Natural Gas Pipeline Co. of America v. Energy Gathering, Inc. ( 1993 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 93-2283
Summary Calendar
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NATURAL GAS PIPELINE COMPANY
OF AMERICA, ET AL.,
Plaintiffs,
NATURAL GAS PIPELINE COMPANY
OF AMERICA,
Plaintiff-Appellee,
versus
ENERGY GATHERING, INC., ET AL.,
Defendants,
JOHN FOX,
Movant-Appellant.
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Appeal from the United States District Court for the
Southern District of Texas
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September 21, 1993
Before GARWOOD, JONES and EMILIO M. GARZA, Circuit Judges.
GARWOOD, Circuit Judge:
Appellant John Fox (Fox) is a Mississippi attorney who has
been the longtime associate, legal counsel, and business partner of
Navarro Crowson (Crowson), a judgment debtor who owes millions of
dollars to appellees, whom he defrauded. Thus far, Crowson has
largely foiled his creditors' efforts to recover their judgments by
concealing his assets and withholding documents that would reveal
their extent and location. When Fox was ordered to turn over all
Crowson-related business or financial records, he persistently
failed to do so. The district court then ordered Fox to produce
his personal tax returns for the last several years. Fox refused
and was ultimately held in civil contempt pending compliance. Fox
appeals, and we reverse in part and remand.
Facts and Proceedings Below
Until his discharge in 1985, Crowson, a resident of
Mississippi, was an employee of appellees Mitchell Energy and
Development Corp. (Mitchell Energy), Southwestern Gas Pipeline,
Inc. (Southwestern Gas), and Winnie Pipeline Co. (Winnie Pipeline).
It is alleged that while so employed Crowson took bribes and
kickbacks in connection with the negotiation of oil and gas
contracts. Following a grand jury investigation, Crowson was
indicted in federal court in Texas. Crowson's counsel in these
criminal proceedings was Fox, an attorney and resident of Houston,
Mississippi, who had represented and had extensive business
dealings with Crowson since at least 1985. Crowson eventually
pleaded guilty to several counts of mail fraud.
On September 14, 1988, appellees Texas Industrial Energy Co.
(TICO), and South Gulf Energy, Inc. (South Gulf), sued Crowson in
the United States District Court for the Southern District of
Texas, Houston Division, to recover damages incurred as a result of
the kickback scheme. Crowson having filed no answer, on June 21,
2
1991, appellees moved for a default judgment. On September 17,
1991, Fox entered an appearance in the litigation on behalf on
Crowson to oppose the entry of judgment.1 On September 23, 1991,
default judgment was awarded to TICO and South Gulf for
approximately $1.28 million.2
Having obtained their judgment, appellees attempted to
discover the extent and location of Crowson's assets.
Interrogatories and requests for production of documents were
served upon Fox as Crowson's attorney of record. However, no
answers or responsive documents were supplied. On January 15,
1992, the court ordered Crowson to respond to appellees' discovery
requests. This order, too, was ignored. Finally, on June 8, 1992,
the court held a show cause hearing at which Crowson was judged to
be in contempt for failing to comply with post-judgment discovery
and was incarcerated.
To gain release from contempt, on June 15, 1992, Crowson
signed, and the court approved, an "Agreed Order," in which Crowson
pledged to produce all of his financial and business records.3 The
1
Appellees assert that following his appearance on Crowson's
behalf, Fox was served with all of the pleadings filed in the court
below and received copies of all of the orders entered in the case.
This is not denied by Fox and would be the normal course of
proceeding in the court below.
2
Appellees Mitchell Energy, Southwestern Gas, and Winnie
Pipeline had also brought suit against Crowson in Texas state court
and, on September 23, 1991, obtained a default judgment in excess
of $4.75 million. After reaching a judgment collection agreement
with TICO and South Gulf, these appellees intervened in the federal
court action on January 15, 1993.
3
The Agreed Order provided in part as follows:
3
"Crowson agrees to immediately turnover, and hereby
authorizes third-parties to turnover or release, all of
Crowson's financial or business records . . . to the
United States Marshal Service and the representatives of
TICO and/or South Gulf . . . including but not limited to
the following . . ."
There followed twenty-five paragraphs describing in detail types of
records to be produced, including:
"(i) All documents that reflect, evidence, relate or
pertain to Crowson's or MEC's [Mississippi Energy
Corporation, a Crowson entity] participation or ownership
in any partnerships, joint ventures, corporations or
other business entities in which Crowson or MEC hold
either a direct or beneficial interest in from January 1,
1985 to the present.
(j) All documents that reflect, evidence, relate or
pertain to any transfer of assets of any nature by
Crowson or MEC, or any business entity or affiliate with
whom Crowson or MEC have been employed or in which
Crowson or MEC owns or owned a financial interest from
January 1, 1985 to the present, as the actual or
beneficial owner.
. . .
(t) All documents that reflect, evidence, relate or
pertain to Crowson's or MEC'S, or any business entity's,
affiliate's or corporation's with whom Crowson or MEC
have been employed, or in which Crowson or MEC owns or
owned a financial interest from January 1, 1985 to the
present, transfers of assets of any kind, including, but
not limited to, monies, jewelry, furs, automobiles,
boats, charge cards, furniture, homes, condominiums or
apartments since January 1, 1985.
. . .
(v) All contracts of any nature, including commission
agreements, under which Crowson or MEC owns a legal or
equitable interest in from January 1, 1985 to the
present.
(w) Corporate records of any corporation that Crowson
served as officer or director of from January 1, 1985 to
the present.
. . .
4
Agreed Order also "authorize[d]" third parties to release such
records. Finally, the Agreed Order provided that Crowson would be
reincarcerated in the event that he failed to comply with its terms
or to cooperate fully with post-judgment discovery. Crowson,
however, evidently had no intention of complying with the Agreed
Order and quickly began to violate it. The record indicates that
sometime after his release, Crowson removed financial records from
his accountant's files. In response, TICO and South Gulf applied
for an ex parte order requiring the turnover of Crowson's assets
and documents. On July 14, 1992, the court ordered Crowson, his
agents and attorneys, to turn over all of his assets to the United
States Marshal Service.4 On July 21, 1992, the court held a
(y) All documents that reflect, evidence, relate or
pertain to brokerage and commodities accounts, whether
currently open, active or closed, in the name of Crowson
or MEC, or any business entity, affiliate or corporation
in which Crowson or MEC owns or owned a financial
interest from January 1, 1985 to the present . . . ."
The order concluded by stating "ORDERED, that Defendants
Navarro Crowson and Mississippi Energy Company shall comply with
the terms and conditions of the agreed order."
4
This order provided in part as follows:
"ORDERED, that Crowson, MEC, their partners, agents,
servants, employees, attorneys, and all other persons in
active concert or participation with Crowson or MEC who
receive notice of this temporary restraining order shall
be, and are hereby, enjoined from selling, conveying,
assigning or otherwise transferring any of Crowson's or
MEC's real property, personal property, income or other
monies;
. . .
ORDERED, that Crowson and MEC shall immediately
deliver all assets to the U.S. Marshal's service Houston
Office until TICO's and South Gulf's judgment is fully
5
hearing to determine whether to revoke Crowson's conditional
release from contempt for violating the Agreed Order. At the
hearing, the court ordered Crowson to produce all of his financial
records and to direct his agents to do the same by August 18,
1992.5 The court did not, however, have Crowson reincarcerated.
satisfied;
. . .
ORDERED, that all financial institutions, investment
companies, securities brokers, commodities brokers,
accountants, attorneys or other third-parties, that have
or currently hold, maintain or receive assets or income
for Crowson or MEC shall immediately turnover such assets
or income and, all documents relating to such assets or
income upon the service of this order."
This order was predicated on a motion that invoked section
31.002 of the Texas Civil Practice & Remedies Code, paragraph (b)
of which provides in part:
"The court may:
(1) order the judgment debtor to turn over nonexempt
property that is in the debtor's possession or is subject
to the debtor's control, together with all documents or
records related to the property, to a designated sheriff
or constable for execution;
(2) or otherwise apply the property to the
satisfaction of the judgment; or . . . ."
With respect to Vernon's Tex. Ann. Civ. Stat. art. 3827a, the
predecessor to section 31.002, it has been said that "[a]lthough a
third party retains the property, if it is shown to be non-exempt,
owned by a judgment debtor and subject to the debtor's possession
or control, the trial court may issue and enforce its turnover
order." Norsul Oil & Mining v. Commercial Equipment Leasing Co.,
703 S.W.2d 345, 349 (Tex. App.SQSan Antonio, 1985, no writ).
Accord Daniels v. Pecan Valley Ranch, Inc., 831 S.W.2d 372, 384
(Tex. App.SQSan Antonio, 1992, no writ) (section 31.002).
5
The court stated, among other things, "Hamilton, Fox, the
trustee for the children's trust, those people are all your agents,
and they are to produce everything that has anything to do with
anything that you having [sic] interest [in] or Mississippi Energy
6
Rather than complying with the various court orders requiring him
to surrender his assets, Crowson repaired to Mississippi where he
filed for bankruptcy and voluntarily committed himself to a mental
hospital. Seeing through this ruse, the court ordered that Crowson
be reincarcerated.
At the same time that Crowson was engaged in this abuse of the
discovery process, appellees were meeting with little more success
with Fox. On June 18, 1992, TICO and South Gulf representatives,
accompanied by a United States Marshal, had the Agreed Order served
upon Fox in his office in Houston, Mississippi. Fox, however,
denied being in possession of any of Crowson's requested records
and produced nothing. On July 7, 1992, appellees and a marshal
returned to Fox's office. Fox again denied being in possession of
any documents responsive to the Agreed Order.6
Subsequently, appellees discovered that Fox was the trustee of
a trust, established in 1990 by Crowson, known as the Crowson
Children's 1990 Trust (the Children's Trust). On September 14,
1992, the court ordered Fox to turn over all of the trust's assets,
all documents related to the trust, and all assets in his
possession belonging to Crowson (the Trust Order).7 Fox responded
to this order by filing an adversary proceeding in Crowson's
has interest[in] since 1985."
6
Fox apparently offered to produce a box containing copies of
court records from the lawsuit underlying this appeal, which
appellees declined to accept.
7
By this time, however, Fox had already liquidated and
disbursed the trust's only remaining asset, a life insurance policy
with a cash value of approximately $26,000.
7
bankruptcy action seeking a declaratory judgment that the Trust
Order was null and void. The bankruptcy was subsequently
transferred to the court below and dismissed.
On January 21, 1993, the court on its own motion ordered Fox
to file a pleading clearly designating his capacity in the instant
litigation. On February 5, 1993, Fox responded that he was not a
party to the action and that, although he had made a brief
appearance on Crowson's behalf in September 1991, he had since been
replaced as Crowson's counsel by Bobby Mims, an attorney licensed
in Texas.8 Unconvinced, the district ruled that Fox's response was
"inadequate" and that he "remains attorney of record for Navarro
Crowson in this action."
On February 8, 1993, appellees filed a motion for sanctions
against Fox, who was ordered to appear and show cause why he should
not be sanctioned for failing to produce the Crowson records
pursuant to the Agreed Order and for failing to turn over the
assets of the Children's Trust pursuant to the Trust Order. The
show cause hearing was held on March 15, 1993. At the hearing,
appellees sought to expose the implausibility of Fox's earlier
assertion that he had no documents responsive to the Agreed Order
8
Mims had first represented Crowson at the show cause hearing
on June 8, 1992. The court's order of contempt entered after that
hearing recites that "Crowson appeared for the hearing with new
counsel, Bobby D. Mims. Fox never withdrew as Crowson's counsel.
There has been no motion to substitute." The court added that
"Crowson solicited new counsel to obstruct discovery and to dodge
court orders." Mims also co-signed the Agreed Order with Crowson.
Under the local rules of the district court, Fox, having been
Crowson's only attorney, was counsel in charge, and could only
withdraw "by motion and order, under conditions imposed by the
court." S.D. Tex. Local R. 2(D).
8
by informing the court, on the basis of evidence obtained in this
case in discovery from other sources, of Fox's extensive business
dealings with Crowson. It was revealed, for example, that: the
two maintained a joint account at a brokerage firm and had actively
traded stocks together as Fox-Crowson Investments; that the two
shared an interest in a condominium in Crested Butte, Colorado; and
that Crowson had assigned to Fox a natural gas pipeline in
Jefferson County, Texas.9 The court also heard testimony about
Fox's activities as Crowson's attorney. Not only had Fox prepared
the Children's Trust, but he had been Crowson's lawyer in a divorce
settlement within the last few years.10 The evidence revealed that
Fox's roles as attorney and business partner overlapped. For
instance, Fox testified that Crowson had assigned him the gas
pipeline as compensation for legal services, but that he (Fox) had
forgotten about it.
It appears that this showing of Fox's deep involvement with
Crowson as the latter's attorney and business partner convinced the
court below of several things: that an agency relationship existed
9
In other hearings, the court heard testimony that Fox and
Crowson: had bought and sold real estate together, with a third
person, as the partnership of Holleman-Fox-Crowson; owned "the Coke
building" in Houston, Mississippi; and owned an oil rig in Alabama.
10
Despite having denied in June and July of 1992 that he was in
possession of any of Crowson's records, Fox, appellees asserted
without contradiction, had subsequently appeared at a hearing in
Crowson's bankruptcy action in Mississippi with copies of a
property settlement from this divorce but had there claimed he
obtained the documents from an unidentified third party.
9
between Fox and Crowson;11 that documents relating to their joint
ventures must surely exist;12 that the disclosure of these documents
would aid in the location of Crowson's assets;13 and, finally, that
Fox had purposefully withheld documents from the court.14
Accordingly, the court ordered Fox to produce every document in his
possession relating to Crowson or business he had done with
Crowson. The court in this connection also required Fox to produce
all of his own personal tax returns and schedules from 1984 to the
11
For example, the court stated: "Mr. Fox has been deemed by
this Court to be an agent and alter ego of Mr. Crowson for the
purposes of Crowson's records and activities. I think that
conclusion is inescapable. . . ." The court also observed that Fox
was Crowson's "alter ego in any number of ways" and "is a surrogate
for Crowson."
12
The court stated: "it is inconceivable to me that out of this
18-year relationship there are not a whole lot of records."
13
The court stated: "it seems it's going to be necessary to
reconstruct your life in order to find out how much of your life
and how much of Mr. Crowson's overlap, and see if we can find some
connections."
14
The court stated:
"[Fox] is doing what is classic discovery stall, so when
[appellees] . . . find out about something, he will
explain it; but there is nothing produced or explained
until they find something from a third source.
. . .
"And I thought the [Agreed] order made clear that
you were to get the stuff if you didn't have copies.
. . .
"When I made the mistake of being nice and letting
[Crowson] out [of jail] for a little while, he went out
and, with the help of Mr. Fox and other people, he moved
stuff all around and in violation of every duty he owed
everybody."
10
present.15 The court commented in this regard:
"Your personal tax returns reflect income from Mr.
Crowson, partnerships with Mr. Crowson, and I don't know
what else.
"But Mr. Zivley [appellees' counsel] is going to
know what else, because your tax returns show the
treatment of property given to or received from Mr.
Crowson. . . .
. . . .
"He is going to get your tax returns that show all
the deals, so he can satisfy himself that there are not
some other things that you don't recall, like this gas
contract."
The court ordered that the motion for sanctions against Fox be
carried over until April 12, 1993, at which time, if Fox had not
complied with the court's order, he would be held in contempt.
Fox sought a stay from this Court. On April 8, 1993, we
denied his motion on the ground that we lacked appellate
jurisdiction.16 On April 12, 1993, Fox filed a motion to withdraw
as Crowson's counsel. The court had not ruled on this motion as of
the preparation of the record on appeal.
On April 13, 1993, the show cause hearing resumed. As of that
15
The court's minutes from the hearing contain an order that
"Fox shall produce his personal tax returns and schedules for 1984
to the present and all other documents relating to Crowson or
business Fox did or could have done with Crowson."
16
A discovery order, even one directed at a non-party, is not a
final order and hence not appealable. Prior to appeal, the one to
whom the order is directed must first defy it and risk being held
in contempt. If he is so sanctioned, the contempt order is
appealable. See, e.g., In re Grand Jury Subpoena, 926 F.2d 1423,
1430 (5th Cir. 1991); Corporacion Insular de Seguros v. Garcia, 876
F.2d 254, 256-58 (1st Cir. 1989); FTC v. Alaska Land Leasing, Inc.,
778 F.2d 577, 578 (10th Cir. 1985); 8 C. Wright & A. Miller,
Federal Practice & Procedure § 2006, at 30 (1970).
11
time, Fox still had not produced any of the documents required of
him. At the hearing, Fox initially agreed to turn over every
record in his possession pertaining to Crowson, including his
personal tax returns. After conferring with counsel, however, Fox
recanted and declared that he would not produce his tax returns, at
which point he was held in civil contempt. On April 15, 1993, we
granted Fox a stay of the coercive portions of the order. Fox now
appeals the court's judgment of contempt.17
Discussion
On appeal, Fox primarily argues that the contempt judgment
against him must be reversed because the court below had no
authority under the Federal Rules of Civil Procedure to order him
to produce his tax returns. Because this order was invalid, Fox
maintains, its violation cannot constitute grounds for contempt.
We will address this argument in Part I and Fox's other contentions
in Part II.
17
Fox attempted initially to notice an appeal on April 13, 1993.
Realizing that the district court did not enter its judgment of
contempt until April 14, 1993, Fox "re-noticed" his appeal on April
26, 1993, to cure any jurisdictional defect. Under 28 U.S.C. §
1826(b), an appeal from a judgment of contempt must be disposed of
within thirty days. Although more than a month has passed, this
appeal has been lawfully processed under established principles.
First, eight circuits have held that time provisions of section
1826(b) do not apply if the contemnor is at liberty during the
appeal. See In re Grand Jury Proceedings (GJ90-2), 946 F.2d 746,
749 n.3 (11th Cir. 1991) (citing cases). According to this
authority, only one circuit holds a contrary view. We believe the
majority rule is a sound one. Second, before the expiration of the
thirty-day period we entered an order extending the time for
disposition of this appeal. This conforms to Fifth Circuit
practice in section 1826(b) cases. See In re Grand Jury
Proceedings (Gavel), 605 F.2d 750, 752 n.1 (5th Cir. 1979) ("Where
appropriate, we will enter an order extending the time within which
the appeal must be decided.") (citing cases).
12
I.
Fox argues that, because he is a non-party and because the
documents at issue are located in Mississippi, Federal Rules 34 and
45 require that a subpoena for their production issue from a
federal district court in Mississippi. Our inquiry must begin,
however, not with Rule 34 or Rule 45, but with Rule 69, which
governs the procedure for post-judgment discovery in federal
courts. Rule 69 provides in relevant part as follows:
"In aid of the judgment or execution, the judgment
creditor . . . may obtain discovery from any person,
including the judgment debtor, in the manner provided in
these rules or in the manner provided by the practice of
the state in which the district court is held."
Fed.R.Civ.P. 69(a).
Thus, Rule 69 allows post-judgment discovery to proceed according
to the federal rules governing pre-trial discovery, or according to
state practice.
Although Texas Civil Practice & Remedies Code § 31.002 has
been construed to authorize turnover orders directed to third
parties (see note 4 supra), the turnover contemplated thereby is
only of property of the debtor and related records. Rule 621a of
the Texas Rules of Civil Procedure, like Federal Rule 69, makes
post-judgment discovery coextensive with pre-trial discovery.18
Texas Rule of Civil Procedure 167(4), which governs the pre-trial
18
Rule 621(a) provides in relevant part:
"At any time after rendition of judgment, . . . the
successful party may, for the purpose of obtaining
information to aid in the enforcement of such judgment,
initiate and maintain . . . any discovery proceeding
authorized by these rules for pre-trial matters." Tex.
R. Civ. P. 621a.
13
production of documents by non-parties, provides, among other
things, that a court may order a non-party to produce documents.19
As stated below, we conclude that Texas practice only partially
justifies the court's orders as applied to Fox. However, we first
consider the federal rules and practice.
Fox's primary contention is that the court's order was not in
keeping with Federal Rules 34 and 45. Rule 34 provides as follows:
"A person not a party to the action may be compelled to
produce documents and things or to submit to an
inspection as provided in Rule 45." Fed. R. Civ. P.
34(c).
Thus, under Rule 34 a non-party may be compelled to produce
documents in accord with Rule 45. That rule, which governs the
issuance of subpoenas, contains the following key sentence:
"If separate from a subpoena commanding the attendance of
a person, a subpoena for production or inspection shall
issue from the court for the district in which the
production or inspection is to be made." Fed. R. Civ. P.
45(a)(2).
Relying on this text, Fox argues that a district court in Texas
cannot order him to produce his tax returns, which are located in
Mississippi.
We agree with Fox that a federal court sitting in one district
cannot issue a subpoena duces tecum to a non-party for the
19
Texas Rule 167(4) provides in relevant part:
"The court may order a person, . . . not a party to the
suit to produce in accordance with this rule. However,
such order shall be made only after the filing of a
motion setting forth with specific particularity the
request, necessity therefor and after notice and hearing.
All parties and the nonparty shall have the opportunity
to assert objections at the hearing." Tex. R. Civ. P.
167(4).
14
production of documents located in another district. Cf. In re
Guthrie, 733 F.2d 634, 637 (4th Cir. 1984). The fact that the
court could not subpoena Fox's records under Rule 45, however, does
not necessarily compel Fox's conclusion that the order at issue was
invalid. After all, no subpoena was issued in this case; instead,
the district court issued a direct order to Fox to produce his tax
returns. At the end of the day, Fox's argument merely establishes
that the court's order must be justified with reference to
something other than Federal Rules 34 and 45. Appellees contend
that the court order was a permissible exercise of the inherent
power with which all federal courts are vested.
For nearly as long as the federal courts have existed, it has
been understood that "[c]ertain implied powers must necessarily
result to our courts of justice from the nature of their
institution," powers "which cannot be dispensed with in a court
because they are necessary to the exercise of all others." United
States v. Hudson, 7 Cranch 32, 34 (1812). See also Anderson v.
Dunn, 6 Wheat. 204, 227 (1821). The Constitution itself confers
this authority upon all Article III courts as an incident to "The
judicial Power." U.S.Const., Art. III, § 1; see Chambers v. NASCO,
Inc., 111 S. Ct. 2123, 2140 (1991) (Scalia, J., dissenting); 1 J.
Moore, Moore's Federal Practice ¶ 0.60[6], at 637 (2d ed. 1988).
The inherent powers of the federal courts are "governed not by rule
or statute but by the control necessarily vested in courts to
manage their own affairs so as to achieve the orderly and
expeditious disposition of cases." Link v. Wabash R. Co., 82 S. Ct.
15
1386, 1389 (1962). At the same time, however, these powers must
be exercised "with restraint and discretion." Roadway Express,
Inc. v. Piper, 100 S. Ct. 2455, 2463 (1980). As we have said,
inherent authority "is not a broad reservoir of power, ready at an
imperial hand, but a limited source; an implied power squeezed from
the need to make the court function." NASCO, Inc. v. Calcasieu
Television & Radio, Inc., 894 F.2d 696, 702 (5th Cir. 1990), quoted
with approval and aff'd, 111 S. Ct. 2123, 2131 (1991). In short,
the inherent power springs from the well of necessity, and
sparingly so.
Fox in essence argues that the Federal Rules of Civil
Procedure completely describe the federal courts' power over civil
procedure, displacing any inherent authority in this area. We
cannot agree. As Judge Posner remarked concerning the relationship
of inherent powers to positive law: "The motto of the Prussian
stateSQthat everything which is not permitted is forbiddenSQis not
a helpful guide." United States v. Torres, 751 F.2d 875, 880 (7th
Cir. 1984). A long line of cases establishes that the Rules are
not always the exclusive source of a federal court's powers in
civil cases. In Link v. Wabash, supra, the Supreme Court held that
a district court has inherent power to dismiss a case sua sponte
for failure to prosecute, even though Federal Rule 41(b) only
provides for such dismissal on a defendant's motion. 82 S. Ct. at
1388-89. In Chambers v. NASCO, supra, the Court held that the
inherent power to impose sanctions for bad-faith conduct during
litigation was not displaced by, and went beyond, such sanctioning
16
mechanisms as Rule 11 and 28 U.S.C. § 1927. 111 S. Ct. at 2134-36.
Supportive cases can also be found among the decisions of the
courts of appeals. In G. Heileman Brewing Co. v. Joseph Oat Corp.,
871 F.2d 648, 650-53 (7th Cir. 1989) (en banc), the court held that
a district court has inherent power to order litigants to appear at
a pre-trial settlement conference despite the fact that Rule 16(a)
provides only that a court may direct a party's attorneys to attend
such a conference. The court stated:
"[T]he Federal Rules of Civil Procedure do not completely
describe and limit the power of the federal courts. . .
.
"The concept that district courts exercise
procedural authority outside the explicit language of the
rules of civil procedure is not frequently documented,
but valid nevertheless. . . .
. . .
". . . [T]he mere absence of language in the federal
rules specifically authorizing or describing a particular
judicial procedure should not, and does not, give rise to
a negative implication of prohibition." Id. at 651, 652.
For similar statements, see, e.g., Aoude v. Mobil Oil Corp., 892
F.2d 1115, 1119 (1st Cir. 1989); Landau & Cleary, Ltd. v. Hribar
Trucking, Inc., 867 F.2d 996, 1002 (7th Cir. 1989); HMG Property
Investors, Inc. v. Parque Indus. Rio Canas, Inc., 847 F.2d 908, 915
(1st Cir. 1988); Black Panther Party v. Smith, 661 F.2d 1243, 1281
& n.4 (D.C. Cir. 1981) (MacKinnon, J., concurring in part and
dissenting in part), vacated as moot, 102 S. Ct. 3505 (1982).20
20
There is an apparent tension between the cited cases and
Societe Internationale Pour Participations Industrielles et
Commerciales, S.A. v. Rogers, 78 S. Ct. 1087 (1958). In Rogers, the
district court dismissed a complaint for failure to comply with a
discovery order and the court of appeals affirmed. The district
17
We note, however, that although a court may have inherent
power to do that which is not specifically provided for in the
Rules, it may not do that which the Rules plainly forbid. Congress
has the power to abrogate a lower court's inherent authority,
although it must adequately express its intent to do so. See
Chambers, 111 S. Ct. at 2134; Link, 82 S. Ct. at 1389. Where such an
expression has been made, a court "may not exercise its inherent
authority in a manner inconsistent with rule or statute." G.
Heileman Brewing, 871 F.2d at 652. "That is, where the rules
directly mandate a specific procedure to the exclusion of others,
inherent authority is proscribed." Landau & Cleary, 867 F.2d at
1002. See also United States v. One 1987 BMW 325, 985 F.2d 655,
661 (1st Cir. 1993); Strandell v. Jackson County, 838 F.2d 884, 886
(7th Cir. 1987).21
court relied upon Rule 37(b) and its inherent power, and the court
of appeals affirmed on the basis of Rule 41(b) and inherent power.
The Supreme Court reversed. Writing for the Court, Justice Harlan
held that "whether a court has power to dismiss a complaint because
of noncompliance with a production order depends exclusively on
Rule 37," adding that "[r]eliance upon Rule 41 . . . or upon
'inherent power,' can only obscure [the] analysis." Id. at 1093.
As we read Rogers, however, the real issue was whether Rule 37 or
Rule 41 applied to dismissals for discovery abuse, not whether the
Rules limit inherent power. Indeed, just four years later the
Court in Link, again per Justice Harlan, held that the inherent
power to dismiss a case for want of prosecution is broader than
Rule 41(b). No justice in Link suggested it was inconsistent with
Rogers. See also Chambers, 111 S. Ct. at 2135 & n.14 (arguing that
"the inherent power of a court can be invoked even if procedural
rules exist which sanction the same conduct" and that Rogers "is
not to the contrary").
21
Even where the exercise of inherent power would not violate an
applicable rule, a court is not required to use that power where a
party has failed to avail himself of the devices contained in the
Rules. See McGill v. Duckworth, 944 F.2d 344, 353-54 (7th Cir.
1991), cert. denied, 112 S. Ct. 1265 (1992).
18
Here, the court's order was not in violation of the relevant
rules because those rules, as was the case with Rule 41(b) in Link,
contain only "permissive language." Link, 82 S. Ct. at 1388. Rule
69(a) provides that post-judgment discovery "may" be obtained in
the manner provided in the Rules. Similarly, Rule 34(c) provides
that a non-party "may" be compelled to produce documents per the
terms of Rule 45. In sum, Rule 69(a) and Rule 34(c) do not purport
to define the sole means of obtaining post-judgment document
discovery or production from a non-party.
Having concluded that the Rules of Civil Procedure do not
foreclose the possibility that the court's orders might be
justified as an exercise of inherent power, we now turn to whether
the court in fact had such power. We first consider whether the
order fell within the ambit of those inherent powers possessed by
the courts to conduct discovery not recognized by rule or statute.
In the civil22 context, for example, it has been held (or stated in
dicta) that courts have inherent power to issue such discovery
orders as are necessary for a court to determine and rule upon its
own jurisdiction,23 to permit the taking and filing of post-trial
depositions,24 to subpoena witnesses for indigent civil litigants
22
Criminal courts, too, possess some inherent discovery power.
See, e.g., United States v. Nobles, 95 S. Ct. 2160, 2166-67 (1975)
(both prosecution and defense can be compelled to produce the
previously recorded statements of its witnesses).
23
See United States Catholic Conference v. Abortion Rights
Mobilization, Inc., 108 S. Ct. 2268, 2272 (1988); United States v.
Shipp, 27 S. Ct. 165, 166 (1906).
24
See United States v. Altech, Inc., 929 F.2d 1089, 1091-92 (5th
Cir. 1991).
19
who cannot tender fees,25 to issue letters rogatory to foreign
courts,26 and to order some forms of discovery in extradition,27
forfeiture,28 and habeas corpus29 proceedings.30
We decline today to add to this list a broad, general power to
order non-parties beyond the forum district to produce documents.31
"Because inherent powers are shielded from direct democratic
controls, they must be exercised with restraint and discretion."
Roadway Express, 100 S. Ct. at 2463. Accordingly, an argument for
the existence of such a power must be grounded on more than mere
judicial convenience. We have said that the inherent power
25
See Gibbs v. King, 779 F.2d 1040, 1046-47 (5th Cir.), cert.
denied, 106 S. Ct. 1975 (1986); Lloyd v. McKendree, 749 F.2d 705,
707 (11th Cir. 1985); Estep v. United States, 251 F.2d 579, 580
(5th Cir. 1958).
26
See In re Letter Rogatory, 523 F.2d 562, 563 (6th Cir. 1975);
United States v. Reagan, 453 F.2d 165, 173 (6th Cir. 1971), cert.
denied, 92 S. Ct. 2049 (1972); United States v. Staples, 256 F.2d
290, 292 (9th Cir. 1958); 8 Wright & Miller, supra, § 2083, at 351.
27
See Koskotas v. Roche, 931 F.2d 169, 175 (1st Cir. 1991);
Quinn v. Robinson, 783 F.2d 776, 817 n.41 (9th Cir.), cert. denied,
107 S. Ct. 271 (1986); First Nat'l City Bank of New York v.
Aristeguieta, 287 F.2d 219, 226 (2d Cir. 1960), vacated as moot, 84
S. Ct. 144 (1963). But see In re Extradition of Singh, 123 F.R.D.
108, 115-16 (D.N.J.1987).
28
See United States v. Porcelli, 1992 U.S. Dist. Lexis 17928
(E.D.N.Y. Nov. 5, 1992) (third-party petitioner in forfeiture
proceeding may obtain discovery of documents from defendant-
forfeitor).
29
See Harris v. Nelson, 89 S. Ct. 1082, 1086 (1969) (court may
compel answers to interrogatories in habeas proceedings).
30
But see Miner v. Atlass, 80 S. Ct. 1300, 1303 (1960) (admiralty
courts have no inherent power to allow the taking of depositions).
31
Nor should our compilation of this list be construed as an
endorsement of any of those decisions that we are not bound to
follow.
20
"doctrine is rooted in the notion that a federal court, sitting in
equity, possesses all of the common law equity tools of a Chancery
Court (subject, of course, to congressional limitation) to process
litigation to a just and equitable conclusion." ITT Community
Development Corp. v. Barton, 569 F.2d 1351, 1359 (5th Cir. 1978)
(citing Ex parte Peterson, 40 S. Ct. 543 (1920)).32 One such
chancery tool was the bill of discovery, which has been called the
forerunner of all modern discovery procedures. See Hickman v.
Taylor, 67 S. Ct. 385, 395 (1947) (Jackson, J., concurring). Potent
as it was, however, the bill of discovery could not be used to
obtain documents (or other discovery) from someone who was not a
party. See 6 J. Wigmore, Evidence § 1859f, at 594-95 (J. Chadbourn
rev. ed. 1976); id. § 1856d, at 562 & n.1 (citations); G. Ragland,
Discovery Before Trial 16 (1932); Welling, Discovery of Nonparties'
Tangible Things Under the Federal Rules of Civil Procedure, 59
Notre Dame L.Rev. 110, 134 & n.125 (1983); Crew v. Saunders, 2 Str.
1005 (1735). Thus, although federal courts are vested with certain
inherent discovery powers owing to the equitable power of Chancery
32
Several other courts have quoted this language with approval.
See In re Villa Marina Yacht Harbor, Inc., 984 F.2d 546, 548 (1st
Cir.), petition for cert. filed (May 24, 1993); Aoude, 892 F.2d at
1119; In re San Juan DuPont Plaza Hotel Fire Litigation, 859 F.2d
1007, 1011 n.2 (1st Cir. 1988); HMG Property, 847 F.2d at 915; Eash
v. Riggins Trucking Inc., 757 F.2d 557, 563 (3d Cir. 1985) (en
banc). Cf. Hall v. Cole, 93 S. Ct. 1943, 1946 (1973) (inherent
power to award attorney's fees "'is part of the original authority
of the chancellor to do equity in a particular situation'")
(quoting Sprague v. Ticonic Nat'l Bank, 59 S. Ct. 777, 780 (1939)).
21
courts to issue bills of discovery,33 we conclude that there is no
broad, general inherent power to order a non-party beyond the
district to produce documents.34
However, here, as the district court noted, "Fox is not a
third party," but was rather Crowson's attorney of record in this
very case, as well as his agent and attorney in other respects.
See also note 11 supra. In these circumstances, we hold that Texas
practice and the court's inherent powers combined to authorize the
court to require Fox to turn over Crowson-related records, as
specified in the June 15 Agreed Order. Fox argues that the Agreed
Order only "authorizes" third parties to turn over Crowson's
documents, but does not require them to do so. This was plainly
not the plaintiffs' or the district court's understanding of the
Agreed Order, as it applied to Fox. Crowson himself had testified
at the July 21, 1992, hearing that, following the entry of the
Agreed Order, "I called Mr. Fox the very first thing, and I told
Mr. Fox that, as far as I was concerned, he needed to release any
files that he had." In any event, the district court subsequently
33
See McMullen Lumber Co. v. Strother, 136 F. 295, 301 (8th Cir.
1905) ("That bills for discovery and relief inhered in the ancient
jurisdiction of courts of chancery in England at the time of the
adoption of the federal judiciary act is beyond question. This
being so, the like jurisdiction inheres in the federal courts,
unless abolished by statutes, changed or modified by some rule
adopted by the Supreme Court.").
34
A court might well have inherent power to order a party to
produce pertinent documents. See Producers Releasing Corp. de Cuba
v. PRC Pictures, Inc., 176 F.2d 93, 95 (2d Cir. 1949) ("[I]t seems
very reasonable to suppose that a court has inherent power to
compel a party to produce, without the issuance of a subpoena,
documentary evidence within his control and known to be
relevant.").
22
made fully clear to Fox at the March 15, 1993, hearing that he was
required to turn over all of Crowson's records responsive to the
Agreed Order.35 Moreover, we conclude that the combined authority
of Texas Civil Practice & Remedies Code § 31.002 (note 4 supra) and
Texas Rule 167(4) (note 19 supra) empowered the court to so order
Fox, and that, as applied to Fox, after March 15, 1993, any failure
to comply with all the procedural requirements of those provisions
was not substantially prejudicial.
These considerations, however, do not suffice to sustain the
district court's order that Fox produce his personal tax returns.
This order, unlike the requirement that Fox produce Crowson's
records, had never been requested by any of the parties and was
ordered by the district court entirely sua sponte. For this
reason, it is not within Texas Rule 167(4). Fox's own tax returns
are not sufficiently related to his dealings with Crowson and thus,
for the purposes of an order for their discovery, Fox would stand
in the shoes of a non-party. The order is therefore not within
section 31.002, which applies only to the debtor's property and
records.
The district court may have ordered Fox to produce his tax
returns as a sanction for refusing to comply with discovery orders.
If possible and within reason, we will construe the district
court's actions in a favorable (that is to say permissible) light.
We review a court's imposition of sanctions for abuse of
35
Additionally, the court's July 14, 1992, turnover order (see
note 4 supra) clearly required Fox to turn over Crowson's records
(as did the July 21, 1992, order; see note 5 supra).
23
discretion. Chambers v. NASCO, Inc., 111 S. Ct. 2123, 2138 (1991).
A review of the record persuades us that Fox's evasiveness and
intransigence justified sanctions. The district judge found that
Fox had disobeyed three separate turnover orders, two of which were
entered before the March 15, 1993, order to Fox to produce his
personal tax returns. The March 15, 1993, and April 13, 1993,
hearings were noticed so as to include sanctions for failure to
comply with the prior orders, including the Agreed Order of June
15, 1992. As previously noted, at least by the March 15, 1993,
hearing, it was made plain to Fox by the court that the Agreed
Order required him to turn over Crowson's records. At the April
13, 1993, hearing, Fox admitted that he still had not done this.
Fox's failure to produce Crowson's records was a violation of the
court's orders and of his duties as Crowson's attorney. Fox's
motion to withdraw as counsel, filed on April 12, 1993, the day
before he was held in contempt, has not been granted by the court
below and is too little too late.36 Fox remains an officer of the
court until he is discharged or the litigation comes to an end. It
is clear that the district court was justified in concluding that
Fox had been evasive37 and that, without some sanction, he could not
be relied on to produce all the records of his extensive financial
relationship with Crowson. Based on Fox's status as Crowson's
36
As also was his April 13 offer to produce Crowson's records.
37
Fox claimed he did not understand the Agreed Order to refer to
records such as deeds and the like, although it obviously did (see
note 3, supra). The district court was also obviously concerned
about Fox's having purportedly forgotten about certain of his
transactions with Crowson.
24
agent, as well as the unique position he occupied as Crowson's
attorney, the trial court had reasonable grounds to sanction Fox
for his failure to comply with the post-judgment discovery and
turnover orders related to the Crowson documents and assets.
When parties or their attorneys engage in bad faith conduct,
a court should ordinarily rely on the Federal Rules as the basis
for sanctions. Chambers, 111 S. Ct. at 2136. The Federal Rules do
not explicitly provide an avenue to sanction attorneys who fail to
comply with discovery orders. Rule 37(b)(2) is clearly directed to
party failure to obey discovery orders, not attorney failure,
although the attorney is subject to sanctions for obstructive
advice.38 There is, however, no finding of such advice by Fox.
Furthermore, Fox had signed no objectionable court papers or
discovery objections that might give rise to Rule 11 or Rule 26(g)
sanctions. We find no sanction under the Federal Rules directly
applicable to Fox's misconduct.
It was therefore proper for the district judge to resort to
his inherent powers to discipline Fox's intransigence and
complicity in his client's scandalous behavior. The inherent power
to sanction bad faith conduct must extend to reach individuals and
conduct not directly addressed by other mechanisms. Chambers, 111
S. Ct. at 2134. Although it is unclear whether the inherent power
38
"[T]he court shall require the party failing to obey the
[discovery] order or the attorney advising that party or both to
pay the reasonable expenses, including attorney's fees, caused by
the failure, unless the court finds that the failure was
substantially justified or that other circumstances make an award
of expenses unjust." Fed. R. Civ. P. 37(b)(2).
25
to sanction discovery abuses extends to abuses committed by non-
parties,39 there is no doubt that this power may be applied to
attorneys in the case. "The inherent power of a court to manage
its affairs necessarily includes the authority to impose reasonable
and appropriate sanctions upon errant lawyers practicing before
it." Flaksa v. Little River Marine Constr. Co., 389 F.2d 885, 888
n.10 (5th Cir.), cert. denied, 88 S. Ct. 2287 (1968), cited with
approval in Roadway Express, 100 S. Ct. at 2464 n.12; see also
Roadway Express, 100 S. Ct. at 2464 ("The power of a court over
members of its bar is at least as great as its authority over
litigants.").
Although it was proper to invoke inherent powers to sanction
Fox, the district judge abused his discretion by ordering Fox to
produce his personal tax returns and schedules. See Chambers, 111
S. Ct. at 2132 (because of their potency, inherent powers must be
exercised with restraint and discretion). Income tax returns are
highly sensitive documents; courts are reluctant to order their
39
We have found no cases sanctioning non-parties for abusing the
discovery process. In In re Rainbow Magazine, Inc., 136 B.R. 545,
553 (Bankr. 9th Cir. 1992), the court reversed the lower court's
assessment of attorney's fees against a non-party because it had
"uncovered no cases imposing sanctions against a non-party under
th[e bad-faith] exception to the American Rule." In Pennwalt Corp.
v. Durand-Wayland, Inc., 708 F.2d 492, 494-95 (9th Cir. 1983), the
court seemed to accept that attorney's fees could be assessed
against a non-party but reversed a lower court order doing so for
failure to find bad faith on the part of the non-party. Finally,
in Parkway Gallery Furniture, Inc. v. Kittinger/Pennsylvania House
Group, Inc., 121 F.R.D. 264 (M.D.N.C. 1988), although the court
stated that "[t]he Court also has inherent power to impose
sanctions on parties, non-parties or attorneys who violate
discovery orders," id. at 267, the sanctions were being sought
against a party, not a non-party, and were ultimately denied.
26
routine disclosure as a part of discovery. SEC v. Cymaticolor, 106
F.R.D. 545, 547 (S.D.N.Y. 1985) (disclosure of tax returns for
purposes of discovery ordinarily demands that the requesting party
demonstrate relevancy and compelling need). Not only are the
taxpayer's privacy concerns at stake, but unanticipated disclosure
also threatens the effective administration of our federal tax laws
given the self-reporting, self-assessing character of the income
tax system. Commodity Futures Trading Commission v. Collins, 62
U.S.L.W. 2059, 2060 (7th Cir. July 7, 1993).
The intrusive nature of the sanction is compounded by its
novelty. Although novel sanctions are not objectionable per se,
they are subject to close examination on review simply because
their reasonableness has not been demonstrated.
Several factors contribute to the order's unreasonableness.
The district judge ordered Fox to produce his tax returns sua
sponte. The judgment creditors had never included them in their
discovery requests, a fact that suggests that the returns were
believed inaccessible or irrelevant for the creditors' purposes.
No evidence came to light in the sanction hearings that proved the
particular usefulness of Fox's tax returns to indicate Crowson's
financial position. The court engaged in a fishing expedition.
Fox could not have anticipated that his conduct would result in
such a sanction.
Further, the judge's order neither provided Fox with the
opportunity to expunge sensitive or irrelevant portions of his
returns before exposing them to opposing counsel, nor did it permit
27
a review of the record in camera to protect their privacy. Even
with such protections, however, a sanction that penalizes errant
lawyers by demanding their personal tax returns risks untoward
consequences. The threat of sanctions in the form of forced
disgorgement of private information subjects uncooperative
attorneys to judicial bludgeoning and humiliation above and beyond
the consequences of a monetary order or an order directly related
to the court proceedings.
The ultimate touchstone of inherent powers is necessity.
Given the post-judgment posture of this case, the scandalous
behavior of Crowson, and the evident complicity of Fox, his
attorney, in the case, we concur that sanctions should have been
imposed on Fox. Necessity did not, however, compel a sua sponte
order to produce Fox's personal tax returns. Traditional sanctions
SQperhaps a monetary penalty that increased each day for Fox's
noncompliance with the other post-judgment discovery ordersSQwould
have accomplished the court's purpose more properly.40
Conclusion
For these reasons, the portion of the district court's order
of March 15, 1993, directing Fox to turn over his personal tax
returns (and the schedules thereto) for the years 1984 to the
present is reversed, and, likewise, so much of the Civil Contempt
40
Fox challenges the court's order as based upon impermissible
ex parte communications. Fox was held in contempt only after
receiving notice and two hearings on the record. At both hearings,
Fox gave testimony and was represented by counsel. Fox received
due process. Cf. Holcomb v. Allis-Chalmers Corp., 774 F.2d 398,
401 (10th Cir. 1985).
28
Judgment signed April 14, 1993, as finds Fox in contempt for
failing to turn over his said personal tax returns (and schedules),
and as imposes confinement or other coercion until he does so, is
also reversed. We find no fault with the balance of the March 15,
1993, order. We remand the balance of the April 14, 1993, Civil
Contempt Judgment for reconsideration in light of our ruling as to
Fox's personal tax returns.41
REVERSED in part and REMANDED
41
Nothing in this opinion precludes sanctions against Fox (other
than for his failure to produce his personal tax returns); nor is
resort to subpoena from the appropriate United States District
Court in Mississippi precluded.
29