Federal Circuits, 1st Cir. (May 17, 1988)
Docket number: 87-1155,87-1368
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Ronald L. Rosenbaum with whom Woods, Rosenbaum, Luckeroth & Perez Gonzalez, Hato Rey, P.R., was on brief, for defendant, appellant.
Arturo J. Garcia-Sola with whom Jose R. Gonzalez-Irizarry and McConnell Valdes Kelley Sifer Griggs & Ruiz-Suria, Hato Rey, P.R., were on brief, for plaintiff, appellee.Before CAMPBELL, Chief Judge, SELYA, Circuit Judge, and CAFFREY,* Senior District Judge.SELYA, Circuit Judge.The last lap of this marathon of a case was run when the United States District Court for the District of Puerto Rico entered a default judgment against appellant, Parque Industrial Rio Canas, Inc. (Parque), and thereafter ordered Parque to pay certain sums of money to appellee, HMG Property Investors, Inc. (HMG).1 Parque offers a myriad of reasons in support of its strident claim that the district court let the race wander well off course. We do not share appellant's view.I. BACKGROUNDIn July 1972, HMG entered into a $2,600,000 construction loan agreement with Parque for the development of an industrial park in Puerto Rico (the Rio Canas property). The loan was secured by a first mortgage on the real estate. It was to be repaid in stipulated monthly installments until July 1974, when a balloon payment would become due. Parque failed to meet the payment terms. In February 1976, with the loan substantially in arrears, Parque carved out thirteen lots from the Rio Canas property and sold them to Compania Aseguradora Interamericana S.A. of Panama (CA). The "proceeds," which went to HMG to reduce the principal owed under the mortgage note, were not in coin of the realm, but consisted of an agreement by the transferee to assume debt and make payments in futuro. CA also bound itself to comply with the terms of a mortgage. Some nine months later, Parque entered into a similar transaction with Bambu Realty Corporation (Bambu); two more lots were segregated from the Rio Canas property, released, and sold. The principal amount of the mortgage note was again reduced.At this point, we pause to recapitulate. Bambu, CA, and Parque were three of a kind: each was deep in debt to HMG, bound by a periodic payment schedule, and obligated under the mortgage documents to "pay all taxes, assessments and similar charges levied and assessed ... against the property...." Shuffling the deck in this fashion, however, did not solve the underlying problem. Before long, each debtor was in arrears, and both CA and Parque had fallen behind in payment of real estate taxes. HMG, as was its option under the mortgages, satisfied several of the tax bills and demanded that the mortgagors reimburse it for such payments. It did so in vain.In December 1977, HMG invoked the federal district court's diversity jurisdiction, 28 U.S.C. Sec . 1332(a), and sued CA. It sought, inter alia, to foreclose its mortgage on the thirteen lots. CA joined Parque as a third-party defendant, claiming fraud. Within the framework of the same action, Parque thereafter filed a cross complaint (erroneously styled as a third-party complaint) against HMG, contending that the lender's refusal to continue financing the deal had caused the collapse of the entire Rio Canas project. HMG counterclaimed, seeking damages and the right to foreclose on the remainder of the lots. Among other things, it alleged that Parque had defaulted on both the mortgage loan and the property tax obligation.2 Parque and HMG each moved for summary judgment, but matters were delayed by a barrage of other motions, filed mainly by appellant. It was not until September 19, 1985 that the ax fell. On that date, the district court rejected most of Parque's motions. Parque Industrial Rio Canas, Inc. v. HMG Property Investors, Inc., Civ. No. 77-1936 (D.P.R. Sept. 19, 1985) (Parque I ). HMG's motion for summary judgment was also denied because the court perceived an issue of fact as to whether HMG had made a verbal promise to postpone collection of principal and advance additional funds. Id. Trial was set for February 6, 1986. In order to forestall a possible tax sale of the property, the court ordered, pendente lite, that Parque pay the outstanding taxes or post bond to cover the arrearage and the next six months' tax payments. If the bond were posted, then HMG could pay the taxes with the assurance that its security would not be diminished or lost if it ultimately prevailed in the litigation.3 In the order which it entered immediately following issuance of Parque I, the district court left no room to doubt that Parque's failure to comply would not be lightly indulged. Because of its clear pertinence to the issues raised on appeal, we quote the admonition verbatim:Parque is expressly forewarned that failure to comply with any of the terms and conditions of this Order shall entail the imposition of severe sanctions including the dismissal of its complaint, the striking of its defenses and the entering of judgment in favor of HMG on its foreclosure action.After this order issued, Parque flooded the court with yet another deluge of motions aimed, one suspects, at delaying the actual posting of the bond. On December 12, 1985 the court rejected the principal reconsideration motion but reduced the required surety amount to reflect new information concerning Parque's success in effectuating an administrative reduction of tax liability. Once again, the district judge warned that failure to comply with the bonding order by December 22 would "result in the imposition of any of the sanctions mentioned" in the original order. The judge also shut off further motion practice. She might well have saved her breath; Parque ignored the moratorium.On December 18, appellant sought a ninety day extension. According to the district judge, Parque said "it was taking steps to raise money to make a payment plan for the tax debt." Parque Industrial Rio Canas, Inc. v. HMG Property Investors, Inc., Civ. No. 77-1936, slip op. at 3 (D.P.R. Feb. 3, 1986) (Parque II ). The request was denied the next day. The court-imposed deadline came and went. Appellant spurned the court's order, neither paying the taxes nor posting the indemnity. HMG moved to impose sanctions. Parque objected and again asked reconsideration of the December 12 order; it hawked basically the same grounds which had proven unsuccessful on prior occasions. Appellant's request was denied with predictable dispatch. On February 3, 1986, no bond having been tendered and the taxes remaining unpaid, the district court granted HMG's motion and sanctioned Parque for noncompliance. The court dismissed Parque's cross complaint, struck Parque's remaining defense to HMG's counterclaim, and allowed appellee to move for entry of a default judgment. Id. at 4. The judge characterized appellant's course of conduct as evidencing a pattern of "callous disregard for court orders." Id. at 3.On August 25, 1986, a default judgment was entered against Parque. By its terms, appellant was ordered to pay HMG the sums owed under the loan agreement and the unpaid property taxes (in an amount to be certified by the taxing authority) for the current year and the five years next preceding. See P.R. Laws Ann. tit. 30, Sec. 2651 (limiting tax liens vis-a-vis acquiring mortgage creditor to amounts owed for current tax year, plus last five tax years). If the judgment was not paid within ten days, the Rio Canas property would be sold at public auction and the net proceeds of sale devoted first to payment of the judgment.4Appellant, in a style reminiscent of its approach below, has scurried from lane to lane in the course of these appeals--there are two, but they are for all practical purposes functionally equivalent, and we shall treat them as one--advancing a gymbag full of contentions. Several of these misstate the record, or the law, or both; others are simply so baseless as not to warrant extended comment; and some are vagabonds, straying far from any point legitimately at issue. We discuss below the more substantive of Parque's protestations, having considered and rejected the others out of hand.II. THE BOND ORDERAs we have mentioned, the district court ordered Parque, pendente lite, either to (i) bring the payment of property taxes current, or (ii) post bond sufficient to cover the accrued tax liability, plus the anticipated taxes for the next six months. The court felt the order was necessary in order to allow HMG "to avoid the danger of losing the guaranty [for its loan] entirely but with the assurance that should it prevail it may recover said payment from the bonds deposited with the Clerk and not overburden the property with this additional ongoing debt." Parque I, supra, at 52. Parque contends that the order was procedurally flawed and represented an abuse of the district court's discretion. We scrutinize its chief contentions.A. Fed.R.Civ.P. 64The district court apparently acted under the aegis of Fed.R.Civ.P. 64, which provides in pertinent part:At the commencement of and during the course of an action, all remedies providing for seizure of person or property for the purpose of securing satisfaction of the judgment ultimately to be entered in the action are available under the circumstances and in the manner provided by the law of the state in which the district court is held.... The remedies thus available include arrest, attachment, garnishment, replevin, sequestration, and other corresponding or equivalent remedies....Fed.R.Civ.P. 64. The parties have not suggested that Puerto Rico is to be regarded as other than a "state" for purposes of the Civil Rules.5Rule 64, by its terms, sets out a quadrat of requirements: the provisional remedy must (1) involve a seizure, (2) be entered for the purpose of "securing satisfaction of the judgment ultimately to be rendered in the action," (3) be permitted under the law of the forum state, and (4) be issued in a manner compatible with state law. Appellant does not raise any question as to the first pair of elements,6 so we pass directly to the final two. These are so closely allied that we can and do treat them in a unitary fashion.In the absence of an applicable federal statute or rule, Fed.R.Civ.P. 64 indicates that we look to the law of Puerto Rico to find an appropriate analog for the bonding order. Appellee nominates two candidates: P.R.Laws Ann. tit. 31, Sec. 30497 and Rule 56.1 of the Puerto Rico Rules of Civil Procedure, P.R.Laws Ann. tit. 32, App. III.8 Because we believe that Rule 56.1 empowered the district court to act, we focus principally on that state-law source, and do not examine into the applicability of section 3049.In our view, the order to post the bond fell squarely within the ambit of Rule 56.1 and was both reasonable and adequate for the purpose of securing the judgment which HMG sought in this action. In this regard, it is important to note that the Supreme Court of Puerto Rico has construed its procedural rule expansively:Rule 56 of the Rules of Civil Procedure confers upon the court sufficient flexibility to issue the measures which it deems necessary or convenient, according to the circumstances of the case, to secure the effectiveness of the judgments. Its only limitation is that the measure be reasonable and adequate to the essential purpose of the same, which is to guarantee the effectiveness of the judgment which in due time may be rendered. This flexibility, so necessary for the administration of justice, is the greatest virtue of Rule 56, virtue which we should promote and preserve instead of mystifying it with technical concepts and requirements....F.D. Rich Co. v. Superior Court, 99 P.R.R. 155, 173 (1970). This emphasis on flexibility, on the fashioning of a pragmatic prophylaxis, nicely characterizes the district court's actions. As the court explained, although HMG could "halt [the tax] collection proceeding by paying the delinquent taxes directly as mortgage creditor ... this did not respond to the reality that as the tax liability increases the guaranty offered by the property decreases to a point that may eventually prove insufficient to cover the debt." Parque I, supra, at 51. Since, under the loan documents, the ultimate liability for paying the property taxes rested with Parque, and since Parque was resisting foreclosure, it seems to have been altogether reasonable for the district court to have placed the burden of covering the tax delinquency on appellant. This sort of practical, evenhanded disposition, we think, is what P.R.R.Civ.P. 56 envisions. On this record, the rule would, without serious question, allow entry of such an order. And, there was no abuse of discretion in entering this order in these circumstances.9Appellant tries to take yet another bite at the bond ruling. It asserts that, whether or not supportable on the record, the record was incomplete and the order procedurally infirm. Parque's contention in this respect reduces to the idea that the order was not made "in the manner provided by" the Puerto Rico Rules because the district court failed to abide by a related provision, P.R.R.Civ.P. 56.2, which stipulates that "[no] provisional remedy shall be granted, ... nor shall any action be taken thereon without notice upon the adverse party and a hearing...." Cf. P.R.R.Civ.P. 56.5 (reaffirming notice requirement and giving aggrieved party preferential right to modification hearing if Rule 56 order granted ex parte). In short, appellant insists that Rule 56.2 required the federal district court to hold an evidentiary hearing before it ordered the posting of a bond. We disagree.Appellant cites no authority which interprets Puerto Rico's rule as mandating a full-blown evidentiary hearing, and elementary logic suggests the opposite. See Cia. Petrolera Caribe, Inc. v. Arco Caribbean, Inc., 754 F.2d 404, 411 (1st Cir.1985) (under Fed.R.Civ.P. 56, rule's "reference to a 'hearing' does not necessarily imply oral argument; a matter can be 'heard' on the papers"); Spark v. Catholic University of America, 510 F.2d 1277, 1280 (D.C.Cir.1975) (per curiam) (due process does not encompass a right to oral argument on motion). It is clear to us that the notice and hearing requirements contained in Rule 56.2 can be met short of taking evidence in open court. The standards exist to ensure that, before a provisional remedy issues, the parties will have an opportunity to present relevant facts and arguments so the judge can "consider the interests of all the parties and ... adjudicate as substantial justice may require." P.R.R.Civ.P. 56.1. To be meaningful, such an opportunity requires notice and a fair chance to marshal supporting facts and theories--nothing more.Here, the requisite opportunity was afforded in full measure: the case had been pending for years, the district judge was extremely familiar with it, and appellant had made voluminous filings on almost every conceivable point--including a plenitude of filings directed to the property tax situation. Judicial consideration of the tax issue and what it portended took no one by surprise. The record makes manifest that, before entering the bond order, the court was thoroughly informed about all of Parque's arguments. Although Parque disputed the need for the imposition of a provisional remedy at all--arguing, for example, that the property was not in any imminent danger of tax foreclosure--the litigants had fully presented all of their views. The court had before it both parties' motions, briefs, affidavits, exhibits, and a plethora of other materials when it acted. Even at this late date, Parque has pointed to no single, definable aspect of its position which could not have been adequately presented by a written submission.10Further discussion would be supererogatory. Insofar as appears from the record, an evidentiary hearing would have changed nothing. In the circumstances of this case, P.R.R.Civ.P. 56.2 did not necessitate that one be held. Cf. United States v. DeCologero, 821 F.2d 39, 44 (1st Cir.1987) (where movant unable to "identif[y] any data needed ... which could not have been furnished by affidavit or in like fashion," refusal to convene evidentiary hearing on Fed.R.Crim.P. 35(b) motion not erroneous); Socialist Workers Party v. Illinois State Board of Elections, 566 F.2d 586, 587 (7th Cir.1977) (per curiam) (denial of evidentiary hearing before issuance of permanent injunction harmless where appellants have not "demonstrated that anything that could have arisen in a factual hearing would have altered the result"), aff'd, 440 U.S. 173, 99 S.Ct. 983, 59 L.Ed.2d 230 (1979); Securities and Exchange Comm'n v. Frank, 388 F.2d 486, 490 (2d Cir.1968) (evidentiary hearing not compulsory for issuance of preliminary injunction in instances where "[t]he taking of evidence would serve little purpose").B. Inherent PowersAppellee has argued, alternatively, that whether or not Fed.R.Civ.P. 64 authorized the district court to employ bonding as a provisional remedy in a case such as this, the bond order was nevertheless a legitimate exercise of the district court's inherent powers. Because the issue is an important one, and because resolution of it furnishes an independently sufficient ground for our holding, we address it.We start with the proposition that "the rules of civil procedure do not completely describe and limit the power of district courts...." Brockton Savings Bank v. Peat, Marwick, Mitchell & Co., 771 F.2d 5, 11 (1st Cir.1985), cert. denied,Try vLex for FREE for 3 days
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