Opinion ID: 414451
Heading Depth: 2
Heading Rank: 8

Heading: Sanctions on Litton for Failure to Provide Discovery

Text: 136 The trial court upheld the magistrate's finding 52 that Litton's attorneys had engaged in a pattern of intentional concealment of evidence relating to the finder's fee investigation in connection with Litton's San Mateo office; the evidence specifically consisted of certain notes that were in the bottom of the drawer of in-house counsel Roberts until the late summer of 1979. See Litton Systems, Inc. v. American Telephone & Telegraph Co., 90 F.R.D. 410 (S.D.N.Y.1981). The court concluded that the Roberts notes were material to preparation for AT & T's defense that Litton BTS went out of business as a result of mismanagement, incompetency and dishonesty, rather than as a result of AT & T's antitrust violations. It found other Litton in-house counsel grossly negligent for stating in connection with the taking of Roberts' deposition that there were no other relevant documents, without having reviewed all of Roberts' files; in representing in an April 24, 1978 brief that the Bruder investigation (after the then new President of Litton BTS, Robert Bruder) in 1973 was directed only at the San Mateo matter when in fact San Mateo was only one of seven instances of suspected misconduct Bruder wanted investigated; in representing in the same brief that all of Roberts' interview notes had been turned over to the San Mateo County District Attorney when in fact the notes of Roberts' interviews with five Litton BTS employees had not been turned over; in representing in another brief filed December 6, 1978 that Litton had produced all notes and memorandums of interviews of persons not connected with the San Mateo matter; in failing to turn over to AT & T Roberts' notes following the court's opinion and order of March 26, 1979, which specifically rejected the argument that work product immunity attached to the interview reports; in representing in a letter of July 6, 1979 that Roberts had taken no notes of his interview with Litton BTS employee Hoxie when in fact Hoxie had testified that he had been interviewed. The court also found willful misconduct on the part of Litton's general counsel in this litigation; after receipt of the complete set of Roberts' interview notes in the late summer of 1979, counsel failed to apprise the magistrate, the district court and the defendants of the existence of the additional notes to correct the earlier erroneous assertions that had been made. Even after production of handwritten copies of Roberts' notes of interviews with certain Litton BTS employees, the entire notes were not produced and it was claimed that the notes withheld involved matters wholly extraneous to the case, when in fact they also involved notes on the use of fake finders, finders' fees and other matters. But the court refused Bell's requested sanction of dismissal and instead denied Litton recovery of all costs and attorneys' fees to which it would otherwise be entitled as a matter of law, including those under Section 4 of the Clayton Act, 15 U.S.C. Sec. 15. Litton Systems, Inc. v. American Telephone & Telegraph Co., 91 F.R.D. 574 (S.D.N.Y.1981). 137 Needless to say, the parties disagree entirely on the sanctions imposed. AT & T would have the action dismissed and Litton disentitled to recover one dime, a sanction which is within the court's discretion to impose. See National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976) (per curiam); Penthouse International, Ltd. v. Playboy Enterprises Inc., 663 F.2d 371, 386-92 (2d Cir.1981); Cine Forty-Second Street Theatre Corp. v. Allied Artists Pictures Corp., 602 F.2d 1062 (2d Cir.1979). Litton argues that a penalty of over $10 million is excessive, especially where counsel supervised the disclosure of three and one half million documents in a professional manner and where the notes were ultimately turned over without any prejudice to AT & T by virtue of their late production because the notes (a) were inadmissible hearsay, (b) contained no specific information, and (c) were unimportant because the whole subject of finders' fees was mentioned only once in the course of an entire five hour summation by AT & T counsel before the jury. Litton also argues that under Upjohn Co. v. United States, 449 U.S. 383, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981), decided since the district court's sanctions orders were made, the miscellaneous notes were, in fact, privileged and should never have been turned over to AT & T at all, as Litton had consistently urged the magistrate and district court with the agreement of the magistrate in the first instance. 53 138 We affirm the district court in this regard. The payment of attorneys' fees is a part of the penalty for violating the antitrust laws. Illinois v. Sangamo Construction Co., 657 F.2d 855, 859-60 (7th Cir.1981); Farmington Dowell Products Co. v. Forster Manufacturing Co., 421 F.2d 61, 90 (1st Cir.1969). At the same time there is no doubt that attorneys as officers of the court must operate on an honor system, Litton Systems, Inc. v. AT & T Co., 90 F.R.D. at 417 (S.D.N.Y.1981), and must be appropriately disciplined to provide both specific and general deterrence. Roadway Express, Inc. v. Piper, 447 U.S. 752, 763-64, 100 S.Ct. 2455, 2462, 65 L.Ed.2d 488 (1980); National Hockey League v. Metropolitan Hockey Club, Inc., supra, at 643, 96 S.Ct. at 2781. Federal Rule of Civil Procedure 37(b) expressly empowers the court to impose a wide range of specified sanctions for failure to obey court orders. See Roadway Express, Inc., supra, at 763-64, 100 S.Ct. at 2462; Stanziale v. First National City Bank, 74 F.R.D. 557 (S.D.N.Y.1977). Given the court's express findings of bad faith, it could also have imposed sanctions on Litton as an exercise of its inherent powers. See Roadway Express, Inc., supra, at 764-67, 100 S.Ct. at 2463. It is immaterial that the notes themselves were ultimately ruled inadmissible on the ground that they were hearsay since they were reasonably calculated to lead to the discovery of admissible evidence. Fed.R.Civ.P. 26(b)(1). Thus where there is repeated defiance of express court orders dismissal may be an appropriate remedy. National Hockey League, supra, 427 U.S. at 640, 96 S.Ct. at 2779 (refusal for 17 months to answer crucial interrogatories); Chira v. Lockheed Aircraft Corp., 634 F.2d 664, 666 (2d Cir.1980) (doing absolutely nothing at all to comply with discovery orders or move the case to trial); Cine Forty-Second Street, supra (refusal for three years, without moving for protective order, to comply with specific orders to answer interrogatories on damages). 139 At the same time, because dismissal denies the party access to justice, if the party has a valid claim, dismissal would, in the case of attorney misconduct such as gross negligence, amount to a windfall to an adversary to be resorted to only when necessary to preserve the integrity of the judicial system, or in similar extreme circumstances. Interconex, Inc. v. Federal Maritime Commission, 572 F.2d 27, 30 (2d Cir.1978); Israel Aircraft Industries, Ltd. v. Standard Precision, 559 F.2d 203, 208 (2d Cir.1977); Independent Productions Corp. v. Loew's Inc., 283 F.2d 730, 733 (2d Cir.1960). See also Cine Forty-Second Street, 602 F.2d at 1064 (dismissal should be deployed only in rare situations). Thus the trial court in imposing sanctions expressed its agreement with the concurring opinion in Cine Forty-Second Street that it is difficult to visit upon the client the sins of counsel, absent client's knowledge, condonation, compliance, or causation. Id. at 1069. 140 We believe that the trial court, thoroughly familiar with the record, the parties, as well as the efforts, conduct and omissions of counsel, quite correctly struck a wise balance between the conflicting interests in imposing antitrust penalties under the Clayton Act on the one hand and preserving the integrity of the discovery process on the other. Dismissal of the case would be inappropriate in the light of the limited ultimate role that the Roberts notes played. The imposition of the sanction of no award of attorneys' fees and costs is expensive for Litton, to be sure, but the failures and obstructions of house counsel Roberts, house counsel's conduct at the taking of Roberts' deposition, and the conduct of general counsel, found by the district court in its familiarity with the record and these parties to constitute gross negligence and willful misconduct, led to the sanction. Thus while the damages and hence statutory attorneys' fees in this case are so substantial that in effect Litton (or perhaps to some extent counsel) is being penalized in a sum that on its face is larger than 99 percent of the judgments awarded in any court, it is still only a small fraction of the ultimate recovery here involved. Indeed, where the stakes are as high as they are in this case, the penalties for obstruction of the truth must be impressive if they are to be effective, yet they must not be so drastic or unfair as the penalty of dismissal. Indeed, in such a case, dismissal is so unlikely to be imposed that, absent steep penalties, Rule 37 would be at most a paper tiger. Rosenberg, New Philosophy of Sanctions, in New Federal Civil Discovery Rules Sourcebook 140, 141 (W. Treadwell ed. 1972). We believe that the trial court acted soundly and correctly, as well as wisely, in imposing the sanction. We decline to set it aside on behalf of either party. 141 In view of our disposition of the case we need not reach the issues on Litton's cross appeal. 142 Judgment affirmed.