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. e du/thir dc ir c uit_1997/226Filed September 22, 1997

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 96

- 1882

GENERAL INSURANCE COMPANY OF AMERICA

v.

EASTERN CONSOLIDATED UTILITIES, INC.; MID

ATLANTIC PIPELINE, INC.; EASTERN EXCAVATING, INC.;

JOHN L. DADDON A; JUDY DADDONA; DONALD A.

DADDONA; EVA DADDONA; FRANK P. DADDONA;

KATHERINE M. DADDONA

John L. Daddona, Judy L. Daddona

and David Gubitosi,

Appellants.

*Pursuant to Rule 12(a), FRAP

ON APPEAL FROM THE

UNITED STATES DIS TRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

(D.C. Civil No. 94

- cv

- 04388)

ARGUED JUNE 16, 1997

BEFORE: STAPLETON, LEWIS and ALDISERT,

Circuit Judges.

(Filed September 22, 1997)

John P. Karoly, Jr. (ARGUED)

Law Offices of John Karoly

1555 North 18th Street

Allentown, PA 18104

Attorney for Appellants

Henry S. Perkin

Perkin & Feldman

532 Walnut Street

P.O. Box 686

Allentown, PA 18105

- 0686

Benjamin D. Lentz (ARGUED)Hart & Hume

10 East 40th Street

New York, NY 10016

Attorneys for Appellee

OPINION OF THE COURT

LEWIS, Circuit Judge.

In this case, a defendant and a nonparty deponent were

held in co ntempt of court, pursuant to Federal Rule of Civil

Procedure 37(b), for failing to appear at their respective

depositions. As one of the sanctions imposed, the district

court took as established certain facts relating to both the

defendant and nonparty deponent. The issue we confront

on appeal is whether the district court abused its discretion

in holding the defendant and the nonparty deponent in

contempt and in fashioning sanctions with respect to its

contempt order.

We will hold that the distr ict court abused its discretion

in holding the defendant in contempt for failure to appear

because the plaintiff failed to set a time and place for his

deposition, as required by the district court's order. We

further find that the district court did n ot err in holding the

nonparty deponent in contempt, inasmuch as he failed to

attend a scheduled deposition. However, we conclude that

2

the district court abused its discretion in sanctioning the

nonparty depon ent by binding him to the established facts.

As a result, we will remand to the district court so it may

reconsider appropriate sanctions consistent with this

opinion.

I.

The Underlying Action

In 1994, Appellee General Insurance Company of

Ame rica sued John L. Daddona ("Daddona"), Eastern

Consolidated Utilities, Inc., Mid

- Atlantic Pipeline, Inc.,

Eastern Excavating, Inc., Judy Daddona, Frank P. Daddona

and Katherine M. Daddona. Daddona and the other

defendants had executed an indemnity agre ement and

other agreements in which they essentially promised to

reimburse General for potential losses arising from its

issuance of certain bonds connected to several construction

projects. The contractor, and the principal on the bonds,

was defendan t Eastern Consolidated Utilities, Inc., acompany affiliated with Daddona. General had lost several

million dollars as a result of issuing those bonds.

Daddona employed extraordinary delaying tactics during

pre

- judgment discovery. As a result, the co urt, by Order

filed May 10, 1995, granted a motion compelling Daddona

to submit to a deposition and produce documents. After the

deposition, General moved for summary judgment on all of

its claims in the amount of $3,993,566.96 against Daddona

and cer tain of the other defendants (Eastern Consolidated

Utilities, Inc., Mid

- Atlantic Pipeline, Inc., Eastern

Excavating, Inc. and Judy Daddona). Final judgment was

entered on August 30, 1995, against these defendants.

Prior to entry of judgment, General se ttled with the

remaining defendants, Frank P. Daddona and Katherine M.

Daddona, and the case was dismissed as to them.

General sought postjudgment discovery because the

judgment remained unsatisfied. Daddona has neither

appealed the judgment nor sou ght a stay of enforcement.

3

Enforcement of the Judgment

On November 21, 1995, in aid of its enforcement of the

judgment, General took the deposition of Charles Hair, an

attorney Daddona retained to incorporat e various entities.

Daddona was given notice of the deposition, but did not

attend. Hair testified that he incorporated Five

- Star, Ltd.;

Par

- 3, Ltd.; D.G. Holding, Inc.; The Master at Shepherd

Hills, Inc.; and The Golf Course at Shepherd Hills, Inc. He

also testified that Five

- Star was owned in three equal

shares by Gubitosi, the Culnen Family Trust and the Dadd

Partnership. The Dadd Partnership was owned in equal

parts by Daddona and his two brothers. Five

- Star owned

100% of the shares in Par

- 3, L td. Five

- Star also owned 85%

of the shares in D.G. Holding, Inc.; The Dadd Partnership

owned 10% and Gubitosi 5% of the remainder. D.G.

Holding, in turn, owned The Masters at Shepherd Hills, Inc.

and The Golf Course at Shepherd Hills, Inc. Together, Pa r

3, Ltd. and D.G. Holding, Inc. operated a golf course and

country club known as Shepherd Hills. Hair also testified

that he had owned 5% of D.G. Holding which he later

transferred to Gubitosi. Hair's testimony was limited to the

events surrounding the incorporation of these entities; he

did not purport to describe their current ownership

structure.

General also noticed Daddona's deposition. The notice

demanded certain documents and designated November 21,

1995, as the date for the deposition. Daddona did notprovide the requested documents and did not attend the

deposition. General then moved for an order compelling

Daddona to comply with the notice. On January 19, 1996,

the district court, apparently pursuant to Federal Rule of

Civil Pro cedure 37(a)(2) and (4), granted General's motion

and ordered Daddona to pay a sanction of $100 by

February 5, 1996 and to attend his deposition "at a time

and place designated by Plaintiff within thirty (30) days

. . . ." General Ins. Co. of Am. v. Ea stern Consol. Utils., Inc.

et al., slip op. at 1, dated January 19, 1996 (No. 94

- 4388)

(A. at 1). General never sent a letter setting a date for a

deposition and Daddona never attended one.

Appellant David M. Gubitosi, Daddona's business

partner, wa s not a defendant in the underlying action and

4

became involved only after judgment was entered. Seeking

to acquire information concerning Daddona's business

interests, General served Gubitosi with a subpoena on

December 29, 1995. The subpoena called for Gubitosi's

deposition and document production on January 10, 1996.

On January 4, 1996, General's attorneys wrote to

Gubitosi's attorney, John P. Karoly, Jr. to confirm this

plan. Because of bad weather, ho wever, it was mutually

agreed that the deposition would be briefly delayed. Karoly

failed to respond to telephone calls regarding a new date.

General then wrote a letter, dated February 2, 1996, to

suggest new dates. Gubitosi failed to respond. As a re sult,

upon General's motion pursuant to Fed.R.Civ.P. 45(e), the

district court found Gubitosi to be in contempt and ordered

him to produce documents and attend his deposition "at a

time and place designated by plaintiff, within 30 days of the

date of this Order."1 General Ins. Co. of Am. v. Eastern

Consol. Utils., Inc. et al., slip op. at 2, dated May 15, 1996

(No. 94

- 4388) (emphasis in original) (A. at 4).

On May 22, 1996, General wrote to John P. Karoly, Jr.,

Gubitosi's attorney, designating Ju ne 3, 1996, as the date

for his deposition. Gubitosi then fired Karoly and hired a

new attorney, James L. Heidecker. (He later replaced

Heidecker with Karoly). Heidecker requested and received a

brief adjournment. On June 17, 1996, General sent a lette r

to Heidecker regarding the contempt order and the

deposition. Neither Heidecker nor Gubitosi responded.

General wrote to Heidecker again on June 25, 1996, and

designated July 31, 1996, as the new date for the

deposition. Gubitosi requested yet ano ther adjournment,

and General wrote again on July 23, 1996, designating July24 as the date for document production and August 15 as

the date for the deposition. But Gubitosi did not produce

any documents by the 24th. By letter dated July 29, 1996,

Ge neral informed Gubitosi that if the documents were not

produced by July 31, 1996, the deposition would not go

_________________________________________________________________

1. Rule 45(e) (1996) provides in relevant part:"Contempt. Failure by any

p erson without adequate excuse to obey a subpoena served upon that

person may be deemed a contempt of the court from which the subpoena

issued."

5

forward and another motion for sanctions would be

presented to th e court. On August 15, Gubitosi arrived at

the offices of General's lawyer, claiming that he was there

for the deposition; however, General had canceled the

deposition, and General's attorneys were not present

because it had not received the requested documents by

July 31, 1996. Thus, once again, the deposition did not go

forward.

On August 16, 1996, General, pursuant to Federal Rule

of Civil Procedure 37(b), requested the district court to

issue an order declaring Daddona to be in contempt for

failure to obey the Order dated January 19, 1996, and

directing him to attend his deposition and produce

documents by February 19, 1996; declaring Gubitosi to be

in contempt for failure to obey the Order dated May 15,

1996, and directing him to attend his deposition and to

produce documents by June 15, 1996; requiring Daddona

and Gubitosi to pay $500 each to General for its expenses

and attorney's fees; and declaring the following facts (which

were drawn from Hair's deposition) to be established as

against both Daddona and Gubitosi:

(i) Five

- Star Holding, Limited (a/k/a Five

- Star Ltd.),

D.G. Holding, Inc. (a/k/a D.G. Holding, Inc.), Par

- 3,

Ltd., The Masters at Shepherd Hills, Inc. and The Golf

Course at Shepherd Hil ls, Inc. are all Pennsylvania

corporations;

(ii) Gubitosi, the Dadd Partnership and [Culnen]

Family Trust each own one third of the shares of stock

in Five

- Star Limited;

(iii) Five

- Star Limited owns 85% of the sh ares of stock

in D.G. Holding, Inc., the Dadd Partnership owns 10%

and Gubitosi owns 5%;

(iv) Five

- Star Limited owns 100% of the shares ofstock in Par

- 3, Ltd.;

(v) D.G. Holding, Inc., owns 100% of the shares of

stock in The Masters at Shepherd Hills, Inc. and the

Golf Course at Shepherd Hills, Inc.;

(vi) The Dadd Partnership is a Pennsylvania

partnership; and

6

(vii) Judgment debto r Daddona owns, either

individually or jointly with judgment debtor Judy

Daddona, a one third interest in the Dadd Partnership,

Donald A. Daddona owns, either individually or jointly

with Eva Daddona, a one third interest an d Frank P.

Daddona owns, either individually or jointly with

Katherine Daddona, a one third interest.

S.A. at 27

- 28.

General's motion was granted in its entirety by an Order

filed August 28, 1996.

II.

The district court had jur isdiction pursuant to 28 U.S.C.

S 1331. A postjudgment order of contempt as to a party is

final, so long as the district court has completely disposed

of the matter. Sportmart, Inc. v. Wolverine World Wide, Inc.,

601 F.2d 313 (7th Cir. 1979); see Croma glass Corp. v.

Ferm, 500 F.2d 601 (3d Cir. 1974) (order establishing facts

pursuant to Rule 37(b)(2) as to some claims is not final

order if it does not adjudicate all claims in complaint); see

also Ohntrup v. Firearms Center, Inc., 802 F.2d 676 (3d Ci r.

1986) (quoting Sportmart approvingly). Here, the district

court granted General's motion in its entirety, and thereby

disposed of all of General's postjudgment discovery

requests. Thus, the order is final as to Daddona. An order

for contempt or exp enses against a nonparty, such as

Gubitosi, is immediately appealable. United States Catholic

Conf. v. Abortion Rights Mobilization, Inc., 487 U.S. 72, 76

(1988) ("The right of a nonparty to appeal an adjudication

of contempt cannot be questioned."); U nited States v.

Bertoli, 994 F.2d 1002, 1012 (3d Cir. 1993). Thus, we have

jurisdiction to hear this final order as to both Daddona and

Gubitosi pursuant to 28 U.S.C. S 1291.

III.

Daddona and Gubitosi argue that the district court

abused its disc retion in holding them in contempt and infashioning its sanctions. Specifically, the district court held,

pursuant to Rule 37(b) of the Federal Rules of Civil

7

Procedure ("Failure to Make Disclosure or Cooperat e in

Discovery: Sanctions"), that (1) Daddona was "in contempt

of Court for failure to obey this Court's Order dated

January 19, 1996, directing him to pay a sanction of $100,

attend his deposition and produce documents by February

19, 1996;" and (2) Gubitosi was "in contempt of Court for

failure to obey this Court's Order dated May 15, 1996,

directing him to attend his deposition and to produce

documents by June 15, 1996." Order, filed August 28,

1996, at 1. Daddona and Gubitosi argue that because they

did not receive proper notice of their depositions, the

court's finding of contempt and imposition of sanctions

were improper.2

We review the granting of a motion for sanctions for

failing to comply with a Rule 37 discovery order for abuse

of discretion. Quality Prefabrication, Inc. v. Daniel J. Keating

Co., 675 F.2d 77, 78 (3d Cir. 1982); see Petrucelli v.

Bohringer and Ratzinger, GMBH, 46 F.3d 1298, 1310 (3d

Cir. 1995) ("We apply the abuse of discretion standard

when reviewing orders reg arding the scope and conduct of

discovery.").

Rule 37(b) ("Failure to Comply With Order") provides in

relevant part:

(1) Sanctions by Court in District Where

Deposition is Taken. If a deponent fails to be sworn or

to answer a question after being directed to do so by

the court in the district in which the deposition is

being taken, the failure may be considered a contempt

of that court.

(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

______ ___________________________________________________________

2. The Appellants also argue that the Order violates their right to "due

process" (presumably that which is guaranteed by the Fifth Amendment).

Appellants' Br. at 18. Because of the result we reach, we need not decide

that issue as to Daddona, and because we find that Gubitosi had proper

notice, his due process claim is without merit.

8made 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 m atters 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; . . .

(D) In l ieu 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; . . .

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 failur e, unless the court finds that the

failure was substantially justified or that other

circumstances make an award of expenses unjust.

Fed.R.Civ.P. 37(b) (1996).

The Appellants argue that "Daddona received no notice at

all and Appellee General admits that there was no

deposition even scheduled." Appellants' Br. at 13. It is

undisputed, both in the briefs and at oral argument, that

General never scheduled a deposition after the court issued

its January 19, 1996 Order, and our review of the record

leads us to the same conclusion. Thus, we hold that

Daddona did not violate the express terms of that Order

because General never set a time and place for a

deposition. While it is clear from the record that Daddona

has engaged in extrao rdinary delaying tactics, he did not

violate the terms of that particular Order.

Appellants also argue that Gubitosi "had previously

appeared for a deposition that had been unilaterally

canceled without notice." Id. at 14. Here, the record does

not support the Appellants' position. General wrote to

Gubitosi's attorney on July 23, 1996, designating July 24

9

as the date of document production and August 15 as thedate of the deposition. Gubitosi did not prod uce any

documents by July 24. By letter dated July 29, 1996,

General informed Gubitosi that if the documents were not

produced by July 31, 1996, the deposition would not go

forward and another motion for sanctions would be

presented to the court. On A ugust 15, Gubitosi arrived at

the offices of General's lawyer and stated that he was there

for the deposition. Of course, by then General had canceled

the deposition because it had not received the requested

documents by July 31, 1996. Thus, the deposi tion did not

go forward.

The July 29 letter provided Gubitosi notice that the

deposition would be canceled if he failed to comply with the

document production request. Moreover, the Order

indicated that document production was to occur "at a time

a nd place designated by" General. A. at 4 (emphasis in

original). Gubitosi, therefore, violated the express terms of

the May 15, 1996 Order.

Pursuant to Rule 37(b), the district court again declared

Gubitosi in contempt in its August 28 Order. The cou rt

held that the Established Facts were binding on him (and

Daddona) and ordered him to pay General's expenses and

Attorney's fees.3

The district court did not specify whether it was acting

pursuant to 37(b)(1) or (2). On its face, however, Rule

37 (b)(2) applies only to parties, and we have found no case

that has applied Rule 37(b)(2) to a nonparty.4 We conclude

_________________________________________________________________

3. The Appellants argue that the district court only had authority t o

issue an order punishing a party or nonparty for failing to attend a

deposition pursuant to Rule 37(d). They are mistaken.

Gubitosi could be sanctioned pursuant to Rule 37(b)(1), which grants

a district court the authority to punish a nonparty for failing to follow

the court's directions. See Miller v. Transamerican Press, Inc., 709 F.2d

524, 531 (9th Cir. 1983) (noting that Rule 37(b)(1) sanctions may be

available against nonparty deponent who fails to appear at deposition).

Moreover, on its fa ce, Rule 37(d) applies only to parties.

If Daddona had violated the January 19 Order, the court had the

authority to sanction him under both Rule 37(b)(2) and Rule 37(d).

4. Rule 37(b)(2) does allow limited sanctions to be imposed upon a

party's at torney.

10

that Rule 37(b)(1) provides the appropriate means tosanction a nonparty. See Miller v. Transamerican Press,

Inc., 709 F.2d 524, 531 (9th Cir. 1983) (noting that Rule

37(b)(1) sanctions may be availab le against nonparty

deponent who fails to appear at deposition); see also 7

Moore's Federal Practice S 37.40 (3d Ed. 1997) ("[O]nly Rule

37(b)(1), governing a deponent's failure to be sworn or to

answer a question after being directed to do so by the

court, applies to nonparties. Rule 37(b)(2), governing all

other failures to obey discovery orders, does not apply to

nonparties."); 9 Moore's Federal Practice S 45.04[7] (3d Ed.

1997) ("Rule 37(b) sanctions are in their nature usually

applicable to pa rties.").

The only sanction available under Rule 37(b)(1) is to hold

a deponent in contempt of court. The record indicates that

Gubitosi engaged in extraordinary dilatory tactics regarding

his deposition and failed to comply with the clear

requireme nts of the May 15 Order. Thus, we conclude that

the district court did not abuse its discretion infinding that

Gubitosi was in contempt of court. See Richmark Corp. v.

Timber Falling Consultants, 959 F.2d 1468 (9th Cir. 1992)

(upholding finding of cont empt pursuant to Rule 37 where

party failed to comply with court's order to allow discovery).

We also find that the court did not abuse its discretion

when it required Gubitosi to pay $500 to General for its

expenses and attorney's fees, caused by hi s failure to

comply with the May 15, 1996 Order. See Robin Woods Inc.

v. Woods, 28 F.3d 396, 400 (3d Cir. 1994) (requiring party

found to be in contempt for violating injunction to pay

opposing party's attorney's fees).

Nonetheless, we find that the district court abused its

discretion when it purported to bind Gubitosi to the

Established Facts. As the Supreme Court explained in

Insurance Corp. v. Compagnie Des Bauxites, 456 U.S. 694,

705 (1982), Rule 37(b)(2) "embodies the standard[s]

establish ed in Hammond Packing Co. v. Arkansas, 212 U.S.

322 (1909), for the due process limits on" rules providing

for discovery sanctions. Those "two standards

-- one

general and one specific

-- . . . limit a district court's

discretion. First, any sanction m ust be `just'; second, the

sanction must be specifically related to the particular

11

`claim' which was at issue in the order to provide

discovery." 456 U.S. at 707. Thus, a court, under Rule

37(b)(2)A, cannot d irect that designated facts be taken as

true when those facts are unrelated to the claim or defense

with respect to which the discovery is being sought. Rule

37(b)(2)A; Wright & Miller, 8A Federal Practice & Procedure,S 2283.

As we have noted, Rule 37(b)(2) on its face applies only to

sanctions against parties. Rules 37(b)(1) and 45(e), which

allow a court to treat the failure of a non

- party under

subpoena to provide discovery as a contempt, do not

provide for a sanction comparable to the one au thorized by

Rule 37(b)(2)A and, in light of Hammond Packing, we believe

that omission was advertent. A non

- party, by definition, is

not a participant in the litigation and, when a non

- party

refuses to provide discovery, no claim has been asserted by

o r against it. Accordingly, we believe that neither Rule

37(b)(1) nor Rule 45(e) was intended to authorize an order

that would effectively preclude a non

- party from asserting

in the future a claim that has not yet been made.

The district court's order in this case states only that

Gubitosi will be bound by certain facts. It does not, in

conformity with Rule 37(b)(2)(A), contain the limitation "for

the purposes of the action." Even if we assume, however,

that the district court's order was intended to bind Gubitosi

only in the course of further proceedings to collect the

judgment against Dadonna in this action, we would

nevertheless conclude that the order was not authorized by

Rule 37(b)(1) or Rule 45(e). The only effect that we can

perceive as possibly intended by the order in this context

would be preclusion of Gubitosi from asserting any claim of

ownership of a present interest in property levied upon that

would be inconsistent with the stipulated facts. Since such

a claim would not have been the subject of the pending

litigation or the discovery sought, we cannot uphold the

district court's sanction order in its current form.

IV.

For the reasons discussed above, we will reverse the

order of the district court to the extent it hol ds plaintiff

12

Daddona in contempt. As to the nonparty deponent,

Gubitosi, we will affirm the order of the district court

holding him in contempt, but remand so that the court may

fashion appropriate sanctions consistent with this opinion.5

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

_________________________________________________________________5. On remand, the district court should ensur e that it documents its

reasons for finding Gubitosi in contempt, the type of contempt applicable

(civil or criminal) and its rationale for the particular sanctions that it

ultimately imposes. See generally Harris v. City of Philadelphia, 47 F.3d

1311 (3d Cir. 1995).

13