Rehearing and Suggestion for Rehearing En Banc Denied February 28, 1994.
FLAUM, Circuit Judge.
Today we examine a tax case gone awry. On the third day of jury trial in this suit between Jerrell Barnhill, Security Pacific Business Credit, Inc. (Security), and the United States (Government), Barnhill and Security made a motion for judgment in their favor on all claims based on alleged misconduct by the Government's trial lawyers. Finding a "remarkable lack of candor" on the Government lawyers' part, the district court granted the motion and entered judgment against the Government. The Government now brings direct appeal. The Government trial attorneys (hereinafter "Petitioners") implicated by the district court separately seek relief and have petitioned this court, pro se, for a writ of mandamus vacating the district court's determinations regarding their conduct. Pursuant to a May 3, 1993, order of this court, we consider these matters together after having heard argument on the direct appeal. We now reverse the district court's judgment for Barnhill and Security and remand No. 92-3556. We deny the petition for mandamus sought in No. 93-1683.
This case began familiarly enough as a taxpayer suit to recover partial payment of a penalty assessed pursuant to § 6672 of the Internal Revenue Code. When Josam Manufacturing Co. (Josam) failed to pay fully withholding taxes due for the second and third quarters of 1985, the Internal Revenue Service (IRS) assessed a 100% penalty against Barnhill, Josam's Vice President of Finance, as a responsible person of Josam who willfully failed to pay over the taxes. After Barnhill made partial payment and filed suit in United States District Court, the Government counterclaimed against him for the unpaid balance of the assessment—about $800,000—plus interest. The Government also filed a counterclaim against Security, Josam's lender, to recover a portion of the unpaid taxes pursuant to I.R.C. § 3505.
Trial began on the morning of Monday, April 6, 1992, before Judge Miller in the South Bend Division of the Northern District of Indiana. However, the chain of events precipitating Judge Miller's decision to grant judgment in favor of Barnhill and Security stretches back to the previous week. Edward Volk, Barnhill's counsel, had sent a subpoena by certified mail to Mark Nolen, an IRS appeals officer from Indianapolis who had had prior dealings with Josam (on matters not at issue in this case). The subpoena directed Nolen to appear at trial in South Bend at 9 a.m. on Monday, April 6. Some time after receiving the subpoena, Nolen called Volk's office to ascertain why he was being summoned. Volk returned Nolen's call, explained that the matter related to Josam, and told Nolen that he was needed to authenticate certain documents that had been authored or received by him. Volk also advised Nolen that he need not appear until Tuesday at 9 a.m.
On Friday, April 3, one of the Government's trial counsel, Douglas Snoeyenbos, telephoned Volk to discuss the subpoena of Nolen. Precisely what was said in this conversation is the subject of some disagreement. Snoeyenbos maintains that he told
On Monday afternoon, following adjournment of the first day of trial, Snoeyenbos and Lyons returned to their hotel in South Bend and discovered unexpectedly that Nolen had checked into the room adjacent to Snoeyenbos'. That evening the three dined together. Snoeyenbos and Lyons indicated that they would not discuss the case with Nolen, but they did instruct him that he should not appear to testify the next morning because service was defective. On Tuesday morning Nolen left South Bend without speaking to Petitioners and returned to Indianapolis.
Meanwhile, Volk and counsel for Security, George Herendeen, decided to attempt to effectuate personal service on Nolen. Herendeen arranged for a process server to serve Nolen with a subpoena at his home in Indianapolis on Monday evening. When the server arrived at Nolen's house that night, he was told, apparently by Nolen's son, that Nolen was staying at a hotel in South Bend until the following day. By the next morning, this information had been relayed to Herendeen and Volk.
On Tuesday morning, Herendeen telephoned the IRS office in Indianapolis to inquire as to Nolen's whereabouts.
At 3:53 p.m. Volk called Nolen to testify (despite knowing that Nolen had not appeared that morning at the court). After it became clear to all that Nolen was not present, a sidebar conference was held. Volk informed the court about the subpoena and the previous week's conversations with Nolen and Snoeyenbos. Volk said that Snoeyenbos had told him that he (Snoeyenbos) would instruct Nolen not to appear and that he would file some sort of motion in that vein. Herendeen then asked Snoeyenbos if he knew where Nolen was. Snoeyenbos said that he did not know, and Lyons shrugged.
After the jury was excused for the day, the court resumed discussion of the matter. Judge Miller opened by asking Snoeyenbos to "[t]ell me what you know." Snoeyenbos began by recounting his version of the Friday conversation with Volk. This exchange followed:
Judge Miller then turned to Herendeen for his comments. Herendeen told of his attempt to serve process personally on Nolen the previous evening, acknowledging that he was informed that Nolen was staying in South Bend until Tuesday, and he related his conversation earlier that day with Nolen's office. Herendeen also stated that he thought "effectively the government is hiding a witness."
Volk spoke next, devoting the bulk of his comments to a defense of the propriety of his communication with Nolen (which Snoeyenbos had questioned). He concluded, however, by saying: "I would like the court to inquire to find out whether the representatives of the United States government in this courtroom today know that Mr. Nolen is here in South Bend, and if they know where he is, where he is staying, and if either of them have had any contact with Mr. Nolen since 9:00 o'clock Monday morning when the original subpoena was set for." This colloquy then took place:
Contacted that night by Petitioners, Nolen did appear at trial the next morning at 9:30. Outside the jury's presence, he testified as to his conversations with Volk and Snoeyenbos and the circumstances surrounding his trips to and from South Bend on Monday and Tuesday. Following Nolen's testimony,
After a recess, the court first invited comment about the adequacy of service on Nolen. Volk and Herendeen argued that Rule 45 was at least complied with in spirit. Snoeyenbos was then given a chance to respond. He asserted that Rule 45 requires personal service of trial subpoenas, and told the court that he did not file a motion to quash because this was not a properly served subpoena. Snoeyenbos went on to contest the court's earlier assertion that he had demonstrated a lack of candor before the court in his responses
After Herendeen and Volk were heard again and Volk conveyed his version of the Friday conversation with Snoeyenbos, Judge Miller offered Snoeyenbos an opportunity to respond to Volk's portrayal of that conversation:
After a recess, Judge Miller orally granted the motion and ordered that judgment be entered for Barnhill and Security. Later that day, the court issued a written opinion explaining its decision. Of the five grounds upon which Barnhill and Security rested their motion, Judge Miller found that three were wholly without merit. He wrote that the Government was no more at fault for untimely filings and trial delay than were Barnhill and Security. Judge Miller also rejected the contention that a party's refusal to engage in settlement negotiations could be a basis for entering judgment against it.
However, Judge Miller did decide that Petitioners' conduct with respect to Nolen warranted granting judgment in the taxpayers' favor. He began by noting that mistrial would be an inadequate remedy for Barnhill as it would cause further delay in final disposition of the suit during which time interest on the assessments would continue to grow. Judge Miller also observed that the conduct in question surrounded a witness "whose contribution to the case may or may not be great, and who finally appeared to testify." However, he continued, the conduct "goes beyond the materiality of the evidence .... It goes to the integrity of the civil justice system."
Judge Miller cited Rule 3.4(a) of the Indiana Rules of Professional Conduct (to which litigants in the Northern District of Indiana are subject) which provides that a lawyer shall not "unlawfully obstruct another party's access to evidence [or] counsel or assist another person to do any such act." He concluded, however, that if the motion relied solely on this provision it would not be granted because service on Nolen was in fact defective. Nonetheless, Judge Miller wrote, "technical imperfection of the attempted service would not ... have mattered but for the intervention of the government's counsel." Instead of informing opposing counsel that Nolen was in town or filing a motion to quash, which would have allowed Barnhill and Security opportunity to achieve personal service, the government "granted itself a motion to quash by sending Mr. Nolen home." Judge Miller added, "[t]he combination of events—a combination of which only the government was aware—prevented the government's adversaries from achieving personal service on Mr. Nolen."
Judge Miller then turned to what he labeled "the government's remarkable lack of candor." He noted that it took three queries from the court before Snoeyenbos stated that
After the district court entered judgment, the Government filed a motion to alter or amend the judgment which, on August 11, 1992, the district court denied. The Government and Petitioners separately appealed to this Court. Petitioners' appeal was dismissed by order of this Court dated February 23, 1993. Petitioners then filed an "Original Petition for Writ of Mandamus Vacating Procedurally Defective Determinations in the District Court's Orders of April 8 and August 11, 1992." Pursuant to a May 3, 1993 order of this Court, we now consider the Government's appeal, No. 92-3556, and Petitioners' mandamus petition, No. 93-1683. For the reasons set out below, we reverse the judgment of the district court, remand No. 92-3556, and deny the petition for mandamus.
Before turning to the request for mandamus, we will consider the merits of the direct appeal.
Generally, a district court's choice of sanction is reviewed for an abuse of discretion.
Id. In sum, although a district court has the discretion to fashion an appropriate sanction for misconduct that occurs before it, in selecting the powerful option of terminating the underlying action in favor of one party, the court must be guided by a certain measure of restraint. See also Halaco Engineering, 843 F.2d at 380 ("In cases where the drastic sanctions of dismissal or default are ordered, the range of discretion for a district court is narrowed....").
We continue to eschew grafting a requirement of prejudice onto a district court's ability to dismiss or enter judgment as a sanction under its inherent power. See Daniels v. Brennan, 887 F.2d 783, 788 (7th Cir.1989). In general, however, dismissal or judgment is such a serious sanction that it should not be invoked without first considering what effect—if any—the challenged conduct has had on the course of the litigation. Undoubtedly, there are situations in which we will defer to the district court's decision to dismiss or enter judgment even in the absence of substantial adverse impact on the course of the proceedings. Misconduct may exhibit such flagrant contempt for the court and its processes that to allow the offending party
In assessing the appropriateness of the district court's choice of sanction in this case, we feel constrained to proceed under the assumption that Barnhill and Security incurred no real inconvenience as a result of Petitioners' deeds. The district court rather explicitly acknowledged that in electing to enter judgment against the Government, it was not engaging in an assessment of the harm suffered by Barnhill or Security as a result of Government counsel's conduct. What counsel did, the court wrote, "goes to the integrity of the civil justice system." Effectively, the district court regarded Petitioners' actions to be of a particularly egregious strain, a strain comprised of such actions so presumptively antithetical to proper use of the judicial process that a party should automatically forfeit its claims and defenses before the court. Prejudice clearly was not a factor in the district court's decision.
Also, we conclude from our review of the record that Barnhill and Security in fact suffered no real prejudice from Government counsel's actions with respect to Nolen. Nolen was called to testify at about 4 p.m. Tuesday afternoon, about one half hour before the court intended to adjourn for the
This case is unusual as it does not present discrete examples of obviously wrongful behavior that typically characterize decisions to sanction with dismissal. First, the district court was explicit in its belief that Petitioners were not attempting to hide Nolen from service, and there is absolutely no basis in the record to dispute that conclusion (and, on this appeal, Barnhill and Security do not). Second, the district court did not find or even imply that Petitioners were untruthful in any of their responses to questions from the bench.
Although the district court was justifiably frustrated by Petitioners' stratagems with respect to a peripheral witness and their reluctance to be forthright about the affair when questioned by the court, under the circumstances of this case Petitioners conduct did not warrant the extreme sanction of dismissal. We do not arrive at this conclusion by second-guessing the district court's conclusions as to the nature of the conduct it observed. The Government and Petitioners have reconstructed the events of the few days in question and argue strongly that there was no deliberate attempt to withhold information or connivance to keep the court in the dark. Rather, the whole incident can be plausibly explained, they submit, as a series of misunderstandings.
Admittedly, the Government's and Petitioners' reconstructions of this and other critical colloquies in the case have plausible rings. Perhaps the district court's assessment of Petitioners' candor would have been difficult to endorse had it rested on this incident in isolation. But obviously it did not; and we do not disagree that failing to apprise the court about seeing and meeting with an out-of-town witness whose whereabouts is of clear concern to the court, and instead offering to entertain the court's questions, constitutes something short of complete openness. Hence, we cannot conclude that Judge Miller's determination about Petitioners' lack of candor was clearly erroneous. In a similar vein, the trial tactics employed in this case can hardly be held up as a model of cooperative litigation. While we agree with the Government that Rule 45 does not obligate one to contest defective service by filing a motion to quash, see 5A J. Moore & J. Lucas, Moore's Federal Practice, ¶ 45.11 (1992), time and aggravation could have been saved by presenting the dispute to the court. Judge Miller was straining to accommodate this five day jury trial in a busy court schedule and understandably did not appreciate the fact that the Petitioners saw fit to bog down progress on collateral matters.
Nonetheless, if no meaningful impact upon the course of the litigation has been shown, as is this case here, the drastic sanction of dismissal or judgment should be reserved for conduct that evinces a more intense disregard for the court. We understand that Judge Miller did not base his conclusions about Petitioners' level of candor on any one incident and decided to enter judgment because of Petitioners' overall behavior in this litigation. But even taken together and construed in the worst possible light, Petitioners' conduct does not amount to the kind of frontal assault on the integrity of the judicial system that would support such an extreme sanction. Certainly, Petitioners were to an improvident extent caught up in "hardball" litigation tactics. They also foolishly incurred the court's ire through their reticence, which they unwisely maintained even when the court allowed them opportunities to defend and explain their actions. Nevertheless, we believe that in the absence of prejudicial effect, adverse judgment was too severe a form of discipline for conduct which, while distressingly uncooperative, involved no clear violation of procedural or ethical rules. We, therefore, reverse the judgment of the district court and remand this case for trial.
Petitioners separately have asked us to issue a writ of mandamus "vacating the procedurally defective determinations" of the district court, claiming that the district court's findings will cause future harm to their professional reputations. They assert that several grounds entitle them to this extraordinary relief. First, Petitioners contend
We do not reach the merits of these contentions, however, because Petitioners have not shown that they have suffered a cognizable injury as a result of Judge Miller's opinion. In Clark Equipment Co. v. Lift Parts Manufacturing Co., 972 F.2d 817 (7th Cir. 1992), this court refused an attorney's request to vacate a district court opinion finding that the attorney had violated Federal Rule of Civil Procedure 11, 26 and 37 and was in contempt of court. We observed that the attorney made "only general allegations that he may suffer harm in the future ... represent[ing] no more than a `speculative contingency,' insufficiently `real and immediate to show an existing controversy.'" Id. at 820 (quoting Deakins v. Monaghan, 484 U.S. 193, 200-01 n. 4, 108 S.Ct. 523, 528-29 n. 4, 98 L.Ed.2d 529 (1988)). We added that mandamus may eventually be available someday when the attorney could "show concrete harm to his reputation from the bare existence of [the] opinions." Id. In this case, Petitioners have similarly not alleged anything more than speculative harm to their professional reputations.
We will not conjecture about rare cases in which sufficient harm may arise from the severity of a vitriolic opinion itself because we do not read Judge Miller's opinion to be, in substance or tone, of an inherently injurious nature. It is true that Judge Miller deemed Petitioners' conduct sufficiently troubling to warrant judgment for the taxpayers, but because today we do find that decision disproportionately severe, it hardly remains a solid basis for arguing aggravation of any harmful effects of Judge Miller's findings. Consequently, we deny Petitioners' mandamus request to vacate the district court's determinations regarding their conduct.
Despite our disagreement with Judge Miller's choice of sanction, we too are dismayed by the behavior of representatives of the United States. District judges rightfully expect that Justice Department lawyers would be the last attorneys from whom they would need to cajole and pry out information relevant to matters of obvious concern. So too, as the inscription on the Attorney General's Rotunda reads, "[t]he United States wins its point whenever justice is done its citizens in the courts," not when witnesses are sent home because of technical deficiencies in service. We reverse the case on the merits here because Petitioners' conduct, while hardly exemplary, was not contumacious. Nonetheless, we strongly suggest that Government attorneys demonstrate considerably more circumspection in the future.
REVERSED AND REMANDED. PETITION DENIED.
The Federal Rules of Civil Procedure also contain a harmless error provision, which, the Government and Petitioners maintain, serves as an analogous restriction on a federal court's power to use dismissal or judgment as a sanction in the civil context. First, Rule 61 provides that "[t]he court at every stage of the proceeding must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties." Second, the Rules of Civil Procedure, like the Rules of Criminal Procedure, trump contrary law. See 28 U.S.C. § 2072. Hence, concludes the syllogism, so long as another Rule authorizing dismissal in the absence of prejudice is not applicable, see, e.g., Rule 37 (failure to comply with discovery order); Rule 41(b) (involuntary dismissal for "failure of plaintiff to prosecute or to comply with these rules or any order of court"), a district court exceeds its authority when it enters judgment against a party for attorney misconduct if the opposing side has suffered no prejudice as a result.
In view of our disposition of the case, we choose not to take this opportunity to pause and fully consider the applicability of the rule of Bank of Nova Scotia in the civil context where its appropriateness is likely reduced. Interpreting Rule 61 to impose a prerequisite of prejudice to a court's inherent power to enter judgment against a party for misconduct in civil litigation would introduce an odd imbalance in the arsenal of sanctions available to a district judge. Without a showing of prejudice, Rule 41(b) & (c) subjects plaintiffs (and counterclaimants and the like) to dismissal for failure to comply with an order of the court. See Daniels v. Brennan, 887 F.2d 783, 788-89 (7th Cir.1989). If Rule 61 were to limit the court's inherent power as suggested, a defendant would not face corresponding discipline. While for constitutional reasons such asymmetry is inherent in the criminal process, we are not anxious to import it into the civil arena. Furthermore, because the civil harmless error provision is narrower than its criminal counterpart (only mandating disregard of "error or defect" and not "irregularity or variance" as well), in this context there is all the more reason "not [to] lightly assume that Congress has intended to depart from established principles such as the scope of a court's inherent power." Chambers, 501 U.S. at ___, 111 S.Ct. at 2134 (internal quotations omitted).