Appeal from the United States District Court for the District of New Jersey
Before: WEIS, HIGGINBOTHAM, and SLOVITER, Circuit Judges
Defendant James MacMeekin filed for relief under Chapter 7 of the Bankruptcy Code in May 1981. In August of that year plaintiffs filed a complaint with the bankruptcy court seeking to bar the discharge of a debt owed to them by defendant. They alleged that they had been induced to invest money with defendant by his fraudulent misrepresentations and that he had embezzled funds. The bankruptcy court dismissed the plaintiffs' complaint as a sanction for their failure to seasonably answer interrogatories. On appeal to the district court, the decision was affirmed. We remand.
The interrogatories in question were served on plaintiffs in early October 1981. Later that month, plaintiffs filed a motion to amend their complaint and also served notice of taking the defendants' deposition. The bankruptcy judge heard arguments on the motion to amend on November 9, 1981 but reserved ruling on the issue.*fn1 By agreement, the defendant's deposition was deferred until the court ruled on the plaintiffs' proposed amendment.
Meanwhile, the defendant's interrogatories went unanswered. In response to inquiries from the defendant's lawyer and his motion to either compel compliance or order dismissal, plaintiffs submitted apparently incomplete answers on December 16, 1981. Defendant then renewed his motion, and on December 28, 1981 the bankruptcy judge held a hearing on the defendant's objections. The court granted plaintiffs' counsel until January 11, 1982 to supplement the answers. This deadline was later extended so he could file a motion to compel the production of certain records.
The position of the plaintiffs' lawyer was that certain books and records were necessary to adequately answer the interrogatories. He believed that these records were in the possession of Myron Lehman, Esquire, who had formerly been counsel for the defendant's partnership. Lehman had refused to surrender the documents he possessed without a court order.
The bankruptcy judge held a hearing on the matter on January 25, 1982, and signed an order on February 9, 1982, directing that Lehman turn over the records. Plaintiffs were allowed fourteen days from the date of the order to answer the interrogatories.
Lehman produced the documents in his possession, but they were not the accounting books and records that the plaintiffs' lawyer had expected. Plaintiffs' counsel then attempted to contact accountants who might have knowledge of the pertinent facts. He also furnished some supplemental information to defendant without the benefit of the sought-after books and records.
On April 21, 1982 the bankruptcy judge heard the defendant's motion seeking sanctions because the interrogatories had yet to be fully answered. The defendant's affidavit in support of that motion stated that "numerous interrogatories could have been answered without the necessity of the books and records of the limited partnership." The court granted the defendant's request to dismiss the complaint.
In his oral findings, the bankruptcy judge stated there had been "undue delay of such a nature which constitutes inexcusable neglect." He also rebuked plaintiff's counsel saying, "[T]he best example of the cavalier attitude you take is you come in Court and you say we have the certification but it's not here, it's in the office. [T]he least you could have done was bring it here today." The plaintiffs' lawyer, however, insists that since the certification had been filed with the bankruptcy clerk, the originals were available to the court for examination.
On motion for rehearing, the bankruptcy judge reaffirmed his ruling stating that "there was conscious failure to comply" with discovery. The district court found on appeal that there had been no abuse of discretion by the bankruptcy judge and affirmed the order.
Fed. R. Civ. P. 37 authorizes a court to impose a variety of sanctions for failure to obey discovery orders and is applicable in bankruptcy proceedings that determine the dischargeability of a debt. See Bankr. Rules 701(7), 737 (published at 411 U.S. 989). See also Visioneering Construction and Development Co. v. United States Fidelity & Guaranty, 661 F.2d 119, 123 (9th Cir. 1981); Bankr. Rules 4007(e), 7001(6), 7037 (effective August 1, 1983). Among the Rule 37 sanctions that a court may employ are: striking out pleadings, dismissing the action in whole or in part, and entering a default judgment against the disobedient party. Other possible penalties include refusing to allow the ...