Hooper-Haas v. Ziegler Holdings, LLC , 690 F.3d 34 ( 2012 )

United States Court of Appeals
For the First Circuit
No. 11-1747
ERIN HOOPER-HAAS ET AL.,
Plaintiffs, Appellees,
v.
ZIEGLER HOLDINGS, LLC,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. José Antonio Fusté, U.S. District Judge]
Before
Lynch, Chief Judge,
Selya and Lipez, Circuit Judges.
D. Jeffrey Ireland and Faruki Ireland & Cox P.L.L. on brief
for appellant.
Gabriel I. Peñagarícano-Soler on brief for appellees.
August 10, 2012
SELYA, Circuit Judge. This is an appeal from the entry
of a default and a subsequent judgment. After careful
consideration, we conclude that the court acted within its
discretion when it entered the default as a sanction for persistent
noncompliance with court-ordered deadlines. We also conclude,
however, that the court erred in granting relief beyond the scope
of relief to which the plaintiffs were entitled. Consequently, we
affirm in part, vacate in part, and remand for the entry of a
revised judgment.
I. BACKGROUND
This contretemps grows out of a failed real estate
transaction. Early in 2008, defendant-appellant Ziegler Holdings,
LLC, purchased the right to civil possession of a beachfront
residence (the Property) in Vieques, Puerto Rico, from plaintiffs-
appellees Erin Hooper-Haas, Larry Alex Haas, and Craig Howland-
Hooper.1 The precise details of the sale are largely irrelevant to
this appeal; what is pertinent here is that the appellant agreed to
make monthly payments over the course of four years, culminating in
a final balloon payment; maintain insurance on the Property; and
indemnify the appellees for attorneys' fees of $5,000 in the event
of an enforcement action.
1
Civil possession (posesión civil) is a type of property
interest, which refers to the possessory interest an individual may
hold where title in a parcel of real estate is vested in another
(in this case the municipality of Vieques). P.R. Laws Ann. tit.
31, § 1421.
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For a time, matters progressed apace. Then, in June of
2010, the appellant stopped making monthly payments, asserting that
the appellees had misrepresented various aspects of the Property.
The appellees responded by suing the appellant in a Puerto Rico
court. In their complaint, they prayed for a declaration that the
sale was void, the return of the possessory interest in the
Property, and $5,000 in attorneys' fees. Invoking diversity
jurisdiction, the appellant removed the case to the United States
District Court for the District of Puerto Rico. See 28 U.S.C.
§§ 1332(a)(1), 1441. The appellant then answered the complaint and
counterclaimed for breach of contract.
The district court issued an initial scheduling order on
September 20, 2010. See Fed. R. Civ. P. 16(b). The court directed
the submission of pretrial memoranda by November 2 and scheduled a
pretrial conference for November 9. The scheduling order required
the parties, inter alia, to meet, confer, and exchange various
discovery materials prior to the anticipated conference. The court
warned that any failure to comply with the terms of the scheduling
order would result in "stiff penalties, including but not limited
to the entry of default."
The appellant paid no apparent heed to the court's
admonition. It failed to submit its pretrial memorandum on or
before November 2. Moreover, it frustrated the appellees' efforts
to have the parties meet and confer regarding discovery prior to
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the November 9 conference, and it did not disclose the materials
specified in the court's order within the prescribed timeframe.
At the November 9 conference, the appellant's lawyers
advised the court that they had been unable to reach their client
for some time.2 The court rebuked the appellant for missing the
various deadlines and warned that it "will not tolerate . . . non-
compliance" with its orders. Despite its displeasure, however, the
court granted the appellant "a final opportunity to litigate,"
reset the deadline for filing the pretrial memorandum to December
8, and recessed the pretrial conference to December 15. The court
explicitly warned that it would mete out sanctions for any failure
to comply with this new timetable.
December 8 came and went without any sign of either the
appellant's pretrial memorandum or its required disclosures. The
December 15 conference was therefore aborted, and the appellees
moved, inter alia, for the entry of default as a sanction. The
appellant did not file an opposition to this motion.
On January 13, 2011, the district court granted the
motion, struck the answer and counterclaim, and entered a default.
2
Citing this inability, counsel had moved to withdraw on
September 30. The court had denied the motion because the
appellant had no other counsel of record, and limited liability
companies, like corporations, cannot litigate pro se. See Rowland
v. Cal. Men's Colony, Unit II Men's Advisory Council, 506 U.S. 194,
201-02 (1993); United States v. Hagerman, 545 F.3d 579, 581-82 (7th
Cir. 2008); Instituto de Educacion Universal Corp. v. U.S. Dep't of
Educ., 209 F.3d 18, 22 (1st Cir. 2000).
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See Fed. R. Civ. P. 37(b)(2)(A)(vi), 54(a). The court specifically
found the appellant's misconduct to be willful. Hooper-Haas v.
Ziegler Holdings, LLC, No. 10-1712, 2011 WL 147904, at *4 (D.P.R.
Jan. 13, 2011). It concluded that the appellant's repeated
failures to respond to the discovery requests and to comply with
the court's scheduling order were efforts "to unjustifiably delay
the proceedings." Id.Five days later, the appellant, represented by new
counsel, sought reconsideration of the entry of default. The court
summarily denied this motion.
In the ordinary course, a defaulted defendant is
precluded from further contesting the factual averments in the
complaint giving rise to liability, but such a defendant may
nonetheless contest the relief sought. See Bonilla v. Trebol
Motors Corp., 150 F.3d 77, 82 (1st Cir. 1998). On May 17, 2011,
the district court convened an evidentiary hearing for the purpose
of determining what relief was appropriate. The court allowed the
appellant to be heard on the question of relief. Following the
hearing, the court voided the sale and granted the appellees
possession of the Property. See Hooper-Haas v. Ziegler Holdings,
LLC, No. 10-1712, 2011 WL 2134377, at *5 (D.P.R. May 26, 2011). It
also awarded damages consisting of the balance of the sale price
($110,546.05), accrued interest ($6,909.13), attorneys' fees
($5,000), and reimbursement for insurance premiums that the
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appellant had failed to pay ($3,316). Id. This timely appeal
ensued.
II. ANALYSIS
In this court, the appellant challenges both the entry of
the default and the relief granted. We bifurcate our discussion
accordingly.
A. Entry of Default.
We review a district court's entry of a default sanction
for abuse of discretion. Companion Health Servs., Inc. v. Kurtz,
675 F.3d 75, 83 (1st Cir. 2012) (citing Crispin-Taveras v. Mun'y of
Carolina, 647 F.3d 1, 7 (1st Cir. 2011)). An abuse of discretion
"occurs when a material factor deserving significant weight is
ignored, when an improper factor is relied upon, or when all proper
and no improper factors are assessed, but the court makes a serious
mistake in weighing them." Indep. Oil & Chem. Workers of Quincy,
Inc. v. Procter & Gamble Mfg. Co., 864 F.2d 927, 929 (1st Cir.
1988). Within this rubric, we assay the district court's factual
findings for clear error. Indigo Am., Inc. v. Big Impressions,
LLC, 597 F.3d 1, 3 (1st Cir. 2010). Conclusions of law are
appraised de novo, and a material error of law invariably
constitutes an abuse of discretion. Jensen v. Phillips Screw Co.,
546 F.3d 59, 64 (1st Cir. 2008).
We have said before, and today reaffirm, that a party who
flouts a court order does so at its own peril. See, e.g., Tower
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Ventures, Inc. v. City of Westfield, 296 F.3d 43, 45-46 (1st Cir.
2002). A court faced with a disobedient litigant has wide latitude
to choose from among an armamentarium of available sanctions. See
Jones v. Winnepesaukee Realty, 990 F.2d 1, 5 (1st Cir. 1993). The
entry of a default is one of these sanctions. Default is strong
medicine, see Crispin-Taveras, 647 F.3d at 7, and should be
prescribed only in egregious cases, see John's Insulation, Inc. v.
L. Addison & Assocs., Inc., 156 F.3d 101, 109 (1st Cir. 1998).
Be that as it may, default may be a condign sanction when
a court is confronted with a persistently noncompliant litigant.
In an appropriate case, the availability of this sanction may well
"play[] a constructive role in maintaining the orderly and
efficient administration of justice." Remexcel Managerial
Consultants, Inc. v. Arlequín, 583 F.3d 45, 51 (1st Cir. 2009)
(internal quotation marks omitted) (quoting KPS & Assocs., Inc. v.
Designs by FMC, Inc., 318 F.3d 1, 13 (1st Cir. 2003)).
The appropriateness of a default sanction must be
evaluated on a case by case basis. See Young v. Gordon, 330 F.3d
76, 81 (1st Cir. 2003). This evaluation implicates the totality of
the circumstances. Relevant factors include, but are not limited
to, the nature of the misconduct, its repetition (or lack thereof),
its degree of deliberateness, the extent to which the offender had
fair warning of the possible consequences of misconduct, the
availability vel non of an opportunity to offer an explanation or
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to plead for leniency, the legitimacy of any proffered excuse, any
other aggravating or mitigating circumstances, the presence or
absence of prejudice to the other party, the degree of interference
with the functioning of the court, and the adequacy of lesser
sanctions. See Vallejo v. Santini-Padilla, 607 F.3d 1, 8 (1st Cir.
2010); Robson v. Hallenbeck, 81 F.3d 1, 2-3 (1st Cir. 1996). In
the last analysis, these factors require a court to balance the
desirability of resolving cases on the merits against the
importance of "the orderly and efficient administration of
justice." See Remexcel, 583 F.3d at 51 (internal quotation marks
omitted) (quoting KPS & Assocs., Inc. v. Designs by FMC, Inc., 318
F.3d 1, 13 (1st Cir. 2003)).
In the case at hand, the relevant factors predominate
heavily in favor of the district court's action. The court
repeatedly warned the parties that failure to comply with its
scheduling orders would result in severe sanctions. It
specifically mentioned default. The appellant ignored those
warnings and persistently flouted deadlines set by the court. This
"disobedience of court orders, in and of itself, constitutes
extreme misconduct." Tower Ventures, 296 F.3d at 46. The
egregiousness of the appellant's misconduct is underscored both by
its repetitive nature and by the district court's supportable
finding that the appellant had acted willfully in ignoring a series
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of deadlines. See Global NAPs, Inc. v. Verizon New Eng. Inc., 603
F.3d 71, 94 (1st Cir. 2010).
Here, moreover, the district court did not act
impulsively or in haste. It provided a free pass for the
appellant's original noncompliance but warned the appellant that
further noncompliance would have dire consequences. The appellant
did not learn any lesson from this second chance; it simply
repeated its earlier misconduct and disregarded the new set of
deadlines. Given the commission of these serial infractions in the
face of pointed warnings and the absence of any compelling
explanation for the appellant's recalcitrance, we think that it was
reasonable for the district court to conclude — as it did — that
the admittedly strong interest in deciding cases on the merits was
overborne by the crushing weight of aggravating factors.
In an effort to blunt the force of this reasoning, the
appellant musters a battalion of counter-arguments. None of these
counter-arguments is persuasive.
To begin, the appellant contends that the default should
be set aside because lesser sanctions were not tried. This
contention is unavailing: where, as here, the sanction fits the
misconduct, a trial court is not obliged to withhold the sanction
until it has first slapped the offender on the wrist. See
Companion Health, 675 F.3d at 84; cf. Damiani v. R.I. Hosp., 704
F.2d 12, 15 (1st Cir. 1983) (stating that "[t]here is nothing in
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[Rule 37(b)] that states or suggests that the sanction of dismissal
can be used only after all the other sanctions have been considered
or tried"). In this instance, the sanction of default is
proportionate to the egregious misconduct that provoked it.
The appellant's reliance on our decision in Benitez-
Garcia v. Gonzalez-Vega, 468 F.3d 1 (1st Cir. 2006), is mislaid.
In determining there that a sanction of dismissal with prejudice
was overly harsh, we noted that the plaintiffs had received neither
advance warning nor an opportunity to oppose the sanction and
explain their noncompliance. See id. at 5-7. Here, however, the
appellant was given two pointed warnings and had an opportunity
(which it eschewed) to oppose the appellees' request for the entry
of a default.
Next, the appellant insists that the missed deadlines
were the unintentional byproduct of the breakdown in its
relationship with its counsel. Once that breakdown occurred, the
appellant says, it worked diligently to secure successor counsel
and rectify the situation. But the district court, which had a
bird's-eye view of the events as they played out, see Young, 330
F.3d at 82, rejected this explanation. The court warrantably found
that, notwithstanding the asserted breakdown in communications,
there was no good reason why the defendant could not have worked
with its original counsel until a replacement was identified. At
any rate, the passage of many months between the occurrence of the
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breakdown and the date on which new counsel first appeared casts
considerable doubt on the appellant's self-serving claim of
diligence.3
We need not linger long over the appellant's plaint that
default was inappropriate because its conduct in no way prejudiced
the appellees. "Repeated disobedience of a scheduling order is
inherently prejudicial, because disruption of the court's schedule
and the preparation of other parties nearly always results."
Robson, 81 F.3d at 4. That black-letter principle fits this case
like a glove.
The appellant's other counter-arguments are jejune, and
we dismiss them out of hand. We discern no abuse of discretion in
the district court's decision to enter a default as a sanction for
the appellant's flagrant disregard of court-imposed deadlines.
B. Relief.
The appellant's remaining assignment of error relates to
the scope of the relief granted by the court below. Its principal
3
To be sure, at various times, the appellant's principal
transmitted to the district court correspondence concerning its
travails in retaining new counsel. For two reasons, the district
court was under no obligation to consider these submissions.
First, the appellant was represented by counsel at the time. See,
e.g., United States v. Tracy, 989 F.2d 1279, 1285 (1st Cir. 1993).
Second, a limited liability company cannot, as a matter of law, act
pro se. See supra note 2 (citing cases).
In any event, the court reviewed those communications and
found them to be nothing more than empty excuses. This finding was
not clearly erroneous.
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grievance is that the court erred when it fashioned an award that
exceeded the relief sought in the complaint.
Until 2007, default judgments were governed by the then-
current version of Rule 54(c), which stated in relevant part: "A
judgment by default shall not be different in kind from or exceed
in amount that prayed for in the demand for judgment." Fed. R.
Civ. P. 54(c). In 2007, however, this language was revised to
read: "[a] default judgment must not differ in kind from, or exceed
in amount, what is demanded in the pleadings." Some courts have
interpreted the revised language — the change from "demand for
judgment" to "pleadings" — as broadening what may be considered in
the context of a default judgment. See, e.g., WMS Gaming Inc. v.
WPC Prods. Ltd., 542 F.3d 601, 606 (7th Cir. 2008) (considering the
relief sought in plaintiff's complaint and motion for entry of
default judgment); PT (Persero) Merpati Nusantara Airlines v.
Thirdstone Aircraft Leasing Grp., Inc., 246 F.R.D. 17, 18-19
(D.D.C. 2007) (referencing relief sought in plaintiff's default
judgment memorandum). There is, however, some reason to question
this view. See Fed. R. Civ. P. 54(c) advisory committee's note
(2007 amendments) ("The language of Rule 54 has been amended as
part of the general restyling of the Civil Rules . . . . These
changes are intended to be stylistic only.").
The upshot is that, in the context of a default judgment,
the familiar tenet that a party should be given the relief to which
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it is entitled whether or not it has prayed for that relief in its
pleadings, see, e.g., City of Los Angeles v. Lyons, 461 U.S. 95,
130 (1983), does not obtain. This construct makes perfect sense:
after all, a defendant may reasonably decide, based upon its
evaluation of the relief sought, that defending an action is not
worth the effort.4 10 Charles A. Wright et al., Federal Practice
and Procedure § 2663, at 166-67 (3d ed. 1998). It would be
manifestly unfair if the court were then to award relief not
previously specified — relief that, perforce, could not have been
included in the defendant's decisional calculus. Id. It follows
that a default does not expose a defendant to impositions not
properly identified before the entry of default. See, e.g.,
Blanchard v. Cortés-Molina, 453 F.3d 40, 45 (1st Cir. 2006).
In this case, the complaint contains only the following
prayer for relief:5
4
In this case, the appellant appeared and answered the
complaint before the motion for entry of default was filed. Be
that as it may, "Rule 54(c) does not differentiate between a
default based on a total failure of defendant to appear and a
default following an appearance." 10 Charles A. Wright et al.,
Federal Practice and Procedure § 2663, at 171 (3d ed. 1998).
5
The plaintiffs commenced this action in a Puerto Rico court
and, therefore, the complaint was originally filed in that court.
Puerto Rico courts operate under Rules of Civil Procedure analogous
to the Federal Rules of Civil Procedure. See P.R. Laws Ann. tit.
32, App. III, Rules 1-73. In particular, the Puerto Rico Rules of
Civil Procedure provide that, in connection with a default
judgment, "a judgment by default shall not be different in kind nor
exceed the amount prayed for in the demand for judgment." P.R.
Laws Ann. tit. 32, App. III, Rule 43.6.
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[T]he [appellees] respectfully request[] that
the honorable court declare overdue the
obligation due to the [appellant's] failure to
comply with its terms and, therefore, decree
null and void the public deed [to the
Property], thus reverting to the [appellees]
civil possession of the property to which it
refers, imposing also payment of $5,000.00 for
attorney fees.
There is no mention, for example, of either damages for breach of
contract or reimbursement for unpaid insurance premiums. The
appellees' subsequent motion for the entry of a default judgment
explicitly states that "[t]he terms of relief requested in the
default judgment are set forth in the . . . complaint," and that
"no monetary damages are requested."
This explicit limitation makes it unnecessary for us to
decide in this case whether or to what extent the 2007 amendment to
Rule 54(c), see text supra, enlarges the scope of the pleadings to
which a court fashioning a default judgment may refer. We
therefore leave that question open.
In the default judgment entered below, the district court
not only ordered the return of possession of the Property and the
payment of attorneys' fees but also ordered relief not sought in
the complaint. This additional relief included damages equal to
the balance of the purchase price, accrued interest, and
reimbursement for unpaid insurance premiums. Because these damages
strayed beyond the relief that the appellees had limned in their
complaint and their motion for the entry of a default judgment,
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they were improper. The obvious remedy for this infirmity is for
the district court to strike the offending items from the
compendium of relief granted.
The appellant opposes this remedy. It asseverates that
the post-default hearing held by the court violated principles of
due process and, therefore, the entire judgment must be vacated.
This asseveration lacks force.
The appellant is correct that even a party in default is
generally entitled to contest damages and to participate in a
damages hearing (if one is necessary). See Bonilla, 150 F.3d at
82. Here, however, the court afforded the appellant that very
opportunity. Moreover, the appellant availed itself of the
opportunity: it presented its position on damages to the district
court and its counsel engaged in extensive cross-examination of the
witnesses proffered by the appellees. The short of it is that the
appellant received all of the process that was due.
The appellant's contrary argument confuses liability with
damages. At the hearing, it proffered a witness to testify about
liability, but the district court refused to allow the testimony.
This ruling was unimpugnable. The law is pellucid that once the
default is entered, so long as the complaint states a claim for
relief, then the defaulted party has no further right to contest
liability. See id. at 80; 10A Wright et al., supra § 2688, at 57-
68 (collecting cases).
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Before us, the appellant attempts to sabotage this ruling
by suggesting that its witness was going to testify as to damages.
But that was not the position that the appellant took below. The
district court plainly understood that the witness was being
offered to testify about liability — and the appellant never said
otherwise. Absent extraordinary circumstances (not present here),
the appellant cannot mount an argument in this court that it
neglected to raise in the court below. Clauson v. Smith, 823 F.2d
660, 666 (1st Cir. 1987).
In light of the foregoing, we reject the appellant's due
process claim and hold that the district court, on remand, may base
a revised award on the evidence adduced at the post-default
hearing. We therefore remand for the entry of a revised judgment
limited to declaratory relief, possession of the Property, and
attorneys' fees.
III. CONCLUSION
We need go no further. For the reasons elucidated above,
we affirm the entry of default, vacate the judgment below, and
remand for the entry of a revised judgment consistent with this
opinion.
Affirmed in part, vacated in part, and remanded. Costs are to be
taxed in favor of the appellees.
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