Court Opinion

ID: 3029208
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:42:25.842563+00
Date Added: 2024-06-11T11:11:23.420709
License: Public Domain

NOT FOR PUBLICATION

                     UNITED STATES COURT OF APPEALS                             FILED
                            FOR THE NINTH CIRCUIT                               NOV 16 2009

                                                                           MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

DANIEL W. FAERFERS; et al.,                      No. 08-16339

              Plaintiffs - Appellants,           D.C. No. 2:04-cv-02690-MCE-
                                                 EFB
  v.

CAVIAR CREATOR, INC. - OREGON,                   MEMORANDUM *
an Oregon corporation; et al.,

              Defendants - Appellees.

                    Appeal from the United States District Court
                       for the Eastern District of California
                   Morrison C. England, District Judge, Presiding

                       Argued and Submitted October 9, 2009
                             San Francisco, California

Before: HUG and PAEZ, Circuit Judges, and CARNEY, ** District Judge.

       Daniel and Katja Faerfers (“the Faerfers”) appeal the district court’s

judgment dismissing their complaint against Caviar Creator International, Inc.

(“CCI”) and striking their answer to CCI’s counterclaim. They also challenge the

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
             The Honorable Cormac J. Carney, United States District Judge for the
Central District of California, sitting by designation.
district court excluding them from the damages prove-up hearing on CCI’s

counterclaim. The Faerfers argue that the district court abused its discretion in

granting CCI’s motion for terminating sanctions, which resulted in the dismissal

with prejudice of the Faerfers’ complaint and the striking of their answer to CCI’s

counterclaim. We have jurisdiction pursuant to 28 U.S.C. § 1291. We review a

district court’s findings of fact in connection with a motion for sanctions under the

clearly erroneous standard, Fjelstad v. American Honda Motor Co., 762 F.2d 1334,

1337 (9th Cir. 1985), and the dismissal of a case with prejudice as a sanction for

abuse of discretion. Malone v. United States Postal Serv., 833 F.2d 128, 130 (9th

Cir. 1987) (citing Thompson v. Hous. Auth., 782 F.2d 829, 832 (9th Cir. 1986).

We reverse and remand.

      The district court abused its discretion when it granted terminating sanctions.

Prior to dismissing a complaint or striking an answer for failure to comply with a

court order, the district court must weigh five factors:

             (1) the public’s interest in expeditious resolution of
             litigation; (2) the court’s need to manage its docket; (3)
             the risk of prejudice to the defendants; (4) the public
             policy favoring disposition of cases on their merits; and
             (5) the availability of less drastic sanctions.

Malone, 833 F.2d at 130 (quoting Thompson, 782 F.2d at 831). “We may affirm a

dismissal where at least four factors support dismissal, or where at least three

                                          -2-
factors ‘strongly’ support dismissal.” Hernandez v. City of El Monte, 138 F.3d
393, 399 (9th Cir. 1998) (citations omitted). At issue here is whether the district

court properly considered factors three and five, the risk of prejudice to CCI and

the availability of less drastic sanctions.

Prejudice

      “In determining whether a defendant has been prejudiced, we examine

whether the plaintiff’s actions impair the defendant’s ability to go to trial or

threaten to interfere with the rightful decision of the case.” Malone, 833 F.2d at

131. Due process requires this nexus between the misconduct being sanctioned

and the matters in controversy. Anheuser-Busch, Inc. v. Natural Beverage

Distribs., 69 F.3d 337, 348 (9th Cir. 1995) (quoting Wyle v. R.J. Reynolds Indus.,

Inc., 709 F.2d 585, 591 (9th Cir. 1983)).

      The merits of the dispute between the parties centered on whether the

Faerfers or CCI first breached the 2004 settlement agreement. The location of the

shares was potential evidence of breach and a sought after remedy, but ultimately

did not interfere with the resolution of the underlying dispute. Indeed, CCI was

initially willing to proceed to trial in May 2007, even though the shares were in the

hands of the Faerfers. Under these circumstances, as counsel for CCI

                                              -3-
acknowledged at argument, CCI was not prejudiced by the Faerfers’ failure to

transfer the shares.

Lesser Sanctions

      In determining whether the district court considered the availability of lesser

sanctions, we consider:

             (1) Did the court explicitly discuss the feasibility of less
             drastic sanctions and explain why alternative sanctions
             would be inadequate? (2) Did the court implement
             alternative methods of sanctioning or curing the
             malfeasance before ordering dismissal? (3) Did the court
             warn the plaintiff of the possibility of dismissal before
             actually ordering dismissal?

Malone. 833 F.2d at 132. Factor three is not dispositive in this case because CCI

filed a motion for terminating sanctions under Rule 41(b). In re Eisen, 31 F.3d
1447, 1455 (9th Cir. 1994). The district court did not, however, explicitly discuss

the feasibility of lesser sanctions or implement lesser sanctions prior to striking the

Faerfers’ complaint and answer, and thus failed to comply with factors one or two.

      The district court appears to have erroneously considered the monetary

sanction imposed on the Faerfers for postponement of the trial as a prior sanction

for related conduct. To rely on an earlier sanction to justify a later terminating

sanction, the sanctioned misconduct must be of the same variety, such that the

prior sanction gave clear notice that the failure to comply with a court order could

                                          -4-
result in a dismissal of the complaint. United States v. Nat’l Med. Enters., 792 F.2d
906, 913 (9th Cir. 1986). Here, although the shares were involved in both

incidents, the earlier misconduct was failure to disclose information that resulted in

a continuance of the trial, while the alleged later misconduct was failure to comply

with a court order. The district court may not use earlier incidents of misconduct

“as a fulcrum to elevate the final incident of misconduct to a level that would allow

dismissal of the action with prejudice” when the final incident was “a different

kind of misconduct.” Id.

         Because CCI suffered no prejudice and the district court did consider the

availability of lesser sanctions, the district court abused its discretion in imposing

terminating sanctions. We therefore reverse the district court’s order striking the

Faerfers’ complaint and answer to CCI’s counterclaim, and we remand the case for

trial.

         Finally, because there is no longer a prevailing party, we vacate the award of

attorneys’ fees and costs. However, because the award of monetary sanctions for

the continuance of the trial was included as part of the overall attorneys’ fees

award, on remand the district court may enter a separate order fixing the amount of

such sanction.

REVERSED and REMANDED.

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