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Sieck v. Russo

decided: February 23, 1989.

MARYANNE SIECK, PLAINTIFF-APPELLEE,
v.
RICHARD RUSSO AND JAMES A. RUSSO, INDIVIDUALLY AND D/B/A MARINE TRADING & PROMOTIONS CORP., MARINE TRADING & PROMOTIONS CORP., MARINE TRADING INTERNATIONAL, INC., AND RITA RUSSO, DEFENDANTS-APPELLANTS



Appeal from default judgments and from an order denying defendants-appellants' motion to set aside the judgments under Fed. R. Civ. P. 60(b) entered in the United States District Court for the Southern District of New York (Gerard L. Goettel, Judge).

Pratt and Altimari, Circuit Judges, and Sand, District Judge.*fn*

Author: Altimari

ALTIMARI, Circuit Judge.

Defendants-appellants Richard Russo, James A. Russo, Rita Russo, Marine Trading & Promotions Corp., and Marine Trading International, Inc. appeal from default judgments and from a subsequent order denying their motion to set aside the judgments under Fed. R. Civ. P. 60(b) entered in the United States District Court for the Southern District of New York (Goettel, J.). The dispute which brought the defendants before the district court involves a failed business deal between the defendants and plaintiff-appellee Maryanne Sieck. In her complaint filed in the district court, Sieck alleged that the defendants fraudulently induced her to enter into a contract, breached the contract, and violated provisions of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. ยง 1961 et seq. (1982 & Supp. IV 1986). After the defendants repeatedly failed to appear for scheduled depositions as ordered by the court, the district court entered default judgments in the amount of $1 million against all defendants.

On August 3, 1988, defendants filed a motion in the district court to set aside the default judgments pursuant to Fed. R. Civ. P. 60(b) on the grounds that fraud had been committed upon the court, and new evidence had been discovered. The district court denied the motion. On this appeal the defendants contend first, that the granting of default judgments was too severe a penalty for missing deposition dates, and second, that the district court erred in not reopening the default judgments. For the reasons set forth below, we affirm the judgment of the district court.

BACKGROUND

On February 12, 1986, plaintiff Maryanne Sieck entered into a contract with defendant Richard Russo who was purportedly acting on behalf of co-defendant Marine Trading & Promotions Corp. ("Marine"). The contract called for Sieck to tender $1 million to Marine. In exchange, Marine agreed, inter alia, to issue a $1 million promissory note to Sieck and arrange a $500 million arbitrage loan to her from lenders named in the contract. Defendants Richard and James Russo were the sole stockholders and officers of Marine. From the record it is unclear whether Marine was still in existence at the time the contract was entered into between Sieck and Richard Russo.

In her complaint filed in the district court, Sieck asserted that although she paid $1 million to Marine, the $500 million loan was never arranged. She further alleged that the defendants never intended to perform any of their obligations under the contract or to repay any part of the $1 million they received from her. Sieck sought recovery of the $1 million, plus treble damages under the RICO statute, punitive damages, and other speculative damages including profits that may have been realized had the contract been fully performed.

Plaintiff served defendants with a notice of deposition on December 4, 1987, pursuant to which depositions were to be conducted according to the following schedule: Richard Russo, January 27, 1988; James Russo, January 29; Rita Russo, February 3; and Marine, February 5. None of the defendants, however, appeared on the scheduled dates, or on subsequent dates agreed to by counsel. Thereafter, the district court ordered each of the defendants to appear for deposition on a specified date. The order included the warning that a default judgment in the full amount sought by plaintiff could be entered against any defendant who did not appear. All of the defendants failed to appear on the ordered dates.

Subsequently, plaintiff filed a motion, pursuant to Fed. R. Civ. P. 37(b)(2)(C), seeking the entry of a default judgment in accordance with the warning contained in the district court's order. The court declined to enter a default judgment, but instead imposed a sanction of $2,000. The court again ordered each defendant to appear on a specified date and emphatically warned the defendants that if they failed to appear "a default judgment will be entered against them."

Nevertheless, Richard Russo, the first of the defendants scheduled to appear, defied the order and did not appear. Accordingly, on April 18, 1988, a default judgment in an amount equal to the plaintiff's $1 million out-of-pocket loss was entered against him. Despite the entry of this judgment and the court's repeated warnings, the remaining defendants also failed to appear as ordered. Consequently, on April 25th, a $1 million default judgment was entered in the district court against them.

Thereafter, defendants filed a motion seeking to set aside the default judgments pursuant to Fed. R. Civ. P. 60(b). Defendants asserted that the judgments should be set aside because they were the result of a fraud upon the court committed by plaintiff and because an investigator hired by the defendants had discovered new evidence revealing this fraud. Judge Goettel denied the motion on September 2, 1988.

Discussion

In Update Art, Inc. v. Modiin Publishing, Ltd., 843 F.2d 67, 73 (2d Cir. 1988), we "emphasize[d] the importance we place on a party's compliance with discovery orders," and we warned that "[a] party who flouts such orders does so at his peril." Although we then viewed our decision as ...


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