VAN GRAAFEILAND, Circuit Judge:
T.C. Ziraat Bankasi ("TCZB"), a Turkish bank wholly owned by the Turkish government, and Ozer Ozman, a Turkish national, appeal from a judgment in the amount of $2,274,432 entered in favor of Antonio Marfia in the United States District Court for the Southern District of New York. For the reasons that follow, we vacate the judgment and remand the matter to the district court for further proceedings.
Since 1983, TCZB has maintained a branch office in New York City, and from January 1984 until May 29, 1987, Marfia was employed in that office as a Vice President in charge of its Treasury Department. This litigation arises out of Marfia's 1987 termination, which he alleges was discriminatory in nature and in fraudulent breach of a promise of lifetime employment. From 1985 through the date of Marfia's discharge, Ozman was the General Manager of TCZB's New York office, and most of Marfia's charges of wrongdoing were directed against Ozman.
Marfia commenced this action on May 31, 1988. On July 7, 1988, White & Case, a landmark New York law firm, which had represented TCZB's New York branch since its inception, answered the complaint on behalf of both defendants. White & Case assumed that separate representation was unnecessary because both defendants took the same position, i.e. that Marfia was terminated because he entered into foreign exchange trades that violated the Bank's trading limits and resulted in a loss to the Bank of over $1 million. As will be discussed below, subsequent events put an end to this community of interests, and Ozman is represented in this appeal by Attorney Peter Eikenberry.
The case was assigned originally to Judge Duffy, and the proceedings before him resulted in a judgment by default against Ozman. Following this, the case against TCZB was assigned to Judge Chin who presided at a jury trial. After the jury returned a verdict for Marfia, Judge Chin adjusted the award to eliminate any double recovery and entered a judgment in the amount of $2,274,432. This amount reflected $970,927 in compensatory damages and prejudgment interest, $1 million in punitive damages, and $303,505 in attorney's fees and costs. The total award was incorporated into the interlocutory default judgment against Ozman, and a final judgment for the full amount was entered "jointly and severally" against both Ozman and the Bank. We discuss first Judge Duffy's grant of default.
On November 1, 1988, Ozman had triple by-pass open heart surgery at Mount Sinai Hospital in New York City. On December 15, 1988, defense counsel informed Marfia's attorney of the operation and that Ozman would be absent from work for an extended period of time. Notwithstanding this knowledge, plaintiff's attorney, on January 13, 1989, served a notice to depose Ozman on January 30th. On January 20th, defense counsel informed plaintiff's attorney that Ozman would be unable to attend the scheduled deposition because of illness. In subsequent support of this position, defense counsel produced a letter from Ozman's doctor stating
On February 1st, plaintiff moved to strike the defendants' answer on various grounds. This motion was denied on May 10, 1989 in a marginally endorsed order which provided in part, "The defendant is ordered to produce Ozman for further [sic] deposition at a time and place to be set by the parties within the next month." Defense counsel attempted to arrange for Ozman's deposition to be taken in accordance with Judge Duffy's order. The following excerpt from a letter written to Marfia's attorney by Laura Hoguet, a White & Case attorney, explains how the date of June 5th finally was agreed upon for Ozman's deposition to commence:
In March and again in May, Ozman was examined by a number of doctors because of his complaints of illness. In a report dated March 20th, a cardiologist at St. Joseph's Hospital recommended that Ozman "remain at home with limited activities for the next six to eight weeks" and "avoid any undo [sic] stress or exertion."
On June 1, 1989, Ozman had another physical examination by a Mount Sinai doctor, who reported in part as follows:
Ozman nevertheless appeared for the June 5th deposition. However, it was terminated on June 6th because of his complaints of illness. The following are pertinent excerpts from the uncompleted deposition:
On June 9th, Ozman reported to his doctor again complaining of chest pains and tiredness. The doctor's subsequently prepared affidavit concerning this examination reads in pertinent part as follows:
The above medical reports were before Judge Duffy when, on September 19, 1989, he granted a default against Ozman. Also before Judge Duffy was an affidavit by Ozman dated June 16, 1989, in which he stated in pertinent part:
It is against the foregoing background that we look to Judge Duffy's statement of the facts upon which he based his order of default. The pertinent portion of Judge Duffy's order reads as follows:
The reader will note that Judge Duffy said nothing at all about the merits of Ozman's claims of illness, or the undisputed medical reports that were presented to him. Instead, he made the clearly erroneous statement that for various reasons, "including the aftereffects of Ozman's surgery," his deposition was "rescheduled numerous times." Ozman's deposition was rescheduled only once at the request of his counsel — that was on January 20, 1989. Judge Duffy's next observation that Ozman's deposition "has now apparently been put off indefinitely because Ozman was terminated from Bankasi, has returned to Turkey and declared his intent to remain there" completely overlooks Ozman's statement of availability contained in his affidavit of June 16, 1989. As will be discussed infra, more than five years elapsed between Judge Duffy's order of default and the commencement of trial, during which time Ozman's testimony could have been taken a hundred times over.
The judge did not identify the "certain documents" that Ozman destroyed, which were his diaries, and completely ignored Ozman's assertions that the diaries were destroyed in good faith in anticipation of his return to Turkey.
Finally, the imputation of bad faith to Ozman, because Marfia "had to resort" to two Rule 37 motions, unfairly blames Ozman for the first motion which involved a dispute between the attorneys over Marfia's wideranging demands for discovery and production of documents. Most of the documents at issue were not even in Ozman's possession; they were in the possession of the Bank, Ozman's former employer.
In addition to the cases cited in Mello, there are decisions in numerous other Second Circuit cases in which the same equitable and judicious course of action is advocated. In Gill v. Stolow, 240 F.2d 669, 670 (2d Cir.1957), where a defendant failed to attend a deposition because of alleged ill health, we said:
In Independent Prods. Corp. v. Loew's Inc., 283 F.2d 730, 733 (2d Cir.1960), we said: "The dismissal of an action with prejudice or the entry of a judgment by default are drastic remedies, and should be applied only in extreme circumstances."
Similar references to the "most `drastic remedy,'" (Peterson v. Term Taxi Inc., 429 F.2d 888, 891 (2d Cir.1970)), used "only in extreme circumstances," (Ali A. Tamini v. M/V Jewon, 808 F.2d 978, 980 (2d Cir.1987)), and "as a last, not a first resort," (Katz v. Morgenthau, 709 F.Supp. 1219, 1225 (S.D.N.Y.), aff'd in part, rev'd in part on other grounds, 892 F.2d 20 (2d Cir.1989)), can readily be found among the cases in this circuit. Other cases have described default dismissals as "too harsh," (United States v. "Firmatron By Norruth", 324 F.2d 497, 498 (2d Cir.1963)), and "too severe," (Producers Releasing Corp. De Cuba v. PRC Pictures, Inc., 176 F.2d 93, 96 (2d Cir.1949)). "This court has never hesitated to reverse the denial of a motion to vacate a default judgment where further factfinding was necessary to ensure that substantial justice was served." Davis v. Musler, 713 F.2d 907, 916 (2d Cir. 1983).
We believe that the reasoning in the above-cited cases is applicable in the instant case, particularly since the district judge who utilized the weapon of last resort five years prior to the date of trial did so in reliance upon a misunderstanding of crucial facts. Like the court in Gill, supra, we have "the responsibility to do justice between man and man." We would be derelict in our performance of this responsibility if we permitted the $2,274,432 judgment to stand in the instant case.
There are additional reasons why the judgment as it applies to the Bank must be reversed, and they require a more detailed statement of the facts than is contained in the above paragraphs. As stated above, Marfia contends that he was discharged by Ozman because of his age and his Italian heritage. The Bank denies these accusations and asserts that during a three-week period between September 30 and October 20, 1986, Marfia effected overnight trades which exceeded the Bank's authorized limit by $30
Ozman was hospitalized for open heart surgery in November 1988. On February 23, 1989, the Bank's home office in Turkey attempted to notify him that he was being transferred to the home office. Because Ozman refused to accept service of the notice of transfer, the Bank had to effect service through the Turkish consulate in New York. Ozman refused to follow the Bank's instructions. Instead, he stopped completely his sporadic appearances at the office. Moreover, he failed to even communicate with the Bank to explain his actions.
In March 1989, the Bank's home office sent a new manager, Saffet Avdan, to take over Ozman's job as Manager of the New York Bank. On July 2, 1989, one day before Ozman's visa expired, he returned to Turkey where he sued the Bank alleging improper treatment in connection with his recall to Turkey. These facts were communicated to Judge Duffy by affidavit of White & Case counsel. She advised the court that Ozman's conduct did not appear to be within the control of the Bank, and that, because White & Case's relationship with Ozman had been affected adversely, it had attempted without success to secure Ozman's permission to withdraw as his legal representative.
On June 19, 1989, Saffet Avdan, Ozman's successor as General Manager, executed an affidavit for the district court in which he stated in part:
On April 9, 1990, Fahretten Ozen, a Turkish attorney and "Legal Advisor" of TCZB, executed an affidavit in which, after reciting pretty much the same history, he said:
Both Marfia's counsel and the district court have recognized the inability of the Bank to control Ozman:
Plaintiff's Memorandum of Law dated November 28, 1994.
874 F.Supp. at 563 (footnote omitted).
Unfortunately, certain language in the interlocutory judgment of default created some confusion in Judge Chin's mind and led to a series of highly prejudicial rulings on his part. In the caption of the complaint in the instant action, Ozer Ozman is named "Individually and in his official capacity as General Manager of T.C. Ziraat Bankasi, New York
When the case was reached for trial, the Bank argued that Judge Duffy's above-quoted ruling meant that the default could not be used against the Bank. 874 F.Supp. at 566. Plaintiff's counsel argued on the other hand that Judge Chin should make findings of fact based on Ozman's "admissions" and read them to the jury with instructions that the jury draw all reasonable inferences in favor of the plaintiff. Id. It goes without saying that whatever Judge Duffy meant when he said that the default "established nothing" should have been the law of the case. Judge Chin stated, however, that it would not be productive to speculate what Judge Duffy had in mind. Id. at 567. Instead, he opted for what he believed would be the "right and fair result," which would be "somewhere in between the two positions taken by the parties." Id.
We know of no authority that empowered Judge Chin to put Judge Duffy's ruling to one side and decide for himself what was "right and fair." Perhaps this ruling would not have been prejudicial if Judge Chin had interpreted correctly the facts and the law. However, he erred in both respects.
His most crucial factual misstatement was that "Ozman was the General Manager of the Bank during the events leading up to the entry of the default judgment against him." Id. at 562. It might be argued that some form of employer-employee relationship survived Ozman's refusal to return to Turkey, as he was directed to do in February 1989, and his complete isolation from his job and his employer during his subsequent stay in the United States. However, he was replaced as General Manager no later than April 3, 1989. Moreover, it was convincingly established that during all this time the Bank had no control over Ozman. Judge Chin was clearly wrong when he said:
Id. at 568.
We are dealing in the instant case with possible implied authority, not apparent authority:
Masuda v. Kawasaki Dockyard Co., 328 F.2d 662, 664-65 (2d Cir.1964). Judge Chin refers on several occasions to alleged holding out. 874 F.Supp. at 560. Holding out is an essential element of apparent authority.
Masuda, 328 F.2d at 665. Because the doctrine of apparent authority is based somewhat on the theory of estoppel, proof of holding out, standing alone, does not suffice for recovery. There must be proof of reliance and change of position. Greene v. Hellman, 51 N.Y.2d 197, 204, 433 N.Y.S.2d 75, 412 N.E.2d 1301 (1980); Wen Kroy Realty Co. v. Public Nat. Bank & Trust Co., 260 N.Y. 84, 91-92, 183 N.E. 73 (1932); Walsh v. Hartford Fire Ins. Co., 73 N.Y. 5, 10 (1878); 2A C.J.S. Agency §§ 162, 163. There is no such proof in the instant case. We are left, therefore, with the doctrine of implied authority.
In sum, it was error to hold TCZB liable for Ozman's litigation conduct under the doctrine of either implied or apparent authority. The prejudice resulting from this error is obvious.
Judge Chin, in his pursuit of a "right and fair" result, decided what "admissions" resulting from the default should be read to the jury by both the court and plaintiff's counsel. Among others, Judge Chin selected the following:
874 F.Supp. at 568-69 (citations omitted).
To say that Marfia's attorney read these "admissions" with relish and embellishments is to put it mildly indeed. Judge Chin's statement that the Bank "will be permitted at trial to impeach Ozman's Admissions and to rebut plaintiff's claims," id. at 570, substantially overstated the reality of the situation. How, for example, could the Bank refute Marfia's testimony about Ozman's alleged offer of a lifetime job if Ozman was not permitted to testify? How could the Bank defend against Marfia's claims that Ozman made scurrilous ethnic comments to him when the district court's same adverse ruling was in effect?
To sum up, we conclude, after reviewing the entire record of this seven-year litigation, that the grant of default was a prejudicial
LUMBARD, Circuit Judge, concurring:
I concur in the result vacating the judgment of the district court and remanding the case for further proceedings, and write separately because I believe the conduct of the parties and their counsel was the cause of the errors below.
The entry of the default judgment was an abuse of discretion. Dismissal "is a drastic remedy that should be imposed only in extreme circumstances, usually after consideration of alternative, less drastic sanctions." John B. Hull, Inc. v. Waterbury Petroleum Prods., Inc., 845 F.2d 1172, 1176 (2d Cir. 1988) (citation and internal quotation omitted). Ordinarily it is imposed only after notice that such a sanction might result from a litigant's conduct. See Simmons v. Abruzzo, 49 F.3d 83, 88 (2d Cir.1995); Bobal v. Rensselaer Polytechnic Inst., 916 F.2d 759, 764 (2d Cir.1990), cert. denied, 499 U.S. 943, 111 S.Ct. 1404, 113 L.Ed.2d 459 (1991). Neither Ozman's refusal to complete his deposition because of his poor health, his return to Turkey because of his visa expiration and his contradictory statements regarding the anticipated date of that return, nor his allegedly unwitting destruction of documentary evidence, was so extreme as to merit divesting him of his opportunity to defend this suit on the merits without prior warning. Because we vacate the default judgment, it follows that the evidentiary rulings based thereon — and the judgment tainted by them — must fall.
All the parties engaged in conduct designed to frustrate a determination of the issues in this case. Their conduct would try the patience of any district judge. TCZB refused to make provisions for Ozman to remain in, or return to, the United States to complete his deposition, which obviously was essential to Marfia's case, only to attempt later to call him as a witness on its behalf at trial. TCZB also sought virtually on the eve of trial to add witnesses and documentary evidence to the pretrial order, in clear violation of Judge Chin's orders. Ozman himself provided changing and conflicting stories as to his availability in and after June of 1989 to complete his deposition. Only ten days after indicating that he would return to Turkey for a temporary visit in mid-July, he informed the court that he would return to Turkey on July 2 for an indefinite period. As for Marfia, his counsel in general adopted a belligerent approach toward his adversaries throughout the litigation; counsel also made comments at trial suggesting that a negative inference be drawn from Ozman's absence, an absence which counsel himself procured.
The consequence is that, after all these unnecessary, time-consuming activities over a period of eight years, we now remand the case to the district court for the parties to begin anew.