Petition — Inmobiliaria Melia de Puerto Rico, Inc. v. Paine, Webber, Jackson & Curtis, Inc.

Sup. ie Cot, U&

klLEOD

JAN 10 1977

) MICHAEL RODAK, JR., CLERK

-_———

In THE

Supreme Court of the United States

Octoser TERM, 1976

No 08 = 958

INMoBILIARIA Metia DE Puerto Rico, Inc.,

Petitioner,

—against—

Paine, WesBER, Jackson & Curtis, INCORPORATED,

Respondest.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Norman Sonovay

Hoitzmann, Wise & SHEPARD

Counsel for Petitioners

Office & P. O. Address

30 Broad Street

New York, New York 10004

Tel. No. (212) 747-5500

TABLE OF CONTENTS

PAGE

EE TTT RMT eee ney i 1

SI secssciinneiisinsctiainsiaciittameiseciasiiimiaaieh ainsi aaliaiiaiig 2

I Cr iii cscisicinsestitticipbialshapalianiacihinialalaanitaliiies 2

Statutory Provisions Involved ...................cccccecesceceseeeeeeee 3

I Or i aac eienceleeeneiaiilins 4

EES a a 4

A Review of the Factual Background Indicates

Paine Webber’s Claim to Be So Questionable and

the Additional Discovery of Such Doubtful Utility

That the Extreme Penalty Imposed Here Would

Have Been Overly Harsh and Unwarranted Even

Had There Been a Wilful Discovery Default ........ 7

The Procedural History of the Action Establishes

That the District Judge Did Not Consider the

Entire Record Prior to Dismissal and Thus Failed

to Learn of Facts That Would Have Negated a

Finding of Wilfulness or Bad Faith —...000020... 11

Reasons for Granting the Writ —2.000000..0.2..eeee cece eee 21

TERETE TRE ae ere Oe 21

I. The Requirement Set Forth in the National

Hockey League Decision for a Review of the

Entire Record Was Ignored in This Case ........ 22

II. The Findings of the Magistrate to Whom the

Parties Had Stipulated to Submit All Dis-

covery Issues Came Within the Purview of

Rule 53, Fed. R. Civ. P., and Were Not Sub-

ject to Reversal Unless “Clearly Erroneous” 24

ii

PTE OTE NIN ATTRA TERE, HO 26

APPENDICES

A. Opinion of Affirmance of Circuit Court of Ap-

STITT scutes tiated teiidetas ania ccetititasinaainintealeaniiaiins A-1

B. January 12, 1976 Initial Default Memorandum En-

dorsement of the District Court —..0000000.0 i... B-1

C. Transcript of January 21, 1976 Oral Argument on

Motion for Reconsideration ...................2::..ccccccceeeeees C-1

D. Opinion of Circuit Court of Appeals in United

ThE sss tsehiasttiiscutnseeeiannetbeeshatetlna atilsdnatisidlidiaiciehgini D-1

E. Federal Rules of Civil Procedure 37(b)(d), 53(e) .. E-1

F. January 22, 1976 Order and Judgment in Default .. F-1

TABLE oF AUTHORITIES

Cases:

DeCosta v. Columbia Broadcasting System, Inc., 520

F.2d 499 (1st Cir. 1975), cert. denied 423 U.S. 1073

<< saath Adair iad iantaeacatadiaal 25, 25n

Flaks v. Koegel, 504 F.2d 702 (2d Cir. 1974) ............ 6n, 20n

Gill v. Stolow, 240 F.2d 669 (2d Cir. 1957) ........ 7n, 20n, 23n

National Hockey League v. Metropolitan Hockey Club,

we F (se , F) | ee 2, 3, 3n, 6, 7, 12,

20, 21, 22, 23, 24, 26

Societe Internationale v. Rogers, 357 U.S. 197 (1958) .. 11n

PAGE

United States v. Stein, No. 76-1299 (2d Cir. Oct. 22,

SITTIN seissisiehicisesiaihdiniiaditatisdbbienddlimataiuentinssiiibaiatsdiaunpunnedl 5, 6, 15, 22

Statutes:

The Federal Magistrates Act

8 a Rh eee 3, 25

Other Statutes Cited

I aaa danielle 2

Rules:

i i OO, seeuneetienminnneinne 3,4

I tate NG, BTL MI scscssnicsncticeiasissacnaianenibaentinesiimiad 3, 22, 24, 25

Other Authorities:

Character and Extent of Right of Broker Who has

Exclusive Contract, Where Sale is Effected Without

His Agency, 64 A.L.R. 395 (1929) 2.000. lin

4 Weinstein-Korn-Miller, N.Y. Civ. Prac., {| 3215.25,

Ee SI cisesiticttncaninssetcicennitenectindennenbinaenitedaeanneiiin 23n

In THE

Supreme Court of the United States

Ocroser Team, 1976

_ a

Inmosriania Metis ve Puerto Rico, Ixc.,

Petitioner,

—against—

Parne, Wepser, Jackson & Curtis, LycorporaTen,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioner respectfully prays that a writ of certiorari

issue to review the judgment and opinion of the United

States Court of Appeals for the Second Circuit entered in

this proceeding on October 12, 1976.

Opinions Below

None of the opinions rendered in this case have yet been

reported. The opinion of the United States Court of

Appeals for the Second Circuit, No. 76-7087 (Oct. 12, 1976),

is set forth in the appendix (A-1), together with the

January 12, 1976 handwritten memorandum endorsement

of the District Court for the Southern District of New

York, directing entry of a default judgment (B-1) and the

transcript of the January 21, 1976 oral argument, on

motion for reconsideration before the District Court (C-1).

Jurisdiction

The judgment of the Court of Appeals for the Second

Circuit was entered October 12, 1976. This petition for a

writ of certiorari was filed within 90 days of that date.

The Court’s jurisdiction is invoked under 28 U.S.C.

§1254(1) (1970).

Questions Presented

In an action to recover a mortgage brokerage fee, the

District Court directed entry of a default judgment of

approximately $340,000 in favor of plaintiff-respondent,

Paine Webber Jackson & Curtis, Incorporated (herein

“Paine Webber”), and dismissed the counterclaims of

petitioner-defendant, Inmobiliaria Melia de Puerto Rico,

Inc. (herein “Melia”), because of Melia’s alleged non-com-

pliance with certain discovery demands.

There were factors present indicating that the District

Court’s decision was arbitrary and capricious and made

without knowledge of or inquiry into the status or facts of

the case. Under its prior decisions, the Court of Appeals

would have reversed for various reasons, including the

District Conrt’s failure to review the facts of the case prior

to rejecting the report of the Magistrate supervising dis-

covery. Subsequently, however, on June 30, 1976, this

Court handed down its decision in National Hockey League

v. Metropolitan Hockey Club, 96 &. Ct. 2778 (1976) [here-

inafter cited as National Hockey League}. Apparently in

reliance on that decision, the Court of Appeals affirmed.

The basic question presented is whether this Court’s de-

cision in National Hockey League mandated affirmance of

the default judgment entered by the District Court?

3

Involved are two significant federal practice issues:

(a) Did the National Hockey League decision establish

or confirm a requirement that a district court “consider the

full record in determining whether to dismiss for failure

to comply with discovery orders,” and, if so, did the District

Court in this case violate that requirement, inasmuch as

the sudden and unexpected entry of the default was with-

out notice or hearing, after being out of touch with what

was transpiring in the case for the past seven months, and

was done without exploring the merits, the necessity of the

sought-for discovery or the possibility of lesser sanctions?*

(b) Where the Magistrate supervising discovery pursu-

ant to a stipulation of the parties and more familiar than

the District Judge with the facts of the case, submitted a

recommended order containing an implicit finding that

Melia was proceeding with discovery in good faith, did the

District Judge’s rejection of that “finding” violate the re-

quirement of Rule 53(e), Fed. R. Civ. P., that “the court

shall accept a master’s findings of fact unless clearly

erroneous?”

Statutory Provisions Involved

Rules 37(b) (d) and 53(e), Federal Rules of Civil Pro-

cedure. These Rules are reproduced in full in the Appendix

(E-1). The Federal Magistrates Act, 28 U.S.C. 631 et seq.

* In National Hockey League, a plaintiff in default was prevented

from going forward with its claim. We treat as subsumed here-

under the question of whether an even more extensive, preliminary

inquiry is required when an affirmative money judgment is being

entered, in order to bar an undeserved windfall to a plaintiff whose

claim may be without merit.

Statement of the Case

Preliminary Statement

Melia’s appeal to the Circuit Court of Appeals for the

Second Circuit had been from a default judgment entered

by the District Court for the Southern District of New

York (Motley, D.J.) pursuant to Rule 37, Fed. R. Civ.

P. on January 2%, 1976 (JA 238) (F-1),* which awarded

Paine Webber the sum of approximately $340,000 (con-

sisting of the $285,000 demanded in the complaint as a

mortgage placement brokerage fee, together with interest

from November 1, 1972, plus attorneys’ fees in the sum

of $3,743.50 and other costs) and dismissed Melia’s

$1,500,000 counterclaim.**

Paine Webber had requested this relief in a cross motion,

originally returnable June 20, 1975 (herein the “Cross

Motion”), which it made in response to a motion by Melia’s

New York attorneys for leave to withdraw from the case.

The basis for Paine Weber’s Cross Motion was Melia’s

alleged failure to comply with certain discovery demands.

The District Court’s initial decision granting Paine

Webber’s Cross Motion was set forth in a brief handwritten

Memorandum Opinion (JA 173) (B-1) dated January 12,

1976. However, during the seven month period prior to

this decision, the Magistrate supervising discovery con-

ducted a hearing at which the parties had agreed upon a

* Petitioner has requested the transmission to this Court of the

printed record (i.c., a Joint Appendix and an Exhibit Volume

submitted to the Cireuit Court). JA references herein are to pages

of the Joint Appendix; EV references are to pages of the Exhibit

Volume; parallel citations to the Appendix have been included

where available.

** The basis for the District Court's jurisdiction was diversity

of citizenship.

5

discovery completion schedule. This schedule was then

embodied in an order prepared by Paine Webber and

adopted, with minor modifications, by the Magistrate.

Melia thereafter set in motion all steps necessary to comply

with this order, including flying its remaining deposition

witness from Puerto Rico to New York.* It would have

completed its discovery obligations but for the District

Court’s rejection of the Magistrate’s order and entry of

the default judgment without advance warning.

After handing down its unexpected default ruling, and

while the Puerte Rican witness was still in New York, the

District Judge had refused a telephonic request for an im-

mediate rehearing, insisting, instead, on a formal written

motion for reconsideration. The parties’ first actual ap-

pearance before the District Judge in the case finally took

place, pursuant to such motion, om January 21, 1976

(JA 212) (C-1).** The transcript of the oral argument

on such motion indicates that the District Judge had issued

the brief default handwritten opinion on January 12, 1976,

primarily because of the age of the case, while laboring

under a variety of misapprehensions and unaware that

discovery was scheduled to go forward the very next day

(see JA 213-216) (C-2-4).

Coincidentally, the Circuit Court appellate argument in

United States v. Stein, No. 76-1299 (Oct. 22, 1976) [herein-

after cited as Stein], which immediately preceded argu-

ment of the instant appeal, involved the same District

* While Paine Webber apparently continued to argue that the

incomplete discovery included further documents, as well as a

deposition of Fullana, it was ultimately made clear that there were

no such documents (see JA 222-24) (C-8-10).

** At such oral argument the District Judge appeared critical of

Melia for not keeping its Puerto Rican witness available in New

York from January 12th until the January 21, 1976 oral argument

(see JA 225) (C-10).

6

Judge. (A copy of the decision in that appeal is set forth

in the Appendix at D-1.) In its decision in the Stein case,

‘he Cireuit Court expressed sympathy for the “severe

pressures” in this “heavily burdened court.” Nevertheless,

it reversed a sentencing decision of the District Judge

and, in so doing, delivered what was, in effect, a stinging

rebuke. After a careful review of the facts, the Cireuit

Court majority opinion coneluded that the District Judge

had only read the first four pages of a pre-sentencing re-

port and had failed to turn over and read the last (fifth)

page. The opinion rejected as untrue the District Judge’s

claim to have read the entire report. In a concurring opin-

ion (D-17-18), Cireuit Judge Lumbard agreed with the

majority’s analysis “that the district judge failed to con-

sider the significant facts and opinions which were highly

relevant to the sentence . . .”, but was also of the opinion

that reversal and remand to a new district judge was re-

quired because the sentence was “unprecedented and be-

yond al] reason.”

Although the instant appeal arises in a different pro-

cedural and substantive context than the Stein case, they

both reflect a strikingly similar pattern of judicial be-

havior by the same District Judge. Here, as in Stein, there

was an extreme, unprecedented and arbitrary disposition,

following a failure to update stale, outmoded informa-

tion. In the instant case, however, the Court of Ap-

peals, in apparent deference to this Cuurt’s opinion in

National Hockey League, failed to make an analogous

factual inquiry into the state of the District Judge’s knowl-

edge, even though such an inquiry was mandated by its

own, earlier decisions relating to entry of default judg-

ments,* as wel! as by the requirement set forth in National

*See, e.g., Flaks v. Koegel, 504 F. 2d 702 (2d Cir. 1974) (re-

versing and remanding for a hearing where a default was entered

7

Hockey League that the District Court “consider the full

record.”

The issue is whether the procedure employed by the

District Judge is offensive to our concepts of due process.

The National Hockey League decision, and others cited in it,

suggest that the seven month gap in the District Court’s

knowledge of the case and its failure at_any time to make a

review of the entire record constitutes incurable error

irrespective of whether one could, at this time, parse the

entire history of the action and dredge up retroactive

support for a default judgment.

A Review of the Factual Background Indicates Paine Webber’s

Claim to Be So Questionable and the Additional Discovery of

Such Doubtful Utility That the Extreme Penalty Imposed Here

Would Have Been Overly Harsh and Unwarranted Even Had

There Been a Wilful Discovery Default.

The District Court at no time explored the merits of

the action. Had it done so, the most superficial review of

the facts would have disclosed that Paine Webber was not,

in fact, the procuring cause of the mortgage loan Melia

finally obtained and that the claim for a brokerage fee was

therefore dubious and, indeed, was basically an immoral

one. Moreover, without having at least a superficial knowl-

edge of the merits, the District Judge was in no position to,

and obviously did not, form a judgment as to the actual

need for the additional discovery.

without factual exploration by the District Judge as to unexplained

difficulties between a party and its attorneys) ; Gill v. Stolow, 240

F. 2d 669 (2d Cir. 1957) (reversing a dismissal entered for failure

to go forward with discovery under circumstances in many respects

closely analogous to the instant case).

8

Such an exploration could have been readily accom-

plished, since the following basic facts were already estab-

lished by documents and testimony adduced at pre-trial

depositions:

The parties’ initial discussions, which related to place-

ment of a combined construction and mortgage loan for a

proposed 627 unit condominium hotel (‘‘Apartotel”) in

Puerto Rico, took place early in 1972. On March 13,

1972, Paine Webber’s officer in charge, Leonard Wilkes

(“Wilkes”), forwarded a proposed brokerage agreement

designating Paine Webber as Melia’s “sole and exclusive

agent” to make application for a loan or loans in connec-

tion with “Melia’s proposed Apartotel” (EV 303, 304-306).

Although similar to the agreement sued on by Paine Webber

in this action, this first version of its proposed broker’s

agreement conferred a 45-day brokerage exclusive on Paine

Webber. Melia rejected this 45-day exclusive as too long

and Paine Webber thereupon agreed to a 30-day period

(JA 8).

As part of its inducement for this exclusive, Paine Web-

ber represented to Melia that it had a close, “well-en-

trenched” relationship with First Mortgage Investors

Trust (“FMI”), a large real estate trust. Jack Berger

(“Berger”), Melia’s then chief financial adviser, describ-

ing the conversation in his pre-trial deposition, said (EV

233-34) :

“.., [A]t some point [Wilkes] indicated that Paine,

Webber had even taken FMI public or acted as their

investment bankers, so there was a very close relation-

ship there. He went a long ways in certainly assuring

me that the deal would be done with FMI.”

Thereafter, in and prior to June, 1972, Paine Webber

continually represented to Melia that it had obtained a firm

9

and definite loan commitment from FMI.” In this context,

Paine Webber requested a $50,000 good faith deposit and

extensions of its brokerage exclusive “for the time required

to process [the loan] formally through the FMI Trustee

Committee approval ....” However, after “repeated as-

surances [from Paine Webber to Melia] that [the loan]

was at the last stage of .. . finalization” and that FMI’s

Trustees’ approval was merely a formality (EV 280 and

234), Paine Webber and Melia learned, to their mutual

surprise, that FMI was not going to make the loan after all.

Berger’s description of his conversation with Wilkes

when this became known was as follows (EV 285-86) :

“ . . well, first of all obviously he was as pained, I

guess, as we were and as surprised as we were and

said that he had been given assurances that the deal

was concluded and was terribly sorry that this thing

had fallen apart.” **

Paine Webber thereafter faded from the scene, at least

for the time being. Berger testified that Melia, having

become “increasingly disillusioned,” held no subsequent

discussions with Wilkes regarding financing and they had

both politely parted, at the end, with the vaguely expressed

* See, for example, the handwritten note from Paine Webber to

Melia’s president (EV 512) stating:

“Everything is go re Melia San Juan.

“Please rush the following to me:

(a) the signed FMI application.

(b) the $50,000 refundable deposit ... FMI

(ec) My letter of 6/26 . . . updating our authorization.

Good luck to us all!!”

** An October 3, 1972 internal Paine Webber memorandum con-

firms Berger’s testimony. There, in describing the FMI turndown

to his superior, from Paine Webber’s point of view, Wilkes says:

“We were kicked in the head!!” (EV 528)

10

hope that “we could find some other community of interest

in the future and that was the way it was left.” Under-

standably, Melia made no further efforts to communicate

with Paine Webber about other financing (EV 286-87).

Having thus lost some seven months,* Melia ultimately

obtained its loan from the Housing Investment Corpora-

tion (“HIC”), using a Puerto Rican broker, unrelated to

Paine Webber, to whom it paid a full commission (see

EV 93-97, 162-69).

However, Paine Webber’s sense of failure was evidently

transient. Early in its dealing with Melia, and before plac-

ing all its eggs in the FMI basket, Paine Webber had al-

legedly sent out a number of brochures describing the pro-

posed loan to various other lenders. Upon learning, after

the event, of the HIC loan, Wilkes claimed that HIC had

been one of the recipients of such a mailing, and that Paine

Webber was therefore entitled to its full brokerage com-

mission on the loan.

Paine Webber continues by this lawsuit, to advance such

a claim, despite Wilke’s admission, in his deposition, that

he had received no response from HIC after the mailing

and that he had refrained from any further follow-up be-

cause “we were so far along with FMI... that we didn’t

pursue it.” (EV 420-22). Furthermore, early in the case,

Melia had made the following submission by way of affi-

davit (JA 48, 51):

“... the president of HIC, one John D. Yates, is pre-

pared to testify that he is aware of no approach by

* Melia’s counterclaims are based on the sharp increase in con-

struction and interest costs during this period (EV 78 and 287).

Dismissal of these counterclaims, which are by no means frivolous,

would seem to represent a very substantial penalty that could

have been imposed in place of an affirmative default judgment,

had the District Judge given any consideration to the possibility

of lesser sanctions.

11

plaintiff to HIC in the spring of 1972 or at any other

time. While there is always the possibility that some

contact was made by Plaintiff and HIC of which Mr.

Yates is unaware, ... Mr. Yates will testify that any

such possible contact had no bearing on the decision

by HIC to make the loan to the defendant.”

Based on these facts, Paine Webber’s claim to be a pro-

curing cause of the HIC loan verges on being frivolous.*

Had the District Judge become familiar with these under-

lying facts, they would have suggested the lack of need

for further discovery and/or the inappropriateness of the

extreme sanction imposed, as compared with possible lesser

sanctions, such as dismissal of Melia’s counterclaims.**

The Procedural History of the Action Establishes That the

District Judge Did Not Consider the Entire Record Prior to

Dismissal and Thus Failed to Learn of Facts That Would Have

Negated a Finding of Wilfulness or Bad Faith.

The action’s rather unusual procedural history suggests

that a finding by the District Court of wilful non-compli-

ance or bad faith on the part of Melia is unwarranted,

particularly since any past default was so clearly in process

of being cured. But assuming, arguendo, that an after the

event, retrospective review by an appellate court of the

* Paine Webber has taken the position that it is entitled to

its commission under its contract even if it were not the procuring

cause of the loan. However, the law seems otherwise. See, ¢.¢.,

Character and Extent of Right of Broker Who has Exclusive Con-

tract, Where Sale is Effected Without His Agency, 64 A.L.R. 295

(1929) (passim, and see, especially, pp. 403, 415).

Paine Webber has also argued that changes in terms proposed

early in their dealings by Melia were responsible for FMI’s with-

drawal. However, the timing, and admissions contained in Paine

Webber’s own memoranda (EV 512, 528), make it clear that this

argument is unfounded.

** Cf. Societe Internationale v. Rogers, 357 U.S. 197, especially

208 (1958).

12

entire record could provide sufficient factual justification

for such a finding based on failures much earlier in the

ease to go forward with discovery, this would still not

justify or cure the improper method the District Court

employed in making its findings and in overruling the

Magistrate.

The basic procedural facts are undisputed. The District

Judge originally left Paine Webber’s motion for sanctions

dangling for some seven months, while remitting the parties

to further proceedings before the Magistrate.* (A prior

motion by Melia had similarly been left undecided for a

full year.) However, when the Magistrate, after a hearing,

submitted his report, which contained an implicit finding

as to Melia’s good faith, the District Judge (who unlike

the Magistrate, had never set eyes on the parties) granted

the then seven month old sanction motion, without warning

to the parties, without inquiry into the action’s status or

as to what the parties had been doing for the past seven

months, and without being aware of the considerable ef-

forts Melia was in process of making to comply with dis-

covery demands. This effectively deprived Melia of the

most rudimentary hearing, much less the full review of the

entire record referred to in the National Hockey League

decision.

The following, more detailed description of the action’s

procedural history supports this conclusion:

The summons and complaint were served on June 4,

1973 and Melia, represented by its then attorneys, Weiss,

Rosenthal, Heller & Schwartzman (the “Weiss Firm’),

served its original answer (JA 15) on July 30, 1973. At

* Arguably, Paine Webber should have proceeded, in the first

instance, before the Magistrate, even without being referred there

by the District Judge, in view of its prior Discovery Supervision

Stipulation.

13

some point in the proceedings difficulties developed between

the foreign-based defendant and its New York lawyers,

which, on June 3, 1975, caused the Weiss Firm to move for

leave to withdraw as counsel (JA 137).* Prior to that

time, Paine Webber had made the first of various com-

plaints about Melia’s alleged failure to proceed with dis-

covery by way of a motion to dismiss or for imposition of

sanctions, returnable December 26, 1973 (JA 28). The

Weiss Firm responded with a letter indicating that the de-

lay was attributable to other commitments of counsel and

concluding (JA 41):

“Tt is unfortunate that the Court had to be troubled

with this scheduling problem. We certainly have not

caused any substantial delay in the progress of this

matter. The depositions in question can probably be

completed in two days, if indeed they take that long.”

By memorandum endorsement (JA 43) the District

Judge referred the motion “...to a Magistrate for hear-

ing and report on whether the Court should impose sanc-

tions and/or compel discovery in accordance with plain-

tiff’s application.” The case was then assigned to Magis-

trate Sol Schreiber. However, the parties thereafter volun-

tarily chose to extend the scope of this referral by a stipu-

lation (hereinafter the “Discovery Supervision Stipula-

tion”) (JA 44) signed by both sets of attorneys, which

not only set forth a specific discovery schedule, but also

stated :

*Paine Webber has made much of these difficulties between

Melia and the Weiss Firm, implying that they were created by

Melia for purposes of delay and are indicative thet Melia’s de-

fenses and counterclaims are without merit. However, these in-

sinuations have no basis in the record while the rather unusual

procedural history of the case provides a more plausible ex-

planation.

NO eGV<3aMVneO

14

“All future pre-trial discovery proceedings shall be

referred to Magistrate Sol Schreiber for supervision.”

As originally drafted, the Magistrate’s Discovery Super-

vision Stipulation scheduled the depositions of Martin L.

Cohen (“Cohen”), Melia’s president, and Jack H. Berger

(“Berger”), its Chief Financial Adviser, for February 28

and March 5, 1974, respectively; the deposition of another

Melia officer, residing in Puerto Rico, Pedro Fullana was

“Deferred sine die.” The District Judge, however, without

a hearing of any kind, subsequently amended the stipula-

tion by inserting a date of April 17, 1974 for Fullana’s

deposition. This was done prior to the taking of the other

depositions, which (as indicated by the stipulation) the

parties themselves had assumed might obviate the need for

Fullana’s deposition. Thus, the amendment appears to

have merely been a calendar control device; it certainly

could uot, under the circumstances, have implied any judg-

ment by the District Court as to the actual necessity for

the Fullana deposition.

Thereafter, the depositions of Cohen and Berger (EV 1

and 202) went forward in accordance with the schedule set

forth in the Discovery Supervision Stipulation. Both

depositions were, to all intents and purposes, concluded in

a day each (see EV 114 and 299), as the Weiss Firm had

originally suggested would be the case. Analysis of the

real issues of the case makes it apparent that these two

depositions exhaustively covered all areas of inquiry

pertinent to Paine Webber’s claim, as well as some that

went well beyond reasonable theories of relevance. It is

true that the Weiss Firm never chalienged Paine Webber’s

right to further discovery. However, even a cursory read-

ing of the deposition transcripts suggests that any such

additional discovery would be repetitious, burdensome and

unnecessary. For the basic facts were not in dispute and

ee

eee

15

Paine Webber’s claim was inevitably going to stand or fall

on such issues as whether it was the procuring cause of

the loan and whether Melia interfered with the transaction,

rather than on teslimony Fullana might give.

In affidavits submitted by its attorneys, Paine Webber

had described negotiations in which the Weiss Firm par-

ticipated, pursuant to which the action had come close to

being settled (see JA 66). Ultimately, however, the pro-

posed settlement was rejected by Melia’s foreign-based

principals. It was only then that the Weiss Firm, appar-

ently for the first time, explored the facts in sufficient de-

tail to ascertain that its client had valid counterclaims

(JA 54; EV 58-59). Leave of Court was thereafter sought

and obtained (JA 130) to assert such counterclaims in an

amended answer (JA 132).

The delay by the Weiss Firm in exploring the counter-

claims and its focus, instead, on a settlement which its

client opposed, suggests one explanation of the friction

that developed. In addition, further difficulties between

the Weiss Firm and its client apparently arose because of

the pressure and burdens on the District Court referred

to in the Stein case, which manifested themselves in the

following context: After the depositions of Cohen and Ber-

ger were concluded, Paine Webber persisted in additional

discovery demands, including seeking to take in New York

the deposition of Fullana, a Puerto Rican resident. In re-

sponse, Melia, by motion returnable April 22, 1974 (JA

46), requested, inter alia, that the action be transferred to

the District Court of Puerto Rico or, alternatively, that

Fullana’s deposition be held in Puerto Rico. The District

Judge failed to rule upon this motion for almost a full year

(JA 127). In the meantime, and while Melia was hoping

that the case would be transferred, Paine Webber was en-

abled by the Discovery Supervision Stipulation to continue

EE

16

to press forward with various other of its discovery de-

mands (see JA 125).°

As a result of this procedure, document production by

Melia was eventually completed. Innuendoes to the contrary

by Paine Webber are without basis as indicated by the

following facts contained in the r cord:

The deposition of Melia’s then president, Cohen, was

taken on February 28, 1974. At its outset, Cohen stated

that there was little in the way of correspondence because

“we did practically everything in person;” later, in con-

nection with a request that there be a further search for

additional documents, he commented “I don’t know if there

is anything different that you are going to receive. I just

mailed you whatever they had” (EV 7-8 and 13). Paine

Webber’s attorneys nevertheless continued to attempt to

impose their own, Americanized view of proper record

keeping on Melia. Thus, they kept insisting, via various

applications, that there ought to be more documents (see,

e.g., JA 149). However, it ultimately turned out that

virtually all Melia’s pertinent documents had, in fact, been

produced as part of Melia’s initial production, just as

* It is easy to picture a foreign-based defendant’s confusion and

suspicion over the seemingly inconsistent, multiple tracks on which

the litigation was progressing at this point. At the rehearing argu-

ment the Weiss Firm had declined specific comment on the nature

of the difficulties that had arisen between it and its client. How-

ever, its representative did comment, there, in discussing this

specific subject (JA 229) (C-13-14):

“Your Honor, I think there is one other factor we have to throw

in that hopper to make it complete. In 1974 I made a motion,

early in ‘74, March or April, for the following relief: to

transfer this case to the district court in Puerto Rico, for

permission to amend the answer and interpose a counterclaim,

and for the Court to direct that Mr. Fullana’s deposition be

taken in Puerto Rico.

One year later, approximately, this Court decided that mo-

tion, denied the application to transfer it to Puerto Rieo—”

17

Cohen had stated. (A few more documents were produced

subsequently.) The Weiss Firm, after having confirmed by

letter, “that we have no further documents to produce”

(JA 170), expressly proffered affidavits to that effect to

the District Court in the course of the oral reconsideration

argument (JA 222-24) (C-8-10).°

Thus, it is now clear that the default judgment could only

have rested on Melia’s failure to produce non-existent docu-

ments and on its earlier failure to produce Fullana for a

deposition even though Fullana, without knowing of the

default, had flown from Puerto Rico to New York in order

to be deposed (see JA 223, 199) (C-9). While this might

seem unfair under any circumstances, it seems particularly

so in view of the further proceedings held before the

Magistrate to whom the parties had stipulated to submit

discovery questions.

These proceedings followed the June, 1975 motion by the

Weiss Firm for leave to withdraw as counsel (JA 137) and

the responsive Cross Motion for sanctions (JA 142), both

of which motions were then referred by the District Judge

to the Magistrate (JA 141A). The Magistrate scheduled a

hearing on December 1, 1975 (JA 197), after which he

recommended that both motions be disposed of on the

following terms and conditions (JA 190-193, 197-98, 216-17,

220-23) (C-4-5, 7-9):

(1) Pedro Fullana was to be deposed in New York

on January 22, 1976;

(2) Melia, by January 15, 1976, would either pro-

duce additional documents sought by Paine Webber

* The Weiss Firm, at such argument, stated, in response to the

Court’s question as to whether all records requested by plaintiff

had now been produced (JA 222) (C-8):

“As far as I know, Your Honor .. . they have been produced

and my clients are prepared to give affidavits to that effect.”

Qa ....L._QQ kg aa

18

or affidavits indicating that the requests had been fully

complied with; and

(3) The Weiss Firm would be permitted to with-

draw only if substitution of new counsel were effected

in such manner as not to occasion further delay.

These recommendations of the Magistrate were agreed

to by both sides and an order for the Magistrate’s signature

was prepared by Paine Webber’s lawyer (JA 204, 220-221)

(C-7-8). The Magistrate made minor handwritten changes

in the order, then signed it and forwarded it to the District

Judge for what all parties must have assumed was a pro

forma approval (JA 190-93, see also JA 198-199, 216, 233-

234) (C-4, 16).

Pursuant to the Magistrate’s proposed order, Melia made

arrangements for Fullana’s deposition, moving it forward

in time, however, with Paine Webber’s consent, to January

14, 1976 from the January 22, 1976 date originally appear-

ing in the order (JA 199). As part of these arrangements,

Fullana arrived in New York on January 13, 1976, to pre-

pare for the January 14th deposition (JA 199). However,

between the time Fullana arranged his departure from

Puerto Rico and his arrival in New York, the District

Judge, by its brief January 12, 1976 memorandum endorse-

ment (JA 173) (B-1), without warning, notice or hearing,

and to everyone’s surprise, rejected the Magistrate’s pro-

posed order and directed entry of a default. After learning

of the District Judge’s decision, Paine Webber’s attorneys

declined to proceed with Fullana’s scheduled deposition

(JA 215) (C-3). The default decision also deflected Melia’s

attorneys from producing the affidavits of full comnliance

with document production which they would otherwise have

filed and which they subsequently proffered (JA 223-24)

(C-9-10).

19

Melia’s attorneys did attempt, by a telephone call to the

District Judge’s chambers, to obtain immediate recon-

sideration of the default ruling as soon as they learned of

it and while Fullana was still present and available for his

deposition. The District Judge, however, directed that any

such questions be raised by way of formal motion papers

(JA 226) (C-11). Melia thereafter filed its motion for

reconsideration of the ruling (JA 194), but was not granted

oral argument as to such motion until January 21, 1976.

At the outset of the January 21, 1976 oral argument, the

District Judge proved to be unfamiliar with the actual

sequence of events, at first expressing a belief that Melia

improperly failed to appear for a deposition scheduled on

January 12, 1976 and “that after the parties were notified

of the Court’s January 12th order, the defendant decided

to appear the next day, the 13th or the 14th, for the taking

of the deposition. . .” (JA 213-14) (C-2).* In addition,

the District Judge apparently was under the impression

that affidavits from Melia indicating compliance with

document discovery demands were overdue as of the time

the default was entered (see JA 223) (C-9).**

Although these misapprehensions were clarified at the

January 21, 1976 argument, the District Judge denied de-

fendant’s motion for reconsideration and adhered to the

original ruling, giving two different reasons for this deci-

sion. Near the outset of the argument, the District Judge

*In actuality, as noted above, the date original scheduled for

Melia’s deposition in the Magistrate’s order was January 22nd

(JA 214) (C-3), and this was moved to January 14, 1976 at

Melia’s suggestion.

** In fact, however, as noted above, these affidavits were not due

until January 15th under the Magistrate’s order (JA 223-24)

(C-9), and, as the Weiss Firm indicated, they would have been

forthcoming by this date but for the default ruling on January

12th.

GOO EEE OO ee

20

stated that “the reason for [rejecting the Magistrate’s re-

port] is that this case is on the trial calendar... .”

(JA 217) (C-5). (Emphasis added.) Later during the

argument the District Judge stated (JA 231) (C-15):

“ .. the record is clear that your client wilfully failed

to appear for his deposition, and that is why a default

judgment is going to be entered against him, notwith-

standing the recommendations of the Magistrate, be-

cause I disagree with it, that he is entitled to a second

chance.” (Emphasis added.)*

Melia’s brief to the Circuit Court cited prior decisions

of that Court which, at the very least, on the facts pres-

ent here, would have required a remand for an evidentiary

type hearing as to the issue of wilfulness.** However, in its

opinion affirming the default, the Circuit Court appeared to

place considerable reliance on this Court’s intervening

National Hockey League decision, evidently regarding it

as having overruled such decisions. In so doing, the Circuit

Court ignored the teaching of the National Hockey League

decision that a District Court should consider the full

record before determining whether to dismiss.

*At the conclusion of the argument, the District Judge

similarly commented (JA 235) (C-17):

As I told you, it is my ruling that I am not bound by the

Magistrate’s reports in these matters. The Magistrate is not

a district judge. And I have gone over this, and the record

is extensive and clear that your client wilfully disobeyed the

orders of the Court.

So you can go to the Court of Appeals and we will find out

whether your client can wilfully disobey a court order.”

** Flaks v. Koegel, 504 F. 2d 702 (2d Cir. 1974); see also, Gill

v. Stolow, 240 F. 2d 69 (2d Cir. 1957).

ome

Se nt ee a eee a

21

Reasons for Granting the Wrii

Several important procedural questions are posed by this

petition, relating to the powers and obligations of district

judges in connection with their entry of default judgments

and their review of magistrate’s findings.

Summary

The Court’s recent decision in National Hockey League

v. Metropolitan Hockey Club, Inc. supra, confirmed in

district judges a broad discretionary power to dismiss

a civil action for failure to comply with discovery

orders. A significant issue posed by this petition is

the extent to which the language of the National Hockey

League decision should be clarified by spelling out the con-

comitant obligations of a district court judge when enter-

ing such a default, in order to guard against misuse or

abuse of that power.

The basic question is the extent to which courts of ap-

peals can and must review and regulate the procedure fol-

lowed by a district judge in connection with the entry of a

default. While conceding to the district court the power to

dismiss even in a case where it would not have done so,

does the court of appeals nevertheless have an obligation

to satisfy itself that the district court, before dismissing,

did consider the entire record, in compliance with the

National Hockey League requirement? In the instant case,

the District Judge, who, aftcr remitting the parties to fur-

ther proceedings before a Magistrate, was seven months

out of touch with subsequent developments when the de-

fault decision was rendered, cannot be said to have ecom-

plied with this requirement.

22

A second significant issue raised by this petition involves

the question of whether tue provision in Rule 53(e), Fed.

R. Civ. P., that the findings in a special master’s report

shall not be set aside by a district judge unless “clearly

erroneous,” is applicable when the parties voluntarily

stipulate to refer all discovery questions to a magistrate.

If so, on the facts of the instant case, the District Judge’s

rejection of the Magistrate’s report was necessarily with-

out sufficient basis.

I

The Requirement Set Forth in the National Hockey

League Decision for a Review of the Entire Record

Was Ignored in This Case.

There are sharp distinctions between the facts of the

present case and those in National Hockey League. In

Naiional Hockey League, the District Court had written a

“comprehensive memorandum .. . supporting its order of

dismissal” which demonstrated that appropriate considera-

tion had been given “to the full record in determining

whether to dismiss for failure to comply with discovery

orders. .. .” Pursuant to such detailed consideration of

the entire record, the District Court there had found that

the plaintiff’s repeated unfulfilled promises and commit-

ments in regard to discovery following innumerable exten-

sions, demonstrated “flagrant bad faith” and that the dis-

covery was “crucial.”

Here, in contrast, the District Court, just as it had done

in the Stein case, figuratively failed to turn the fifth page.

There was once again a substantial gap in the District

Court’s knowledge of the case, by virtue of its having

ee

23

ruled unexpectedly on a seven month old motion, without

hearing or warning to the parties, while they were actively

proceeding before a magistrate and elsewhere with the

very discovery that constituted the basis for entry of the

default.*

It can be argued that this case required an even more

careful review preliminary to entry of judgment than that

required in the National Hockey League case. For here,

the sanction was entry of a default judgment in a large

sum against the supposedly offending party, rather than

merely barring recovery of a plaintiff, who refused to

comply with discovery orders, as in the National Hockey

League case, Obviously, a district judge entering a default

for or against a plaintiff should not be expected to con-

duct a full scale trial. Nevertheless, a factual inquiry, at

least sufficient to establish that an undeserving plaintiff

is not getting a totally unwarranted windfall, and/or that

the incomplete discovery was important, would seem to be

called for where an affirmative judgment for a large sum

is to be entered upon a default unrelated to the merits.**

However, the distinction seems unnecessary to Melia’s

basic argument that the District Judge here did not make

any review, much less the careful review of the entire

record that was made in National Hockey League.

* The oral argument, on Melia’s motion for reconsideration, can

hardly be said to have retroactively filled this seven month gap.

In Gill v. Stolow, supra, it was expressly reeognized that such a

“review” on motion for reconsideration is necessarily a “prej-

udicial” situation.

** Indeed, this would have been the normal practice in New

York State courts, upon entry of a similar default (see, ¢.g., 4

Weinstein-Korn-Miller, N.Y. Civ. Prac., 3215.25, at n. 109

[1975]).

24

It seems inconceivable, had a review of the entire

record been made, that the District Judge would have con-

cluded that Melia was wilfully continuing in default. For

despite initial delays, there was, ultimately, good faith

compliance or attempted compliance. Indeed, Melia was

actually in process of final and full compliance with all

outstanding discovery requirements at the very moment the

default was being entered. Such a review would also, in

all likelihood, have demonstrated that the remaining deposi-

tion would be largely duplicative of other discovery and

hardly “crucial,” as was the discovery in the National

Hockey League case. It might also have resulted in con-

sideration of a lesser sanction, such as merely dismissing

Melia’s counterclaims, even if the District Judge had re-

mained convinced that there were a wilful default.

If allowed to stand, this decision establishes a dangerous

precedent. For no comparable default judgment decision

has been found where the rendering court appears to have

been so far out of touch with both the merits and the pro-

cedural posture of the case.

Il

The Findings of the Magistrate to Whom the Parties

Had Stipulated to Submit All Discovery Issues Came

Within the Purview of Rule 53, Fed. R. Civ. P., and

Were Not Subject to Reversal Unless “Clearly Errone-

ous.”

The Magistrate’s submission to the District Judge neces-

sarily embodied a finding that Melia was proceeding in

good faith and that any prior discovery delay did not merit

entry of a default judgment. The District Court implicitly

acknowledged this in its statement (JA 235) (C-17):

—

25

“As I told you, it is my ruling that I am not bound by

the Magistrate’s report in these matters. The Magis-

trate is not a district judge.”®

However, a recent decision by the Circuit Court of Appeals

for the First Cireuit** suggests that the District Court’s

view was incorrect and that, to the contrary, on the facts

of this case, Rule 53(e)(2), Fed. R. Civ. P. shielded the

Magistrate’s factual findings from reversal] unless they were

“clearly erroneous.”

It is, of course, true, that reference of the earliest dis-

covery motion to the Magistrate by the District Court was

made under the provisions of the Federal Magistrates ‘ ct

(28 U.S.C. $631, et seq.) and not under Rule 53, Fed. R.

Civ. P. However, the parties, by stipulation, thereafter

voluntarily extended the scope of this referral. In the

DeCosta case, it was held, in connection with an analogous

voluntary reference to a magistrate, that the “clearly er-

roneous” standard of review set forth in Rule 53(e)(2),

Fed. R. Civ. P., was applicable to the magistrate’s factual

findings.

Assuming, as suggested by the DeCosta case, that the

Magistrate’s findings as to Melia’s good faith come within

the purview of Rule 53(e), Fed. R. Civ. P., it is self-evident

that the District Judge, seven months removed from the

progress of the action, could not possibly have been in a

pesition to rule that such findings were “clearly erroneous.”

* Elsewhere, the District Judge had similarly stated that the

default was being entered notwithstanding the recommendation

of the Magistrate, because “I disagree with it... .” (JA-231)

(C-14-15).

*® DeCosta v. Columbia Broadcasting System, Inc., 520 F. 2d

499 (ist Cir. 1975), cert. denied, 423 U.S. 1073 (1976) [hereinafter

cited as DeCosta}.

26

CONCLUSION

Several considerations which normally would impel the

granting of certiorari seem present here. The Circuit

Court’s decision in this case has affirmed and sanctioned a

drastic departure by the District Court from the accepted

and usual course of judicial proceedings. In addition, such

affirmance appears in conflict with procedural requirements

spelled out by this Court in National Hockey League v.

Metropolitan Hockey Club, Inc., supra, as well as with

other earlier decisions of this Court relating to entry of

default judgments. Furthermore, the aspect of the case re-

lating to the scope of review of a Magistrate’s findings ap-

pears to present an important question of federal law not

yet settled by this Court. For all of these reasons, the writ

of certiorari should be granted.

Respectfully submitted,

Norman Sorovay

Houitzmann, Wise & SHEPARD

Counsel for Petitioners

Office & P. O. Address

30 Broad Street

New York, New York 10004

Tel. No. (212) 747-5500

APPENDICES

A-1

Appendix A

Opinion of Affirmance of Circuit Court of Appeals

UNITED STATES COURT OF APPEALS

For tHe Seconp Cracuit

-_—_ —=

No. 13—-September Term, 1976.

(Argued September 15, 1976 Decided October 12, 1976.)

Docket No. 76-7087

_ =

~~ S

Paine, Wesper, Jackson & Curtis, LNcoRPoRATED,

Plawtiff-A ppellee,

—against—

InmopruiarRia Metia de Puerto Kico., Inc.,

Defendant-A ppellant.

o

?

’

Before:

LuMBARD, MANSFIELD and MUuLLIGAN,

Circuit Judges.

a

Appeal from a judgment of the United States District

Court for the Southern District of New York, Hon. Con-

stance Baker Motley, Judge, granting plaintiff a default

judgment against defendant for failure to comply with

pre-trial discovery orders.

Affirmed.

_—

—— =

Bos D. Mannis, New York, New York (Dewey,

Ballantine, Bushby, Palmer & Wood, New

York, New York, Judson A. Parsons, Jr.,

of Counsel), for Plaintiff-A ppellee.

A-2

Appendiz A

Norman Sorovay, New York, New York (Holtz-

mann, Wise & Shepard, New York, New

York, David S. Lindau, of Counsel), for

Defendant-A ppellant.

oe

Muuuiean, Circuit Judge:

(m January 22, 1976, the United States District Court

for the Southern District of New York, Hon. Constance

baker Motley, Judge, entered judgment pursuant to Fed.

kK. Civ. P. 37(b)(2) striking the amended answer of de-

fendant Inmobiliaria Melia de Puerto Rico, Inc. (IMIR),

dismissing defendant’s counterclaims with prejudice, and

vranting plaintiff Paine, Webber, Jackson & Curtis, In-

corporated (Paine Webber) a default judgment against

[MPR. The underlying cause of action was a suit by

Paine Webber to recover a brokerage commission for ser-

vices rendered in obtaining financing for the construction

of IMPR’s condominium hotel (Apartotel) in Puerto Rico.

The financing was ultimately obtained from the Housing

investment Corporation, a subsidiary of the Chase Man-

hattan Bank, through the services of an independent broker,

Juan J. Otero, allegedly while defendant’s exclusive agency

contract with Paine Webber was in full force and effect.

The judgment awarded Paine Webber was in the amount

of $285,000 with interest from November 1, 1972, plus ex-

penses, including attorney’s fees, of $3,743.50. On appeal,

IMPR argues that the penalty of a default judgment was

unwarranted on the facts of this case. We affirm the judg-

ment below in all respects.

This action was commenced by the filing of a complaint

on May 31, 1973, and IMPR answered on July 30, 1973.

On September 25, 1973, Paine Webber noticed the deposi-

tions of Martin Cohen and Pedro Fullana, officers of IMPR,

A-3

Appendiz A

and Jack Berger, a financial officer of a principal stock-

holder of IMPR who initiated the transaction with Paine

Webber, for November 1, 1973 in New York, and also

served notice that certain documents be produced by

October 25, 1973.*° None of the requested materials were

forthcoming on that date.

On October 29, 1973, the parties agreed to reschedule

the Cohen and Berger depositions for December 4, 1973,

and to proceed with the production of documents “as

soon as possible, hopefully prior to November 16.” On

December 3, 1973, defendant’s counsel stated that he was

still unable to comply with the production request, and

that neither Cohen nor Berger would appear the foilow-

ing day for their scheduled depositions. The result was

Paine Webber’s first motion for sanctions pursuant to

Fed. R. Civ. P. 37, served on December 18, 1973, seeking

an order directing that either IMPR’s answer be stricken

and that judgment by default be entered, or that defen-

dant be compelled to proceed with discovery.

. Paine Webber's Rule 34, Fed. R. Civ. P., Notice to Produce requested,

inter alia:

2. All doewments which reflect or refer or relate to any nego

tiation, discussion, agreement, understanding or communication.

occurring from January 1, 1971 to date with Paine, Webber or

any broker other than Paine, Webber in connection with any finan

ing or proposed financing of the construction of the Apartotel.

3. All documents which reflect or refer or relate to any nego

tiation, discussion, agreement, understanding or communication

occurring from January 1, 1971 to date concerning any loan made.

ot proposed to be made, by Housing Investment Corp., Inc. or The

Chase Manhattan Bank, N.A. to you in connection with the con.

struction of the Apartotel or the actual or proposed employment

of any broker in connection with such loan.

» Any other documents which reflect or refer or relate to any

negotiation, discussion, agreement, understanding or communica

tion occurring from January 1, 1971 to date between you and any

other person concerning the financing of the construction of the

Apartotel.

A-4

Appendiz A

The motion was assigned to Magistrate Sol Schreiber

for a hearing and report and the parties, at his sugges-

tion, entered into a stipulation on February 22, 1974,

which included a discovery schedule. As modified by

Judge Motley, this provided for compliance with Paine

Webber’s Rule 34 request on or hefore February 26, 1974;

for the taking of the Cohen and Berger depositions on

February 28, 1974 and March 5, 1974 respectively; and

for the taking of the Fullana deposition on Apri] 17, 1974.

This order was dated February 26, 1974 and was filed on

March 5, 1974.

The Cohen and Berger depositions were held as ordered,

but by February 26 the document production was still

incomplete. Paine Webber called this dereliction to IMPR’s

attention in a letter dated April 8, 1974, and reminded

defendant of the upcoming Fullana deposition. IMPR’s

response was to serve motion papers on April 12, 1974

seeking to transfer both the site of the Fullana deposition

and the venue of the action to Puerto Rico. Fullana did

not appear on April 17.

By letter dated June 26, 1974, Paine Webber again

sought completion of decument production. On October

21, 1974, defendant’s counsel wrote that neither they nor

Berger had any more documents to produce. The result

of this further delay was a November 6, 1974 conference

with Magistrate Schreiber followed by a discovery order

filed on November 11. IMPR was directed to comply with

Paine Webber’s request by December 15, 1974, failing

which it was recommended that defendant’s answer be

stricken and judgment be entered for plaintiff. The ex-

tent of defendant’s compliance was to provide, on Decem-

her 16, only certain of Cohen’s travel and telephone rec-

ords, as well as some correspondence. On December 18,

Magistrate Schreiber directed defendant’s counsel to sub-

A-5

Appendiz A

mit affidavits by IMPR’s principals indicating full com-

pliance with Paine Webber’s request. These have never

been furnished,

On March 31, 1975, the district court filed an order

denying defendant’s motion to transfer the Fullana dep-

osition to Puerto Rico. It was thereafter scheduled for

April 23, 1975, but on April 22 Paine Webber was in-

formed that Fullana would not appear. On June 3, IMPR’s

counsel sought leave to withdraw, stating that they had

been “unable to obtain the necessary cooperation from

the client that is required for us to do a professional

and competent job of representing the defendant in this

ease.” Paine Webber opposed this motion on the ground

that it would be subjected to further delay, and cross-

moved for a default judgment. The matter was again

referred to Magistrate Schreiber for a hearing and re-

port on September 3, 1975. In a letter dated October 3,

Judge Motley ordered that all pre-trial procedures be

completed by December 1, 1975, with a trial date scheduled

sometime after April 1, 1976.

Seeking to afford defendant vet another opportunity to

comply, Magistrate Schreiber forwarded a proposed order

to Judge Motley dated December 9, 1975, containing a

revised discovery and deposition schedule. On January

12, 1976, Judge Motley rejected the proposed order and

granted Paine Webber’s cross-motion for entry of a default

judgment. IMPR then moved to vacate the January 12

order and for entry of Magistrate Schreiber’s recommenda-

tion. A hearing was held on January 21, 1976, at which

defendant’s motion was denied.

Where sanctions are imposed under Rule 37, Fed. R.

Civ. P., the question is not whether this court, as an orig-

inal matter, would have applied them, but whether the

district court abused its discretion in so doing. Flaks v.

Koegel, 504 F.2d 702, 707 (2d Cir. 1974); Trans World

B-1

Appendix B

January 12, 1976 Initial Default Memorandum

Endorsement of the District Court

A-6

Appendiz A

Airlines, Inc. v. Hughes, 332 F.2d 602, 614 (2d Cir. 1964),

rev’d on other grounds, 409 U.S. 363 (1973). The Supreme

Court has recently observed in National Hockey League

v. Metropolitan Hockey Club, Inc., 96 S. Ct. 2778 (1976), =

reversing a Third Circuit judgment which had reversed ‘

the dismissal of an action for failure to timely answer \ , t oy. 4

written interrogatories, that there is a tendency for review- ”

ing courts to be heavily influenced by the severity of the :

sanctions under Rule 37. “But here as in other areas of ‘a

the law, the most severe in the spectrum of sanctions pro- 5

—

4

7

— -

t~

uu

C a s je vim

; :

A ¥UN4

us. dD.

vided by statute or rule must be available to the District

Court in appropriate cases, not merely to penalize those

whose conduct may be deemed to warrant such a sanction,

but to deter those who might be tempted to such conduct

in the absence of such a deterrent.” Id. at 2780-81. The

record here, as indicated in the statement of facts, fullv

supports the finding that Fullana had willfully failed to

appear for his deposition for more than seven months.

Moreover, the corporate records sought here appear to be

pertinent to the litigation and would normally he expected

to be readily obtainable. The failure ever to produce them :

or by affidavit to account for their nonproduction again d

compels the conclusion that the District Judge did not T * sy

abuse her discretion in applying the sanctions described. es.

d firmed ~~ © ah

Judgment affirmed. .2 @ ae

4

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C-1

Appendix C

Transcript of January 21, 1976

Oral Argument on Motion for Reconsideration

UNITED STATES DISTRICT COURT

SoutHerRN District or New York

73 Civ. 2422

(CBM)

Paine, Wesser, Jackson & Curtis, LNcorPoRATED,

Plaintiff,

vs.

InMoBILIARIA Meia vE Puerto Rico, Inc.,

Defendant.

Before:

Hon. Constance Baker Mort ey,

District Judge.

New York, N. Y.

January 21, 1976—4.20 P.M.

APPEARANCES:

Dewey, BALLANTINE, Bussy, PaLtmMer & Woop, Esas.,

Attorneys for Plaintiff

By: Jupson A. Parsons, Jr., Eso. and

Bos Davis Mawnnis, Esq.,

of Counsel

Weiss, RosentuaL, He_ter & ScowartzMan, Esgs.,

Attorneys for Defendant

By: Ricuarv F. Horowrrz, Esq.,

of Counsel

a ee

—_—_ eee EE

C-2

Appendiz C

The Court: Are you Mr. Horowitz?

Mr. Horowitz: Yes, your Honor.

The Court: Mr. Horowitz, I have your letter of

January 15th asking for a reconsideration of an order

which I entered in this matter on January 12, 1976.

On January 12, 1976, I endorsed a motion made by

plaintiff for sanctions pursuant to the provisions of Rule

37(b)(2) and 37(d) for failure of the defendant to comply

with prior orders of this Court relating to the production

of certain documents by defendants and relating to the

taking of the defendant’s deposition.

That order of January 12th, as I indicated, was an

endersement on the motion and s¢ rejected a proposed

order prepared by Magistrate Schreiber on December 9th

which would have extended the time of the plaintiff to

complete pretrial discovery for another ninety days and

again permit the defendant an opportunity to produce

certain documents and appear for the taking of a deposi-

tion on January 12th.

On January 12th, I gather the defendant did not appear

for its deposition—

Mr. Parsons: That is correct.

The Court: —in accordance with the proposed order.

And in addition it appears that after the parties were

notified of the Court’s January 12th order, the defendant

decided to appear the next day, the 13th or the 14th, for

the taking of the deposition; is that so?

Mr. Horowitz: Your Honor, before I respond and at-

tempt to clarify the situation, because, respectfully, the

Court has a misapprehension here, I wonder if the Court

has my actual motion papers for reconsideration.

«w. The Court: Yes, I do.

C-3

Appendix C

Mr. Horowitz: Firstly, your Honor, the order submitted

by Magistrate Schreiber was not prepared by Magistrate

Schreiber ; it was prepared by my friends on the other side

of the table. Magistrate Schreiber had suggested it and

all of us agreed to it and Mr. Mannis prepared it.

Secondly, your Honor, it directed that Mr. Fullana of

the defendant appear on January 22nd, not on January

12th. I have it in front of me, the order recommended by

Magistrate Schreiber.

I was advised late in the week of January 5th that Mr.

Fullana would be coming to New York the week of January

12th, and he asked me if it was possible for me to arrange

for his deposition to be taken on January 14th, which was

last Wednesday.

I called—-I forgot whether it was Mr. Parsons or Mr.

Mannis, but it was one of them, I believe it was Mr.

Parsons—and asked him if they would consent to take

Mr. Fullana’s deposition on January 14th. They said to

me they would take it, they would consent to taking it.

Later that same day, January 12th, late in the afternoon

Mr. Parsons called me, after agreeing to take the deposi-

tion on the 14th, and said to me, in effect, that he had just

learned that your Honor had entered the endorsed order,

the handwritten endorsed order, of January 12th rejecting

the proposed order submitted by Magistrate Schreiber and

directing a default judgment, and Mr. Parsons indicated

to me that in light of that action by the Court he did not

feel it would be appropriate to take Mr. Fullana’s deposi- —

tién on January 14th.

So it is therefore incorrect, your Honor, with all possible

respect, to suggest that we did not produce Mr. Fullana

in accordance with the proposed order of Magistrate

Schreiber. We in fact endeavored to produce him earlier

‘

C-4

Appendiz C

than that order called for and we would have, and both

sides were proceeding on the assumption that we would—

The Court: You say that Magistrate Schreiber’s order

ealls for Mr. Fullana’s deposition to be taken on January

22, 1976 as upposed to January 12th?

Mr. Horowitz: Yes, your Honor.

The Court: Well, you attached a copy of the order here,

on the bottom of page 2, and it says January 12th, in the

copy you furnished me.

Mr. Horowitz: That is the wrong one, your Honor. This

is the order as prepared by Mr. Mannis. The order as

recommended by Magistrate Schreiber contained revisions

by Magistrate Schreiber, and here is the Magistrate’s

order and you will see that what he did was, in hand-

writing, to change from January 12th to January 22nd and

submitted that proposed order your Honor has in front

of you—

The Court: Is that right?

Mr. Parsons: In part, yes. I would have some things to

add to it.

The Court: It is not initialed here.

Mr. Horowitz: Your Honor, Magistrate Schreiber’s

memorandum to your Honor, attached to which is the same

order, and his memo is dated the 10th of December, says,

in effect: If you people have objections to this order I

am proposing to Judge Motley, please let her know in

writing by filing papers not later than December 20th.

And nobody ever said they objected to that order.

The Court: Of course, January 20th was Monday.

Mr. Horowitz: We are talking about December, your

Honor.

The Court: Let me see a copy of his memorandum so

I can get the date clear in my mind.

C-5

Appendix C

Mr. Horowitz: That is also attached to the motion

papers, your Honor. This is Magistrate Schreiber’s memo-

randum of December 10, 1975. He gave us until December

20th to object to the order.

The Court: Now that we have clarified those dates, on

January 12th, after receiving Magistrate Schreiber’s memo

to me of December 10th with his proposed order and the

proposed revised date for taking the deposition of Fullana,

revising the date from January 12th to January 22nd, the

Court entered an order rejecting the Magistrate’s report

and notified the plaintiff's counsel to submit an order

granting a default judgment in this case.

The reason for that is that this case is on a trial calendar,

is it not?

Mr. Horowitz: I don’t believe it is, your Honor.

The Court: All 1973 cases are not on that calendar?

Mr. Parsons: You sent us an order—

The Court: I would like to see the order relating to 1973

cases.

Mr. Parsons: I am not sure it was an order. You sent

us this piece of paper, Judge, and I assume a copy went

to the defendant—

The Court: Yes. I have reference to this memorandum

dated October 3rd relating to 1972 cases, that is, the latter

half of 1972, and all 1973 cases, which went to all counsel

in those cases, and with respect to that the memorandum

notifies all counsel in ’73 cases that all pretrial procedures

are to be completed by December Ist, all pretrial memos

are to be filed by January 15th, and all pretrial orders are

to be submitted by January 30th.

This case fell into that category, and I reviewed the file

in the case and the proposed order of the Magistrate, which

C-6

Appendiz C

recited the history of the plaintiff's efforts to get this

pretrial discovery over with, and the Court, as I indicated,

rejected the Magistrate’s proposed order and granted the

relief originally requested.

I gather from your letter, Mr. Horowitz, that your sug-

gestion is that the plaintiff is not pressing for the relief

originally requested, is that it? Is that the purpose of this

motion to reconsider?

Mr. Horowitz: That is not quite it. My letter, as opposed

to my motion, relates to the order they submitted on

January 14th per the direction contained in your Honor’s

order of Janua.y 12th.

All that the letter says is that I request that your Honor

postpone consideration of their proposed order of January

14th pending your review of my motion for reconsideration

of the order of January 12th and the determination of—

The Court: Well, we are now reviewing it. What is

your reason why the proposed order I directed the plaintiff

to submit should not now be signed?

Mr. Horowitz: The reason was that I did not think that

certain critical facts were made available to the Court and

that on consideration of those facts the Court might wish

to rethink the resolution contained in the endorsed order

of January 12th, specifically that from December 1, 1975,

the date of the last conference before Magistrate Schreiber,

through and including January 12th of this vear, when we

were talking with counsel for plaintiff about taking the

deposition of Mr. Fullana on January 14th, they and we

were proceeding on the assumption that Magistrate Schrei-

ber’s proposed order would be signed by the Court.

The Court: Let me ask you this. The Court had not

signed that order?

Mr. Horowitz: That is correct.

On Ser

—

ee

C-7

Appendiaz C

The Court: Are you suggesting the Court is bound by

the report of the Magistrate?

Mr. Horowitz: I would not presume to suggest that,

your Honor. I appreciate that the Court has discretion to

accept or to reject or to modify the recommendations of

the Magistrate and I am in the process of suggesting to

the Court reasons why I think that the Court would want

to accept the recommendation of the Magistrate.

On December Ist, Magistrate Schreiber had before him

all the facts relating to the prior efforts of the plaintiff to

secure discovery in this case. He also had before him my

motion, cross motion, to withdraw as counsel in the case.

Magistrate Schreiber at the beginning of the meeting,

and Mr. Mannis was there and he can correct me if his

recollection differs from mine, said in substance, “I suggest

that this problem be resolved as foliows”—

The Court: Who said that?

Mr. Horowitz: Magistrate Schreiber: “I suggest that

an order be prepared giving the defendant one more last

chance; that Mr. Fullana be directed to appear for a deposi-

tion on a specified date in January 1976; that defendant

be directed to produce the documents that plaintiff sought

on another specified date in January 1976, or alternatively,

affidavits from the principals of the defendant indicating

that they had already made complete production of docu-

ments and had no more documents to produce” and that

my motion, or my firm’s motion, to withdraw as counsel

would not be granted unless substitute counsel were ob-

tained and the withdrawal and substitution of my firm

and the appearance of another firm would not result in

delay of the progress of this matter.

I said that was al] Tight with me. Mr. Mannis said it

was all right with him. Magistrate Schreiber suggested

C-8

Appendiz C

that Mr. Mannis prepare the order. Mr. Mannis and I both

said that that was fine with us.

Magistrate Schreiber suggested that Mr. Mannis submit

a proposed order to me for my review. We hoth assented

to that. Mr. Mannis submitted a proposed order to me. I

called him on the phone immediately on receipt and review

of it, the same day, and I said, “Bob, the order is fine

with me. Go ahead and submit it to the Magistrate.”

He submitted it to the Magistrate. Within a few days

thereafter Magistrate Schreiber sent to your Honor the

transmittal memo of December 10, 1975 and essentially, in

substance, the very same order prepared by Mr. Mannis,

with the exception of the handwritten change that your

Honor noted and two of the handwritten changes, and after

having considered all the facts, including the ones that I

just adverted to, recommended that order for your Honor’s

signature, having been fully apprised of all prior develop-

ments in the case, the age of the case, the prior efforts of

this plaintiff to secure discovery in the case, the fact that

this is not exactly a small case, this is a case in which the

plaintiff seeks $285,000 in damages, being apprised that

“ar. Fullana is in Puerto Rico, the records they want are

in Puerto Rico, in parts, ete., ete., and the Magistrate con-

sidered all of this and recommended—

The Court: Have all these records been produced now?

Mr. Horowitz: As far as I know, your Honor, with re-

spect to the principal claim by the plaintiff, they have been

produced, and my clients are prepared to give affidavits

to that effect. Your Honor may or may not recall that on

motion made by me almost two years ago the Court, back

in March or April of last year, granted us permission to

file an amended answer containing a counterclaim.

C-9

Appendiz C

They have requested, although I don’t believe it is the

subject of any court order, production of certain docv- ~

ments with respect to the counterclaims. The answer is, I

believe, yes with regard to their claim and not with regard

to the counterclaim, although I must say that there may not

be anything significant in the way of documents relating

to the counterclaim.

The Court: Let me ask you this, then: Have your clients —

submitted an affidavit that they have complied or that there

are no other documents to be produced?

Mr. Horowitz: My clients haven’t but are prepared to

do so.

One further fact was that Mr. Fullana was physically

present in my office on January 13th. He came there with

the avowed purpose of discussing his testimony with me

in preparation for the session that had been arranged for

January 14th, and that date, a week or so in advance of the

date contained in the Magistrate’s proposed order, had

been cleared with Mr. Parsons and Mr. Mannis.

The Court: Was there a date set for your client to file

an affidavit that all documents had been produced as re-

quested?

Mr. Horowitz: Yes. If your Honor will look at the pro-

posed order of the Magistrate, it provides that that be done

by January 15th.

The Court: Was that done by January 15th?

Mr. Horowitz: That was not done January 15th. Noth-

ing has been done since January 12th because of the Court’s

order of January 12th and the fact that it would be an

exercise in futility, I suppose, to do anything until we

know what the status is of the case.

If a default judgment is going to be granted, then there

is no sense in preparing affidavits. If it is not going to be

C-10

Appendiz C

granted and we are going to proceed, we will immediately

file such affidavits.

The Court: Is there some reason why such an affidavit

could not have accompanied your motion for reconsidera-

tion? You say the man was here when?

Mr. Horowitz: January 13th.

The Court: Is there some reason why you couldn’t have

attached an affidavit saying that all documents had been

turned over?

Mr. Horowitz: There is no reason, your Honor, other

than, quite candidly, I suppose the answer is I didn’t think

of it on January 13th, because I had a rather enormous

problem to deal with created by the Court’s order of Janu-

ary 12th.

The other people who were supposed to sign such affi-

davits, Mr. Berger and Mr. Cohen, are both in New York

City and there is no particular reason why late in the day

on the 14th or on January 15th itself those affidavits could

not have been delivered to counsel for plaintiff.

I will report to the Court that when I spoke to—

The Court: January 22nd is tomorrow. Where is Mr.

Fullana now?

Mr. Horowitz: He is in Puerto Rico. I called vour

Honor’s chambers—I forget whether it was the 13th or the

14th, I beiieve it was the 13th, first thing in the morning—

spoke to the law clerk, and I said we had just become ad-

vised the day before, the afternoon before, of your Honor’s

order of January 12th, that I have the man coming in today

and I would like to have—

The Court: You have the man coming in today? What

does that mean?

Mr. Horowitz: Mr. Fullana. I explained to the law

clerk that this revolved about a deposition of Mr. Fullana

C-11

Appendix C

and Mr. Fullana was going to be in my office on January

13th in the afternoon.

The Court: How was he going to be there? How did it

happen he was going to be there on January 13th?

Mr. Horowitz: Because Mr. Parsons and I agreed that

his deposition be taken on the 14th.

The Court: When did you agree to that?

Mr. Horowitz: Late in the week of January 5th, the

preceding week. I am sorry. I stand corrected. Early in

the day on January 12th, the same day your Honor entered

the order of January 12th, Mr. Parsons and I agreed that

Mr. Fullana’s deposition would be taken on January 14th.

I immediately advised Mr. Fullana by long distance tele-

phone that the request that his deposition be taken on the

14th was acceded to by the counsel for the plaintiff and “I

want to discuss your testimony with you and I want you in

my office on the 13th,” and he appeared in my office at

roughly 3:30 p.m. that day.

I advised your Honor’s law clerk of all this and I said

the man is here, I couldn’t keep him here indefinitely, I

would like an audience with the Court, a conference, I

advised Mr. Parsons I would make such request.

The law clerk asked me to hold the phone, that he was

going in to see your Honor. He came back several moments

later and said that your Honor did not want to see us in a

conference, that anything I had to say I should say in a

motion.

I made the motion on January 15th. The man returned

to Puerto Rico, I believe, on January 15th or perhaps late

in the day of the 14th.

The Court: What prevented you from making the ap-

plication on the 12th of January, after you spoke to my

law clerk and he told you to put it in writing?

C-12

Appendiz C

Mr. Horowitz: I didn’t speak to him on the 12th, your

Honor. I spoke to him on either the 13th or the 14th.

Perhaps counsel for the plaintiff recalls. I spoke to them

late in the day—

The Court: You just said late in the day of the 12th

or earlier in the day of the 12th you spoke to them, and

then I notified them of the endorsement on this motion.

Mr. Horowitz: I believe they advised me late in the day

on the 12th and I believe, although I am not sure, that it

was that conversation late in the day of the 12th where I

said to them, “I am going to call Judge Motley’s chambers

first thing in the morning on the 13th.”

The Court: As I have said, this motion of yours was

filed on the 15th of January, two days later, and your

letters is dated January 15th also.

Mr. Horowitz: On the 13th Mr. Fullana was in my

office. As I had told counsel for plaintiff on the 12th, in

our late afternoon conversation, I would discuss with him

whether there was any possibility of resolving this matter,

that I would endeavor to get back to Mr. Parsons after

talking about that subject with Mr. Fullana.

I called Mr. Parsons late in the day on the 13th and I

said there was no possibility of resolving the matter, and

it may have been early in the morning on the 14th that I

called your Honor’s law clerk. I am not sure. Perhaps

counsel recalls. But I am confused as to whether I called

the Court on the morning of the 13th or the 14th.

But I think in the circumstances, your Honor, I moved

expeditiously to file these motion papers. I filed them

either one day or two days after speaking to your Honor’s

law clerk. I think it was one day.

The Court: Let me ask you this: What accounts for

your client’s failure to appear previously for his deposi-

C-13

Appendiaz C

tion, prior to the Magistrate’s proposed order—that is, as

to Mr. Fullana? What accounts for his failure to appear

for more than a year? I gather he was notified sometime

in December or September—

Mr. Horowitz: I made a motion to withdraw as counsel

in this case, and the reason I made that motion was that |

had not been getting cooperation from my client, especially

from Mr. Fullana.

I don’t think, in view of the confidence of attorney-client,

that I should comment any further than I have in the

motion papers.

The Court: The evidence is that your client wilfully

failed to appear for the taking of his deposition, and I am

trying to find the date now when he was first notified—

September 25, 1973. That is on page 2 of the affidavit of

Judson Parsons dated June 11, 1975. On page 2 of that

affidavit he cites an effort to get this pretrial discovery

completed and says,

“Those efforts included, on September 25, 1973, a notice

of deposition of defendant, Martin Cohen, Jack H. Berger

and Pedro Fullana, all of whom acted on behalf of defen-

dant in connection with the matters involved in this litiga-

tion.”

The Magistrate’s memorandum comes a year later,

doesn’t it?

Mr. Horowitz: Your Honor, I think there is one other

factor we have to throw in that hopper to make it com-

plete. In 1974 I made a motion, early in ’74, March or

April, for the following relief: to transfer this case to the

district court in Puerto Rico, for permission to amend the

answer and interpose a counterclaim, and for the Court

to direct that Mr. Fullana’s deposition be taken in Puerto

Rico.

C-14

Appendia C

One year later, approximately, this Court decided that

motion, denied the application to transfer it to Puerto

Rico—

The Court: What was the date of that?

Mr. Horowitz: March or April 1975. I don’t know the

precise date. The Court directed that we have permission

to amend our answer and interpose a counterclaim and

that Mr. Fullana’s deposition be taken in New York City.

The Court: That was April ’75.

Mr. Horowitz: March or April.

Mr. Parsons: March 31st was the denial.

The Court: What year?

Mr. Parsons: ’75.

Mr. Horowitz: So it was not resolved until March of

75, your Honor.

The Court: Then what accounts for your defendant’s

failure to appear from March ’75 to December ’75

Mr. Horowitz: Your Honor, I suppose that it would not

be appropriate for me to comment any further, in view of

the confidence of attorney-client, other than to say—

The Court: If he has a justifiable excuse for not appear-

ing, I don’t know that you can also invoke the attorney-

client privilege. He is here seeking relief on the ground

that he has some good reason, I assume, for not appearing.

So I don’t know that you can ask for relief in the court

and at the same time stand on a privilege. You can’t do

that.

Mr. Horowitz: Your Honor, I am not here to attempt to

justify Mr. Fullana’s failure to appear between March of

1975 and the date of the conference before the Magistrate.

The Court: We are here because I am concerned with

it. If you don’t want to justify it, you don’t have to, but

that is why we are here, to determine whether a default

C-15

Appendiaz C

judgment ought to be entered against your client, and, as

far as I can see, the record is clear that your client wilfully

failed to appear for his deposition, and that is why a

default judgment is going to be entered against him, not-

withstanding the recommendation of the Magistrate, be-

cause I disagree with it, that he is entitled to a second

chance.

So for that reason the relief originally requested against

your client is going to be granted unless, of course, the

moving party doesn’t wish that.

Mr. Parsons: I certainly do, your Honor.

Mr. Horowitz: Your Honor, let me say that all of this

has been before the Magistrate. The man, notwithstanding

the prior situation, was in my office, was willing to co-

operate, was willing to comply with the various suggested

orders of December of this year, that plaintiff’s counsel

were willing to go along with that, did not claim that they’

were prejudiced, and I think in the circumstances, from

December 1, 1975 through and including January 12th,

they never asked for a default judgment, and I think it is

a bit unusual to grant—

The Court: I am asking now if they are asking for it.

Are you asking for a default judgment?

Mr. Parsons: Yes, your Honor.

Mr. Horowitz: Your Honor, I know what they are ask-

ing for now, and I suppose I would do the same thing, in

light of your Honor’s handwritten order of January 12,

1976. But that doesn’t alter the fact that between the con-

ference of December 1st and January 12th of this year they

never said one word about a defauit judgment, the Magis-

trate never said one word about a default judgment, Mr.

Fullana came here for his deposition, plaintiff did not claim

they were prejudiced, and we are not dealing with a hun-

OO

C-16

Appendiz C

dred dollars or a thousand dollars; the relief requested in

the complaint is $285,000.

The Court: That is all the more reason why the defen-

dant should have appeared. That is precisely why he should

have been here, and I think the record is clear that he wil-

fully failed to appear for his deposition.

There is no excuse in the world why he couldn’t have filed

an affidavit setting forth that all the records requested had

been produced.

Mr. Horowitz: That was supposed to be filed by January

15th, your Honor—

The Court: You were acting on the assumption I was

going along with that. You didn’t have any court order

permitting that and your client had plenty of time, even

before January 12th, to submit such an order and get over

here and get his deposition taken and get on with this, par-

ticularly in view of the fact that this was a 1973 case which

was encompassed within the Court memorandum relating

to these cases which was sent to all counsel saying that

these cases are going to be tried starting April Ist.

So this case was involved in that, in addition, and that is

all the more reason why you should have gotten him here,

which you didn’t.

Mr. Horowitz: I did get my client here.

The Court: That was long after the Magistrate’s report.

When this notice came out in October was the time to see

that your client was complying with the Court’s order.

Mr. Horowitz: Your Honor, there had been various other

proposals of the Magistrate that had been acted on, I

thought rather routinely, by the Court, and I proceeded on

the assumption that this one would as well. I don’t know

what else there is to say.

The Court: Thank you, gentlemen.

i. te

C-17

Appendiz C

Mr. Horowitz: Your Honor, I have two r.quests. Firstly,

if your Honor is going to sign the order—

The Court: I have already signed it, just a minute ago.

Mr. Horowitz: Your Honor, I would like to make a

couple of comments on the order itself.

Firstly, that order contains no reference to the proceed-

ings before Magistrate Schreiber or the proposed order.

There is no secret that I am going to the Court of Appeals,

and I want—

The Court: The record is clear. That is in the record.

And I said in my order of January 12th, “The Court re-

jects the proposed order prepared by Magistrate Schreiber

on December 9, 1975 and grants the plaintiff’s motion for

sanctions against defendant for their refusal to comply.”

So there is no attempt to hide the fact that the Magistrate

suggested the order that he did on December 9th. It is

right in there that I rejected his report, and I find that his

report, as I have indicated, comes months after ycur client

failed to appear for his deposition.

As I told you, it is my ruling that I am not bound by

the Magistrate’s reports in these matters. The Magistrate

is not a district judge. And I have gone over this, and

the record is extensive and clear that your client wilfully

disobeyed the orders of the Court.

So you can go to the Court of Appeals and we will find

out whether your client can wilfully disobey a court order.

Mr. Horowitz: One final request, if I may, your Honor.

I would like to request a thirty day stay of enforcement

of the judgment that will ultimately be entered. I will be

filing a notice of appeal and proceeding with an appeal.

The Court: Well, you have to file a bond for an appeal

which would automatically stay this judgment, wouldn’t it?

C-18

Appendiz C

Mr. Horowitz: I have to file a notice of appeal within

thirty days after the entry of the judgment. What I am

requesting is a thirty day stay of the judgment, which is

the time within which I would file a notice of appeal and

the bond.

The Court: You want a thirty day stay of the judgment

pending the filing of a notice of appeal?

Mr. Horowitz: Yes, your Honor.

The Court: Do you wish to be heard on that?

Mr. Parsons: Your Honor, I guess—

The Court: I think he can’t enforce the judgment until

the time for appeal has expired.

Mr. Horowitz: That is not true, your Honor.

Mr. Parsons: I would like to suggest, your Honor, since

he will have to file a bond to appeal to stay things, that I

guess I would not object to that. But I think your Honor

awarded us counsel fees.

The Court: Yes, counsel fees and expenses.

Mr. Parsons: I suggest that that not be stayed, your

Honor, but I suggest that one of the ways to make these

discovery rules work is that when those things are im-

posed that they be dealt with expeditiously and paid ex-

peditiously.

This doesn’t go into our pocket but goes into the client’s

pocket. The client has incurred those expenses and will be

reimbursed for them.

The Court: It seems to me—I guess we could get the

rules out, but it seems to ie—you can file a notice of

appeal and the required bond and that automatically stays

this judgment and that is what you should do.

Mr. Horowitz: What I am saying to the Court is that

you don’t file a 300 some-odd thousand dollar bond over-

night. You have to satisfy bonding companies—-

C-19

Appendiz C

The Court: There is a ten day rule, I am sure, at least,

with respect to the entry of any judginent here. You check

on the rules and write out whatever you want me to do.

But, as I have indicated, I think what you should do is file

a notice of appeal and the required bond, which would stay

this judgment.

Thank you, gentlemen.

D-1

Appendix D

Opinion of Circuit Court of Appeals

in United States v. Stein

UNITED STATES COURT OF APPEALS

For THE Second CIRCUIT

=

i

No. 322—September Term, 1976.

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(Argued September 15, 1976 Decided October 22, 1976.)

Docket No. 76-1299

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Se

Unirep States oF AMERICA,

Appellee,

—against—-

Srpney STEIN,

Defendant-Appellant.

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:

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Before:

LumpBarD, MANSFrIeLp and Mutiican,

Circuit Judges.

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Se

Appeal from an order of the United States District Court

for the Southern District of New York, Constance Baker

Motley, Ju/ge, denying reconsideration of defendant’s mo-

tion challenging the legality of consecutive sentences total-

ling 10 years imprisonment and fines of $25,000 imposed

upon his plea of guilty to conspiracy, 18 U.S.C. §371, secu-

rities fraud, 15 U.S.C. $78), 78ff and Rule 10b-5, and inter-

state transportation of unregistered securities, 15 U.S.C.

S77, on grounds of denial of due process.

Reversed and remanded with directions to vacate sen-

tence and resentence the defendant.

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D-2

Appendiz D

Awxceto T. Comers, Esq., New York, N.Y. (Louis

Nizer, Esq., Perry S. Galler, Esq., Jonathan

D. Warner, Esq., Vhiilips, Nizei, Benjamin,

Krim & Ballon, New York, N.Y., of counsel),

for Defendant-A ppellant.

Lawrexce B. Pevowirz, Assistant United States

Attorney (Robert B. Fiske, Jr., United

States Attorney for the Southern District

of New York, Frank H. Wohi, Assistant

United States Attorney, New York, N.Y.

of counsel), for Appellee.

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—-—rr

Mansrietp, Cirreuit Judge:

Sidney Stein appeals from an order of the Southern

District of New York, Constance Baker Motley, Judge,

denving reconsideration of his motion challenging consec-

utive sentences totalling 10 vears imprisonment and fines

amounting to $25,000, which were imposed after ne had

pleaded enilty to charges of conspiracy, 18 U.S.C. §371,

securities fraud, 15 U.S.C. §§78j, 78ff and Rule 10b-5, and

‘uterstate transportation of unregistered securities, 15

1”.S.C. 677e. and had cooperated extensively with the gov-

ernment, testifying against co-defendants, some of whom

were convicted and received substantially lesser sentences

than that imposed upon Stein. He contends that the sen-

tenee was both excessive and illegal. Beeause the harsh

sentence was imposed by the sentencing judge under an

apparent misapprehension as to certain material facts, be-

cause she failed to permit appellant and his counsel to be

heard when they attempte! immediately after imposition

of the sentence to uldress the court, and because the de-

fendant was furnished by the court with a materially in-

correct impression of the Probation Officer’s recommenda-

D-3

Appendiz D

tion, we hold that there was a denial of due process. Ac-

cordingly the sentence is vacated and the case remanded

to the district court for resentencing.

Prior to the filing in 1974 of the indictment in this case

Stein, now 50 years old, had been a principal figure in

numerous securities law violations, including frauds and

stock manipulations, which dated back to the early 1960s

and continued until approximately 1972. Despite his in-

volvement in these illegal activities he apparently began

cooperating with the government in the late 1960s, fur-

nishing information with respect to the conduct of others

in certain security frauds, manipulations and other crimes.

On May 27, 1971, after a jury trial before Judge Fred-

erick vP. Bryan in the Southern District of New York,

he was convieted of federal security law violations based

upon manipulation of the stock of the Buckeye Corpora-

tion in 1960 and 1961 and was sentenced to a term of two

years imprisonment. Ilowever, he continued his coopera-

tion with federal authorities, testifving in various other

trials in the Sovihern District of New York in 1971, 1972

and 1973 and acting as an undercover agent for the

Burean of ‘Narcotics and Dangerous Drugs in obtaining

evidence of trafficking in narcotics on the part of a Cal-

ifornia attorney, As a result of this cooperation Judge

Bryan, on Jannary 20, 1973, reduced Stein’s sentence to

time already served (approximately 90 days) and placed

him en prob:tion for five years, on the understanding that

he wonld continue to cooperate with federal law enforce-

ment authorities, which he did.’

1 On February 5, 1973, one week after he was sentenced by Judge

Bryan in 66 «'r. 732, Stein was sentenced by Judge Charles Brieant

of the Southern -Distriet of New York to pay fines totalling $3,750

upon his plea of guilty on the same date to three counts of an in-

dictment charging him with perjury in proceedings held pursuant to

the SEC's application to enjoin violation of the federal securities

laws in the sale of stock of Radio Hill Mines.

D-4

Appendiz D

On June 4, 1974, a grand jury in the Southern District

of New York filed the present indictment against Stein

and nine others, charging them in 20 counts with a 1968-69

conspiracy to violate the federal securities laws and mail

fraud statutes in the sale of unregistered stock of Stern-

Ilaskell, Inc. and various substantive violations, including

employment of schemes to defraud, use of manipulative

and deceptive devices in the sale of stock, and obtaining

money and property by means of untrue statemenis. See

United States v. Rubinson, —— F.2d (2d Cir. April

8, 1976), Slip Opin. 3119. The charges were based upon

a scheme devised and carried out in 1968 and 1969 for

the marketing of some 200,000 unregistered Stern-Haskell

shares. On January 9, 1975, Stein pleaded guilty to Counts

One (charging all defendants with conspiracy in violation

of 18 U.S.C. 6371), Seven (use of the mails to seil Stern-

Haskell stock in violation of Rule 10b-5 and 15 U.S.C.

$$78] and 78ff), and Fourteen (sale of unregistered shares

of Stern-Haskell stock in violation of 15 U.S.C. §§77e and

77x).?

Trial of Stein’s co-defendants commenced on January 22,

1975. Stein, continuing to cooperate with the government,

testified as a government witness for six days. The jury

found four defendants guilty and acquitted three.’

On March 28, 1975, Stein appeared before Judge Motley

for sentencing. The government prepared and submitted

to the court a sentencing memorandum describing Stein’s

2 Before the guilty plea was entered the parties revealed to the court

an understanding between Stein and the government to the effect that

if Stein continued to cooperate with the government he would not be

prosecuted for any other prior crimes revealed to it and that the nature

and extent of Stein’s cooperation would be made known to the court at

the time of sentencing.

3 For a full statement of the facts see United States v. Rubinson, supra,

Slip Opin. 3120-30.

— een

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a le te re ate deb BO oe

0 lilt gh Bt Ae et

D-5

Appendiz D

cooperation, including his testimony in various ceses (in-

cluding that in United States v. Quase, 73 Cr. 80, and his

testimony before the grand jury and at trial in the present

ease) and his cooperation with the FBI and the Internal

Revenue Service.‘ Judge Motley also had before her a

copy of the pre-sentence report prepared by the U.S. Pro-

bation Officer for use by Judge Bryan in the 1971 sentenc-

ing after Stein’s conviction in the trial before him (66 Cr.

732) and a supplemental pre-sentence report prepared

by the Probation Officer for the present case, dated March

12, 1975. Using a form eustomarily employed by the

U.S. Probation Officer in the Southern District of New

York, each of these pre-sentence reports sets forth perti-

nent data, including a description of the offense for which

Stein had been convicted, a statement of his version of

the events, his prior criminal history, personal and back-

ground data, emotional and physical factors, business

history, pending information, finances and—a matter of

considerable significance in the present case—the Proba-

tion Officer’s “Evaluation” or “Evaluative Summary” in

which the Officer frequently makes a recommendation with

respect to the sentence to be imposed.

At the sentencing hearing Stcin’s counsel urged the

court to place Stein on probation, pointing out that Judge

Bryan had followed this course in the earlier case and that

Stein had since conducted himself in a lawful manner, co-

operating extensively with various governmental agencies.

The government rested on its sentencing memorandum.

Stein, exercising his right of alioeution, siated that he had

rehabilitated himself and wou’ continue to cooperate with

the government. Judge Motley, after reviewing Stein’s

criminal record, stated that she concurred in the evalua-

4 Before ‘sentencing Stein in open court, Judge Motley held a robing

room conference with counsel and Stein, in which Stein's cooperation

with the government was also described by counsel.

D-6

Appendiz D

tion of the September 14, 1971, pre-sentence report pre-

pared by the U.S. Probation Officer for Judge Bryan. She

then read verbatim that evaluation. After reviewing

Stein’s fraudulent behavior and describing him as a major

manipulator of stocks, the Evaluative Summary concluded

that Stein had shown “no remorse for his involvement,”

that he would “continue to act in a fraudulent and manip-

ulative manner,” that he “deserves no consideration de-

spite his so-called cooperation in other cases,” and that he

was “acting in his own self-preservation so that he could

not himself be criminally prosecuted.” It concluded, “a

commitment and fine in his case is recommended on Stein’s

activities alone. Additionally a commitment hopefully will

forewarn others that this type of offense could result in

serious consequences.” °

5

The following portion was quoted by Judge Motley in open court:

"Stein has develored a rightly earned reputation among the Se-

curities and Fxchange Commission as one of the major manipulators

of stocks. His method of operation is simply to acquire shell com-

panies for which he gets a percentage, obtains underwritings for

them and then creates an artificial market. When the price is right,

Stein “dumys” his stock causing havoe for the other investors, some

small and hig. He operates under the guise of respectability rein-

forced by his pervasive and glib personality which makes him for-

midable opposition. There appears little doubt that Stein is one

of the major offenders in this field. There is a history and pattern

of this behavior with three cases, including one for forgery about

to break open in this court, all leading to considerable prosecution.

"In all cases it appears that Stein emerges as the principal and

the one who dominates and controls every and all situations. Since

the filing of the indictment on the instant offense in 1966 Stein has

been quite active.

“*Another indictment was filed in 1968 (dismissed) and two

injunctions were issued with respect to Stein's violations of securi

ties laws in 1970. Although outwardly courteous and cooperative

during the investigation Stein, in our opinion, was completely vague

and guarded, especially concerning his finances and current busi-

ness. Stein, a complex man, operates in a complex field and com-

mits complex offenses. Not only a “merger and acquisition man”,

which in itself can be legitimate, Stein is one-third owner of a

hotel and restaurant in Miami Beach, Florida.

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D-7

Appendiz D

Although Judge Motley mentioned in passing that she

had read the Probation Officer’s supplemental pre-sentence

report prepared for her sentencing of Stein, which updated

the 1971 report, she did not describe the contents of the

supplemental report other than to state at the pre-sentence

chambers conference that it “doesn’t contain much addi-

tional information.” However, the Probation Officer’s

Evaluative Summary attached to the supplemental report

as a separate sheet, in sharp contrast to that forming part

of the earlier report, states:

“Stein admits his guilt, verbalizes remorse, and has

been cooperating with the Government.

“In view of the foregoing, it is resnectfully recom-

mended that this defendant be placed on probation.”

“Despite these surface qualities of respectability Stein's several

indictments and injunctions, both past and present, tend to cast cer-

tain sinister implications about his overall activities, including his

name being mentioned in three cases with men reputed to be on

the organized crime list.

"In any event, it certainly appears that Stein has learned little

about himself in the process and will continue to act in a fraudulent

and manipulative manner. Ile shows no remorse for his involve-

ment and indicates that he is innocent not only of the instant

offense but of other offenses.

“Stein deserves no consideration despite his so-called cooperation

in other cases. In each case it appears Stein was acting in his own

self-preservation so that he could not himself be criminally prose-

cuted.

“"In our opinion, whatever has been uncovered by Stein until

now is but the periphery of hie true activities and manipulations.

Stein despite three unsolicited letters attesting to his character (at-

tached) is not a deserving candidate for probation.

“Stein is one of the better known men in this field, not only to

government agencies and courts, but among Wall Street brokers,

dealers, attorneys, etcetera.

“‘A commitment and fine in this ease is recommended on Stein's

activities alone. Additionally, a commitment hopefully will fore-

warn others that this type of offense could result in serious con-

sequences.’ "

D-8

Appendia D

It does not appear that this supplemental report was ever

made available to or read by counsel. For reasons sug-

gested below the Evaluative Summary quoted above may

not have been read by Judge Motley. Had it been fur-

nished to counsel, we are confident that the quoted por-

tion, which was of considerable significance in view of

Judge Motley’s quotation of the evaluation from the earlier

report, would have been called to her attention.

Following her reading of portions of the 1971 Probation

Office report, Judge Motley sentenced Stein to the max-

imum sentence that could be imposed on each of the three

counts to which he pleaded guilty: 5 years and a com-

mitted $10,000 fine on Count One, 2 years and a committed

$10,000 fine on Count Seven to run concurrently with the

sentence of Count One, and 5 years and a committed $5,000

fine on Count Fourteen to run consecutively to the sentence

on Count One. As a result, Stein was sentenced to 10 years

imprisonment and payment of committed fines totalling

$25,000, based on imposition of consecutive sentences with

respect to the same criminal course of conduct.

When Stein’s counsel, undoubtedly taken aback by the

severity of the sentence, asked to be heard the court re-

plied “No, the defendant is remanded,” adding “We are

not going to have anymore attempted suicides or anything

else with Mr. Stein. We have been through that.” Sim-

ilarly when Stein asked “May I say something, your

Honor?” the court replied “The defendant is remanded.”

On July 28, 1975, Stein filed a “Motion for Mitigation”

accompanied by a memorandum prepared by his counsel

which argued (1) that the court, by relying so heavily on

the negative evaluation quoted from the out-dated 1971

pre-sentence report instead of considering Stein’s ‘inter-

vening cooperation and rehabilitation, had been under a

mistaken impression as to Stein’s current motivation and

the genuineness of his post-1971 rehabilitation, (2) that

D-9

Appendiz D

the court had imposed sentence in the mistaken belief that

Stein had attempted to get his sentence in the 1971 case

“fixed,” and (3) that the court had acted under the mis-

apprehension that Stein, after being sentenced by Judge

Bryan in 1971, had engaged in “an attempt to avoid going

to jail by feigning suicide.” The memorandum made an

effort to correct these possible misimpressions by setting

forth pertinent facts in detail.

The evidence as thus adduced indicated that Stein had

not engaged in any illegal activities since at least 1972

and that he had cooperated extensively with the govern-

ment, allowing himself to be used in an undercover capac-

ity, even after he learned in March 1974 that he was likely

to be indicted in the present case, thus indicating that he

was not motivated solely by self-preservation. With re-

spect to the charge made by other defense counsel during

the trial (when Stein was testifying for the government)

that Stein had attempted to “fix” his sentence in the 1971

case, his counsel brought out that Stein had reported the

facts to the government and had acted as an undercover

informant in an effort to obtain evidence against those

claiming to have influence with the court in the earlier

case. As for the statement that Stein had “feigned sui-

cide,” his counsel offered proof that the suicide attempt

was genuine, that Stein had a long history of psychiatric

illness which grew worse as he faced imprisonment and

that on October 12, 1972, before boarding the plane on

which he consumed the overdose of pills, his life had been

threatencd. The psychiatric study made shortly thereafter

by the U.S. Medical Center, Springfield, Mo., supported

Stein’s claim of psychiatric illness.*

6 The United States Medical Center Report stated:

“There is professional medical unison suggesting that Stein is but

a step away from total personality disintegration and possible

psychosis.

D-10

Appendia D

Stcin’s counsel asked for an oral hearing on his motion

directed toward the sentence imposed by Judge Motley.

in response to his motion the government filed a memo-

randum recommending that, in view of Stein’s cooperation

since 1972, which was described as “extensive,” and the

absence of any “reliable information that Stein has com-

mitted any crime since 1972,” the sentence be reduced but

not below five years imprisonment and the $25,000 fine im-

posed by the court. On October 22 the court denied Stein’s

motion without hearing and without making any findings

of faet with respect to the matters claimed te be the sub-

ject of misapprehension by the court. The parties did not

learn of the denial for a couple of months.

On January 23, 1976, Stein filed a petition for reconsid-

eration of the earlier decision denying his motion directed

toward the sentence and asked for oral argument. On

Mareh 9, 1976, Judge Motley denied the petition without

hearing or findings in a cryptic endorsement “Petition for

reconsideration denied. See Court’s statement at time of

sentence.” From this order Stein appeals.

“If he is not immediatety subjected to an extended period of psy-

chotherapy and supportive counseling in a structured setting, he

could very easily lose contact with reality.

“Recent psychological testing and psychiatric observation sub-

stantiate that Stein does possess a degree of paranoia which is on

the verge of developing into schizophrenic psychosis. His depression

is almost at the psychotic level. At this time he is still in contact

with reality but the possibility of incarceration poses such a threat

to him that he could easily decompersate at any time. The pos-

sibility of further suicide attempts is realistic in this case, as it

is believed that the recent previous gesture was prompted by the

fear of confinement, and incarceration may yet be immirent.

“At the Medical Center he has been observed as suffering from

a very severe affective disorder, as depicted in available reports. As

suggested above, total personality disintegration has not occurred,

yet he is tenuorely close to a total break from reality.’’

med? ane

aie

D-11

Appendiz D

Discussion

The threshold question is whether the order denving re-

consideration of Stein’s motion directed toward his sen-

tence is reviewable. If the motion were limited to a claim

that the sentence was excessive, we would be forced to deny

review in aecordance with the general principle reeently

restated by us in United States v. Seijo, —— F.2d —— (2d

Cir. June 24, 1976), Slip Opin. 4387, 4598:

“The Supreme Court has recently reaffirmed the ‘gen-

eral proposition that once it is determined that a

sentence is within the limitatiens set forth in the stat-

ute under which it is imposed, appellate review is at

an end.’ Dorszynski v, United States, 418 U.S. 424, 431

(1974).”

See also United States v. Tucker. 404 U.S. 443 (1972);

(nited States v. Brown, 479 F.2d 1170, 1172 (2d Cir. 1973).

The sentences here were within the statutory limits and

eannot be set aside on the ground that they were made to

run consecutively, a decision resting within the trial

jndee’s diseretion. Hartson vy. l'nited States, 14 F.2d 561

(2d Cir. 1926); United States v. Grene, 455 F.2d 376 (5th

Cir.), cert. denied, 409 U.S. S56 (1972); Gilinsky v. United

States, 430 F.2d 1292 (9th Cir. 1970).

On the other hand, a notion to vacate a sentence on the

ground that the sentencing ju''ge acted on the basis of er-

roneous assumptions or information thet was materially

invorrect rests on a different footing: in that case

“lilt is not the duration or severity of this sentence

that renders it constitutionally invalid; it is the care-

less or designed pronouncement of sentence on a foun-

dation so extensively and materially false, which the

prisoner had no opportunity to correct by the services

which counsel would provide, that renders the proceed-

D-12

Appendix D

ings lacking in due process.” Townsend v. Burke, 354

U.S. 736 at 741 (1948).

This basic principle was recently applied by us under simi-

lar circumstances in United Statvs y. Robin, —— F.2d

(2d Cir. Oet. 15, 1976), Slip Opin. 5829-5846. Earlier, in

United States v. Malcolm, 432 F.2d 809, 815 (2d Cir. 1970),

we vaeated a sentence on the ground that the sentencing

judge had proceeded under a misapprehension as to the

defendant’s criminal record and had denied defense coun-

sel and the prosecutor an opportunity to present material

information bearing on the sentence, including the nature

and extent of the defendant’s cooperation with law en-

forcement authorities. There we stated:

“Misinformation or misunderstanding that is mate-

rially untrue regarding a prior criminal record, or

material false assumptions as to any facts relevant

to sentencing, renders the entire sentencing procedure

invalid as a violation of due process.

‘There can be no question that a defendant’s coopera-

tion in the investigation and prosecution of the mur-

der of a policeman and other serious crimes is highly

material to mitigation of punishment not only necause

the defendant should he rewarded for his serviees to

the community but also because cooperation with law

enforcement authorities is a si¢nificant step toward

rehabilitation. Clearly, therefore, Malcolm had a right

to present all available information bearing on his

cooperation with the authorities frl!y and accurately,

and, correlatively, the court had a duty to listen and

to give such information serious consi eration.” 432

F.2d 809 at 816, 817.

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pe ae ee ne ee

D-13

Appendia D

These principles apply with singular force to the present

case. Stein’s motion, although labelled one for “mitiga-

tion” was actually founded upon a claim of denial of due

process based upon the court’s having acted on material

misinformation.” The motion papers, moreover, make out

a prima facie case of illegality, reveaiing that the sentenc-

ing judge was under a misapprehension as to at least

two material facts when she sentenced Stein. According

to the transcript, Judge Motley assumed that Stein had

unqualifiedly participated in an attempt to “fix” his earlier

ease before Judge Bryan. If true this was a material fact

that could well have led the judge to impose the unusually

severe sentence. The view that Stein had “feigned” sui-

cide following imposition of sentence by Judge Bryan,

while not as material as the supposed “fix,” could never-

theless have been relevant to the sentence imposed and

damaging to Stein since, if accepted as true, it would in-

dicate that he had not been rehabilitated and that he was

willing to engage in fraud upon the court in order to escape

justice, thus confirming the Probation Officer’s earlier

adverse evaluation. Furthermore, the fact that the trial

judge expressly referred to these matters upon imposition

of sentence indicates that she probably considered them

to be material; otherwise there would not have been any

point in her mentioning them.

Thus the sentencing judge was confronted with more

than a request to rebut some hearsay statements in a pre-

sentence report, see, e.g., United States v. Rosener, 485

F.2d 1213, 1230 (2d Cir. 1973), cert. denied, 417 U.S. 950

7 Tne motion papers failed to state the basis of Stein’s invocation of

the court's jurisdiction. To the extent that the motion may be deemed

one under Rule 35, F.R.Cr.P.; for reduction of sentence on grounds of

harshness, it may have been time-barred, but the legality of the sen-

tence, either under Rule 35 or 28 U.S.C. $2255, could be raised at any

time and was a matter within the district court's jurisdiction.

D-14

Appendix D

(1974) ; United States v. Robin, supra. Here she was faced

with evidence nov controverted by the government to the

effect that assumptions expressed by her at the time of

sentencing with respect to material matters had been

either partially or wholly incorrect. Under these circum-

stances the judge owed a duty either to explain that she

had not been influenced by them or, if she had been, to make

findings of fact after examining the evidence, which might

or might not require a hearing. See United States y.

Needles, 472 F.2d 652, 657-58 (2d Cir. 1973). If the evi-

dence confirmed her assumptions, no further action would

he required; if, on the other hand, the judge found that

ler material assumptions had been incorrect, it would

become necessary to vacate the sentence® and resentence

the defendant. Instead, Judge Motley denied Stein’s motion

without any findings, content to rest on what she had

stated at the time of sentencing.

This failure to reopen the matter when it was called

to the court’s attention by a post-sentencing motion under-

scores the trial judge’s earlier error in refusing to permit

Stein or his counsel to be heard immediately following the

judge’s remarks and imposition of sentence. We recognize

that Judge Motley had at an earlicr point in the sentencing

permitted the defendant and his counsel to be heard at

some length. Dut that was before her remarks to the effect

that Stein had attempted to get the earlier “sentence fixed”

and had made “an attempt to avoid going to jail by feien-

ing suicide,” which immediately preceded her imposition

of sentence. Furthermore, in denying Stein’s counsel the

§ Further support for appellant’s position is found in the fact that

after the claim that appellant had attempted to fix the sentence before

him had been explored in depth by Judge Bryan upon appellant's motion

for reduction of sentence, Judge Bryan apparently found no imnro-

priety on appellant's part since he reduced the two-year sentence im-

posed upon Stein to time already served.

— —s

D-15

Appendiz D

right to be heard for a “moment” immediately after sen-

tence was imposed the judge remarked ‘We are not go-

ing to have anymore attempted suicides or anything else

with Mr. Stein. We have been through that,” thus em-

phasizing the importance of this matter in relation to the

sentence imposed. While we appreciate the severe pres-

sures wider which the sentencing judge functions in this

heavily overburdened court an that our criticism is of

necessity the product of hindsight, it was nevertheless a

denial of due process to refuse to hear Stein and his

counsel in rebuttal. See, e.g., (/nited States v. Powell, 487

F.2d 325, 329 (4th Cir. 1973) ; Collins v. Buchkoe, 493 F.2d

343, 345 (6th Cir. 1974).

The sentence here must be vacated on still another

ground: tle trial judge’s failure, after reading the strongly

adverse evaluation written by the Probation Officer in his

1971 report (which took the view that Stein was incor-

rigible and should be committed), to disclose that in his

later 1975 supplemental report the Probation Officer, after

a further study of the matter in the light of intervening

events (including Stein’s remorse and cooperation), had

recommended that Stein be placed on probation. Judge

Motley’s verbatim reading in open court of the earlier

detailed evaluation without revealing the later favorable

one coul.l only have created the erroneous impression that

nothing had intervened to change the Probation Officer’s

adverse evaluation. Although the sentencing judge was

uot required to follow the Probation Officer’s recommenda-

tion, it often constitutes one of the most important factors

considered by the sentencing judge.

Once Judge Motley had revealed in detail the earlier

adverse evaluation in which she concurred, fundamental

fairness dictated that the more recent favorable evalua-

D-16

Appendiz D

tion recommending probation be brought to the attention

of the defendant and his coun-el, neither of whom had

seen it, for such comment aud suggestion as they might

care to make.’ We conclude that Judge Motley must have

overlooked the later favorable evaluation.”® But even so

the failure of the court to have considered this vital in-

0 Effective August 1, 1975, Rule 32(¢)(3)(A), F.R.Cr.P., was amended

to provide:

“(A) Before imposing sentence the court shall upon request per-

mit the defendant, or his counsel if he is so represented, to read

the report of the presentence investigation exclusive of any recom-

mendation as to sentence, but not to the extent that in the opinion

of the court the report contains diagnostic opinion whieh might

seriously distupt a program of rehabilitation, sources of informa.

tion obtained upon a promise of confidentiality, or any other infor-

mation which, if diselosed, might result in harm, physical or other-

wise, to the defendant or other persons; and the court shall afford

the defendant or his counsel an opportunity to comment thereon

and, at the discretion of the court, to introduce testimony or other

information relating to any alleged factual inaceuracy contained

in the presentence report.”

At the time Stein was sentenced by Judge Motley, however, the dis

closure of the rejort or any part of it to a defendant or his counsel

was left to the judge's discretion. The practice under this earlier

version of the Rule varied aceording to the sentencing judge. Appar

ently no request was made by Stein for the sentencing reports and we

therefore do not know whether the reports would have heen made avail-

able to him in whole or part by the trial judge.

tu The likeliheod (iat the later evaluation was overlooked by the sen

tencing judye is suggested ly the tact that the supplemental pre-sentence

report consists of four pages, the last of which was signed by the

Probation Officer, plus a fifth page entitled “Evaluative Summary” dated

on the same day as the earlier pages (3/]2/75) and also signed by the

Probation Officer.

It is possible that the sentencing judge, unon reaching the end of

the fowth page, which bears the salutation “Respectfully submitted”

followed hy the Probation Odlicer’s signature, thought that this was the

end’ of the re;ort end failed to turn to the next page which contains

the evalnation, plus the same closing salutation and signature. Indeed.

in her remarks in the rebing room conference immediately preceding

the sentence she described the supplemental report as “a three and a

quarter page report.”

BTST COPY AVAILABLE

D-17

Appendiz D

formation before imposing sentence would in itself re-

quire that the sentence be vacated. United States v. Mal-

colm, 432 F.2d 809 (2d Cir. 1970).

Accordingly we reverse the denial of Stein’s motion with

directions to vacate the sentence and to resentence the

defendant. Under the circumstances, including the recog-

nized difficulty which an original sentencing judge may

have in rejecting or modifying prior conclusions and the

necessity of maintaining the appearance of justice, we

direct that the resentencing be conducted by a different

judge. See United States v. Rosner, 485 F.2d 1213, 1231

(2d Cir. 1973), cert. denied, 417 U.S. 950 (1974); United

States v. Schwarz, 500 F.2d 1350, 1352 (2d Cir. 1974);

O’Shea v. United States, 491 F.2d 774, 778-80 (1st Cir.),

overruled as to a different holding, Wingo v. Wedding,

418 U.S. 461, 473 n.i9 (1974).

LumBarp, Circuit Judge (concurring) :

From Judge Mansfield’s thorough and convincing dis-

cussion of the facts, it seems to me that the sentence of

ten years imposed on Stein violated. the Eighth Amend-

ment prohibition against the infliction of cruel and unusual

punishments. Such a lengthy sentence has rarely been

imposed in a stock fraud case. To impose this sentence

on a defendant who has not only pleaded guilty but in

addition has assisted the government, as Stein did in the

instant case, by extensive testimony, as well as by under-

cover work for other government azencies in other cases,

is unprecedented and beyond all reason. The sentence is

so severe as to be cruel and unusual under the circum-

stances. Hence, it cannot stand. Cf. Hart v. Coiner, 483

F.2d 136 (4th Cir.), cert. denied, 415 U.S. 938 (1973).

D-18

Appendiz D

See also Weems v. United States, 217 U.S. 349 (1910);

Downey v. Perini, 518 F.2d 1288 (6th Cir.), vacated on

other grounds, 96 S.Ct. 419 (1975).

While I fully agree with all the other reasons Judge

Mansfield has given which demonstrate that the district

judge failed to consider the significant facts and opinions

which were highly relevant to the sentence, I would set

aside such a sentence as was here imposed even if the

judge had properly noted this material and had given

adequate epportunity for the defendant and his counsel to

be heard.

In my opinion to let such a sentence stand would seri-

ously cripple the necessary efforts of the government to

secure the cooperation of malefactors without whose as-

sistance and testimony it is often not possible to prosecute

their many partners in crime. I do not overlook the gov-

ernment’s intermediate position, doubtless made necessary

by the amenities which prosecutors must observe when a

judge’s decision goes far bevond expectations, that the

sentence should not have been longer than five years. Nor

do I overlock the fact that Stein’s transgressions deserve

more than token punishment and the consideration that

there must he substantial doubt whether anything like

rehabilitation is possible for such a long-time repeated

offender,

For these reasons I agree that the sentence should be

vecated and the case remanded to the district court for

resentencing before a different district judge.

a

E-1

Appendix E

Federal Rules of Civil Procedure

Rule 37. Failure To Make Discovery: Sanctions.

(b) Famure To Compty With ORDER.

(1) Sanctions by Court in District Where Deposi-

tion Is Taken. If a deponent fails to be sworn or to

nswer a question after being directed to do so by

the court in the district in which the deposition is

being taken, the failure may be considered a contempt

of that court.

(2) Sanctions by Court in Which Action Is Pending.

If a party or an officer, director, or managing agent of

a party or a person designated under Rule 30(b) (6) or

31(a) to testify on behalf of a party fails to obey an

order to provide, or permit discovery, including an

order made under subdivision (a) of this rule or Rule

35, 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:

(A) An order that the matters regarding which

the order was made or any other designated facts

shall be taken to be established for the purposes

of the action in accordance with the claim of the

party obtaining the order ;

(B) An order refusing to allow the disobedient

party to support or oppose designated claims or

defenses, or prohibiting him from introducing des-

ignated matters in evidence;

,

E-2

Appendix E

(C) An order striking out pleadings or parts

thereof, or staying further proceedings until the

order is obeyed, or dismissing the action or pro-

ceeding or any part thereof, or rendering a judg-

ment by default against the disobedient party;

(D) In lieu of any of the foregoing orders or in

addition thereto, an order treating as a contempt

of court the failure to obey any orders except an

order to submit to a physical or mental exami-

nation;

(E) Where a party has failed to comply w'th an

order under Rule 35(a) requiring him to produce

another for examination, such orders as are listed

in paragraphs (A), (B), and (C) of this subdivision,

unless the party failing to comply shows that he is

unable to produce such person for examination.

Ia lieu of any of the foregoing orders or in addi-

tion thereto, the court shall require the party failing

to obey the order or the attorney advising him or

both to pay the reasonable expenses, including at-

torney’s fees, caused by the failure, unless the court

finds that the failure was substantially justified or

that other circumstances make an award of expenses

unjust.

* * 2 * om

(d) Farcvre or Parry To AtTrenp at Own Deposition

orn Serve ANSWERS TO INTERROGATORIES OR RESPOND TO RE-

QUEST FOR INSPECTION.

If a party or an officer, director, or managing agent of a

party or a person designated under Rule 30(b) (6) or 31(a)

to testify on behalf of a party fails (1) to appear before the

officer who is to take his deposition, after being served with

E-3

Appendix E

a proper notice, or (2) to serve answers or objections to

interrogatories submitted under Rule 33, after proper

service of the interrogatories, or (3) to serve a written

response to a request for inspection submitted under Rule

34, after proper service of the request, the court in which

the action is pending on motion may make such orders in

regard to the failure as are just, and among others it may

take any action authorized under paragraphs (A), (B),

and (C) of subdivision (b)(2) of this rule. In lieu of any

order or in addition thereto, the court shall require the

party failing to act or the attorney advising him or both

to pay the reasonable expenses, including attorney’s fees,

caused by the failure, unless the court finds that the fai’ure

was substantially justified or that other circumstances

make an award of expenses unjust.

The failure to act described in this subdivision may not

be excused on the ground that the discovery sought is

objectionable unless the party failing to act has applied

for a protective order as provided by Rule 26(c).

Rule 53. Masters

(e) Report.

(1) Contents and Filing. The master shall prepare

a report upon the matters submitted to him by the

order of reference and, if required to make findings

of fact and conclusions of law, he shall set them forth

in the report. He shall file the report with the clerk

of the court and in an action to be tried without a

jury, unless otherwise directed by the order of refer-

ence, shall file with it a transcript of the proceedings

and of the evidence and the original exhibits. The

clerk shall forthwith mail to all parties notice of the

filing.

E-4

Appendiz E

(2) In Non-Jury Actions. In an action to be tried

without a jury the court shall accept the master’s

findings of fact unless clearly erroneous. Within

10 days after being served with notice of the filing

of the report any party may serve written objections

thereto upon the other parties. Application to the

court for action upon the report and upon objections

thereto shall be by motion and upon notice as pre-

scribed in Rule 6(d). The court after hearing may

adopt the report or may modify it or may reject it in

whole or in part or may receive further evidence or

' may recommit it with instructions.

(3) In Jury Actions. In an action to be tried by

a jury the master shal] not be directed to report the

evidence. His findings upon the issues submitted to

~ him are admissible as evidence of the matters found

and may be read to the jury, subject to the ruling of

the court upon any objections in point of law which

may be made to the report.

(4) Stipulation as to Findings. The effect of a

master’s report is the same whether or not the parties

have consented to the reference; but, when the parties

stipulate that a master’s findings of fact shall be final,

only questions of law arising upon the report shall

thereafter be considered.

(5) Draft Report. Before filing his report a mas-

ter may submit a draft thereof to counsel for all par-

ties for the purpose of receiving their suggestions.

F-1

Appendix F

January 22, 1976 Order and Judgment in Default

UNITED STATES DISTRICT COURT

SoutHern District or New York

73 Civ. 2422 (CBM)

#76,061

Parvez, Wesser, Jackson & Curtis, [ycorporaTep,

Plaintiff,

—against—

InMoBILIARIA Mexia DE Pverto Rico, Inc.,

Defendant.

ORDER AND JUDGMENT IN DEFAULT

This cause came to be heard on plaiuatiff’s cross-motion

dated June 13, 1975 for an order pursuant to Federal Rule

of Civil Procedure 37 imposing sanctions upon the defen-

dant and awarding plaintiff reasonable expenses, including

attorneys’ fees, incurred by reason of defendant’s conduct;

and

Wuenreas by order of this Court filed on March 5, 1974

defendant was ordered to produce on or before February

26, 1974 documents whose production was sought by plain-

tiff’s request for production of documents dated Septem-

ber 25, 1973 and to appear on April 17, 1974 for its oral

examination by Mr. Fullana; and

F-2

Appendix F

Wuereas by order of this Court filed on September 11,

1974 plaintiff’s previous motion, dated December 13, 1973,

for an order compelling discovery or imposing sanctions

was dismissed as moot based upon this Court’s order filed

March 5, 1974; and

Wuenreas by order of this Court filed on November 11,

1974, after counsel for both parties having been heard and

pursuant to findings by this Court that the defendant had

failed to comply with this Court’s order of March 5, 1974,

insofar as it directed the production of documents, and that

no objection had been made to plaintiff’s request for pro-

duction, defendant was ordered to produce on or before

December 15, 1974 those documents responsive to plaintiff’s

request for production of documeuts dated September 25,

1973, including those documents specifically requested dur-

ing the deposition of defendant held on February 28 and

March 5, 1974; and

Wuenreas said order of November 11, 1974 further in-

cluded a recommendation that, failing said production, de-

fendant’s answer be stricken and judgment be entered for

plaintiff; and

Wuenreas at a conference with Magistrate Schreiber held

on December 18, 1974 he orally directed the defendant to

supply affidavits indicating that plaintiff's request for

documents has been complied with fully, if no further

documents are produced; and

Wuenreas the defendant has failed to comply with the

aforesaid orders of this Court insofar as they require the

production of documents or affidavits in lieu thereof and

F-3

Appendix F

defendant’s appearance for its oral examination by Mr.

Fullana; and

Wuenreas defendant’s failure to comply has been due to

willfulness, rather than an inability to comply, and defen-

dant has no justifiable reason for noncompliance; now rr

IS HEREBY

Orperep pursuant to Federal Rule of Civil Procedure

37(b) (2) that:

(1) this Court has jurisdiction of the parties and of the

subject matter;

(2) the allegations of the complaint in this action are

taken to be established for purposes of this action;

(3) the amended answer filed by the defendant in this

action is stricken and the counterclaims against the plain-

tiff are dismissed with prejudice;

(4) the defendant is precluded from opposing the claims

asserted in the complaint and from supporting the defenses

and claims asserted in its amended answer and counter-

claims;

(5) a judgnicni by default against defendant shall be

entered by the Clerk of this Court in the amount of

$285,000, plus interest at the rate of six percent per annum

from the date plaintiff's cause of action arose, which was

on or aboui November 1, 1972, plus reasonable expenses,

including plaintiff's attorneys’ fees, in the amount of

$3,743.50 incurred by defendant’s unjustified failure to

comply with the orders of this Court; and

F-4

Appendia F

(6) plaintiff shall file with the Clerk of this Court a bill

of costs which shall be taxed against defendant.

Dated: New York, New York

January 16, 1976

s/ Constance Baker MorTuey

United States District Judge

JupcmMent Enterep 1-22-76

/3/ Raymonp F. BurcHarpt

Clerk

U.S. District Court

Frmep

Jan 22 1976

S.D. of N.Y.