Appeal from a judgment entered after a jury trial by the United States District Court for the Southern District of New York, Broderick, J., ordering appellants to pay claims arising out of employee dishonesty within appellants' fidelity bond coverage. Appellants also appeal an order of the same court denying their motion for a new trial. Court of Appeals held that appellants' claim that the district court abused its discretion in denying their new trial motion is frivolous. The judgment and the order of the district court were affirmed. Because appeal was apparently taken to delay payment of the claims, sanctions consisting of damages, double costs and attorney's fees were imposed pursuant to 28 U.S.C. § 1912 (1982) and Fed. R. App. P. 38.
Before: FEINBERG, Chief Judge, MESKILL and KEARSE, Circuit Judges.
Two insurance companies, The Hartford Accident and Indemnity Company (Hartford) and the National Surety Corporation (National), appeal from a judgment entered after a jury trial by the United States District Court for the Southern District of New York, Broderick, J.*fn1 The jury found that the insurance companies were liable to Chemical Construction Corporation (Chemico) on fidelity bonds covering employee dishonesty. Judgment was entered in favor of Chemico in the amount of $1,156,365.70, plus interest and costs. The insurance companies also appeal the district court's order denying their motion for judgment notwithstanding the verdict or, in the alternative, for a new trial.
We affirm the judgment and order of the district court. Because we conclude that the appeal is frivolous and was taken for purposes of delay, we impose sanctions against the appellants.
In June 1974, Chemico entered into a $227 million contract with V/O Techmashimport, an agency of the Ministry of Foreign Trade of the Union of Soviet Socialist Republics (Russian contract). Under the contract, Chemico was to design, engineer and secure equipment for the construction of four ammonia plants in the Soviet Union. The Russian contract provided for payment upon shipment of equipment and for substantial liquidated damages for late deliveries. Chemico's traffic manager, Robert A. Brady, was responsible for arranging the packing of equipment and for arranging its delivery to the docks for shipment. He was also responsible for obtaining the necessary documents for packing and for approving the invoices for payment.
During early 1976, Pierpoint Packers performed most of the packing work on the Russian contract. By June 1976, Pierpoint Packers was unable to handle all of the packing work and consequently Chemico began to experience shipping delays. Brady selected Terco, Inc., doing business as Bosco Services (Terco), to do additional packing work in accordance with a price list that Terco had submitted in March 1976. Terco had earlier furnished some packing services on the Russian contract. In August 1976, Chemico informed Brady that his traffic manager position would terminate upon completion of the Russian contract.
Pierpoint performed its work pursuant to standard Chemico procedures using purchase orders and submitting packing lists along with its invoices. Terco, however, usually received no purchase orders and often did not submit packing lists with its invoices.*fn2 Consequently, most of Terco's charges on its invoices could not be verified by comparing them with either purchase orders or packing lists. Nonetheless, Brady approved for payment all of the Terco invoices.
During the fall of 1976, Chemico experienced more shipping delays. As the danger of substantial liquidated damages increased, Chemico accelerated all aspects of shipping including packing. The number of undocumented Terco invoices increased. Many of them showed rates inconsistent with the price list submitted in March 1976. Some invoices failed to describe the items packed. Brady continued to approve the Terco invoices and to submit them to the accounting department for payment.
When Brady was supposed to be inspecting another vendor's facilities in Houston, Texas, he also went to Tulsa, Oklahoma, the site of Terco's headquarters. There, he spent the night at the home of Robert Gruschin, a Terco vice president, despite a Chemico policy that employees stay in hotels during inspection trips to vendors' facilities. Later that month, Brady accepted a $500 watch as a Christmas gift from Gruschin. Brady was aware of the value of the watch because Gruschin included the purchase slip with the gift. Brady was also aware of a Chemico policy that prohibited employees from accepting anything but nominal gifts from vendors. During February 1977, Brady again deviated from his approved travel plan to visit Tulsa and spent three more nights at Gruschin's home. Gruschin loaned Brady $250 and asked Brady to be the godfather of his expected child. Gruschin also offered Brady a job with Terco upon completion of the Russian contract at an annual salary of $25,000, more than the $23,600 annual salary that Brady was then receiving from Chemico.
On March 3, 1977, Chemico's chief executive, Kenneth Carr-Brown received a telephone call from an unidentified Terco employee who alleged that one of Chemico's vendors had bribed a Chemico employees to assist in defrauding Chemico. The caller estimated that Chemico had already lost about $300,000 and could lose as much as $1 million.
At a subsequent meeting, the informant identified himself as Kermit Gabel, Terco's purchasing director, and requested $50,000 for his information. Carr-Brown agreed to pay $5,000 and fifth cents for every dollar recovered as a result of the information up to a maximum of $45,000.
On March 14, 1977, Gabel delivered a document to Chemico stating that Terco gave Brady $25,000 to ...