Opinion ID: 574314
Heading Depth: 3
Heading Rank: 2

Heading: Alter Ego Proceedings.

Text: 17 On remand, a motion was brought in the district court to amend the judgment against Ektrans to include Ekco and Ekinciler as alter egos. On June 27, 1991, the plaintiffs-appellees promptly served Ekco with notices of deposition and subpoenas duces tecum returnable on July 9, 1991. The subpoenas required Ekco to produce at deposition documents concerning (1) property in which Ektrans had an interest or was entitled to any proceeds; (2) all transactions by Ekco with other Ekinciler companies; (3) stock ownership, corporate records, dividend distributions, and directors meetings of Ekco; (4) bank records of Ekco for the last four years; and (5) records relating to property owned by Ektrans anywhere in the world. 18 On July 2, 1991, a hearing was held on the motion concerning Ekco's and Ekinciler's alter ego liability. The hearing was prompted by concerns that Ekco, Ekinciler, and Ektrans were attempting to divert assets to avoid execution of the judgment against Ektrans. The district court orally ordered that the court's prior finding of alter ego liability should not be disturbed until a full evidentiary hearing could finally determine the issue. The court then set July 16, 1991 as the date for that hearing. Neither Ekco nor Ekinciler objected at the July 2 hearing to the plaintiffs-appellees' pending notices of deposition and subpoenas duces tecum. 19 On July 2, 1991, plaintiffs-appellees served a deposition subpoena upon one of the banks at which Ekco maintained an account, Banco di Roma. This notice demanded production of documents related to account transactions for Ektrans, Ekco, Ekinciler, and D.B. Turkish Cargo Lines. The return date was July 10, 1991. 20 On July 8, 1991, one day before the return date of the notices of deposition and subpoenas previously served upon Ekco, Ekco served a motion to quash them on the grounds that: (1) the discovery should be postponed until after the July 16 hearing to avoid needless and repetitive discovery, (2) the subpoenas were overbroad, and (3) counsel for defendant-appellants needed additional time to review the documentation referred to in the Subpoenas and prepare for the depositions. Upon inquiry, Ekco's counsel stated that Ekco would not go forward with the discovery until the district court ruled on the motion to quash. On July 10, 1991, Ekco moved to quash the deposition subpoena that had been served on Banco di Roma. 21 On July 11, 1991, an accelerated hearing was held on the motions to quash. The district court denied both motions in full. The court noted that discovery of the relationships of the companies and the overlapping of boards and management and assets was relevant to the issue of alter ego liability. The court stated further that [the plaintiffs-appellees have] already got a judgment here that the Court of Appeals has affirmed saying one of the companies is liable, and all they're trying to do is see whether another couple of related companies don't share that liability because of the relationship. Although the events giving rise to liability occurred in past years, the court indicated that discovery of the more recent relationship among the Ekinciler group of companies could be relevant to an appraisal of the earlier situation. The court then set 10:00 a.m. the following morning at the office of Daval's counsel as the time and place for the deposition and document production. When Ekco's counsel attempted to press its resistance to discovery, the court flatly concluded: 10:00 in the morning. You produce an appropriate witness on these subject matters we've discussed here. And that is an order of the Court [emphasis added]. 22 On July 12, 1991, Ekco produced its president, Faruk Ekinci, for deposition. Ekco failed, however, to respond appropriately to the subpoena duces tecum that had been served upon it fifteen days earlier. For example, Ekco failed to produce banking records of its five known bank accounts, as demanded. Documents pertaining to transactions between Ekco and other companies in the Ekinciler group were similarly withheld. Documents relating to a shipment of steel that had been the subject of specific accusations concerning diversion of assets (that prompted the July 2 hearing) were not produced, and Ekinciler's counsel stated that no attempt had been made to do so. 23 In addition to its failure to produce requested documents, Ekco's counsel engaged repeatedly at the deposition in behavior designed to thwart the discovery process. For example, Ekco refused to produce notes from which the deponent was testifying concerning the composition of Ekco's board of directors, and also refused, in the alternative, to mark those notes for identification. Ekco removed documents from its corporate records at the deposition, claiming that they were duplicates or, when it was pointed out that some of the removed documents clearly were not duplicates, that they were subject to the attorney-client privilege; refused to produce the removed documents; and refused to mark them for identification. Most significantly, at the conclusion of this obviously unsatisfactory deposition session, the notices for which stated that the deposition would continu[e] from day to day until completed, Ekco flatly refused to resume the deposition on the next business day. 24 Marine Managers' counsel gave clear notice that Ekco's obstructive conduct would be brought to the attention of the district court, and Ekco's counsel reacted with indifference. Further, Ekco was pointedly warned that sanctions would be sought for its willful obstruction of discovery. 25 In the meanwhile, on July 10, 1991, trial subpoenas directed to Ekco, Ektrans, and Ekinciler were served at Ekco's offices in New York. The subpoenas called for representatives of the three companies to attend the July 16, 1991 hearing and to produce thereat: (1) all bank records for 1986-1988; (2) all corporate records from 1984-1988, including shareholder and director information; (3) all profit and loss statements for 1986-1988; (4) all tax returns for 1986-1988; and (5) documents relating to financial transactions between Ektrans, Ekinciler, and Ekco during 1986-1988. 26 At the hearing on July 16, 1991, plaintiffs-appellees immediately moved for sanctions pursuant to Fed.R.Civ.P. 37(b)(2)(A) and (B). Their counsel advised the court in detail concerning the abortive deposition that had been conducted on July 12, and also that defendants-appellants' counsel had advised, earlier in the morning of July 16, that no documents were being produced at the hearing in response to the July 10 trial subpoenas. The district court heard oral argument on the application for sanctions, and then observed: 27 [Plaintiffs-appellees' counsel] asked for [the documents noticed in the June 27 subpoenas] and he didn't get [them], so the question is whether I should in effect deem that this hearing is at an end because you have failed to produce the appropriate documents and therefore the facts that he wishes to have established by getting the documents that you might have produced is to be deemed established and the hearing is over. 28 The court specifically rejected the contention that Ekco and Ekinciler had proceeded in good faith. The court then recessed for lunch, during which it reviewed in more detail the transcript of the July 12 deposition. 29 Upon returning from recess, the court granted plaintiffs-appellees' motion for sanctions, ruling that pursuant to Fed.R.Civ.P. 37(b)(2)(A) and (B), it was to be deemed established that Ekco, Ektrans, and Ekinciler were alter egos of each other, and that they would be precluded from offering evidence to the contrary. In its subsequent written order memorializing the oral order, the court stated that plaintiffs-appellees could enforce the judgments they had previously obtained (against Ektrans) against Ektrans, Ekco, and Ekinciler. As bases for the imposition of sanctions, the order cited defendants' wilful disobedience of the order of this court on July 11, 1991 and their clear and patent effort to hamper the plaintiffs' right to legitimate discovery of evidence relevant to the alter ego hearing before this court on July 16, 1991, and their intentional and bad faith disregard of trial subpoenas served in connection with that hearing. New judgments were then entered on behalf of each plaintiff-appellee against Ektrans, Ekco, and Ekinciler. 30 This appeal followed.