Court Opinion

ID: 2959832
Source: CourtListenerOpinion
Date Created: 2015-09-17 17:34:38.687544+00
Date Added: 2024-06-11T15:26:02.048499
License: Public Domain

05-0394(L)
     Shcherbakovskiy v. Da Capo Al Fine

 1                    UNITED STATES COURT OF APPEALS

 2                         FOR THE SECOND CIRCUIT

 3                              August Term, 2005

 4   (Argued: October 27, 2005                      Decided: June 11, 2007)

 5                  Docket Nos. 05-0394(L); 05-2391(XAP)

 6   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

 7   GRIGORY SHCHERBAKOVSKIY,

 8        Plaintiff-Counter-Defendant-Appellant-Cross-Appellee,

 9             -      v.    -

10   DA CAPO AL FINE, LTD.,

11        Defendant-Counter-Claimant-Appellee-Cross-Appellant,

12   HOWARD G. SEITZ,

13        Defendant-Counter-Claimant-Appellee.

14   - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

15   B e f o r e:     WINTER, POOLER, and SOTOMAYOR, Circuit Judges.

16        Appeal from a default judgment entered in the United States

17   District Court for the Southern District of New York in favor of

18   defendant-counterclaimant (Charles L. Brieant, Judge).         We vacate

19   and remand.

20                          ERIC R. LEVINE (Stephen L. Weinstein, on the
21                          brief), Eiseman, Levine, Lehrhaupt &
22                          Kakoyiannis, New York, New York, for
23                          Plaintiff-Appellant.
24
25                          ROBERT M. CALLAGY (Aaron M. Zeisler, on the
26                          brief), Satterlee Stephens Burke & Burke LLP,
27                          New York, New York, for Defendant-Appellee.
 1   WINTER, Circuit Judge:

 2        Grigory Shcherbakovskiy appeals from Judge Brieant’s

 3   issuance of a default judgment dismissing appellant's complaint

 4   and granting appellees' counterclaims, on which a judgment for

 5   $1.4 million was entered.   Appellant also asks that, if we

 6   reverse the default judgment, we rule on the denial of his

 7   motions to dismiss one counterclaim as legally insufficient.

 8   Defendants cross-appeal, challenging the amount of the damages

 9   awarded on the counterclaims.

10        We vacate the default judgment.       We remand with instructions

11   to assign the case to a different judge.

12                               BACKGROUND

13        On October 30, 2001, Shcherbakovskiy entered into a Joint

14   Venture Agreement with Da Capo Al Fine, Ltd. to restructure ZeTek

15   Power, a British manufacturer of alkaline fuel cells.       At the

16   time, ZeTek Power was in the British equivalent of

17   debtor-in-possession bankruptcy.       Howard G. Seitz, a member of DC

18   Al Fine’s board of directors and its lawyer, negotiated the

19   agreement with Shcherbakovskiy.        Under the agreement, DC Al Fine

20   and Shcherbakovskiy each contributed $250,000 to the joint

21   venture. That $500,000 allowed ZeTek Power to continue its

22   operations while in bankruptcy.        However, by December 13, 2001,

23   ZeTek Power had exhausted its financial resources.

24        DC Al Fine then formed a wholly-owned subsidiary called Da

                                        2
 1   Capo Fuel Cell Company.    Seitz wrote to the administrator of

 2   ZeTek Power’s estate in Great Britain and offered, on behalf of

 3   DC Fuel Cell, to buy ZeTek Power's assets for $550,000.        Pursuant

 4   to an Asset Transfer Agreement, dated October 31, 2002, between

 5   DC Fuel Cell and ZeTek Power’s joint administrators, DC Fuel Cell

 6   purchased ZeTek Power's assets.        After DC Fuel Cell acquired

 7   ZeTek Power's assets, they were transferred to a new entity

 8   called Eident, formed by DC Fuel Cell with another company.

 9        On February 24, 2003, Shcherbakovskiy filed suit against

10   Seitz and DC Al Fine in the Southern District of New York.        His

11   complaint alleged that:    (i) Seitz and DC Al Fine fraudulently

12   induced him to enter the joint venture agreement funding ZeTek

13   Power and (ii) Seitz and DC Al Fine, by acquiring ZeTek Power's

14   assets for themselves, breached fiduciary duties owed him under

15   the joint venture agreement.    Seitz and DC Al Fine answered the

16   complaint and asserted counterclaims for breach of contract,

17   breach of fiduciary duty, and conversion.

18        The conversion counterclaim involved a Russian subsidiary of

19   ZeTek Power, ZeTek Russia.    ZeTek Russia’s assets included a

20   development agreement with Russia's Rocket Space Corporation,

21   known as Energia.     The counterclaim alleged that Shcherbakovskiy

22   helped organize Independent Power Technologies ("IPT"), a Russian

23   limited company.    He now serves as chairman and is a minority

24   shareholder of IPT.    The conversion counterclaim alleged that IPT

                                        3
 1   wrongfully took control of ZeTek Russia's assets, including its

 2   employees, goodwill, and contract with Energia.

 3        Shcherbakovskiy moved to dismiss the conversion

 4   counterclaim.    The motion argued that ZeTek Russia was a

 5   not-for-profit organization and, under Russian law, could not

 6   have legally transferred its assets to DC Al Fine.      Therefore,

 7   the argument went, because DC Al Fine had no claim of ownership

 8   of ZeTek Russia's assets, DC Al Fine could not assert a claim for

 9   conversion of them.    The motion also sought to have

10   Shcherbakovskiy's own complaint deemed to conform to the factual

11   claim that ZeTek Russia was a not-for-profit organization or to

12   give appellant an opportunity to amend the complaint.

13        The district court denied the motion to dismiss the

14   conversion counterclaim in a two-paragraph order dated October

15   16, 2003.    It read in full:

16               The within pleading motion (Doc. No. 11)
17               serves no useful purpose and is denied. The
18               Counterclaims pleaded in the Answer are
19               sufficient to satisfy Rule 8(a) F.R.Civ.P.
20               It is not necessary at this time to determine
21               choice of law with finality, however, the
22               Court understands that the Counterclaims are
23               based on breach of an agreement which is
24               regulated by the laws of the United Kingdom
25               or New York, not Russia.
26
27               While this Court agrees that, were
28               traditional common law pleading required, a
29               partner or joint venturer cannot commit the
30               tort of conversion of firm property, the
31               pleading gives adequate notice of Defendant
32               DeCapo's claim that Plaintiff got away with
33               some or all of the property in Russia in

                                       4
 1             which DaCapo had some interest, in violation
 2             of the agreement of the parties, resulting in
 3             a triable fact issue.
 4

 5        At the heart of the present dispute is a discovery request

 6   by Seitz and DC Al Fine to Shcherbakovskiy for "documents

 7   relating to the technology which [IPT] is offering in America and

 8   other places throughout the world."   Shcherbakovskiy, by way of

 9   affidavit and deposition testimony, stated that he had no access

10   to the documents because he was only the non-executive chairman

11   of IPT and, under Russian law and a confidentiality agreement

12   with ZeTek Russia, could not overrule the decision of ZeTek

13   Russia's board to deny access to the documents.   Appellees argue

14   that appellant's position was at odds with a letter he had

15   written suggesting his absolute control of the company.

16   Shcherbakovskiy has also produced a letter from Russian counsel

17   suggesting that disclosure by him of some or all of the materials

18   sought, which may involve sensitive technology, might cause

19   Russian authorities to bring criminal proceedings against him,

20   including one for treason.

21        At a December 2, 2003 conference, the district court took a

22   dim view -- quoted at length below -- of Shcherbakovskiy’s

23   explanation and, in a December 12, 2003 order, ordered

24   Shcherbakovskiy to produce the documents in question.    The order

25   warned that “[i]f plaintiff fails to produce documents responsive

26   to [the order] on or before January 6, 2004, the court will

                                     5
 1   dismiss the Complaint, with prejudice and with costs, against the

 2   plaintiff and will grant the counterclaims of Da Capo.”

 3   Shcherbakovskiy did not produce the documents, and on January 30,

 4   2004, the court dismissed his complaint and granted default

 5   judgment to DC Al Fine and Seitz on their counterclaims.

 6        Sometime in January 2004, Seitz realized that the conversion

 7   counterclaim properly belonged to DC Fuel Cell, a non-party.

 8   Seitz then prepared an assignment transferring the claim from DC

 9   Fuel Cell to DC Al Fine.   That assignment, although drafted in

10   January 2004, was dated effective as of April 3, 2003.

11         Shcherbakovskiy filed another motion to dismiss the

12   conversion counterclaim, arguing that the assignment was a sham

13   created merely to give DC Al Fine standing.   The district court

14   referred this motion, along with the question of damages on the

15   counterclaim judgment, to Magistrate Judge Fox.

16        In his Report and Recommendation, the magistrate judge

17   concluded that Seitz’s assignment of the conversion counterclaim

18   was valid, even though executed after the commencement of

19   litigation.   The district court adopted that report over

20   Shcherbakovskiy's objection.

21        The magistrate judge issued a second report concluding that

22   DC Al Fine was entitled to a jury trial on the issue of damages

23   on the counterclaims.   The district court adopted the conclusions

24   of that report.

                                      6
 1        A three-day jury trial to determine damages on the

 2   conversion counterclaim ensued.       The jury found that DC Al Fine

 3   was entitled to $500,000 in compensatory damages for

 4   Shcherbakovskiy’s breach of contract and $1,400,000 for his

 5   conversion of ZeTek Russia's property.      DC Al Fine was awarded

 6   only the larger of those two amounts –- $1,400,000 –- because the

 7   district court held that the damages for the breach of contract

 8   were included in the award for conversion and that combining the

 9   awards would therefore lead to a double recovery.

10   Shcherbakovskiy has appealed from the entry of the default

11   judgment and from the denial of his motions to dismiss the

12   conversion counterclaim.   DC Al Fine and Seitz cross-appeal from

13   the damages award.

14                               DISCUSSION

15        Shcherbakovskiy argues on appeal that:      (i) the default

16   judgment dismissing Shcherbakovskiy’s complaint and granting Da

17   Capo’s counterclaims was an abuse of discretion; (ii)

18   Shcherbakovskiy’s motions to dismiss the conversion counterclaim

19   should have been granted both because ZeTek Russia was a not-for-

20   profit company powerless to transfer its assets and because DC Al

21   Fine's claim to the assets in question was based on an invalid

22   assignment from DC Fuel Cell; and (iii) we should reassign the

23   case to a different judge on remand.      DC Al Fine argues on the

24   cross-appeal that the special verdict form misstated the law when

                                       7
 1   it characterized the breach of contract and conversion damages as

 2   duplicative.

 3   a)   Default Judgment

 4         We review the imposition of sanctions for noncompliance with

 5   discovery orders for abuse of discretion.    Jones v. Niagara

 6   Frontier Transp. Auth., 836 F.2d 731, 734 (2d Cir. 1987).      “A

 7   district court would necessarily abuse its discretion if it based

 8   its ruling on an erroneous view of the law or on a clearly

 9   erroneous assessment of the evidence.”    Cooter & Gell v. Hartmarx

10   Corp., 496 U.S. 384, 405 (1990).

11         Rule 37(b) provides that a court may impose sanctions “as

12   are just” on a party for disobedience of a discovery order.      Fed.

13   R. Civ. P. 37(b)(2).    We have noted that district courts possess

14   “wide discretion” in imposing sanctions under Rule 37.    Daval

15   Steel Prods. v. M/V Fakredine, 951 F.2d 1357, 1365 (2d Cir.

16   1991).   However, “[t]he sanction of dismissal should not be

17   imposed under Rule 37 unless the failure to comply with a

18   pretrial production order is due to ‘willfulness, bad faith, or

19   any fault’ of the deponent.”    Salahuddin v. Harris, 782 F.2d

20   1127, 1132 (2d Cir. 1986) (quoting Societe Internationale Pour

21   Participations Industrielles et Commerciales v. Rogers, 357 U.S.

22   197, 212 (1958)).

23         Neither the December 12, 2003 order nor the January 30, 2004

24   judgment contain factual findings or legal reasoning underlying

                                        8
 1   and explaining the default judgment.    These are contained

 2   entirely in a transcript of a hearing held on December 2, 2003.

 3        During appellee's argument for the production of documents,

 4   the court repeatedly asked why the issue could not be left in the

 5   status quo, with appellant claiming a lack of access subject to

 6   impeachment based on his position in the company, size of

 7   investment, and inconsistent statements in a letter.    In the

 8   court's view, "no jury is going to believe he has no documents."

 9        Appellant's counsel then stated his position in a colloquy

10   that we set out in pertinent part:

11             MR. WEINSTEIN: Good morning. First of all,
12             I just want to briefly address some of the
13             factual statements that [my adversary] made.
14
15             THE COURT: You're free to do that. I assume
16             that you're not agreeing with his factual
17             statements. But I have the problem of today.
18             My problem today is why these documents don't
19             have to be produced under some kind of
20             protective order, if necessary, . . . So I
21             have to resolve these issues and get the case
22             ready for trial. I don't want you to
23             misunderstand. We have a felony trial
24             ongoing here this morning and a violation of
25             probation coming in. We have other business
26             besides somebody who doesn't want to produce
27             documents.
28
29             MR. WEINSTEIN: I'll address that directly.
30             Mr. Shcherbakovskiy is the nonexecutive
31             chairman of ITP. He stated under oath that
32             he doesn't have any documents himself.
33
34             THE COURT: You don't believe that he has no
35             control over the documents, do you?
36
37             MR. WEINSTEIN:   Yes, I do.
38

                                      9
 1   THE COURT: I think a jury is going to be
 2   very incredulous when they're confronted with
 3   that, and you buy the farm around here. If
 4   you're going to take a bad position in
 5   discovery like that or allow your client to
 6   take it, you're not going to come in and blow
 7   hot and cold at the trial. You're not going
 8   to take a different position with me, because
 9   if you are, your adversary is going to ask
10   for a jury instruction.
11
12   MR. WEINSTEIN: Our position, we've been
13   informed under Russian law --
14
15   THE COURT:   Don't give me that.
16
17   MR. WEINSTEIN:   He has no control.
18
19   THE COURT: You're a plaintiff here in
20   Westchester County, New York. You're under
21   my discovery rules. If you don't abide by my
22   discovery rules, two things are going to
23   happen. Either you're going to lose your
24   case on the merits with the jury because
25   they're going to figure your client is lying,
26   or you're going to get dismissed on the
27   merits by the Court for failing to honor my
28   directions. I don't care about Russian law.
29   I believe that the average juror will think
30   that he has constructive possession of these
31   records and he can get to them if he really
32   wants to.
33
34   MR. WEINSTEIN: With all due respect, your
35   Honor, this Court doesn't have power to order
36   the company to turn over the documents.
37
38   THE COURT: But I have power to dismiss your
39   case with prejudice and costs. I'll do that
40   right now.
41
42   MR. WEINSTEIN: These documents, first of
43   all, are not for our case, they're for
44   defense's --
45
46   THE COURT:   No, no.   Don't give me that.
47
48   MR. WEINSTEIN:   But it's true.

                            10
 1   THE COURT: It's not true. You're going to
 2   produce them under a protective order or I'm
 3   going to toss your case and you'll explain to
 4   the Second Circuit. It's that simple truth
 5   with me. I don't have time to listen to a
 6   lot of drivel. This is ordinary discovery.
 7   Your client sought out this forum.
 8
 9   MR. WEINSTEIN: My client is suing
10   individually. He's being counterclaimed
11   individually. ITP is not a party to this.
12   If they want these documents, they could have
13   sued --
14
15   THE COURT: I'm going to order their
16   production within 20 days. I'm going to have
17   a precise enough order so I can make it
18   stick. If you don't comply, I'm going to
19   drop the case for the plaintiff, dismiss it
20   with prejudice and costs and I'm going to
21   take an inquest on the counterclaims and you
22   can go your merry way. I don't have to
23   listen to this kind of nonsense and I take a
24   dim view of this fellow saying he can't, that
25   he has no access to these records. He's
26   what, the chairman of the board, is that what
27   he is?
28
29   MR. WEINSTEIN: He's chairman of the board.
30   He doesn't control the board. He's not the
31   majority shareholder. He asked the board to
32   produce the documents at a recent meeting
33   following the letter I got from Mr. Callaghy
34   --
35
36   THE COURT: I don't believe it. I'm telling
37   you right now I don't believe it. Why don't
38   the two of you confer and get a protective
39   order and take 15 days to go get these
40   records. . . And after that, if you don't
41   comply with United States discovery, out you
42   go. Do you want to do that?
43
44   MR. WEINSTEIN:   I have no choice.
45
46   THE COURT: You have no choice except to call
47   my bluff, which is not a bluff, and go to the
48   Circuit, because you're not going to do this,

                           11
 1   you're not going to access a federal forum in
 2   the United States and come in here and tell
 3   this court and tell a jury, oh, I'm suing
 4   individually. I'm only the chairman of the
 5   board and I can't produce any of these
 6   allegedly relevant documents, and then tell
 7   him also they don't exist. They'll laugh at
 8   you. You've done enough trial work to know
 9   that. These jurors will be smirking.
10
11   MR. WEINSTEIN: They won't be smirking
12   because they can't even establish a prima
13   facie case. They.
14
15   THE COURT:   All I know is this --
16
17   MR. WEINSTEIN: He can't identify a single
18   asset of ZeTek Moscow.
19
20   THE COURT: You're not going to split his
21   identity. He's here and he's going out the
22   window unless he complies with United States
23   discovery. That's it. If you want to confer
24   with each other and see if you can find a
25   fair way to resolve this, do it. . .
26
27   MR. WEINSTEIN: I would need to consult with
28   my client. But I believe that since he has
29   no control over ITP --
30
31   THE COURT:   I don't believe it.   I told you
32   that.
33
34   MR. WEINSTEIN: -- he may be unable to comply
35   with the order.
36
37   THE COURT: And maybe the moon will fall onto
38   the earth. Lots of things can happen in the
39   future. I won't put up with this nonsense,
40   I'm telling you right now. If you want to
41   stick to your position, them I'm going to ask
42   Mr. Callaghy to draft a proper order ordering
43   precisely what's to be produced, setting a
44   reasonable time to do it, giving you a return
45   date to come in here and produce it here in
46   court. I want him to add into that proposed
47   order any protective provisions that you need
48   to preserve your trade secrets or whatever.

                           12
 1   And then if he doesn't do it, out you go and
 2   I'll hold an inquest on the counterclaims.
 3   If you want to gamble on whether the Circuit
 4   will uphold that, you can gamble. Your
 5   client can gamble. I don't care.
 6
 7   MR. WEINSTEIN: All right. I'll consult with
 8   Mr. Callaghy and with my client. I believe
 9   that we're going to have to go to the Second
10   Circuit on this.
11
12   THE COURT: That's fine with me. I'm not
13   going to allow anybody to come in here as a
14   plaintiff and lie like that or take the
15   position that I'm only here individually and
16   I can't access these Russian records because
17   I don't control the board, I'm only the
18   chairman.
19
20   MR. WEINSTEIN: What is the purpose, what is
21   the purpose of corporate structure and laws
22   if --
23
24   THE COURT:   It's not to be used as a method
25   of fraud.
26
27   MR. WEINSTEIN:   It's not a method of fraud.
28
29   THE COURT: You have your opinion and I have
30   my opinion. I told you what to do. You're
31   either going to do it or not. I don't care.
32   Why don't you try to be sensible. Why don't
33   you not lead your client down the primrose
34   path because you think you're right and try
35   to be sensible. . .
36
37   It's very wrong to test the Court's resolve
38   to preserve the sovereignty of the United
39   States and the integrity of our pretrial
40   discovery. That's very wrong and it's going
41   to get your client into a bad situation.
42
43   MR. WEINSTEIN: I'm unaware of any caselaw
44   where a person has been sued individually and
45   has been forced to produce documents from a
46   foreign corporation.
47
48   THE COURT:   One of us is wrong.

                           13
 1             (Recess)
 2

 3        Turning to the legal issues first, a party is not obliged to

 4   produce, at the risk of sanctions, documents that it does not

 5   possess or cannot obtain.1    See Fed. R. Civ. P. 34(a) (“Any party

 6   may serve on any other party a request . . . to produce . . .

 7   documents . . . which are in the possession, custody or control

 8   of the party upon whom the request is served . . . .” (emphasis

 9   added)), E.E.O.C. v. Carrols Corp., 215 F.R.D. 46, 52 (N.D.N.Y.

10   2003); see also Societe Internationale pour Participations

11   Industrielles et Commerciales, S.A. v. Rogers, 357 U.S. 197, 204

12   (1958) (acknowledging that Rule 34 requires inquiry into whether

13   party has control over documents), Fisher v. U.S. Fidelity &

14   Guar. Co., 246 F.2d 344, 350 (7th Cir. 1957).    We also think it

15   fairly obvious that a party also need not seek such documents

16   from third parties if compulsory process against the third

17   parties is available to the party seeking the documents.

18   However, if a party has access and the practical ability to

19   possess documents not available to the party seeking them,

20   production may be required.    In Re NASDAQ Market-Makers Antitrust

21   Litig., 169 F.R.D. 493, 530 (S.D.N.Y. 1996).

22        In the present case, appellant denies both the legal and

23   practical ability to obtain the documents from IPT.    He claims

24   that, although Chairman of the Board, his minority status as a

25   shareholder and Russian law pose insurmountable barriers to his

                                       14
 1   obtaining the documents.   The district court disposed of

 2   appellant's claim on two grounds.     The court took the view that

 3   Russian law was irrelevant in discovery matters in United States

 4   courts.   In the court's view, therefore, even if appellant's

 5   claim as to Russian law was true, sanctions would be justified.

 6   Nevertheless, it also made a credibility finding that appellant's

 7   factual claim was untrue, stating in strong terms that it did not

 8   believe the claim.     On this record, these grounds cannot support

 9   the sanction imposed, even under an abuse of discretion standard.

10        Appellees are entitled to the production of the documents in

11   question if appellant has access to them and can produce them.

12   Appellees cannot as a practical matter compel IPT to produce them

13   in this litigation, and they are of undoubted relevance to the

14   counterclaims.   However, contrary to the district court's view,

15   Russian law is relevant to the issues and poses no threat to the

16   sovereignty of the United States.     See United States v. Funds

17   Held in the name of Wetterer, 210 F.3d 96, 106 (2d Cir. 2000)

18   (“Questions relating to the internal affairs of corporations . .

19   . are generally decided in accordance with the law of the place

20   of incorporation.”).   If Russian law prohibits appellant from

21   obtaining and producing the documents even with the agreement of

22   IPT's board and an appropriate protective order in the district

23   court, then the matter is at an end.

24        However, if Russian law prohibits production simply because

                                      15
 1   board approval –- or waiver of a confidentiality agreement as to

 2   production in the United States under a proper protection order -

 3   - is necessary, then the issue of appellant's control of IPT

 4   arises.   If the district court finds that, contrary to

 5   appellant’s present claim, IPT is his alter ego or his investment

 6   in it is sufficient to give him undisputed control of the board,

 7   such a finding could support an order to produce.    See 7 Moore’s

 8   Federal Practice § 34.14[2][c] (“[W]hen an action is against an

 9   officer individually, and not also against the corporation,

10   production may be denied unless there is evidence that the

11   officer is the ‘alter ego’ of the corporation”   (citing Am.

12   Maplan Corp. v. Heilmayr, 203 F.R.D. 499, 502 (D.Kan. 2001)); see

13   also A.F.L. Falck, S.P.A. v. E.A. Karay Co., Inc., 131 F.R.D. 46,

14   48-49 (S.D.N.Y. 1990) (holding that because the individual party

15   controlled two non-party corporations, he also controlled

16   production of their documents).    On the present record, however,

17   which includes appellant's affidavit that, although Board Chair,

18   he is a minority shareholder and Russian law prevents his

19   production of the documents, a finding of control cannot be

20   sustained, at least without further explanation.    A remand is

21   therefore necessary to explore Russian law and, if necessary,

22   appellant's control of IPT, an issue that may involve a finding

23   as to his credibility.   Both the inquiry into Russian law and

24   appellant’s control of IPT will inform a finding as to

                                       16
 1   appellant's willfulness, or lack thereof, in refusing to produce

 2   the documents.   On remand, the district court should also

 3   consider Shcherbakovskiy’s claim that to turn over the documents

 4   would subject him to criminal sanctions under Russian law, and

 5   evaluate both the factual basis and legal consequence of that

 6   claim in light of United States v. Davis, 767 F.2d 1025, 1033-34

 7   (2d Cir. 1985) (describing the balancing test with which to

 8   evaluate the propriety of orders directing production of

 9   documents abroad where such production would violate the laws of

10   the state where they are located).

11        Moreover, the district court did not consider the efficacy

12   of lesser sanctions.    See Minotti v. Lensink, 895 F.2d 100, 103

13   (2d Cir. 1990) (per curiam) (finding no abuse of discretion when,

14   among other things, “the district court explored numerous options

15   before ordering dismissal”); see also Fed. R. Civ. P. Rule

16   37(b)(2) (enumerating lesser sanctions, including, for example,

17   issuing an order deeming the disputed issues relevant to the

18   unproduced documents determined adversely to the position of the

19   disobedient party).    So far as can be gleaned from the

20   transcript, the court chose between the extremes of the status

21   quo and dismissal of the complaint and granting of the

22   counterclaims.

23        With no findings or explanation from the district court, we

24   cannot conclude that the sanction of dismissal of the complaint

                                      17
 1   and granting of the counterclaims was appropriate.   Rule 37

 2   permits the imposition of “just” sanctions; the severity of the

 3   sanction must be commensurate with the non-compliance.    The

 4   sanction of dismissal “‘is a drastic remedy that should be

 5   imposed only in extreme circumstances,’ usually after

 6   consideration of alternative, less drastic sanctions.”     John B.

 7   Hull, Inc. v. Waterbury Petroleum Prods., Inc., 845 F.2d 1172,

 8   1176 (quoting Salahuddin, 782 F.2d at 1132); see also id.

 9   (“Dismissal under Rule 37 is warranted, however, where a party

10   fails to comply with the court’s discovery orders willfully, in

11   bad faith, or through fault.”); Cine Forty-Second Street Theatre

12   Corp. v. Allied Artists Pictures Corp., 602 F.2d 1062, 1066 (2d

13   Cir. 1979) (finding that dismissal is not appropriate “[w]here

14   the party makes good faith efforts to comply, and is thwarted by

15   circumstances beyond his control.”).

16        Findings of bad faith and consideration of lesser sanctions

17   are particularly necessary here in light of two factors.    First,

18   the district court repeatedly stated that the failure to produce

19   the documents would inevitably alienate a jury, suggesting that

20   appellees would not be prejudiced by the absence of the

21   documents.   Second, while the documents in question appear to

22   relate only to appellees' conversion counterclaim, the district

23   court dismissed appellant's complaint as well, again without

24   findings or other explanation.   We do note that appellant's

                                      18
 1   claims may be so related to the ownership of ZeTek Power, and,

 2   through it, ownership of ZeTek Russia that appellant should not

 3   be allowed to pursue them in the face of a valid default judgment

 4   for appellees on the counterclaims.   Such a conclusion, however,

 5   can be reached only after further consideration by the district

 6   court.

 7         We emphasize that there may be a plausible explanation that

 8   supports the dismissal and default judgment entered by the

 9   district court.   But entering the default judgment without such

10   an explanation was an abuse of discretion.

11   b)   Appellant's Motions to Dismiss

12         Appellant argues that DC Al Fine’s conversion counterclaim

13   does not state a valid claim for two reasons. First, he claims

14   that DC Al Fine has no ownership interest in ZeTek Russia

15   sufficient to support a conversion claim because ZeTek Russia was

16   organized as a non-commercial organization in Russia whose assets

17   could not legally have been transferred to DC Al Fine upon its

18   purchase of ZeTek, leaving DC Al Fine with no ownership interest

19   in ZeTek Russia upon which to base a claim for conversion.

20   Second, appellant maintains that DC Al Fine did not have standing

21   to assert the conversion counterclaim when it was filed and the

22   January 2004 assignment from DC Fuel Cell was ineffective because

23   it violated New York’s law against champerty.   Appellant also

24   argues that, even if the assignment was valid, it could not cure

                                     19
 1   the jurisdictional defect under Rule 17(a) in light of the

 2   prejudice he suffered.   That prejudice, he argues, lies in the

 3   fact that he consented to New York jurisdiction only to the

 4   extent necessary to bring the suit against DC Al Fine.

 5        Although it would undoubtedly be helpful to provide a final

 6   resolution of these issues, we decline to address the underlying

 7   legal issues definitively.   Our vacating of the default judgment

 8   renders such a disposition unnecessary, and examination of the

 9   legal issues strongly suggests that such a disposition at this

10   juncture would be imprudent.

11        In particular, there are many loose ends that are better

12   dealt with on motions for summary judgment or after a trial.     For

13   example, whether ZeTek Russia is a not-for-profit company that

14   cannot transfer assets is an issue that cannot be disposed of on

15   either the face of the counterclaim or of appellant's complaint,

16   which he seeks to amend.   Indeed, the parties went beyond the

17   face of the pleadings in arguing the issue in the district court.

18        Moreover, the district court's denial of the motion to

19   dismiss the conversion counterclaim because of ZeTek Russia's

20   status was not particularly responsive to the issue raised.    It

21   framed the question as involving a choice of law issue as to a

22   breach of contract claim to which Russian law was in the court's

23   view irrelevant.   Whatever may be the case as to the breach of

24   contract counterclaim, the conversion counterclaim does depend on

                                     20
 1   a claim of ownership to which Russian law may be relevant.     With

 2   regard to the issues arising from the DC Fuel Cell/DC Al Fine

 3   assignment, whether appellant was prejudiced by that assignment

 4   because he consented to New York jurisdiction only to sue DC Al

 5   Fine was never addressed by the district court.    And we see no

 6   reason in the circumstances described above to opine on

 7   appellant's champerty argument at this time.

 8         Each of these issues is potentially dispositive of the

 9   conversion counterclaim, obviating the need to reach other

10   issues; each requires some amplification of the record; and each

11   may also become irrelevant if a valid dismissal as a sanction is

12   entered.

13   c)   The Special Verdict Form

14         On cross-appeal, DC Al Fine challenges the special verdict

15   form used at the damages trial.    That form directed the jury to

16   enter as its verdict only the larger of the award for breach of

17   contract or for conversion.     “The formulation of special verdict

18   questions rests in the sound discretion of the trial judge, and

19   should be reviewed by an appellate court only for an abuse of

20   that discretion.”   Vichare v. AMBAC Inc., 106 F.3d 457, 465 (2d

21   Cir. 1996).   “In order to preserve for appeal any objection to

22   the form or substance of such questions, a party must object

23   before the jury has retired.”     Smith v. Lightning Bolt Prods.,

24   Inc., 861 F.2d 363, 370 (2d Cir. 1988); see Fed. R. Civ. P.

                                       21
 1   49(a).

 2        We believe it useful to address this issue.    The sanction of

 3   granting the counterclaims may be reentered and valid; if so, the

 4   validity of the damages verdict will be in issue.   Moreover, it

 5   may be -- and we do not decide this -- that, if liability on the

 6   counterclaims is established on the merits, a second damages

 7   trial may be unnecessary.    See Dazenko v. James Hunter Mach. Co.,

 8   393 F.2d 287, 291 (7th Cir. 1968).    We therefore proceed to the

 9   cross-appeal.

10        DC Al Fine has forfeited its challenge to the special

11   verdict form by agreeing to it at trial.   Upon reviewing the

12   special verdict form, DC Al Fine’s counsel explicitly approved it

13   in the clearest terms, stating that “the special verdict form as

14   distributed is satisfactory to the plaintiff.”   Counsel for DC Al

15   Fine did not object to the form nor offer any indication that it

16   was dissatisfied with it.2

17        When a party has failed to preserve an argument, we will

18   entertain it only if the alleged error is “fundamental.”     Shade

19   v. Hous. Auth. of New Haven, 251 F.3d 307, 312-13 (2d Cir. 2001).

20   “An error is fundamental under this standard only if it is ‘so

21   serious and flagrant that it goes to the very integrity of the

22   trial.’”   Id. at 313 (quoting Modave v. Long Island Jewish Med.

23   Ctr., 501 F.2d 1065, 1072 (2d Cir. 1974)).   To meet this

24   standard, a party must demonstrate even more than is necessary to

                                      22
 1   meet the plain error standard in a criminal trial.    See id.;

 2   Travelers Indem. Co. v. Scor Reinsurance Co., 62 F.3d 74, 79 (2d

 3   Cir. 1995) (“Fundamental error is narrower than the plain error

 4   doctrine applicable to criminal cases.”).

 5         There is no fundamental error here.   The two theories of

 6   liability advanced by DC Al Fine were conversion and breach of

 7   contract.   Under both theories, the injury to DC Al Fine arguably

 8   stems from the loss of an opportunity to participate in IPT,

 9   which DC Al Fine alleges is simply a company built around the

10   assets of ZeTek Russia.    This is also the basis for the

11   conversion claim –- the misappropriation of the assets of ZeTek

12   Russia.

13         Of course, if a second trial on damages occurs, the parties

14   are free to make whatever arguments are available to them.

15   e)   Reassignment to Another Judge

16         Shcherbakovskiy argues that the case should be reassigned to

17   another judge on remand.    In considering whether to reassign a

18   case on remand, we look to the following factors:    “(1) whether

19   the original judge would reasonably be expected upon remand to

20   have substantial difficulty in putting out of his or her mind

21   previously-expressed views or findings determined to be erroneous

22   or based on evidence that must be rejected, (2) whether

23   reassignment is advisable to preserve the appearance of justice,

24   and (3) whether reassignment would entail waste and duplication

                                      23
 1   out of proportion to any gain in preserving the appearance of

 2   fairness."    United States v. Robin, 553 F.2d 8, 10 (2d Cir. 1977)

 3   (denial of rehearing en banc).

 4        There is little doubt that the district judge would follow

 5   our instructions as to the law on remand.   However, the judge has

 6   rendered a visceral judgment on appellant's personal credibility,

 7   namely that his denial of control was "nonsense," "drivel," a

 8   "fraud," and a "lie."   Whether any person can take an objective

 9   second look at testimonial evidence after reaching such a

10   conclusion is questionable, but certainly the appearance of

11   justice would be well-served by reassignment on remand.     Cullen

12   v. United States, 194 F.3d 401, 408 (2d Cir. 1999) (remanding for

13   a new sentencing proceeding before a different judge because the

14   sentencing judge had made a determination that the defendant was

15   not credible and “‘the appearance of justice is better satisfied

16   by assigning the resentencing to a different judge.’”   (citing

17   United States v. Leung, 40 F.3d 577, 587 (2d Cir. 1994)).    [A

18   148.17-.18]   Given that the judgment below was entered after a

19   default, reassignment poses no costs in judicial economy.

20   Consequently, we direct that the case be reassigned to a

21   different judge on remand.

22                                CONCLUSION

23        We vacate the default judgment and remand the case, which

24   shall be assigned to another judge.

                                      24
1                                FOOTNOTES

2

3   1. Of course, we agree with the district court that a party may

    not "blow hot or cold" and, having persuaded the court in

    discovery of its inability to produce such documents, later seek

    to use them to help its case at trial.   See Design Strategy, Inc.

    v. Davis, 469 F.3d 284, 295-98 (2d Cir. 2006).   Moreover, the

    circumstances at trial may justify the jury's learning of the

    party's non-production and drawing an adverse inference from it.

    See Residential Funding Corp. v. DeGeorge Financial Corp., 306

    F.3d 99, 106-07 (2d Cir. 2002).

    2. To overcome this forfeiture, DC Al Fine relies on a statement

    by the district court that “[y]ou’ll be deemed to make every

    motion available to you under the rules.”   However, this blanket

    statement does not meet DC Al Fine’s burden of objecting to the

    special verdict form under Rule 51, which requires that “[a]

    party who objects to an instruction or the failure to give an

    instruction must do so on the record, stating distinctly the

    matter objected to and the grounds of the objection.”     Fed. R.

    Civ. P. 51(c)(1); see also Jarvis v. Ford Motor Co., 283 F.3d 33,

    53, 56 (2d Cir. 2002).   DC Al Fine failed to meet that

    requirement.

                                      25