Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-03035/USCOURTS-ca10-91-03035-0/pdf.json

Parties Involved:
Sammy G. Daily
Appellant
Federal Deposit Insurance Corporation
Appellee

Document Text:

FIL~D UNITED STATES COURT OF APPEALS ... J States Co~~f Appea.b 

Umwu Tenth Circuit 

FOR THE TENTH CIRCUIT 

FEDERAL DEPOSIT INSURANCE CORPORATION, ) 

in its corporate capacity and in its ) 

capacity as Receiver for Indian Springs) 

State Bank, and in its corporate ) 

capacity and as manager for the Federal) 

Savings and Loan Insurance Corporation ) 

Resolution Fund, ) 

) 

Plaintiff-Appellee, ) 

) 

v. ) 

) 

SAMMY G. DAILY, ) 

) 

Defendant-Appellant. ) 

ORDER AND JUDGMENT* 

M~R O 3 1992 

ROEERT L. HOECF..EE. 

Clerk 

No. 91-3035 

(D.C . No. 85-2216-0) 

(D. Kan . ) 

Before MOORE, TACHA, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

* 

The case is therefore ordered 

This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 91-3035 Document: 010110226716 Date Filed: 03/03/1992 Page: 1 
Defendant-appellant Sammy G. Daily1 appeals from a default 

judgment in favor of Plaintiff-appellee Federal Deposit Insurance 

Corporation (FDIC), in its corporate capacity and in its capacity 

as receiver for Indian Springs State Bank, and in its corporate 

capacity and as manager for the Federal Savings and Loan Insurance 

Corporation Resolution Fund (FSLIC). The issues are whether the 

district court abused its discretion in entering the default 

judgment against Daily for failing to comply with discovery 

demands and court orders, and whether the FSLIC was entitled to a 

default judgment where it did not propound the discovery at issue. 

We conclude the district court did not abuse its discretion, and 

that the FSLIC was entitled to entry of the default judgment. 

Accordingly, we affirm the judgment. 

On April 5, 1985, the FDIC filed a complaint against numerous 

defendants, not including Sammy Daily, alleging violations of the 

Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 

U.S.C. §S 1961-1968. The FDIC filed its First Amended Complaint 

on September 4, 1985, naming Sammy Daily as a defendant. The FDIC 

filed a Second Amended Complaint on August 6, 1987, adding the 

FSLIC as a plaintiff. The FDIC's theory was that Daily and others 

perpetrated a fraudulent scheme which resulted in losses to three 

financial institutions. 

1 A second defendant, Sammy Daily Realty, Inc., filed a notice 

of appeal from a default judgment entered as to it. FDIC v. Sammy 

Daily Realty, Inc., No. 91-3032. We dismissed that appeal for 

want of prosecution because the notice of appeal was signed by 

Sammy Daily, who is not an attorney, and no attorney had appeared 

for Sammy Daily Realty. See 10th Cir. R. 42.1. Thus, although 

Sammy Daily Realty was a party to the actions described herein, 

our decision applies only to Sammy Daily. 

2 

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The FDIC served its First Set of Interrogatories and First 

Request for Production of Documents on Daily on May 28, 1987. 

Under Fed. R. Civ. P. 33(a) and 34(b), Daily had thirty days after 

service to respond. Daily moved for and was granted two 

extensions of time to respond. On July 28, 1987, Daily moved for 

a protective order. Under Kan. Dist. Ct. R. 210(c), the filing of 

a motion for a protective order stays the discovery at which the 

motion is directed pending order of the court. Daily withdrew the 

motion on September 24, 1987. 

On August 6, 1987, the court stayed discovery for those 

defendants who were named in both the present civil action and a 

pending criminal action until the conclusion of the criminal 

trial. Sammy Daily was named as a defendant in both the present 

civil action and the criminal action. The criminal trial 

commenced on October 19 and concluded on December 28, 1987. Daily 

was found guilty of one count of conspiracy. He was sentenced on 

April 4, 1988. 2 

On February 29, 1988, the FDIC3 moved to compel Daily to 

respond to discovery. R. III, doc. 730, Ex. E. 4 Daily 

2 We reversed the conviction and remanded for further 

proceedings in United States v. Daily, 921 F.2d 994 (10th Cir. 

1990), cert. denied, 112 S. Ct. 405 (1991). 

3 The FSLIC did not join in the motion to compel. 

4 While the motion refers to "plaintiffs' Third Request for 

Production of Documents," we assume this was in error because the 

memorandum in support of the motion states that the Request for 

Production was served on Daily on May 28, 1987, and the clerk's 

docket sheet shows that only the First Request for Production was 

served on Daily that day. 

3 

Appellate Case: 91-3035 Document: 010110226716 Date Filed: 03/03/1992 Page: 3 
represented that he had been working on the responses and 

requested until May 9, 1988, to respond. Daily did not respond by 

May 9, 1988, or at any other time in 1988. On December 30, 1988, 

the magistrate judge granted the FDIC's motion to compel and 

ordered Daily to respond within thirty days. Daily failed to do 

so. 

On February 21, 1989, the FDIC and the FSLIC moved, pursuant 

to Fed. R. Civ. P. 37(b)(2)(C), for a default judgment based on 

Daily's failure to respond to discovery or comply with the court's 

December 30, 1988, order. On March 6, 1989, Daily served his 

responses to the FDIC ' s interrogatories. 

eighty-six interrogatories 

seventy-one times, and lack 

Daily asserted 

of sufficient 

In 

the 

response to 

Fifth Amendment 

knowledge fourteen 

times. In response to the Request for Production of Documents, 

Daily represented that the documents were available for inspection 

at his place of business or counsel's office, or were located at 

the Organized Crime Strike Force office. No documents were 

produced at that time. 

On March 15, 1989, the court ordered Daily to produce at the 

FDIC's counsel's office by March 22, 1989, documents located at 

Daily's Hawaii office, at the offices of Daily's counsel, and at 

the Organized Crime Strike Force office in Kansas City; to 

identify which documents were responsive to which requests for 

production; and to explain in writing any. failure to produce the 

documents. Daily moved for and was granted a five-day extension 

to comply. 

4 

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On March 27, 1989, Daily produced eight boxes of documents. 

Daily had earlier represented that thirty boxes of documents woul d 

be produced. None of the documents located at the Organized Crime 

Strike Force or Daily's counsel's office were produced. Daily did 

not identify which documents were produced pursuant to which 

request for production. In response to thirty-four of forty 

requests for production, Daily stated that the documents were not 

available "except as they may be provided in response to other 

request/s herein, or are otherwise in the possession, custody or 

control of plaintiffs. " R. IV, doc. 768, Ex. A. 

The court granted the motion for a default judgment under 

Fed. R. Civ. P . 37(b), (d). It found that Daily's "failure to 

provide discovery was the result of a deliberate, dilatory course 

of conduct by the defendants' counsel for the defendants' 

benefit. " R. IV, doc. 774 at s. It rejected the argument that 

the delay was caused by inadvertence, relying on the fact that the 

FDIC filed a motion to compel in February 1988, Daily assured the 

court that responses would be forthcoming in May 1988, and the 

magistrate judge entered an order on December 30, 1988, compelling 

discovery. The court further observed that the responses provided 

were largely "non-responses" consisting of numerous assertions of 

the Fifth Amendment, inadequate knowledge, 5 and unavailability of 

documents. 

Recognizing that a default judgment must be based on some 

fault on the part of or binding on the party, but that when 

5 The court acknowledged that such responses are valid, but 

noted that there was no excuse for delaying nearly two years in 

giving them. 

5 

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counsel engages in deliberate, dilatory tactics for a client's 

benefit a default judgment may be warranted, Smith v. United 

States, 834 F.2d 166, 171 (10th Cir. 1987), the court applied the 

factors set forth in Ocelot Oil Corp. v. Sparrow Industries, 847 

F.2d 1458, 1465 (10th Cir. 1988), to determine whether counsel's 

actions were strategic rather than merely inadvertent. These 

factors are: degree of actual prejudice to the opposing party; 

amount of interference with the judicial process; and culpability 

of the litigant. 

As to the first Ocelot factor, the court found that Daily's 

strategy had prejudiced the FDIC and the FSLIC because discovery 

closed on March 31, 1989, but they did not have sufficient 

responses to their discovery requests to enable them to prepare a 

meritorious summary judgment motion, adequately prepare for trial, 

or adequately depose witnesses. As to the second factor, the 

court found that the strategy significantly interfered with the 

important role discovery plays in the adversarial system, and that 

Daily had ignored the court's order compelling discovery. 

Finally, as to the third factor, the court observed that no 

evidence conclusively indicated whether Daily or his counsel chose 

to utilize the tactics employed in the case, and the court could 

not state with certainty that Daily himself was culpable. 

However, because counsel's actions were the result of a tactical 

decision for Daily's benefit, the court, relying on Smith, 834 

F.2d at 171, concluded that Daily was bound by counsel's actions. 

The court considered, but rejected, less severe sanctions because 

a tactical decision was made "to engage in conduct in contempt of 

6 

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or in utter indifference to the process by which litigation is 

resolved. . " R. IV, doc. 774 at 9. 

Federal R. Civ. P. 37(b)(2)(C) and 37(d) permit a court to 

enter a default judgment against a party who fails to obey an 

order to provide discovery or who fails to respond to 

interrogatories or requests for production. We review the 

imposition of sanctions for abuse of discretion under the totality 

of the circumstances. M.E.N. Co. v. Control Fluidics, Inc., 834 

F.2d 869, 872 (10th Cir. 1987). A default judgment is a harsh 

sanction that will be imposed only when the failure to comply with 

discovery demands is the result of "'wilfullness, bad faith, or 

[some] fault of petitioner' rather than inability to comply." Id. 

(quoting National Hockey League v. Metropolitan Hockey Club, Inc., 

427 U.S. 639, 640 (1976)(quoting Societe Internationale Pour 

Participations Industrielles Et Commerciales, S.A. v. Rogers, 357 

U.S. 197, 212 (1958))). A "willful failure" is an intentional 

failure rather than involuntary noncompliance. Id. at 872-73. 

Daily first argues that the district court's decision rests 

on a factual error, specifically, that he failed to provide 

discovery for almost two years. Daily contends that discovery was 

stayed until December 30, 1988, except between September 24 and 

October 18, 1987, because 1) the order staying discovery 

completion of the criminal trial stayed discovery 

sentencing on April 4, 1988; 2) Daily's March 30, 1988, 

to the FDIC's motion to compel stayed discovery 

pending 

through 

response 

pending 

disposition of the motion; and 3) other unspecified motions for 

protective orders were pending until De cember 30, 1988. 

7 

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In the district court, however, Daily argued only that 

discovery was stayed between July 28 and September 24, 1987, and 

between October 19, 1987, and January 1, 1988. R. IV, doc. 791 at 

1; R. V, doc. 799 at 16. An appellate court generally will not 

consider issues raised for the first time on appeal. Hicks v. 

Gates Rubber Co., 928 F.2d 966, 970 (10th Cir. 1991). Daily has 

not shown that any of the exceptions to this general rule apply. 

We therefore do not address the issue. 

We reject Daily's contention that his March 6, 1989, response 

to the request for production complied with the court's 

December 30, 1988, order. The response was untimely. Further, 

the December 30 order, as represented by Daily, directed that 

documents be produced at the location in the Requests for 

Production. That location was the FDIC's counsel's office. Only 

documents in the federal government's possession were ordered to 

be produced "where they are normally kept." 

Daily next argues that the district court abused its 

discretion by basing its decision on his failure to produce 

documents in the possession of the Organized Crime Strike Force. 

He asserts that the Organized Crime Strike Force only had copies 

of documents and the court requested originals. The record 

contains an affidavit from Lloyd Monroe of the Organized Crime 

Strike Force stating that Monroe advised defense counsel that all 

documents obtained from Daily in the Strike Force's possession 

would be made available for inspection and copying upon request. 

However, defense counsel never followed up on the request. R. IV, 

doc. 768, Ex. D. The affidavit does not state that only copies 

8 

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were available, and Daily did not provide any other affidavit 

supporting this assertion. Thus, the record does not support 

Daily's claim that the Strike Force did not have documents that 

Daily should have produced. 

Daily next contends that the district court improperly laid 

the blame for the delay on him rather than on his attorney. "If 

the fault lies with the attorneys, that is where the impact of 

sanction should be lodged." Mulvaney v. Rivain Flying Serv., Inc. 

(In re Baker), 744 F.2d 1438, 1442 (10th Cir. 1984)(en bane), 

cert. denied, 471 U.S. 1014 (1985). However, a client is bound by 

his lawyer's representation "when the lawyer (or the client) makes 

a tactical decision and his noncompliance with the court's 

directive is not a product of inadvertence." Smith, 834 F.2d at 

171. A court must determine whether a course of conduct results 

from mere inattention by counsel or is a deliberate strategy. In 

making findings on the issue of fault, a court should consider the 

factors set forth in Ocelot, 847 F.2d at 1465. 

Addressing the first and second Ocelot factors, Daily argues 

that the FDIC and the FSLIC's actions, rather than his own, caused 

the delays. Daily has not shown that any delays caused by the 

FDIC and the FSLIC actually prejudiced the FDIC, which is the 

relevant inquiry under Ocelot, 847 F.2d at 1465, or that the FDIC 

and the FSLIC disobeyed any court order or rule. In contrast, 

Daily failed to comply with the district court's December 30, 

1988, order compelling discovery. 

Addressing the third Ocelot factor, Daily argues that he 

assumed his counsel had timely complied with discovery based on a 

9 

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September 1, 1987, letter from counsel providing that responses to 

interrogatories will be sent out "in a timely manner sometime 

within the next few days." Appellant's App. Ex. A. Putting aside 

the problem that this letter should not be considered because it 

is not part of the record, Neu v. Grant, 548 F.2d 281, 286 (10th 

Cir. 1977), the letter refers to Plaintiffs' Second Set of 

Interrogatories. The discovery at issue is Plaintiffs' First Set 

of Interrogatories. The letter does not assist Daily. 

Daily asserts there is no evidence that he was aware of the 

delay in responding to the discovery demands because he was 

incarcerated between April 25, 1988, and January 17, 1990. The 

district court found that Daily was aware of counsel's actions, 

and therefore culpable, because Daily was incarcerated as a result 

of a criminal action arising from the same facts that gave rise to 

the present lawsuit, he testified at various trials, and he 

attended numerous depositions related to the instant litigation. 

It is undisputed that Daily participated in his criminal 

trial. Further, Daily represents that he attended depositions in 

the present case . Appellant's Reply Brief at 15. We will not 

consider Daily's argument that he did not testify at any trial 

other than his own, id., because it is raised for the first time 

in Daily's reply brief, Mountain Fuel Supply v. Reliance Insurance 

Co., 933 F . 2d 882, 887 (10th Cir. 1991), and because it was not 

raised in the district court. Hicks, 928 F.2d at 970. We 

conclude the district court properly applied Ocelot to determine 

that sanctions against Daily were appropriate. 

10 

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Daily criticizes the district court for not holding a 

hearing. Due process requires an opportunity to be heard upon 

adequate notice. Link v. Wabash R.R., 370 U.S. 626, 632 (1962). 

A judgment imposing sanctions under Rule 37 in violation of the 

offending party's due process rights is void. Brown v. McCormick, 

608 F.2d 410, 414 (10th Cir. 1979). In another context we have 

held that due process requires notice and a right to respond 

before the sanctions of costs, expenses, or attorney's fees are 

imposed. The right to respond does not necessarily require an 

adversarial, evidentiary hearing, however. The sanction inquiry 

may be limited to the record. Braley v. Campbell, 832 F.2d 1504, 

1514-15 (10th Cir. 1987). The process due depends upon the 

severity of the considered sanctions. The concerns posed by a 

dismissal {or entry of a default judgment) are greater than those 

presented by the assessment of counsel fees against attorneys. 

G.J.B. & Assocs., Inc. v. Singleton, 913 F.2d 824, 830 (10th Cir. 

1990) . We review whether a district court failed to provide 

adequate due process protections before imposing Fed. R. Civ. P. 

11 sanctions under an abuse of discretion standard. Id. 

We conclude that we should apply an abuse of discretion 

standard of review as well to the district court's decision not to 

hold an evidentiary hearing before imposing Rule 37 sanctions. We 

further conclude that Daily was provided with an adequate 

opportunity to respond. He filed two responses to the motion for 

a default judgment, a motion for reconsideration, and a reply to 

the response thereto. Further, Daily did not request an 

evidentiary hearing in any of the documents he filed that are 

11 

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included in the appellate record. See id. at 832 (due process 

violation may be waived). The district court did not abuse its 

discretion by failing to hold an evidentiary hearing before 

entering a default judgment. 

Daily next contends that the district court was required to 

warn him that a default judgment was a possible sanction before 

entering the default judgment, relying on several Ninth Circuit 

decisions. See, e.g., United States ex rel. Wiltec Guam, Inc. v. 

Kahaluu Constr. Co., 857 F.2d 600, 605 (9th Cir. 1988)(district 

court's failure to warn parties that procedural lapse might result 

in judgment against them is a factor to consider in reviewing 

judgment entered as Rule 37(b)(2) sanction). The decisions of the 

Ninth Circuit are not binding on this circuit. United States v. 

Carson, 793 F.2d 1141, 1147 (10th Cir.), cert. denied, 479 U.S. 

914 (1986). Daily has not referred us to any decisions from this 

. circuit holding that a district court has an obligation to warn a 

party specifically that a default judgment is a possible sanction 

before entering a default judgment. The district court's failure 

to warn Daily of the possibility of sanctions is 

consequence. 

of no 

Daily's final contention is that the district court abused 

its discretion by entering a default judgment for the FSLIC where 

the FSLIC was not a party when the discovery at issue was 

propounded. Daily relies on the rule that sanctions imposed under 

Rule 37(b)(2) for violating an order compelling discovery must be 

specifically related to the particular claim at issue in the 

12 

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order. See, e.g., Insurance Corp. of Ireland, Ltd. v. Compaqnie 

des Bauxites de Guinee, 456 U.S. 694, 707 (1982). 

Daily has not refuted the FDIC's assertion that the discovery 

at issue pertained to the FSLIC's claims and that production of 

the materials would have provided the FSLIC with most of the 

information needed to prosecute its action. R. III, doc. 730 at 

12. Therefore, we presume that the December 30, 1988, order 

compelling discovery involved documents and responses relating to 

the FSLIC's claims. 6 

Daily also relies on Halaco Engineering Co. v . Costle, 843 

F.2d 376, 381 (9th Cir. 1988)(citations omitted), holding that 

"the misconduct penalized must relate to matters in controversy in 

such a way as to interfere with the rightful decision of the 

case. There must be a nexus between the party's actionable 

conduct and the merits of his case." A nexus exists between 

Daily's failure to timely provide discovery and the merits of his 

defense against the FSLIC's claims because that discovery would 

have provided the FSLIC with most of what it needed to prosecute 

its action. We conclude that entry of a default judgment in favor 

of the FSLIC was not an abuse of discretion. 7 

6 The order is not part of the record on appeal. 

7 The FDIC requests attorney's fees for defending this appeal 

but provides no legal support for its request. We need not 

manufacture a party's argument for him. Sil-Flo, Inc. v. SFHC, 

Inc., 917 F.2d 1507, 1513 (10th Cir. 1990). We therefore deny the 

request. 

13 

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The judgment of the United States District Court for the 

District of Kansas is AFFIRMED. 

Entered for the Court 

Deanell Reece Tacha 

Circuit Judge 

14 

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