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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1977
- **Citation:** 430 U.S. 907

## Text

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

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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.

4

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

Docket No. 76-1299

-—_ =
Se

Unirep States oF AMERICA,
Appellee,
—against—-

Srpney STEIN,
Defendant-Appellant.

4
:
7

Before:
LumpBarD, MANSFrIeLp and Mutiican,

Circuit Judges.

-—_ ==
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.

-—_

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.

-_—_ -—-
—-—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

oe ee eee a Si. te.

tn he ne SA ne BE oes

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.

na

—

ee it eee RS Clee a ae ee lar A a aE:

- ee ee ee enna

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.

A ee

a ee

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 nex

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1132%3A1. Public record. Not legal advice.