947 F.2d 897, 898-99 (lOth Cir. 1991). 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 23 
of citizenship does not exist as to the state pendent claims, 

these claims must also be dismissed." We agree with Mr. Olcott 

the court improvidently dismissed these claims at this stage of 

the litigation. 

As an initial matter, we are confronted with another 

difficult choice of law issue. We must determine whether Third 

Circuit or Tenth Circuit law provides the appropriate standard for 

reviewing the district court's dismissal of Mr. Olcott's pendent 

claims. We believe Third Circuit law applies for the reasons 

discussed in Part IIA above. However, in this context, the choice 

of law question has only academic rather than transactional 

significance because both circuits employ the same test. 

We review the district court's dismissal of the pendent state 

claims for an abuse of discretion. Big Apple BMW, Inc. v. BMW of 

North America, Inc., 974 F.2d 1358, 1362 (3d Cir. 1992), cert. 

denied, 113 S. Ct. 1262 (1993); Cooley v. Pennsylvania Housing 

Fin. Agen~, 830 F.2d 469, 476 (3d Cir. 1987). A district court 

has discretion whether to exercise supplemental jurisdiction over 

state law claims once the federal question has been dismissed. 28 

U.S.C. § 1367(c). "In making its determination, the district 

court should take into account generally accepted principles of 

'judicial economy, convenience, and fairness to the litigants.'" 

Growth Horizons, Inc. v. Delaware Coun~, Pa., 983 F.2d 1277, 1284 

(3d Cir. 1993) (quoting United ~ne Workers v. Gibbs, 383 U.S. 

715, 726 (1966)). In addition, the court should consider the 

particular circumstances of the case including the nature and 

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extent of the pretrial proceedings. Id. at 1284-85 and n.l3.13 

This multifactorial analysis has been called death knell analysis. 

Cooley, 830 F.2d at 475. 

Our remand of Mr. Olcott's 1979 claim for further factual 

findings reestablishes federal question jurisdiction. Therefore, 

depending on the resolution of the notice issue, a jurisdictional 

basis may ultimately exist to support supplemental jurisdiction 

over Mr. Olcott's state claims. However, even if on remand Mr. 

Olcott's Rule lOb-S claim is ultimately dismissed in its entirety, 

the district court erred in the manner in which it dismissed Mr. 

Olcott's pendent state claims. The court abused its discretion by 

failing to conduct the appropriate death knell analysis to 

determine if it should retain jurisdiction over the pendent state 

claims despite having previously dismissed the federal cause of 

action. 

Finally, we offer the district court some additional guidance 

for its task on remand. On several occasions, the Third Circuit 

has affirmed a district court's decision to retain supplemental 

jurisdiction over pendent state claims after having dismissed the 

federal cause of action. See, e.g., In re Paoli R.R. Yard PCB 

Litig., 35 F.3d 717, 737-38 (3d Cir. 1994), cert. denied, 115 

S. Ct. 1253 (1995); Lentino v. Fringe Employee Plans, Inc., 611 

F.2d 474, 480 (3d Cir. 1979). We believe these precedents should 

lead the district court to carefully examine the nature of the 

13 As noted above, we have adopted an identical rule. See 

Anglemyer v. Hamilton County Hosp., 58 F. 3d 533, 541 (lOth Cir. 

1995); Thatcher Enterprises v. Cache County Corp., 902 F.2d 1472, 

1478 (lOth Cir. 1990). 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 25 
pretrial activities which occurred in this case. In particular, 

the fairness to Mr. Olcott in dismissing his pendent state claims 

depends in large measure on whether any opportunity remains for 

him to bring them in New Jersey state court at this late date. 

The district court should determine how much of the lengthy delay 

in this litigation is attributable to changes in the applicable 

law, and how much is due to the defendants' recalcitrance in 

failing to submit the complete accounting. If the majority of the 

delay is attributable to the defendants' sanctionable conduct the 

equities may favor Mr. Olcott, allowing him to proceed with his 

state claims in federal court. 

IV. 

In addition, both parties appeal the district court's 

sanctions order. The defendants challenge the district court's 

jurisdiction to impose a sanction of $402,527.98 after having 

dismissed Mr. Olcott's lawsuit. The defendants also argue the 

district court abused its discretion in sanctioning them. Mr. 

Galesi specifically asserts the district court abused its 

discretion because 11 the findings leading to the [sanctions] order 

are totally unsupported by the evidence. 11 In turn, Mr. Olcott 

requests we exercise our inherent authority to reduce the district 

court's $1.9 million default judgment order to a binding judgment 

against the defendants. 

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A. 

This seven-year accounting dispute began on March 18, 1986, 

when, as part of a stipulated pretrial scheduling order, the 

defendants agreed to: 

furnish plaintiff with a full, complete, meaningful, and 

formal accounting of all of the financial affairs of 

[the four limited partnerships] , setting forth all items 

of contribution, income, and expense as well as the 

disposition of all assets and monies, for each of the 

four limited partnerships, including a full and complete 

accounting for all monies paid by each of the 

partnerships under the turnkey drilling contracts ... 

An interim status report on the accounting was due within ninety 

days, and the accounting itself was due in six months. The 

defendants missed both deadlines. When the accounting was 

ultimately filed on January 13, 1987, Mr. Olcott challenged its 

sufficiency. The court's appointed expert accountant, Mr. Charles 

H. Ostrander, CPA, found the accounting inadequate. After an 

evidentiary hearing, the district court concluded in a March 17, 

1987 order the accounting failed to comply with the stipulation 

and ordered the defendants to file a supplemental accounting. 

Because of the deficiencies, the court ordered the defendants to 

"pay all costs and fees incurred by the Plaintiff from 

December 19, 1986 regarding the accounting issues until all 

accounting issues are resolved." 

On May 12, 1987, the defendants filed their first 

supplemental accounting. Mr. Olcott again objected, and the 

court's expert agreed the accounting remained insufficient. After 

another hearing, the district court found the supplemental 

accounting deficient. In an October 14, 1987 order, the court 

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addressed the issue of sanctions against the defendants. 

Initially, the court found there was not "sufficient evidence of 

bad faith on the part of the Defendants to justify the imposition 

of default judgment," at this time. However, the court reiterated 

its sanctions order. The court ordered the defendants to pay Mr. 

Olcott's attorney's fees and expert expenses related to litigating 

the sufficiency of the accounting pursuant to Fed. R. Civ. P. 16 

and 37(b). The court warned the individual defendants they would 

be subject to "the full panoply of sanctions for noncompliance" 

with the court's accounting orders. Finally, the court rejected 

Mr. Olcott's request to impose sanctions pursuant to Fed. R. Civ. 

P. 11 or 28 U.S.C. § 1927 against the defendants' counsel. 

After two extensions, on April 15, 1988, the defendants filed 

their second supplemental accounting. Again, Mr. Olcott contested 

its sufficiency. The court's expert again found the accounting 

wanting. After a third hearing, in a February 8, 1990 order, the 

court found under the totality of the circumstances the defendants 

noncompliance with its accounting orders was willful. The court 

based this factual finding on the testimony of two of Mr. Galesi's 

former counsels whose firm withdrew after Mr. Galesi failed to 

comply with the accounting orders. Counsel testified Mr. Galesi, 

"had told him that he would never render an accounting to the 

Plaintiffs." After making these findings of fact, the court 

concluded the defendants' noncompliance constituted a bad faith 

refusal to comply with the court's accounting orders as a matter 

of law. As a result, the court determined a default judgment was 

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the appropriate sanction for the defendants' continued abuse of 

the legal process. The court concluded: 

Plaintiff is entitled to a judgment against the 

Defendants, jointly and severally, for his investment of 

$1.9 million dollars less any portion of those funds 

which Defendants can establish were utilized for 

legitimate purposes under the terms and provisions of 

the Limited Partnership Agreements. There will be a 

trial at which the burden will be upon the Defendants to 

establish to the satisfaction of the fact finder that 

any portion of Plaintiff's contribution was utilized for 

legitimate purposes under the terms of the agreements 

among the parties. 

Following this order, the issue remained dormant during the 

litigation of the limitations period question. The court 

revisited the sanctions issue in an April 30, 1993 order, 

concluding it possessed the jurisdiction to impose sanctions 

against the defendants despite having dismissed Mr. Olcott's 

lawsuit. The court reasoned: 

In the case at bar, this Court relied upon the 

authority conferred by Rules 16 and 37, Fed. R. Civ. P. 

1n its October 14th order. Is the order in the nature 

of a sanction or of civil contempt? A review of the 

Order in light of the record reveals that it is both: 

it sought both to sanction the past behavior of the 

Defendants in impeding the judicial process and to impel 

them to mend their ways in the future. . . . [T]he 

sanction order was precipitated by a pattern of 

recalcitrance by Defendants, which the Court attempted 

to punish and forestall. A fair reading of the October 

14th Order compels the conclusion that the Order was a 

hybrid of civil contempt and of sanctions .... 

On this record, it seems beyond peradventure that 

the October 14th Order was, in part, analogous to a Rule 

11 sanction for frustrating and impeding the judicial 

process. And this Court specifically so finds. The 

Court, therefore, concludes that, in spite of the fact 

that the Order had a civil contempt component, it was 

nonetheless an authorized exercise of its powers 

pursuant to Willy. The Order is, thus, enforceable. 

The court earlier had referred the amount of the attorney's fees 

and accounting expenses to a magistrate for a report and 

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recommendation. The magistrate issued two reports on the amount 

of the sanction which totalled $388,252.98. The court adopted the 

magistrate's recommendation. In addition, the court required the 

defendants to pay the $14,275 fee of the court's expert accountant 

for a total award of $402,527.98. In its final sanctions order 

the court neglected to mention the $1.9 million default judgment 

against the defendants. 

B. 

In their cross-appeal, the defendants contest 

court's jurisdictional basis for levying the 

the district 

sanction. The 

district court imposed its sanction pursuant to Fed. R. Civ. P. 

16(f) and 37(b). The court reasoned while its sanctions order was 

a hybrid of a civil contempt citation and Fed. R. Civ. P. 11, its 

predominate purpose was punitive in response to the defendants' 

continued recalcitrance in failing to submit a complete and 

meaningful accounting. The court concluded its order was most 

analogous to a Rule 11 sanction and was therefore enforceable. We 

agree. 

As the district court recognized, the Supreme Court has 

distinguished between civil contempt and Rule 11 sanctions. 

Broadly speaking, in the absence of subject-matter jurisdiction, 

Rule 11 sanctions are enforceable while a civil contempt citation 

is not. Compare Willy v. Coastal Corp., 112 S. Ct. 1076 (1992) 

with United States Catholic Conference v. Abortion Rigbts 

Mobilization, Inc., 487 U.S. 72 (1988). The parties offer 

opposing characterizations of the district court's sanction in an 

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effort to analogize them to either Willy or Catholic Conference. 

We examine these Supreme Court precedents and the nature and 

purpose of the sanction to determine which analogy represents the 

better fit. 

In Catholic Conference, the Court examined the parameters of 

enforcing civil contempt citations. The underlying dispute 

concerned Abortion Rights Mobilization's (ARM) lawsuit seeking to 

revoke the tax exempt status of the Catholic Church of the United 

States based on the Church's alleged improper political 

participation on the abortion issue. Catholic Conference, 487 

U.S. at 74-5. During the course of the litigation, ARM served 

subpoenas duces tecum against two non-parties, the United States 

Catholic Conference and the National Conference of Catholic 

Bishops, in an effort to discover documentation supporting its 

claims. The two organizations refused to comply with the 

subpoenas, and the district court held them in civil contempt . 

. Id. The Court held the contempt citation was unenforceable, 

reasoning: 

a nonparty witness can challenge the court's lack of 

subject-matter jurisdiction in defense of a civil 

contempt citation, notwithstanding the absence of a 

final judgment in the underlying action. Federal Rule 

of Civil Procedure 45 grants a district court the power 

to issue subpoenas as to witnesses and documents, but 

the subpoena power of a court cannot be more extensive 

than its jurisdiction. It follows that if a district 

court does not have subject-matter jurisdiction over the 

underlying action, and the process was not issued in aid 

of determining that jurisdiction, then the process is 

void and an order of civil contempt based on refusal to 

honor it must be reversed. 

Id. at 76. As a result, the Court concluded the district court's 

civil contempt citation was not enforceable against the 

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Conferences unless the court "had subject-matter jurisdiction in 

the underlying action." Id. at 80. The Court remanded the case 

for this determination to be made. Id. If no subject-matter 

jurisdiction ultimately existed, "then the subpoenas duces tecum 

are void, and the civil contempt citation must be reversed 'in its 

entirety.'" Id. at 80 (quoting United States v. United Mine 

Workers of Am., 330 u.s. 258, 295 (1947)). 

In contrast, in Willy, the Court concluded Rule 11 sanctions 

could be enforced despite a lack of subject-matter jurisdiction. 

Originally, Mr. Willy sued Coastal Corporation in Texas state 

court for claims arising from the termination of his employment. 

Willy, 112 S. Ct. at 1078. Coastal Corporation removed the case 

to federal court claiming federal question jurisdiction. Over Mr. 

Willy's objection, the district court concluded it possessed 

subject-matter jurisdiction. Subsequently, the district court 

dismissed the case for failing to state a claim, and also imposed 

Rule 11 sanctions against Mr. Willy and his attorney. On appeal, 

the Fifth Circuit concluded the district court lacked subjectmatter jurisdiction, but upheld the Rule 11 sanctions. Id. 

Court upheld the Rule 11 sanctions, explaining: 

A final determination of lack of subject-matter 

jurisdiction of a case in a federal court, of course, 

precludes further adjudication of it. But such a 

determination does not automatically wipe out all 

proceedings had in the district court at a time when the 

district court operated under the misapprehension that 

it had jurisdiction. 

The 

Id. at 1080. Among the collateral issues a federal court may 

consider after an action is no longer pending is a Rule 11 

sanction. Id. A court may do so because the "imposition of a 

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Rule 11 sanction is not a judgment on the merits of an action. 

Rather, it requires the determination of a collateral issue: 

whether the attorney has abused the judicial process, and, if so, 

what sanction would be appropriate." Id. (quoting Cotter & Gell 

v. Hartmarx Corp., 496 U.S. 384, 396 (1990)). 

Importantly for our present purposes, the Court in Willy 

distinguished its earlier decision in Catholic Conference. The 

Court criticized Mr. Willy's reliance on Catholic Conference "as 

establishing the proposition that a sanction must fall if imposed 

when jurisdiction is in fact absent." Willy, 112 S. Ct. at 1081. 

In response, the Court stated: 

Catholic Conference does not stand for such a broad 

assertion. A civil contempt order has much different 

purposes than a Rule 11 sanction. Civil contempt is 

designed to force the contemnor to comply with an order 

of the court; Rule 11 is designed to punish a party who 

has already violated the court's rules. Given that 

civil contempt is designed to coerce compliance with the 

court's decree, it is logical that the order itself 

should fall with a showing that the court was without 

authority to enter the decree. 

The interest in having rules of procedure obeyed, 

by contrast, does not disappear upon a subsequent 

determination that the court was without subject-matter 

jurisdiction. . . . [T)here is no constitutional 

infirmity under Article III in requiring those 

practicing before the courts to conduct themselves in 

compliance with the applicable procedural rules in the 

interim, and to allow the courts to impose Rule 11 

sanctions in the event of their failure to do so. 

Id. (citations and footnotes omitted) . 

We conclude the district court's sanction imposed pursuant to 

Rule 16(f) and 37(b) is sufficiently analogous to Rule 11 

sanctions to be enforced despite a lack of subject-matter 

jurisdiction. The analogy to Willy simply provides a better fit 

than Catholic Conference. The predominate purpose of the two 

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rules invoked by the district court is to punish litigants and 

attorneys for their noncompliance with pretrial and discovery 

orders. An analysis of the text of the two rules and case law 

interpreting them clarify this intent. 

First, the texts and plain meaning of Rule 16(f) and Rule 

37(b) complement Rule 11.14 The three rules share a common 

14 To facilitate our analysis, we have set forth the texts of the 

three rules in the margin. First, Rule 16(f) provides: 

Fed. R. Civ. P. 16(f) Sanctions. If a party or party's 

attorney fails to obey a scheduling or pretrial order, 

or if no appearance is made on behalf of a party at a 

scheduling or pretrial conference, or if a party or 

party's attorney is substantially unprepared to 

participate in the conference, or if a party or party's 

attorney fails to participate in good faith, the judge, 

upon motion or the judge's own initiative, may make such 

orders with regard thereto as are just, and among others 

any of the orders provided in Rule 37(b) (2) (B), (C), (D). 

In lieu of or in addition to any other sanction, the 

judge shall require the party or the attorney 

representing the party or both to pay the reasonable 

expenses incurred because of any noncompliance with this 

rule, including attorney's fees, unless the judge finds 

that the noncompliance was substantially justified or 

that other circumstances make an award of expenses 

unjust. 

Second, Rule 37(b) (2) provides: 

Fed. R. Civ. P. 37(b) (2) Sanctions by Court in Which 

Action is Pending. If a party or an officer, director, 

or managing agent of a party or a person designated 

under Rule 30(b) (6) or 31(a) to testify on behalf of a 

party fails to obey an order to provide or permit 

discovery, including an order made under subdivision (a) 

of this rule or Rule 35, or if a party fails to obey an 

order entered under Rule 26(f), the court in which the 

action is pending may make such orders in regard to the 

failure as are just, and among others the following: 

(A) An order that the matters regarding which the 

order was made or any other designated facts shall 

be taken to be established for the purposes of the 

action in accordance with the claim of the party 

obtaining the order; 

(Continued to next page.) 

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purpose, which they seek to achieve by employing substantially 

similar operative language. For example, all three rules use the 

term sanctions. While sanctions has become a generic legal term, 

(Continued from prior page.) 

(B) An order refusing to allow the disobedient 

party to support or oppose designated claims or 

defenses, or prohibiting that party from 

introducing designated matters in evidence; 

(C) An order striking out pleadings or parts 

or staying further proceedings until the 

obeyed, or dismissing the action or 

or any part thereof, or rendering a 

default against the disobedient party; 

thereof, 

order is 

proceeding 

judgment by 

(D) In lieu of any of the foregoing orders or in 

addition thereto, an order treating as a contempt 

of court the failure to obey any orders except an 

order to submit to a physical or mental 

examination; 

(E) Where a party has failed to comply with an 

order under Rule 35(a) requiring that party to 

produce another for examination, such orders as are 

listed in paragraphs (A), (B), and (C) of this 

subdivision, unless the party failing to comply 

shows that that party is unable to produce such 

person for examination. 

In lieu of any of the foregoing orders or in addition 

thereto, the court shall require the party failing to 

obey the order or the attorney advising that party or 

both 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. 

Finally, Rule ll(c) (2) provides: 

Fed. R. Civ. P. ll(c) (2) Nature of Sanction; 

Limitations. A sanction imposed for violation of this 

rule shall be limited to what is sufficient to deter 

repetition of such conduct or comparable conduct by 

others similarly situated. Subject to the limitations 

in subparagraphs (A) and (B) , the sanction may consist 

of, or include, directives of a nonmonetary nature, an 

order to pay a penalty into court, or, if imposed on 

(Continued to next page.) 

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the Federal Rules maintain a clear distinction between sanctions 

and civil contempt. Various rules use the two terms for different 

purposes. Compare Rule 11, Rule 16(f), Rule 26(g) (3), Rule 

37 (a) (4) and Rule 37 (b) (2) (sanctions) with Rule 4.1(b), Rule 

37 (b) (2) (D) I Rule 45(e), and Rule 56(g) (contempt) . These 

differences indicate the drafters of the Federal Rules knew and 

appreciated the distinction between sanctions and civil contempt. 

The rules do not use the two terms of art interchangeably. 

Further, all three rules provide the court the discretionary 

option of awarding reasonable attorney's fees and costs resulting 

from the rule violation. The district court's discretion allows 

it to depart from the traditional rule of each party paying its 

own litigation costs, expenses and attorney's fees. See generally 

Fed. R. Civ. P. 54(d); ~yeska Pipeline Serv. Co., v. Wilderness 

Soc'y, 421 U.S. 240 (1975); Aguinaga v. United Food & Commercial 

Workers Int'l Union, 993 F.2d 1480 (lOth Cir. 1993). This 

departure from the American Rule demonstrates the punitive nature 

of the sanctions of the three rules. 

Finally, the three rules grant district courts substantial 

discretion to craft their orders to serve the interests of 

justice. Both Rule 16(f) and Rule 37(b) (2) require the court to 

keep considerations of justice in mind when imposing sanctions for 

rule violations. The two rules provide a list of potential 

options for the court's consideration, including costs and fee 

(Continued from prior page.) 

motion and warranted for effective deterrence, 

directing payment to the movant of some or all 

reasonable attorneys' fees and other expenses 

as a direct result of the violation. 

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an order 

of the 

incurred 

Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 36 
shifting, but ultimately leave it to the court's discretion to 

"make such orders ... as are just." See, e.g., Insurance Corp. 

of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 

694, 707 (1982) ("Rule 37(b) (2) contains two standards--one 

general and one specific--that limit a district court's 

discretion. First, any sanction must be 'just'; second, the 

sanction must be specifically related to the particular 'claim' 

which was at issue in the order to provide discovery.") 

Similarly, Rule ll(c) includes justice as a consideration by 

requiring courts to impose an "appropriate sanction." And Rule 

ll(c) (2) adds the additional related consideration of deterring 

similar sanctionable conduct in the future. These textual 

similarities among Rule 16(f), Rule 37(b) and Rule 11 help 

establish their similar design and purpose. All three rules were 

designed to enforce compliance with the applicable procedural 

rules at different stages of federal court litigation. See, e.g., 

Jones v. Thompson, 996 F.2d 261, 264 (lOth Cir. 1993) (describing 

how the Federal Rules and the court's inherent powers provide 

"ample tools to deal with a recalcitrant litigant," at the 

different stages of litigation) . 

Case law interpreting both Rule 16(f) and Rule 37(b) provides 

additional support for our conclusion the rules serve 

predominantly punitive purpose. The Supreme Court has declared: 

Both parties and counsel may be held personally liable 

for expenses, "including attorney's fees," caused by the 

failure to comply with discovery orders. Rule 37 

sanctions must be applied diligently both "to penalize 

those whose conduct may be deemed to warrant such a 

sanction, [and] to deter those who might by tempted to 

such conduct in the absence of such a deterrent." 

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a 

Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 37 
Roadway EXpress, Inc. v. Piper, 447 U.S. 752, 763-64 (1980) 

(footnote omitted) (quoting National Hockey League v. Metropolitan 

Hockey Club, Inc., 427 u.s. 639, 643 (1976) (per curiam)). We 

have also noted the punitive nature of Rule 37(b) (2) sanctions. 

State of Ohio v. Arthur Andersen & Co., 570 F.2d 1370, 1375 (lOth 

Cir., cert. denied, 439 U.S. 833 (1978). See generally Wright, 

Miller & Marcus, Federal Practice and Procedure: Civil 2d 

§§ 2282-84. Similarly, while the Court has not addressed the 

issue, we have previously recognized the punitive purpose of Rule 

16(f). In Matter of Sanction of Baker, 744 F.2d 1438 (lOth Cir. 

1984) (en bane), cert. denied, 471 U.S. 1014 (1985), we offered 

the following description: 

While on the whole Rule 16 is concerned with the 

mechanics of pretrial scheduling and planning, its 

spirit, intent and purpose is clearly designed to be 

broadly remedial, allowing courts to actively manage the 

preparation of cases for trial .... [T]here can be no 

doubt that subsection (f), added as part of the 1983 

amendments to Rule 16, indicates the intent to give 

courts very broad discretion to use sanctions where 

necessary to insure not only that lawyers and parties 

refrain from contumacious behavior, already punishable 

under the various other rules and statutes, but that 

they fulfill their high duty to insure the expeditious 

and sound management of the preparation of cases for 

trial. 

Id. at 1440. Further, the Baker court identified the two 

complementary purposes of the rule. "The primary purpose of 

sanctions in this context is to insure reasonable management 

requirements for case preparation. The secondary purpose is to 

compensate opposing parties for inconvenience and expense incurred 

because of any noncompliance with the reasonable management orders 

of the court." Id. at 1441; G.J.B. &Assoc., Inc. v. Singleton, 

913 F.2d 824, 831 (lOth Cir. 1990). See generally Wright, Miller 

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& Kane, Federal Practice and Procedure: Civil 2d § 1531. In 

Baker, the court recognized sanctions imposed pursuant to Rule 

16(f) were, at least in part, designed to punish noncompliance 

with pretrial orders. 

In addition, the defendants challenge the applicability of 

both Rule 16(f) and Rule 37(b) to the accounting order at issue 

here. First, they contend Rule 16(f) is inapplicable because the 

accounting order reached the merits of Mr. Olcott's case and was 

not concerned with "the mechanics of pretrial conferences and 

scheduling." Baker, 744 F. 2d at 1441. Second, the defendants 

argue Rule 37(b) is also inapposite because "no federal discovery 

rule even approaches the scope or depth of the District Court's 

accounting orders here." Again, we disagree. 

We believe the district court's reliance on both Rule 16(f) 

and Rule 37(b) was logical and appropriate under the 

circumstances. Originally, the defendants consented to provide 

Mr. Olcott with the accounting. The parties' agreement was 

memorialized in the district court's Supplementary Scheduling 

Order of March 18, 1986. Presumably, one rationale for including 

the accounting agreement as part of a pretrial scheduling order 

was the specific deadlines for filing both the interim status 

report and the accounting itself. Under the terms of the 

agreement, the district court was responsible for enforcing 

compliance. We disagree with the defendants that the accounting 

was made part of the pretrial order merely "for convenience only." 

Instead, we believe the district court properly included the 

accounting in its pretrial order "to insure early judicial 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 39 
intervention in the process of trial preparation and proper 

conduct of that entire process." Id. The court's inclusion of 

the accounting in the pretrial order allowed it to enforce the 

procedural deadlines agreed to by the parties.lS The fact the 

accounting became central to the parties' pretrial disputes 

vindicates the district court's decision. 

The district court's reason for attempting to enforce the 

defendants' obligation to provide the accounting through Rule 

37(b) (2) is even clearer. Mr. Olcott sought an agreement about 

the accounting for the purpose of discovery. The central question 

posed by Mr. Olcott's Rule lOb-S lawsuit was what happened to the 

money he invested. His allegation of fraud centered on the 

defendants' alleged improper allocation of this money either to 

activities ultra vires to the limited partnership agreements or 

the defendants' improper commingling of partnership assets. Thus, 

an accounting was necessary for Mr. Olcott to prove fraud. 

Further, the record indicates Mr. Olcott unsuccessfully attempted 

to employ more traditional discovery options. He turned to an 

accounting after it became increasingly clear depositions, 

interrogatories, document requests, and requests for admissions 

would not provide the necessary answers. Under these 

circumstances, we agree with the district court the accounting was 

a discovery device making enforcement pursuant to Rule 37(b) (2) 

appropriate. 

15 As we make clear below, the district court was also able to 

enforce the substance of the parties' agreement through Rule 

37(b)(2). 

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We believe the combination of Rule 16(f) and Rule 37(b) 

supports the district court's imposition of the sanction against 

the defendants. We reach this conclusion in part based on the 

broad principles of the Federal Rules and the purpose of the 

sanction. Recently, in a different context, we noted, 11 We see no 

principled distinction between sanctions imposed for discovery 

violations and sanctions imposed for noncompliance with other 

orders. 11 Mobley v. McCormick, 40 F.3d 337, 340 (lOth Cir. 1994). 

We find no such distinction among Rule 16(f), Rule 37(b) (2), and 

Rule 11 here either. We believe the focus in this case should be 

on the defendants' lengthy noncompliance with the district court's 

orders. The seven-year accounting dispute expended far more 

judicial resources than should have been necessary. Mr. Olcott 

and the district court were forced to litigate the sufficiency of 

the accounting three times. These basic facts of the nature of 

this dispute should not be lost in a detailed legal analysis of 

which federal rules of civil procedure is the most appropriate 

vehicle for the district court's sanctions order. In this 

context, we find it appropriate to recall the point made by Chief 

Judge Murrah writing for this court almost thirty years ago. 11 The 

administration of the rules lies necessarily within the province 

of the trial court with power to fashion such orders as may be 

deemed proper to vouchsafe full discovery for the just, speedy and 

inexpensive determination of the lawsuit. 11 Robison v. 

Transamerica Ins. Co., 368 F.2d 37, 39 (lOth Cir. 1966). 

Accordingly, we hold the district court had jurisdiction 

under Willy, based on the punitive nature of Rule 16(f) and Rule 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 41 
37(b) (2), to enforce the sanction of $402,527.98 against the 

defendants. 

c. 

Further, the defendants argue the district court abused its 

discretion by imposing a sanction against them for their failure 

to comply with the court's accounting orders. They assert their 

failure to submit a complete accounting "was unintentional and not 

worthy of sanction." Individually, Mr. Galesi maintains "the 

record here is absolutely devoid of credible evidence supporting 

findings that [he] willfully failed or refused to comply with the 

District Court's accounting orders." 

We review the district court's sanctions order for an abuse 

of discretion. The identical standard of review applies for 

sanctions imposed pursuant to Rule 16(f) or Rule 37(b) (2). 

Comcoa, Inc. v. NBC Telephones, Inc., 931 F.2d 655, 666 (lOth Cir. 

1991); Mobley, 40 F.3d at 340. We accept the district court's 

factual findings underpinning its sanctions order unless clearly 

erroneous. Ehrenhaus v. Reynolds, 965 F.2d 916, 921 (lOth Cir. 

1992); Turnbull v. Wilcken, 893 F.2d 256, 258 (lOth Cir. 1990) 

(per curiam) . 

In reviewing the district court's sanction, we examine the 

totality of the circumstances involved in the case. Comcoa, 931 

F.2d at 666. Sanctions under Rule 16(f) and Rule 37(b) (2) must be 

in the interests of justice and proportional to the specific 

violation of the rules. In discussing sanctions imposed pursuant 

to both rules, we have previously noted: 

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The award of fees and expenses for noncompliance 

with the rules is discretionary, and the amount and 

impact of a monetary sanction should depend on the 

seriousness of the violation and where the fault lies, 

i.e. with counsel or client. However, in the absence of 

a finding of bad faith, there must be a sufficient nexus 

between noncompliance with the rules and the amount of 

fees and expenses awarded as a sanction. 

Turnbull, 893 F.2d at 259 (citations omitted). More recently, in 

analyzing a Rule 37(b) (2) sanction we cautioned, "(t]he district 

court's discretion to choose a sanction is limited in that the 

chosen sanction must be both 'just' and 'related to the particular 

'claim' which was at issue in the order to provide discovery.'" 

Ebrenbaus, 965 F.2d at 920-21 (quoting International Cor,p. of 

Ireland, 456 U.S. at 707)). 

The district court imposed a sanction against the defendants 

because their failure to submit a complete, meaningful accounting 

directly resulted in significant costs to the court and Mr. 

Olcott. The three evidentiary hearings required Mr. Olcott to pay 

his lawyers and hire expert accountants to evaluate the 

sufficiency of the defendants' accounting. Additionally, the 

court's expert was required to assess the accounting on each of 

the three occasions. The court imposed a sanction of $402,527.98 

which equaled the total of Mr. Olcott's expenditures and the 

court's expert's fee. 

Our review of the record convinces us that the court's 

sanction was both generally appropriate and proportionate to the 

defendants' abuse of the legal process. The court expressly 

limited its sanction to those expenses and attorney's fees 

directly attributable to the defendants' sanctionable conduct. 

But for the defendants' actions, the funds to pay these costs 

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would have been allocated differently. Here, we are not 

confronted with the situation where a court awarded the entire 

litigation costs of the adverse party as a sanction. Turnbull, 

893 F.2d at 259. Instead, the sanction was specifically targeted 

to the litigation costs and fees associated with the defendants' 

failure to submit the accounting. 

Both the defendants as a group, and Mr. Galesi individually, 

attack the district court's factual findings their failure to 

submit a sufficient accounting was willful and taken in bad faith. 

We give substantial deference to the district court's factual 

findings generally. However, "[w]here as here, a factual 

determination rests upon the credibility of a witness, Rule 52(a) 

demands even greater deference to the findings of the trial 

judge." Robinson v. Audi Aktiengesellschaft, 56 F. 3d 1259, 1268 

(lOth Cir. 1995) (citing Anderson v. Ci~ of Bessemer City, N.C., 

470 U.S. 564, 574 (1985)), cert. denied, 64 U.S.L.W. 3451 (U.S. 

Jan . 8 , 19 9 6 ) (No . 9 5 - 6 5 0 ) . 

The district court based its findings on the testimony of two 

of the defendants' former attorneys. They testified Mr. Galesi 

originally offered an accounting solely to obtain a continuance 

and never intended to fully comply with the court's accounting 

orders. While it is true Mr. Galesi vigorously disputed his prior 

counsels' testimony both before the district court and on appeal, 

the district court was certainly entitled to countenance the 

attorneys' version of the events over Mr. Galesi's. "Where there 

are two permissible views of the evidence, the fact finder's 

choice between them cannot be clearly erroneous." Metz v. Merrill 

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Lynch, Pierce, Fenner & Smdth, Inc., 39 F.3d 1482, 1492 (lOth Cir. 

1994) (quoting Anderson, 470 U.S. at 574). See also Willner v. 

University of Kansas, 848 F.2d 1023, 1030-32 (lOth Cir. 1988) (per 

curiam), cert. denied, 488 U.S. 1031 (1989). Faced with two 

versions of what happened, the district court was forced to make 

credibility determinations. 

Having observed all the witnesses during the evidentiary 

hearings the district court rejected Mr. 

will not second-guess this decision 

Galesi's position. We 

on appeal. We believe 

sufficient evidence exists in the record to support the district 

court's determination Mr. Galesi and the other defendants acted 

willfully and in bad faith in failing to fully comply with the 

court's accounting orders. The district court did not abuse its 

discretion in imposing a sanction of $402,527.98 against the 

defendants. 

D. 

Finally, Mr. Olcott asks us to exercise our inherent 

authority to reduce the district court's $1.9 million default 

judgment order to a binding judgment against the defendants. As a 

threshold matter, we must address our own jurisdiction to review 

this issue. City of Chanute, Kansas v. Williams Natural Gas Co., 

31 F.3d 1041, 1045 n.8 (lOth Cir. 1994), cert. denied, 115 S. Ct. 

1254 (1995); United States v. P.H.E., Inc., 965 F.2d 848, 850 

(lOth Cir. 1992). Congress has granted the courts of appeals 

jurisdiction over all final decisions of the district courts. 28 

u.s.c. § 1291. "The Supreme Court has described a final decision 

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as generally 'one which ends 

leaves nothing for the court to do 

G.J.B. & Assocs., 913 F.2d at 

States, 324 u.s. 229, 233 (1945)). 

the litigation on the merits and 

but execute the judgment.'" 

827 (quoting Caitlin v. United 

There is no question a final 

decision has been reached on the merits of Mr. Olcott's lawsuit 

based on the district court's disposition of the defendants' 

motion to dismiss. 

Even though we have jurisdiction to review the default 

judgment, we decline to do so because the district court's order 

leaves final a determination of the issue unresolved. The 

district court's failure to make a resolution of the default 

judgment is easily explained. The default judgment was part of 

the district court's order of February 8, 1990, which was issued 

prior to either of the court's dismissals in this case. The 

purpose of the default judgment was to coerce the defendants into 

completing the accounting for trial. The default judgment altered 

the burden of proof at trial so that the defendants would have to 

establish Mr. Olcott's $1.9 million investment was used properly. 

At trial, the defendants would be able to establish "the funds 

were utilized for legitimate purposes under the terms and 

provisions of the Limited Partnership Agreements." Mr. Olcott 

would receive whatever money the defendants failed to prove was 

properly invested. After the court dismissed Mr. Olcott's cause 

of action, the default judgment became moot because the court's 

decision abrogated the possibility of a trial. Indeed, the 

court's final sanction order neglects to mention the default 

judgment. We find this omission significant. This omission 

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indicates the district court ultimately intended only to impose 

the Rule 16(f) and Rule 37(b) (2) sanctions against the defendants. 

Mr. Olcott may not appeal the district court's decision to abandon 

the default judgment as a sanction because the court never entered 

a final order on this topic. We therefore decline to review the 

merits of this issue. 

However, we note the district court may revisit the default 

judgment issue on remand. If the court ultimately revives Mr. 

Olcott's cause of action based on his 1979 investment, the court 

could take the opportunity to revisit the appropriateness of a 

default judgment at that time. 

V. 

In addition, the defendants appeal the district court's 

refusal to release $213,143 in funds held at Western National Bank 

in Tulsa, Oklahoma. The funds carne under court supervision when 

the four limited partnerships sought court approval to sell some 

of their oil and natural gas assets. On February 22, 1990, the 

district court conditionally approved the sale by a brief minute 

order. The order does not explain its rationale for requiring the 

funds to be deposited and maintained under court supervision. 

On November 6, 1991, the defendants requested the district 

court release the funds. The court took no action. On 

February 18, 1993, the defendants renewed their motion. The 

district court denied the motion in its April 30, 1993 order as 

follows: 

The Renewed Motion of the Defendants for Post Judgment 

Relief will be DENIED in its entirety. The motion may 

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Appellate Case: 92-5242 Document: 01019276448 Date Filed: 02/26/1996 Page: 47 
be reurged when the parties have complied with the 

directives and provisions of this Order. 

The district court offered no additional explanation of why it 

retained these funds under court supervision on any subsequent 

occasion. 

The district court's summary disposition of this issue 

renders it impossible for us to review the propriety of its 

decision. The court has never offered any reason on the record 

which we have been able to discover for refusing to release these 

funds from its control. We can speculate the rationale for 

requiring these limited partnership assets to be maintained in 

trust was to ensure money to pay the sanction would be available. 

The tenor of the second sentence of the district court's April 30, 

1993 order leads to this speculation. However, our speculation 

remains just that. We have no informed basis for evaluating the 

propriety of the district court's action because in the end we are 

left guessing as to the court's purpose. We remand this issue to 

the district court to reevaluate its rationale for not releasing 

these funds based on the changed landscape of this opinion and 

explain its reasoning in detail. 

VI. 

Finally, the defendants argue the $402,527.98 supersedeas 

bond they filed to appeal the district court's sanction order 

supersedes the earlier $50,000 bond the court ordered on March 17, 

1987. The defendants assert the second bond adequately protects 

Mr. Olcott's interests rendering the first bond unnecessary. We 

agree. 

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Originally, in a minute order of March 17, 1987, in 

conjunction with its original sanction against the defendants, the 

district court ordered them to post a $50,000 bond. The bond was 

posted on June 8, 1987. Subsequently, after the district court's 

final April 30, 1993 sanction order, on September 30, 1993, the 

defendants posted a supersedeas bond in the amount of $402,527.98, 

the total amount of the sanction. 

The defendants filed their supersedeas bond pursuant to Fed. 

R. Civ. P. 62(d) to stay the district court's judgment against 

them pending appeal to this court. The purpose of requiring a 

supersedeas bond pending appeal "is to secure the judgment 

throughout the appeal process against the possibility of the 

judgment debtor's insolvency." Grubb v. F.DIC, 833 F.2d 222, 226 

(lOth Cir. 1987); M1amd Int'l Real~ Co. v. Paynter, 807 F.2d 871, 

873 (lOth Cir. 1986). Typically, the amount of the bond matches 

the full amount of the judgment. Id.; Texaco, Inc. v. Penzoil 

Co., 784 F.2d 1133, 1155 (2d Cir. 1986), rev'd on other grounds, 

481 U.S. 1 (1987). We have recognized, "[d]istrict courts, 

however, have inherent discretionary authority in setting 

supersedeas bonds." M1amd Int'l, 807 F.2d at 873. Accordingly, 

in Miami Int'l, we affirmed the district court's decision not to 

require a supersedeas bond in the full amount of the judgment. 

Id. at 874. The instant case presents the opposite factual 

scenario. The combination of the two bonds results in insolvency 

protection for Mr. Olcott in excess of the amount of his judgment. 

We fail to understand the necessity of maintaining the original 

$50,000 bond after the defendants posted their second bond in the 

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full amount of the judgment. Therefore, we reverse the district 

court's decision not to exonerate the $50,000 bond. 

VII. 

The district court's orders are AFFIRMED IN PART, REVERSED IN 

PART, and REMANDED for further proceedings consistent with this 

opinion. 

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