Court Opinion

ID: 2999578
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:55:30.612002+00
Date Added: 2024-06-11T18:01:47.630403
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

No. 05-2729
IN RE:
    THOMAS CONSOLIDATED
    INDUSTRIES, INC.,
                                                             Debtor.

THOMAS CONSOLIDATED
INDUSTRIES, INC.,
                                              Plaintiff-Appellant,
                                v.

JUERGEN HERBST, TRUDY HERBST,
ALLEN J. HERBST TRUST, ERICH F.
HERBST TRUST, STANDARD DIE
MOLD OF PALATINE, GERALD L.
McCULLOUGH, FRED POLLAK
and ED COGANA,
                                           Defendants-Appellees.
                         ____________
           Appeal from the United States District Court
      for the Northern District of Illinois, Eastern Division.
          No. 04 C 6185—George M. Marovich, Judge.
                         ____________
    SUBMITTED JUNE 5, 2006—DECIDED JULY 31, 2006
                   ____________

 Before BAUER, ROVNER and WILLIAMS, Circuit Judges.
  ROVNER, Circuit Judge. The bankruptcy court dismissed
the case as a sanction for failing to comply with the
2                                                    No. 05-2729

court’s orders regarding discovery and for lying to the court
about compliance with discovery orders. The district court
affirmed the bankruptcy court’s ruling and Thomas Consoli-
dated Industries, Inc. (“Consolidated”) appeals. Because the
lower courts acted within their discretion in dismissing the
case, we affirm.

                                I.
  Louis Levit, the trustee, filed this adversary proceeding
against the defendants on November 9, 2001.1 Everyone
agrees that the parties did not commence discovery in
earnest until August 2003 when the Cogana defendants2
served interrogatories and document requests on Robert
Thomas, counsel for the trustee.3 The Herbst defendants
followed with document requests and interrogatories in
September 2003. On September 25, 2003, Thomas made
available for inspection several file cabinets that contained

1
  Levit filed the instant appeal but Consolidated then moved to
substitute itself as appellant. We granted that motion.
2
   The “Cogana defendants” refers to Fred Pollak and Ed Cogana.
The “Herbst defendants” refers to Juergen Herbst, Trudy Herbst,
Standard Die Mold of Palatine, Inc., Gerald McCullough, the Allen
J. Herbst Trust, and the Eric F. Herbst Trust.
3
   Thomas, the lawyer for the trustee in the courts below, is a key
figure in the litigation itself. The case arises out of the sale of
Standard Die Mold of Palatine to Thomas and Consolidated, an
entity formed by him. Thomas is the president and sole share-
holder of Consolidated. The Herbst defendants moved to disqualify
Thomas as counsel in the adversary action because as the owner
and sole shareholder for Consolidated, he was expected to be the
plaintiff ’s primary witness. Although the bankruptcy court
granted the motion to disqualify, the district court reversed,
allowing Thomas to represent the trustee through the discovery
process.
No. 05-2729                                                 3

documents he believed were responsive to the document
requests. He did not, however, specify which documents
were responsive to each request and did not file a written
response to the document request. On October 29, 2003,
Herbst served Thomas with its second set of interrogatories
and a second document request. Once again Thomas did not
serve written answers to the document requests, but on
January 12, 2004 responded in writing to both sets of
Herbst’s interrogatories. Approximately eighteen of the
twenty-four interrogatories in the first set referenced
specific allegations in the complaint and requested “each
and every fact upon which Plaintiff bases these allegations”
and asked the trustee to “identify all documents which
Plaintiff contends support these allegations.” In response to
every one of these eighteen different interrogatories,
Thomas supplied the following answer:
    Plaintiff cannot state “every fact: [sic] at this stage of
    the proceedings and is not obligated to prepare the case
    of the defendants for trial. Plaintiff relies upon FRCP
    33(d), the depositions of Robert C. Thomas, Juergen
    Herbst, Ed Cogana, Fred Pollak, the witnesses referred
    to in these depositions, the documents produced by
    these parties, the documents attached to these deposi-
    tions and the documents which defendants had the
    opportunity to inspect and copy on September 25, 2003.
Thomas repeated this response word for word (including the
unmatched quotation mark and the misplaced colon in the
first line) eighteen times, giving no individual attention to
the different allegations referenced in the interrogatories.
Thomas’ answers to the second set of interrogatories fared
only a little better, with Thomas replying to ten of nineteen
interrogatories by referring the defendants to the Septem-
ber 25, 2003 document production. Needless to say, the
Herbst defendants were unsatisfied with these responses
and filed motions to compel. They complained that the
plaintiff failed to provide written responses to the document
4                                                No. 05-2729

requests and failed to make clear which documents were
responsive to each request. They also alleged that the
responses to the interrogatories were inadequate.
  The Cogana defendants received responses to their
interrogatories on January 19, 2004, approximately one
week after the response to the Herbst defendants and
approximately five months after the discovery was served.
These interrogatories took a similar approach to those
propounded by the Herbst defendants, asking the trustee to
state the facts in support of certain allegations in the
complaint and to identify documents in support of those
allegations. In response, Thomas cut and pasted the reply
he had given the Herbst defendants, using the very same
paragraph we quoted above (right down to the misplaced
punctuation) to respond to eighteen interrogatories from
Cogana and seven interrogatories from Pollak. In addition,
Thomas refused to answer six of Pollak’s interrogatories
because they were “duplicates” of certain of Cogana’s
interrogatories. The Cogana defendants met these re-
sponses with their own motions to compel.
  In each instance, Thomas defended his responses as
adequate. He argued that the Herbst document requests
were an attempt to “oppress and cause expense to Plaintiff,
to have Plaintiff prepare their case for them and to improp-
erly gain insight into Plaintiff’s lawyers’ preparation for the
case.” In response to Cogana’s motion, Thomas argued that
interrogatories that sought the factual basis of the allega-
tions in his complaint were “an attempt to oppress and
cause expense to Plaintiff, to have Plaintiff prepare their
case for them and to improperly gain insight into Plaintiff’s
lawyers’ preparation of the case, thereby violating the
attorney work product privilege.” On March 8, 2004, the
bankruptcy court heard all of the motions to compel to-
gether, and granted the defendants’ motions. In explaining
its ruling, the court told Thomas that the defendants were
No. 05-2729                                                 5

“absolutely right” in their motion and that Thomas was
“absolutely wrong":
    If someone were suing Ford Motor Company on the
    design of an automobile, Ford Motor Company couldn’t
    respond to a request for documents by saying, here, look
    at all our documents. I think you can see the relevance
    and the impossibility of that. Similarly, you can’t just
    say here are all the documents I’ve got, take a look
    through them. That’s all you’ve got to do. That’s not
    sufficient. You have to identify what documents you
    think support the allegations of fact that you have
    made. That’s not preparing the defendants’ case for
    them, that’s substantiating your own case. And so far
    you haven’t done that.
March 8, 2004 Tr. at 22. Before concluding the hearing, the
court emphasized the meaning of its ruling:
    But I want to make it clear, Mr. Thomas, that you
    simply have to do a better job of complying with the
    procedural requirements. When I order you to do
    something by a particular date, when it’s filing some-
    thing, the only safe way that you can prove you com-
    plied with the order is to have a file stamped copy of the
    document that was supposed to be filed. And that way
    if the court’s electronic docket is wrong, I know it’s a
    problem in the clerk’s office and not your problem, but
    when you simply say that you mailed something and it
    never arrived, that’s not sufficient. I think this case is
    important to you. You have spent a lot of time on it, and
    you simply have to comply with the orders or you will
    never get to a trial.
March 8, 2004 Tr. at 26. After Thomas asked for forty-five
days to respond to the outstanding discovery, the court gave
him fifty-three days to comply with the court’s order
compelling discovery, setting a deadline of April 30, 2004.
At a status hearing on April 14, 2004, Thomas did not ask
6                                                No. 05-2729

for any further time to comply with the order. Thomas
failed to serve any response to discovery by April 30, 2004.
  On May 10, 2004, the Herbst defendants moved for
sanctions, requesting that the trustee’s claims against them
be dismissed. They set the sanctions motion for a hearing in
the bankruptcy court on May 13. On May 12, both the
Herbst and the Cogana defendants received discovery
responses from Thomas. The certificates of service, signed
by Thomas as counsel for the trustee, stated that the
responses were served “this 7th day of May, 2004 to the
Service List attached hereto, by U.S. Mail, postage prepaid.”
The responses had in fact been sent by UPS overnight
service. A UPS tracking form for the package delivered to
the Herbst defendants showed that it had been tendered to
UPS on May 11, that it was sent next day air, and was
delivered May 12 at 9:37 a.m. In a subsequent pleading,
Thomas indicated he tendered the responses to UPS on May
7, 2004. These amended responses suffered some of the
same infirmities as the first round. In response to interroga-
tories from the Herbst defendants seeking facts in support
of the allegations in the complaint, Thomas once again
repeated that he could not state every fact in support of his
claims, that he was not obligated to prepare the defendants’
case for them, that he relied on Federal Rule of Civil
Procedure 33(d), on a number of depositions and documents
that had already been produced by the defendants and by
his September 25, 2003 document production. In other
words, he repeated the very response that the district court
warned him was woefully inadequate the first time around.
In response to an interrogatory from the Cogana defendants
asking the trustee to state the facts and identify the
documents in support of an allegation that the defendants
acted willfully and wantonly, Thomas replied, “The evidence
will show that the documents discovered in this case and
the actions of these defendants were knowing and willing
and wanton.” These are but a few examples of the many
non-responsive answers given by Thomas.
No. 05-2729                                                  7

   After allowing time for the defendants to address the
responses that they received the day before the sanctions
hearing, the court set a new hearing date of August 5, 2004.
After argument, the bankruptcy court announced
it’s decision. The court recounted the history of the discov-
ery dispute and recalled the warning that if Thomas did not
comply with discovery orders, he would never get the case
to trial. The court noted that Thomas had two options on
April 30 when discovery was due: (1) he could have filed a
notice of compliance or filed the discovery itself on April 30;
or (2) he could have moved for an extension of the deadline.
Thomas did neither, the court noted. In addition to failing
to comply with the order, the court noted that Thomas then
lied about his service of the responses that were received on
May 12 by the two groups of defendants:
    What appears from the record is that you sent off your
    responses to discovery via UPS on May 11th and lied
    about when you did it. Now lie is a strong word and
    I use it here advisedly. At the very least, you had
    asserted contradictory positions.
    In the certificate of service, which is Exhibit E to the
    Cogana and Pollak motion for sanctions filed May 27,
    2004, you certified that you served your responses on
    May 7, 2004, quote, “by U.S. mail postage prepaid” and
    what appears to be your signature is on that certificate
    of service. So at one time, you said U.S. mail. In para-
    graph 21 of your combined response to the defendants’
    motion for sanctions, you assert that you delivered your
    responses to, quote, “a UPS store,” unquote, on May 7,
    2004. So those two statements to the court are contra-
    dictory and significantly in conflict. Moreover, the UPS
    tracking report attached to the Herbst defendants
    amended motion for sanctions filed June 16, 2004
    appears to show that you delivered the packages to UPS
    on May 11th as opposed to May 7th.
8                                                No. 05-2729

    And Mr. Thomas, I find your conduct deplorable and, in
    light of my admonitions to you on March 8th about the
    importance of complying, your conduct fully justifies the
    sanction of dismissal. But even beyond that, the sub-
    stance of your responses was totally inadequate. Based
    on your responses, I must conclude that you have no
    facts to support the allegations in your complaint, or
    that you simply don’t understand the purpose and
    function of pretrial discovery.
    In either event, your conduct of this lawsuit has
    amounted to continuing harassment of these defendants
    which has gone on too long. I am granting both motions
    for sanctions, and the second amended complaint is
    dismissed with prejudice.
August 5, 2004 Tr. at 4-5.
  The trustee, still represented by Thomas, appealed this
ruling to the district court. The district court found that the
bankruptcy court did not abuse its discretion in granting
the motions to compel and did not abuse its discretion in
sanctioning the plaintiff by dismissing the case. Specifically,
on the motions to compel, the court found that the discovery
requests were not unduly burdensome, that the information
they sought was not protected by the work product doctrine,
and that the plaintiff did not adequately respond to the
requests. On the bankruptcy court’s order granting sanc-
tions, the district court agreed that, in supplying responses
that were identical to the non-responsive answers the
bankruptcy court had already rejected, counsel for the
trustee engaged in a “blatant violation” of the court’s order.
The district court noted that the trustee did not challenge
the finding that Thomas lied to the court, and that counsel
for the trustee served the discovery responses only after
receiving the motions for sanctions. The court found that
dismissal was not an inappropriate sanction given that
Thomas had been warned about the consequences of failure
No. 05-2729                                                   9

to comply with court orders, and given the contumacious
nature of Thomas’ conduct. The district court therefore
affirmed the bankruptcy court’s ruling. The trustee ap-
pealed and we subsequently granted the motion to substi-
tute Consolidated as the appellant.

                              II.
  On appeal, Consolidated, now represented by new
counsel, argues that the courts below abused their discre-
tion in dismissing the case. Consolidated raises three
arguments on appeal. First, Consolidated contends that the
courts below misapplied precedent governing the applica-
tion of Rule 37 in dismissing the case. Second, Consolidated
maintains that the court clearly erred in its factual findings
that Thomas acted in bad faith and for the purpose of
delaying prosecution of the case. Third, Consolidated argues
that dismissal was improper because the plaintiff was not
warned that dismissal was a possible result for its failure to
comply with the discovery order.

                              A.
  Rule 37 (a) allows courts to enter orders compelling
parties to comply with discovery requests.4 Rule 37(b)
provides, in relevant part:
    If a party . . . fails to obey an order to provide or permit
    discovery, including an order made under subdivision
    (a) of this rule . . . the court in which the action is
    pending may make such orders in regard to the failure
    as are just, and among others the following:
                             ***

4
   Federal Rule of Civil Procedure 37 is made applicable to
adversary proceedings in bankruptcy through the application
of Rule 7037 of the Bankruptcy Rules.
10                                               No. 05-2729

     (C) An order striking out pleadings or parts thereof, or
     staying further proceedings until the order is obeyed, or
     dismissing the action or proceeding or any part thereof,
     or rendering a judgment by default against
     the disobedient party[.]
Fed. R. Civ. P. 37(b). The entry of sanctions under Rule 37
is reviewed for abuse of discretion. Maynard v. Nygren, 332
F.3d 462, 467 (7th Cir. 2003), cert. denied, 543 U.S. 1049
(2005); Golant v. Levy (In re Golant), 239 F.3d 931, 937 (7th
Cir. 2001). We review any factual findings for clear error.
Maynard, 332 F.3d at 467. When ordering the sanctions of
default judgment or dismissal of the case under Rule 37(b),
the court must find that the party against whom these
sanctions are imposed displayed willfulness, bad faith or
fault. Maynard, 332 F.3d at 467-68; Golant, 239 F.3d at
936. We strongly encourage courts to make this finding
explicitly, but we may infer it, if necessary, from the
sanction order itself. Golant, 239 F.3d at 936.
  Consolidated argues that, when viewed as a whole, the
cases analyzing Rule 37 make clear that dismissal is
warranted only when a party’s conduct demonstrates an
intent not to pursue the case but to avoid prosecution
through dilatory tactics. According to Consolidated, the
sanction of dismissal should not be granted for anything
less than a total failure to respond to discovery requests.
The cases upon which Consolidated relies are either
inapplicable or favor the defendants’ position here. For
example, Consolidated relies on Halverson v. Campbell
Soup Co., 374 F.2d 810 (7th Cir. 1967) and Fox v. Commis-
sioner, 718 F.2d 251 (7th Cir. 1983) for the proposition that
the sanction of dismissal should be limited to “serious or
total failure” to respond to discovery. Halverson held that
the discretionary sanctions of Rule 37 are inapplicable
where the complaining party has made no use of the
discovery procedures provided in Rule 37. Halverson, 374
F.2d at 812. The Halverson court found Rule 37 inapplicable
No. 05-2729                                                11

to that case because the plaintiff had never sought
in discovery the information that the defendants allegedly
withheld. After finding the rule inapplicable, the court
indicated in dicta that Rule 37(d) applied to nothing less
than a serious or total failure to respond to interrogatories.
Rule 37(d) addresses the failure of a party to attend its own
deposition or to serve answers to interrogatories. The
sanction in the instant case was not issued under Rule
37(d) but rather under Rule 37(b), for failure to comply
with an order of the court. The order at issue here was
an order compelling discovery under Rule 37(a). Rule
37(a)(3), in turn, provides that evasive or incomplete
disclosures, answers or responses are to be treated as
failures to disclose, answer or respond. The court found that
the substance of Consolidated’s response was “totally
inadequate,” and thus it could be treated as a failure to
respond. Even under the dicta in Halverson, Consolidated
would lose.
  Fox addresses the standards to be applied to a dis-
missal in Tax Court under Tax Court Rule 104 (“T.C.R.
104”), the counterpart of Rule 37 in that court. The Fox
court found that T.C.R. 104 was intended to address the
same policy considerations as Rule 37. The court thus
determined that it would apply the same limitations to
the discretion of a Tax Court imposing sanctions under
T.C.R. 104 as are applied to district courts imposing
sanctions under Rule 37. The court then held that a Tax
Court may not dismiss a case as a discovery sanction under
T.C.R. 104 unless the Tax Court found that the failure to
comply with discovery was undertaken willfully and in bad
faith, and the party against whom the sanctions were to be
imposed “totally failed to respond.” Fox, 718 F.2d at 255.
Like Rule 37(a), though, T.C.R. 104 provides that evasive or
incomplete answers or responses are to be treated as
failures to answer or respond. Again we note that the
bankruptcy court found that Consolidated’s responses were
12                                               No. 05-2729

“totally inadequate.” For example, when asked to identify
the facts and documents in support of an allegation of
willful and wanton conduct, Consolidated replied, “The
evidence will show that the documents discovered in this
case and the actions of these defendants were knowing and
willing and wanton.” Tautology is no substitute for facts
and documents. These kinds of answers could rightly be
treated as total failures to answer, and thus the dismissal
could be upheld even if it had been rendered under T.C.R.
104, which it was not.
   Sherrod v. Lingle, 223 F.3d 605 (7th Cir. 2000) gains
nothing for Consolidated as it applies Rule 37(c)(1), which
addresses a failure to disclose expert witness evidence. Rule
37(c)(1) allows the court to exclude the witness if the failure
to disclose is without substantial justification and is not
harmless. We need not address Consolidated’s argument
further; it attempts to graft requirements onto a Rule 37(b)
dismissal that we have never imposed. The sanction of
dismissal under Rule 37(b) may be upheld if the trial court
finds that the party against whom these sanctions are
imposed displayed willfulness, bad faith or fault. The
district court correctly used the standards set forth in
Golant and Maynard and we therefore reject Consolidated’s
first argument.

                              B.
  Consolidated argues that the court clearly erred in finding
that Thomas acted in bad faith or for the purpose of delay
in his responses to interrogatories and document requests.
Addressing bad faith first, Consolidated contends that
“harping on whether Thomas lied as to whether the discov-
ery was tendered on May 7 or May 11, and whether it was
sent via UPS or USPS was irrelevant for Rule 37 analysis.”
According to Consolidated, a finding that Thomas lied about
when or how he sent the responses was an insufficient basis
to find bad faith under Rule 37. The courts below simply
No. 05-2729                                               13

found that Thomas lied and that his conduct was deplor-
able. Consolidated maintains that although this might be
an adequate basis for dismissal under the court’s inherent
power, the basis for the dismissal was Rule 37 which
requires a showing that the violation of the court’s order
was in bad faith. As such, Consolidated declares, lying
about when and how Thomas tendered the responses was
irrelevant. Thomas openly admitted the responses, which
were due on April 30, were late when he certified that they
were mailed on May 7. Consolidated concludes that there
was no motive to lie about the responses being seven rather
than eleven days late, and the lie was not sufficient to
demonstrate a bad faith violation of the court’s discovery
order. Indeed, Consolidated goes so far as to argue that the
lie was proof that Thomas wanted to prosecute the case and
felt a need “to cover his tracks of past conduct and general
incompetence.”
   We reject this rather bold argument outright. When
Thomas lied about when and how he tendered the discovery
responses, that falsehood went to the heart of the court’s
order. Although he conceded that the responses were late in
coming, he did not concede what was obvious to this court
and to the courts below, that Thomas failed to tender any
responses until after the motion for sanctions was filed on
May 10. His lie was calculated to make the court believe
that he substantially complied with the court’s order
without the threat of the sanctions motion. Perhaps he
hoped to persuade the court to enter a less severe sanction;
perhaps he hoped to avoid sanctions entirely. But the lie
was so obviously related to the failure to comply with the
order that the connection did not merit express mention
below. Because this is the focus of Consolidated’s argument,
we make express what the courts below implied: the lie
about when and where the responses were tendered was
evidence of a bad faith breach of the court’s discovery order.
Moreover, the courts below did not rely solely on Thomas’
lies for a showing of bad faith but relied in part on the fact
14                                                No. 05-2729

that he repeated the same non-responsive, inadequate
answers that the bankruptcy court expressly warned him
were unacceptable. This blatant disregard of the bank-
ruptcy court’s order was more than sufficient to demon-
strate the bad faith finding that justified dismissal.

                              C.
  Consolidated also contends that the district court abused
its discretion by failing to warn the plaintiff of the pos-
sibility of dismissal as a sanction for failure to comply with
the discovery order. We can handle this complaint in short
order. The district court did warn Thomas that if he
continued to fail to comply with orders, he would “never get
to a trial.” Although a layperson might not have understood
what that threat meant, a lawyer such as Thomas surely
did. In the context of a Rule 41 dismissal for failure to
prosecute, we noted that a single warning was sufficient
and that the warning need not be formalized in a rule to
show cause. Ball v. City of Chicago, 2 F.3d 752, 755 (7th
Cir. 1993). “A judge is not obliged to treat lawyers like
children.” Ball, 2 F.3d at 755. It is sufficient to warn a party
that if it fails to comply with a deadline, “the case is going
away,” the court will “take severe action in this case,” and
that the court “will seriously consider a motion to dismiss.”
Aura Lamp & Lighting Inc. v. Int’l Trading Corp., 325 F.3d
903, 908 (7th Cir. 2003). See also Fischer v. Cingular
Wireless, LLC, 446 F.3d 663, 665-66 (7th Cir. 2006) (noting
that a warning is not always necessary and that notice of
possible dismissal revealed in the opposing party’s motion
may serve as adequate warning). Here Thomas was warned
that if he failed to comply, he would “never get to a trial.”
After this warning, he not only failed to comply, he lied to
the court about his failure to comply. No more warning was
warranted let alone required before dismissal under these
circumstances.
                                                    AFFIRMED.
No. 05-2729                                         15

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit

               USCA-02-C-0072—7-31-06