On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 83-5733.
Sloviter, Becker and Garth, Circuit Judges.
This is an appeal by Curtis T. Bedwell & Sons, Inc. ("Bedwell"), plaintiff and counterclaim defendant in a district court action arising out of a construction contract dispute, from the district court's Fed. R. Civ. P. 37(b) and (d) discovery sanctions orders which: (1) dismissed Bedwell's complaint; (2) decreed liability by default against it on a claim and counterclaim; and (3) awarded damages of $616,505 plus interest on the claim without a hearing on the damage amount. The prevailing parties in these claims were International Fidelity Insurance Company ("International"), the surety on the performance bond issued to cover John J. Hennelly, Inc. ("Hennelly"), Bedwell's masonry subcontractor, and Fred Zimmerman ("Trustee"), the trustee in bankruptcy for Hennelly in its subsequently filed bankruptcy proceeding. The principal issues before us are: (1) whether the district court, in dismissing the complaint, properly applied the governing Poulis factors*fn1 or abused its discretion; and (2) whether the district court's refusal to hold an adversary hearing to determine damages was improper.
We are persuaded by the district court's numerous findings concerning Bedwell's discovery abuses, including the personal discovery misconduct of Bedwell's principal officers, Curtis and Thomas Bedwell, and by the district court's careful weighing of the Poulis factors, that it did not abuse its discretion by entering judgment on the merits against Bedwell on both Bedwell's complaint and the claim and counterclaim against Bedwell. We also conclude that the district court's refusal to hold an adversary hearing to determine damages was not improper. On the basis of Bedwell's discovery abuses, the district court had entered an order precluding Bedwell from producing evidence as to damages. Because that order was plainly justified on this record, and because giving effect to it would render any hearing on damages meaningless, the district court's assessment of damages will also be affirmed. We note in this regard that the excluded evidence pertained to cost of completion which was the major area of the discovery abuse; that cost of completion comprised 97% of the damages; that the district court had ample evidence to calculate damages; and that pursuant to leave of court, Bedwell filed an extensive brief countering the Trustee's damage submissions.
We begin with a description of the facts and procedural history of the case; unfortunately they are complicated and, because their full recitation is necessary to an understandable discussion, our description must be extensive.
I. FACTS AND PROCEDURAL HISTORY
Bedwell was the general contractor on a project to construct a Preliminary Treatment Building and New Sludge Digestion and Gas Facility at the City of Philadelphia's Northeast Water Pollution Control Plant. In December, 1981 Bedwell entered into two subcontracts for masonry work with Hennelly. The subcontracts provided that Bedwell would make monthly progress payments to Hennelly under a cost breakdown schedule as the masonry work was performed.
The parties contracted for two types of bonds regarding the masonry work. First, the subcontracts between Bedwell and Hennelly provided that completion of the masonry work would be guaranteed by performance and payment bonds ("the subcontract bonds"), which were written for Hennelly by appellee International.*fn2 Second, because the project was financed by the City of Philadelphia, Bedwell, as general subcontractor, was required to enter into payment bonds to insure the payment of claims by Hennelly's suppliers and employees ("the Philadelphia payment bonds"). See Pennsylvania Public Works Contractors' Bonds Law, 8 Pa. Cons. Stat. Ann. §§ 191-202 (Purdon Supp. 1987).
These interrelated commitments came to the fore in November, 1982 when Hennelly, asserting that Bedwell had failed to make timely progress payments as required by the subcontract, walked off the job. Bedwell contended, however, that the failure to make payments occurred because Hennelly had failed to construct certain portions of the project and had failed to make timely payments to its employees and suppliers, rendering Bedwell obligated to make payments under the Philadelphia payment bonds. Bedwell therefore treated Hennelly's abandonment of the projects as a breach of contract and sought payment from International under the subcontract bonds.
Bedwell then hired as counsel Matthew S. Donaldson, Jr. ("Donaldson"), who filed a complaint on its behalf in November, 1983, alleging that International had refused to perform its obligations under the subcontract bonds. A complicated exchange of pleadings followed, only part of which relates to this appeal. International filed a third party complaint against Hennelly and John and Margaret Hennelly ("the individual Hennellys"), asserting contractual and common law indemnification claims. See supra n.2. Hennelly and the individual Hennellys counterclaimed against International and claimed against Bedwell: (1) for outstanding payments due under the subcontract agreement; and (2) for the destruction of Hennelly as a going concern, which allegedly resulted from Bedwell's failure to make payments. Bedwell, in turn, filed a counterclaim against Hennelly. Subsequently, Hennelly filed a petition for protection under Chapter 11 of the federal Bankruptcy Code and is now represented by the Trustee.
The pleadings raised two major questions for exploration by discovery. First, which party, Bedwell or Hennelly, first materially breached the terms of the subcontract?*fn3 Second, what was the cost of completing the masonry work begun by Hennelly and completed by Bedwell?*fn4
Discovery began in January, 1984 with a broad request by International to Bedwell for, inter alia, production of all documents relating to the cost of completion of the masonry work. International served the requests upon Bedwell's attorney, Donaldson, who forwarded them to Bedwell in February, 1984. Thomas Bedwell, president of Bedwell, then compiled the documents that constituted Bedwell's response and submitted them to International in April, 1984. The next significant discovery occurred on October 3, 1984 when International deposed Thomas Bedwell. As a result of the deposition, International determined that more documents existed regarding the cost of completion than had been produced in response to the January, 1984 request. Specifically, International determined that certain documents relating to communications with the City of Philadelphia, the notes of Bedwell's project manager Shashi Mody regarding Hennelly's masonry work, and other cost of completion documents should have been produced.
On October 15, 1984 International served its first set of interrogatories on Bedwell, requesting identification of every person with knowledge of the allegations in the complaint and seeking expert witness information. Answers to the interrogatories were due within 30 days, on November 15, 1984. See Fed. R. Civ. P. 33(a). International also filed a second request for document production on October 15, requesting all documents corresponding to the answers to the first set of interrogatories.
November 15 passed without Bedwell producing either the documents identified at the October 3 deposition, which International contends Bedwell should have produced in response to the January request for production, or answers to the first interrogatories. On November 21, 1984, International moved pursuant to Fed. R. Civ. P. 37(a) to compel production of these documents.
On December 3, before the court had acted on the motion, Bedwell supplied International with 524 pages of documents, including certain communications with the City of Philadelphia. However, the response did not include Mr. Mody's notebooks, which Bedwell claimed were "personal." Moreover, Bedwell failed to supply additional cost of completion information. Also on December 3, International moved to compel answers to its October 15 first set of interrogatories and served a second set of interrogatories seeking answers and identification of documents related to cost of completion. These answers were due January 3, 1985, but were not filed until January 10, 1985. International has argued that these answers were incomplete, that they contained material inaccuracies, and that Bedwell's promises to cure these deficiencies were never fulfilled.
Bedwell did not respond to International's motion to compel answers to the October 15 first set of interrogatories; instead, on December 14 it filed the answers themselves, which later were found by the district court to be incomplete. Reacting to the insufficiency of the answers, International filed, on December 18, a supplemental motion to compel answers.
The district court acted on International's motions on December 20 and issued two orders. First, finding that Bedwell had not provided cost of completion documents responsive to International's first document request (made in January), it ordered Bedwell to comply within five days. Second, the court ordered Bedwell to provide "full and complete" answers to the October 15 (first) set of interrogatories and to provide the documents requested in International's second document request within seven days. The court explicitly warned Bedwell to comply with the order "or suffer sanctions." J.A. at 1414.
The events that occurred between the December 20 orders and a discovery conference on January 2, 1985 are the subject of heated dispute. On December 20, the same day the orders issued, the court called Donaldson to inform him of its decision on the motion to compel and its deadlines for providing the information. Subsequently, Donaldson attempted to reach Thomas Bedwell by telephone to inform him of the court's decision.*fn5 However, Thomas Bedwell was on vacation in Florida and Donaldson did not speak to him until he returned on January 2, 1985. Thomas Bedwell maintained that he had returned Donaldson's phone call on Friday, December 21 but, after being told that Donaldson was occupied with an office Christmas party, assumed that the message was unimportant.
Bedwell also maintained that during this time (i.e., from December 12, 1984 until January 2, 1985), because of an alleged death threat to Donaldson's mother, Donaldson had effectively withdrawn from the case.*fn6 As a result, Bedwell claims that it was wholly uninformed as to the seriousness of the developing discovery problems. Ultimately, the district court found that both counsel and the plaintiff itself were exceedingly lax about contacting one another during this period, and that, as a result, they both disregarded the discovery deadlines imposed by the court's order of December 20.
Also during the month of December, 1984, International attempted to resume the deposition of Thomas Bedwell, and to depose Curtis Bedwell, chairman of the board of Bedwell, and project manager Shashi Mody. Although the exact interactions between International's counsel and Donaldson and between Donaldson and his client Bedwell regarding the depositions are in dispute, the court found that International and Donaldson scheduled and, at Thomas Bedwell's insistence, were forced to reschedule depositions of Curtis Bedwell and Mody.*fn7 Mody failed to appear at a December 27 deposition but finally was deposed on January 18, 1985. International argues that at that time "he divulged the existence of numerous documents which [Bedwell] had not previously produced." Appellee's Br. at 29. On appeal, Bedwell contends that Donaldson never informed the Bedwells and Mody of the pendency of their depositions and scheduled the depositions without checking in advance to see if they were available.*fn8 However, at a January 2, 1985 discovery conference Donaldson argued that the absences were due to vacations and previous business commitments.
International met with additional difficulties in its attempts to depose Curtis Bedwell. Donaldson informed International in early December that Curtis Bedwell could not be deposed for health reasons, but Donaldson never moved for a protective order under Fed. R. Civ. P. 26(c). International filed a motion to compel on December 20, 1984, and Donaldson responded at the January 2 discovery conference by presenting a letter from Curtis Bedwell's doctor. As the district court noted, however, under the terms of the letter, even if Curtis Bedwell was unfit to testify in court, he could be deposed under appropriate conditions.
After Bedwell failed to comply with the five and seven day deadlines imposed by the district court in its December 20 orders, International moved for sanctions on December 27, and on December 28 moved to compel full answers to its first set of interrogatories. In response to the ongoing discovery problems, the court held the January 2 discovery conference. At the conference Donaldson submitted the documents due on December 27 and, according to the court, advanced "the unbelievable argument" that the additional documents need not be produced because he had earlier permitted International's counsel access to other, different documents. J.A. at 1405. Donaldson also offered excuses for the failures of Curtis Bedwell and Shashi Mody to appear at their scheduled depositions. At that time the court directed Donaldson to have Bedwell produce Mody's notebooks promptly. Donaldson testified that he informed Thomas Bedwell of the court's orders the same day.
Also on January 2, Bedwell filed amended answers to the first set of interrogatories. However, according to International, these amended answers were not "full and complete," and although Donaldson apparently agreed to provide supplemental answers, they were never provided. On January 3, International resumed the deposition of Thomas Bedwell.
On January 14 the district court announced that sanctions would follow shortly and issued orders enforcing its December 20 orders. The court ordered Mody and Curtis Bedwell to make themselves available for their depositions.*fn9 In addition, the court extended International's discovery period for 30 days, but refused to extend Bedwell's discovery period.
On January 16, 1985, International resumed the deposition of Thomas Bedwell, and on January 18, International deposed Shashi Mody, with Thomas Bedwell in attendance. Although Donaldson had told Thomas Bedwell of the need to produce Mody's notebooks promptly, it was not until January 22 that Thomas Bedwell finally delivered them by giving the notebooks to Donaldson on the day Donaldson was to take the deposition of an International employee.*fn10 Donaldson testified that he had refused to attend the deposition without the notebooks. During this period Donaldson also informed Thomas Bedwell that he wanted "to get out of this case," J.A. at 3804, and that Bedwell should settle the claims with International if possible. Settlement negotiations were held during the week of January 23, but broke down on January 25, and no settlement was reached.
During a telephone conversation following the breakdown of settlement negotiations on January 25, International informed Bedwell of its intent to resume its scheduled deposition of Thomas Bedwell on January 28. International refused Bedwell's request to again reschedule Thomas Bedwell's deposition. Commenting on this refusal, Curtis Bedwell, in a telephone conversation, remarked "the court will just have to give us more time." J.A. at 1639.
On January 28, Thomas Bedwell told Donaldson at 8:00 a.m. that he would attend the deposition, then discharged Donaldson at 9:15 a.m. Although Donaldson, aware of the court's displeasure with Bedwell's discovery behavior, appeared at the site of the scheduled deposition, Thomas Bedwell failed to attend the deposition. Instead, as Thomas Bedwell admits, he directed his secretary to call and tell International that he was sick and would not be able to attend. The court found, and Bedwell does not dispute, that International hired private investigators who gathered information indicating that Thomas Bedwell was not sick on January 28. With direct reference to these events, the court later expressed displeasure with Thomas Bedwell's attitude toward the litigation.*fn11 The district court found that "[t]his excerpt [quoted in the margin] reflects Mr. Bedwell's overall demeanor and attitude during the [February] hearing and during the course of this litigation." Id. at 1382.
In response to Thomas Bedwell's failure to appear and the other discovery problems, International filed a third sanctions motion on January 29, 1985, seeking dismissal of Bedwell's complaint and attorneys' fees. Bedwell hired new counsel the next day, and on February 1, new counsel received Donaldson's files. Under the direction of new counsel, ...