Opinion ID: 419817
Heading Depth: 1
Heading Rank: 2

Heading: the sanction of dismissal

Text: 10 Federal Rule of Civil Procedure 37 authorizes the district court, in its discretion, to impose a wide range of sanctions when a party fails to comply with the rules of discovery or with court orders enforcing those rules. National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976); United States v. Sumitomo Marine & Fire Insurance Co., 617 F.2d 1365, 1369 (9th Cir.1980). When choosing among possible sanctions, the district court may consider the deterrent value of an order of dismissal on future litigants as well as on the parties. National Hockey League, 427 U.S. at 642-43, 96 S.Ct. at 2780-81. 11 We shall not disturb the district court's exercise of discretion unless the record creates a 'definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors'. Anderson v. Air West, Inc., 542 F.2d 522, 524 (9th Cir.1976) (quoting In re Josephson, 218 F.2d 174 (1st Cir.1954). Dismissal, however, is authorized only where the failure to comply is due to willfulness, bad faith, or fault of the party. National Hockey League, 427 U.S. at 640, 96 S.Ct. at 2779; Sigliano v. Mendoza, 642 F.2d 309, 310 (9th Cir.1981). 12 Additionally, courts have inherent power to dismiss an action when a party has willfully deceived the court and engaged in conduct utterly inconsistent with the orderly administration of justice. Phoceene Sous-Marine, S.A. v. U.S. Phosmarine, Inc., 682 F.2d 802, 806 (9th Cir.1982). 13 The requirements of due process limit the court's exercise of its inherent power. Hammond Packing Co. v. Arkansas, 212 U.S. 322, 349-54, 29 S.Ct. 370, 379-81, 53 L.Ed. 530 (1909); Phoceene Sous-Marine, 682 F.2d at 806. Dismissal is a permissible sanction only when the deception relates to the matters in controversy, and because dismissal is so harsh a penalty, it should be imposed only in extreme circumstances. 1 Raiford v. Pounds, 640 F.2d 944, 945 (9th Cir.1981).
14 The district court based its decision to dismiss PFEL's complaint and counterclaim on two findings: (1) knowingly false denials of rebating by PFEL and its counsel, Alioto & Alioto; and (2) the Alioto firm's deliberate efforts to frustrate the production of documents on rebating. 2 On appeal, PFEL contends that the court drew unreasonable inferences from ambiguous evidence to find willful misconduct by PFEL and its counsel. 15 (1) Denials of rebating 16 On numerous occasions between December 1976 and August 1979, PFEL denied that it had engaged in rebating before October 1976. Further, John Alioto, then president of PFEL, testified at his deposition in November 1976 that we do not rebate in any trade. 17 The record supports the finding that these denials were knowingly false. Four senior officers of PFEL, Tarantino, Modica, Elliot, and Smith, knew that PFEL's agent, Nippon Maritime, had rebated before October 1976. Their knowledge is imputable to PFEL. See General Dynamics Corp. v. Selb Mfg. Co., 481 F.2d 1204, 1210-11 (8th Cir.1973), cert. denied, 414 U.S. 1162, 94 S.Ct. 926, 39 L.Ed.2d 116 (1974). 3 18 PFEL challenges also the finding that the Alioto law firm deliberately deceived the court about PFEL's rebating. The court concluded that Alioto & Alioto's failure to investigate PFEL's denials of pre-October 1976 rebating, even after learning in December 1976 that the company had been fined for rebating, was the equivalent of knowledge of the truth. PFEL argues that the record does not support such a conclusion. 19 The record shows, however, that besides the December 1976 fine, the firm met with PFEL in 1977 to discuss rebates paid during that year and, in July 1978, the firm learned that PFEL's agents had paid rebates before October 1976. The district court did not err in concluding that the law firm's deliberate ignorance constituted the equivalent of knowledge of the truth. See United States v. Nicholson, 677 F.2d 706, 710-11 (9th Cir.1982) (one who is aware of a high probability of the existence of a fact, but deliberately ignores the fact, is deemed to have knowledge of the fact). 20 (2) Production of rebating documents 21 Sufficient evidence supports the district court's finding that PFEL, through Alioto & Alioto, willfully failed to comply with discovery orders to produce rebating documents possessed by PFEL or its agents. 4 In July 1978, after PFEL had failed to comply with a previous order to produce such papers, the court ordered it to direct its agents in the Far East to provide Sea-Land's representatives with immediate and continuous neutral body access to rebating and related documents. 5 The order set forth the text of a telex to be sent by PFEL to its agent. However, the Alioto firm sent a second telex forbidding PFEL's agents to answer questions or produce documents about PFEL's rebating without authorization from a representative of the Alioto firm. 22 PFEL argues that (1) the district court unreasonably inferred that the second telex was kept secret; (2) the court's order requiring production by PFEL's agents was improper and overbroad; and (3) the court improperly ignored the report of Special Master Douglas Young. 23 PFEL's first argument lacks merit. PFEL's certificate of compliance filed pursuant to the court's July 1978 order did not reveal the existence of the second telex. The court and Sea-Land did not learn of it until May 28, 1980. 24 Second, PFEL correctly points out that its agents were confused by the neutral body access ordered by the court. Its characterization of the confusion as a good faith misunderstanding of an overbroad order, however, is disingenuous given the text of the second telex. 25 Finally, PFEL's contention that the court improperly ignored Special Master Young's report is not supported by the record. It argues that the court's decision disregards the critical findings in the report concerning the ambiguity of the neutral body language of the court-ordered telex and concerning efforts by PFEL's counsel to obtain compliance by the company's agents. 26 Young, however, did not know of the second telex when he wrote his report. Though he could not have assessed how that telex influenced the lack of cooperation by PFEL's agents, he concluded that the agents had not fully complied with the discovery order.
27 A district court's use of sanctions is limited by two standards. 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. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 102 S.Ct. 2099, 2107, 72 L.Ed.2d 492 (1982). Sanctions interfering with a litigant's claim or defenses violate due process when imposed merely for punishment of an infraction that did not threaten to interfere with the rightful decision of the case. G-K Properties v. Redevelopment Agency, 577 F.2d 645, 648 (9th Cir.1978). 28 PFEL contends that (1) the dismissal was unrelated to the issue of rebating by PFEL; and (2) the sanction was punitive because dismissal was disproportionate to the violation. 29 With respect to the first point, the issue of rebating is clearly relevant to Sea-Land's defense and counterclaim. Although PFEL's illegal conduct could not be raised as a complete bar to its antitrust action, Sea-Land could have used that evidence to controvert the existence of damages or limit the amount. See First Beverages, Inc. v. Royal Crown Cola Co., 612 F.2d 1164, 1174-75 (9th Cir.), cert. denied, 447 U.S. 924, 100 S.Ct. 3016, 65 L.Ed.2d 1116 (1980). 30 PFEL bases its second point on the premise that, when a party has come forward with the information sought to be discovered, dismissal is an impermissibly harsh sanction. Although SEC v. Seaboard Corp., 666 F.2d 414, 417 (9th Cir.1982), does stand for this proposition, it is distinguishable from cases such as this where PFEL made only a partial last-minute tender of documents or information. See, e.g., G-K Properties, 577 F.2d at 647. 31 Moreover, PFEL's argument that the sanction is disproportionately harsh does not withstand scrutiny. Unless we uphold the dismissal, PFEL will profit from its own failure to provide discovery. See Dellums v. Powell, 566 F.2d 231, 235 (D.C.Cir.1977). The district court expressly found that monetary sanctions would be insufficient because PFEL withheld the essential evidence needed to establish the true extent of its rebating. Additionally, the court weighed the relevant factors, and determined that the deliberate deception and the irreparable loss of material evidence justified the sanction of dismissal. Although this court might have settled on a different sanction had we considered the question originally, the district court's decision clearly falls within the acceptable range. See Chism v. National Heritage Life Insurance Co., 637 F.2d 1328, 1331 (9th Cir.1981).