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Comdyne I Inc. v. Corbin

argued: June 25, 1990.


On Appeal from the United States District Court for the District of New Jersey; D.C. Civil No. 87-01408.

Sloviter and Mansmann, Circuit Judges, and Fullam, District Judge.*fn*

Author: Sloviter

SLOVITER, Circuit Judge.



Facts and Procedural History

The following facts are taken from the Amended Complaint of appellee Comdyne I Inc. (Comdyne). George T. Corbin, appellant, was the founder and, until 1982, a director and the sole shareholder of Corbin Sales Corporation, a company in the business of manufacturing and selling filament-wound cylinders used primarily in national defense contracts. On August 2, 1982, Corbin sold 100% of the stock in the corporation to Johnson Industries Corporation. Corbin remained as an executive of Corbin Sales Corporation until on or about December 28, 1984.

In 1984, Corbin Sales Corporation changed its official corporate name to Comdyne I, Inc., and identified itself as "Comdyne I Inc. (formerly known as Corbin Sales Corporation)." It continues to be listed as Corbin Sales Corporation in federal government procurement manuals and vendor codes, industrial directories, telephone directories, and other business documents. Comdyne claims that a number of its products bear the name "Corbin Sales Corporation" or its logo "CSC."

On or about July 31, 1986, Corbin formed "Corbin Sales Corporation," and on or about September 3, 1986, he formed a second corporation, "Corbin Superior Composites, Inc." Although Corbin Sales Corporation never did any business and was dissolved on January 7, 1987, Corbin Superior Composites began to manufacture and sell filament-wound composite cylinders. Comdyne alleged, inter alia, that Corbin contacted customers and vendors of Comdyne on stationery which identified him as an employee of "Corbin Superior Composites, Inc. (formerly Corbin Sales Corporation)" and used the same "CSC" logo that was being used by Comdyne.

Additionally, Comdyne alleged that Corbin "has publicly stated that plaintiff has defrauded the United States Government by falsely representing the history of manufacture of certain composite cylinders; that plaintiff made 'serious and unauthorized' changes in the design of certain composite cylinders, which changes made plaintiff's products inferior and not in conformity with government specifications; and that plaintiff tampered with welds on certain nitrogen receivers, and changed and falsified serial numbers on certain nitrogen receivers to cover up failed welds, thereby defrauding the United States Government, endangering military personnel and engaging in criminal activity." App. at 48.

Comdyne filed a three count complaint against Corbin and his newly formed corporations (jointly referred to as Corbin) on April 15, 1987, alleging federal trade name infringement, federal unfair competition and infringement and unfair competition under New Jersey law. On August 28, 1987, Corbin filed his Answer and a Counterclaim containing eight counts. Counts One through Four asserted claims arising out of the original sale of the business and Corbin's subsequent employment by Comdyne. The remaining four counts, arising out of Corbin's post-employment competition with Comdyne, alleged malicious and intentional interference with his prospective economic advantage, slander and defamation, abuse of process, and a violation of civil RICO. Comdyne filed a motion to dismiss Counts Five through Eight of Corbin's counterclaim for failure to state a claim on September 21, 1987. Some time thereafter, defense counsel deposed Comdyne's President, Robert S. Berrisford, over a two-day period during which Berrisford testified under oath that the factual underpinnings for Counts Five through Eight of Corbin's counterclaim were false.

On June 1, 1988, Comdyne filed an amended complaint, with leave of court, in which it added as Counts Four and Five allegations of trade libel and product disparagement. Defendants failed to answer the amended complaint and a default was entered by the Clerk of the district court against them on July 7, 1988 pursuant to Comdyne's motion under Fed.R.Civ.P. 55(a). Defendants did not move to have the entry of default vacated or set aside under Fed.R.Civ.P. 55(c).

Both before and after the entry of the default, defendants failed to comply with a series of discovery orders of the district court and the magistrate. Initially, the defendants failed to answer the original complaint filed by Comdyne in April 1987 within the time period provided for under the court's Local Rules, but instead sought pre-answer discovery and an extension of time in which to answer. On June 25, 1987 Comdyne notified defendants' counsel that it would move, inter alia, pursuant to Rule 37(d) of the Federal Rules of Civil Procedure for an order directing defendants to pay its reasonable expenses incurred because of the failure of George Corbin and his wife, Tedi Corbin, who was President of Corbin Superior Composites, Inc., to appear for depositions which had been scheduled for June 18, 1987. Following a hearing the magistrate, by order dated August 6, 1987, permitted the defendants to file their answer by August 28, ordered discovery for both parties, and imposed a sanction against defendants of $250 for failing to appear at the depositions. The district court affirmed the sanctions.

On October 26, 1987, the district court sanctioned Corbin's then-counsel $250 for failing to timely file opposition papers to Comdyne's motion to dismiss, which had been filed September 21, 1987, or to properly request an extension of time to file such papers, pursuant to the Local Rules.

On November 10, 1987, the district court ordered the defendants to respond to two sets of interrogatories and document requests by Comdyne on or before November 17, 1987. The defendants, however, provided incomplete answers to a number of interrogatories and failed to produce a number of the requested documents. They also failed to respond to a third set of interrogatories served on them by Comdyne on November 24, 1987. Consequently, in an order dated May 27, 1988, the magistrate ordered the defendants to fully answer specified interrogatories and to comply with the document requests by June 10, 1988. As a result of defendants' failure to comply with that order, on July 20, 1988 the magistrate ordered defendants, pursuant to Rule 37(b)(2) of the Federal Rules of Civil Procedure, to pay $500 and to comply with the May 27 order.

At the close of discovery on September 2, 1988, after the Clerk entered the default, Comdyne filed a motion for partial summary judgment and a motion to strike Corbin's answer and counterclaim for failure to comply with the May 27 and July 20 orders. On October 24, 1988 following a hearing, the magistrate found that the defendants' refusal to comply with the orders dated May 27 and July 20, 1988 was "willful, unjustified and in bad faith," App. at 282-83, ordered defendants to comply with these orders and pay an additional $1,000 in sanctions by November 18, and warned that failure to do so would result in their answer and counterclaims being stricken. On November 29, 1988, the magistrate, noting that defendants failed to comply with the October 24 order imposing sanctions, entered an order striking the defendants' amended answer and counterclaim pursuant to Fed.R.Civ.P. 37(b)(2).*fn1 In a subsequent Report and Recommendation on Comdyne's motion for summary judgment, the magistrate recommended that the motion be denied as moot because Corbin's answer and counterclaim had been struck.

The district court held an evidentiary hearing on May 18, 1989 pursuant to Fed.R.Civ.P. 55(b)(2) in order to determine the amount of damages to which Comdyne was entitled as a result of the default entered on July 8, 1988 for Comdyne on its amended complaint. At the hearing, Comdyne presented evidence to support its claim of damage consisting of the value of time which three of its employees spent in attempting to mitigate the damage to its reputation in the government contracting community caused by Corbin's defamatory statements, the expense it incurred in undertaking retesting of the composite cylinders to demonstrate that the cylinders met government specifications, and the time spent by Comdyne employees in responding to a newspaper article that appeared in the Pittsburgh Press in October 1988 containing a picture of Corbin and quoting his allegations that Comdyne's cylinders were defective. Although Corbin's counsel was at the evidentiary hearing, neither Corbin or any other representatives of the defendants appeared or offered any testimony.*fn2

In an opinion entered on October 17, 1989, the district court first held that the record warranted entry of a default judgment in light of the six factors enunciated by this court in Poulis v. State Farm Fire and Casualty Co., 747 F.2d 863 (3d Cir. 1984). The court next held that plaintiffs had established liability for the product disparagement and trade libel claims, as all well-pleaded allegations in a complaint, except those relating to the amount of damages, are admitted as true following a default.

Turning to the issue of damages, the court adopted in its entirety the summary of compensatory damages submitted by Comdyne and found that Comdyne was entitled to compensatory damages in the amount of $50,233.88 under Counts Four and Five of the complaint. The compensatory damages included (1) $40,540 for the retesting of the cylinders, and (2) the value of the time of Comdyne employees expended in attempting to reduce or avert the damage flowing from the defamation, consisting of $2,079 in billable time of Berrisford, $300 in billable time of Franklin G. Buck, Comdyne's Executive Vice President, and $2,193.75 in billable time of Richard Swan, Comdyne's marketing manager, and the out-of-pocket cost of $5,121.13 for travel expenses incurred by Berrisford and Swann. The court also awarded Comdyne $10,000 in punitive damages. Finally, the court adopted the magistrate's Report and Recommendation of January 5, 1989 dismissing Comdyne's motion for summary judgment as moot in light of the previous striking of the defendants' counterclaims.*fn3

On November 6, 1989, the district court entered a "final judgment by default" in accordance with its October 13, 1989 memorandum and order. This timely appeal followed.*fn4



Although on appeal defendants focus primarily on the issue of the appropriateness of punitive damages and certain elements of compensatory damages, they also challenge the striking of the answer and counterclaim and the entry of default judgment. We note that there were, in effect, two sanctions entered for separate and distinct reasons. The default judgment was entered pursuant to Rule 55 which authorizes the clerk of court to enter a default against a defendant who has failed to file a timely answer, see Fed.R.Civ.P. 55(a), and the court to enter a default judgment when the plaintiff's claim is not for a sum certain, see Fed.R.Civ.P. 55(b)(2), as here. The striking of the counterclaim was entered pursuant to Rule 37(b)(2)(C), which authorizes such a sanction against a party for failure to obey an order to provide or permit discovery.

As a preliminary matter, we refer to this court's opinion in Dunbar v. Triangle Lumber and Supply Co., 816 F.2d 126 (3d Cir. 1987), a case involving a district court order dismissing the plaintiff's complaint under Fed.R.Civ.P. 41(b)*fn5, where we invoked our supervisory power to require district courts, upon a motion for dismissal or default judgment "based on an apparent default on the part of a litigant's counsel," to "direct the clerk of the ...

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