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Inter-Trade, Inc. v. CNPq-Conselho Nacional De Desenvolvimento Cientifico e Tecnologico

October 26, 2000

INTER-TRADE, INC., ET AL., APPELLANTS,
V.
CNPQ-CONSELHO NACIONAL DE DESENVOLVIMENTO CIENTIFICO E TECNOLOGICO, APPELLEE.
SAMUEL BAILEY, JR., DONALD L. MCCLURE, APPELLANTS,
V.
CNPQ-CONSELHO NACIONAL DE DESENVOLVIMENTO CIENTIFICO E TECNOLOGICO, APPELLEE.



Before Wagner, Chief Judge, and Reid, Associate Judge, and Gallagher, Senior Judge.

The opinion of the court was delivered by: Wagner, Chief Judge

Appeals from the Superior Court of the District of Columbia

(Hon. Richard A. Levie, Motions Judge) (Hon. Henry H. Kennedy, Jr., Trial Judge)

Argued November 4, 1998

This is an appeal from a judgment entered upon a jury verdict in favor of the plaintiff, CNPq-Conselho Nacional De Desenvolvimento Cientifico E Tecnologico (CNPq) (a Brazilian government controlled entity) on a complaint for fraud and breach of contract against Inter-Trade, Inc.-D.C. and Inter-Trade, Inc.-MD. (respectively District of Columbia and Maryland corporations), Interbanque, Inc. (a District of Columbia corporation), Stoneley Limited and Precision Consultants Limited (Hong Kong Corporations); and Adrian Ricardo Levinson, Jose Mario Fontes, Sr., Nadyr Cortese Fontes, and Jose Mario Fontes, Jr. individually. Although the case has a complicated procedural background, the principal issue on appeal is whether the trial court abused its discretion in imposing sanctions precluding appellants from testifying, calling witnesses or presenting documentary evidence, including evidence of net worth relevant to a claim for punitive damages against them. Samuel Bailey, Jr., Donald L. McClure, and their law firm, Bailey and McClure (Bailey/McClure), served as defense counsel for all appellants, except A. Levinson and R. Carruso in the trial court. They appeal from orders of the trial court imposing monetary sanctions upon them jointly and severally with Jose Mario Fontes, Sr. for their client's failure to attend a noticed deposition. They contend that the sanction was not warranted because the record failed to show that they advised their client in a manner which influenced the decision of their client, Fontes, Sr., to violate the court's discovery orders. We affirm as to Fontes, Sr., and reverse the decision as to Mrs. Fontes and Fontes, Jr. in appeal no. 97-CV-1149. We also reverse as to Bailey/McClure in appeal no. 97-CV-1164.

I. Factual Background of the Litigation

On October 6, 1993, CNPq filed a complaint in Superior Court against appellants for fraud, conspiracy to defraud, and breach of contract involving three 1989 transactions with CNPq for the purchase of quartz powder, machinery for the recovery of vegetable fibers and silver oxide equipment. The complaint alleged that appellants defrauded CNPq of an amount in excess of $18,773,800 in connection with these transactions. These transactions can be described in brief as: (1) the acquisition by CNPq of quartz powder from Inter-Trade for $6,914,800 for the use and benefit of Companhia de Desenvolvimento Tecnologico (CODETEC), a Brazilian corporation; (2) the acquisition of equipment for the recovery of vegetable fibers from Stoneley for $6,570,000 for the use and benefit of Gretisa S/A Fabrica de Papel (Gretisa Papel), a Brazilian corporation; and (3) the acquisition by CNPq for Precision Consultants Limited (Precision) of equipment for making silver oxide electronic batteries, for the use and benefit of Powertech Industria e Comercio Ltda. (Powertech) for $5,280,000. According to CNPq's complaint, the goods sold in each of these transactions were not only fraudulently overpriced, but also were not of merchantable quality or fit for their intended purpose. The complaint alleged that Inter-Trade and Interbanque were owned and controlled by all the Fontes appellants; that Stoneley and Precision were owned or controlled by Fontes, Sr. and Fontes, Jr.; and Gretisa and Powertech were owned or controlled by Fontes, Sr. Liability was claimed against each of the Fontes appellants individually on the grounds that they participated directly in the fraud and breach of the agreement and used the various corporations as their alter-egos to perpetrate fraud on CNPq.

Appellants, Inter-Trade, Interbanque, Stoneley, Precision, Levinson, and the Fonteses filed an answer denying the material allegations of the fraud and breach of contract claims. *fn1 They also pleaded accord and satisfaction with respect to the quartz powder transaction between Inter-Trade and CODETEC, and they counterclaimed for costs incurred in connection with the transaction in the amount of $1,050,000. They also pleaded that the breach of contract claim for the quartz powder was barred on the grounds of estoppel, the statute of frauds, and the statute of limitations. In their answer, appellants also asserted defenses of failure to state a claim under Super. Ct. Civ. R. 12 (b)(6); failure to join indispensable parties; and lack of jurisdiction, having asserted their right to removal of the action to federal court. Appellants counterclaimed for $12,500,000 for fraud arising out of appellees' efforts to establish a contractual relationship between CNPq/CODETEC and Inter-Trade by use of a fraudulent invoice; for $2,500,000 for abuse of process related to appellee having obtained a temporary restraining order from a court which allegedly lacked jurisdiction; for $1,050,000 for principal, interest and cost for services rendered to CODETEC in support of the acquisition of the procurement of the quartz powder; and $15,000 for attorney fees plus interest and costs required to defend against CNPq's complaint in Maryland (for misuse of process). Inter-Trade counterclaimed for $3,500,000 transferred to CODETEC per the alleged accord and satisfaction for the quartz powder transaction. Stoneley counterclaimed for $6,570,000 related to the vegetable fibers transaction for funds expended for the procurement of the equipment, return of funds related to the alleged accord and satisfaction, and gross profit. The total amount demanded by appellants related to the counterclaim was $15,015,000, plus costs and attorney's fees.

II. Pre-trial Discovery Orders and Imposition of Sanctions

The issue on appeal arises out of sanctions imposed upon appellants for failure to make discovery. Specifically, CNPq filed a motion to compel Fontes, Sr. to appear at a deposition and to compel interrogatory responses and production of documents from Inter-Trade, Interbanque, Stonely, Precision and the Fonteses. On July 29, 1994, the trial court (Judge Richard Levie) issued Order #4 which ordered, inter alia, that: (1) Fontes, Sr. appear for the taking of his deposition on August 23, 24, and 25, 1994 at 10:00 a.m. at the offices of CNPq's counsel; and (2) that appellants respond to interrogatories and requests for production of documents on or before August 12, 1994. The order provided that failure to comply with the order compelling the deposition and responses to discovery requests would result in sanctions "in the nature of barring Mr. Fontes, Sr. and/or other Defendants (excluding Mr. Levinson), as appropriate from presenting evidence in defense of any claims made by [CNPq] or in support of any affirmative defense or counterclaim." The court also requested CNPq to submit an itemization of costs incurred by reason of the failure of Fontes, Sr. to appear for a deposition on June 20 and gave Fontes, Sr. and his counsel until August 26, 1994 to submit any response related to the itemized costs. If defendant Fontes, Sr. failed to appear at the deposition or if the defendants failed to respond to certain discovery requests, then "evidentiary sanctions will be imposed in the nature of barring Mr. Fontes, Sr. and/or the other Defendants (excluding Mr. Levinson), as appropriate, from presenting evidence in defense of any claims made by Plaintiff or in support of any affirmative defense or counterclaim . . . ."

On September 22, 1994 Judge Levie issued Order #5 which stated:

On August 10, 1994 the Defendants filed a Motion for Reconsideration of Order #4, Request for Stay Pending Appeal and Request for Emergency Hearing. In the Court's absence Judge Rufus King, III presided over consideration of the Motion for Reconsideration. During a telephone conference call with counsel for the parties, Judge King indicated that he would not grant any stay from Defendants' compliance with Order #4, but he did suggest some ways in which the Defendants could comply with Order #4 and still preserve Defendants' claims of confidentiality.*fn2

Apparently no Defendant had any uncertainty about the effect of Judge King's ruling, because no further relief was sought from Judge King or this Court. Instead, Defendants chose not to comply with Order #4 in that Defendant Fontes, Sr. chose not to appear for his scheduled deposition and Defendants did not respond to the written discovery by August 12. It should be noted that nothing in Order #4 or Judge King's resolution of the Motion for Reconsideration required any Defendant to abandon assertion of any appropriate privilege.

Defendants' violation of Order #4 is not the first example of Defendants ignoring Court orders. In the course of attempting to remove this case to the United States District Court, apparently in reaction to an earlier order of this Court to respond to discovery and for Mr. Fontes, Sr. to appear for deposition, Defendant Fontes, Sr. was ordered by Magistrate Judge Kay to appear for deposition on June 20, 24 & 27, 1994. *fn3 Notwithstanding this Order ...


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