United States v. $11,071,188.64, 2016 U.S. App. LEXIS 10226 (8th Cir. June 6, 2016):

In December 2012, the United States filed an Amended Verified Complaint seeking civil forfeiture of $11,071,188.64 held in various banking and brokerage accounts in the United States by LaOstriches & Sons, Ltd. ("LaOstriches"), on the ground that the funds were money-laundered drug trafficking proceeds. See 18 U.S.C. §§ 981(a)(1)(A), 1956(a)(1)(B), 1957. LaOstriches, Laura Avila-Barraza, and Avila-Barraza's three children filed claims to the property, asserting they are innocent owners of the funds and other defenses to the government's claim. See 18 U.S.C. §§ 983(a)(4) and (d). After protracted pretrial proceedings, [*2]  the district court¹ dismissed LaOstriches's claim due to repeated failures to comply with orders that its corporate treasurer and secretary appear for discovery depositions.² After further proceedings, the court granted summary judgment, dismissing Avila-Barraza's claim because she failed to establish a sufficient interest in the seized property. LaOstriches and Avila-Barraza appeal both rulings. We affirm.

 

1   The Honorable Carol E. Jackson, United States District Judge for the Eastern District of Missouri.

 

2   Prior to the court's ruling, Avila-Barraza's children, who also did not appear for scheduled depositions, withdrew their claims for lack of standing. The children do not appeal the court's dismissal of their claims.

I. Background.

The funds were seized in April 2012 from two LaOstriches brokerage accounts at Wells Fargo Advisors in Miami. The government venued its forfeiture claim in the Eastern District of Missouri because security transactions in those accounts were cleared through a brokerage service headquartered in St. Louis. Avila-Barraza incorporated LaOstriches in the British Virgin Islands on the advice of family members and other advisors after the 1998 murder of her husband, Humberto [*3]  Ojeda-Barraza, a resident of Sinaloa, Mexico. Avila-Barraza is LaOstriches's president and sole shareholder. Her sister, Griselda Avila-Barraza, serves as corporate secretary, and her father, Jose Sergio Avila-Amezquita, serves as corporate treasurer. Avila-Barraza alleges that the funds are the proceeds of the inheritance from her husband, invested through LaOstriches for the benefit of her children.

The government does not contest Avila-Barraza's claim that the funds are proceeds derived from her inheritance. But, the government contends, the funds were initially provided to LaOstriches by Timber Development, Ltd., a British Virgin Islands investment company created by Jorge Cifuentes-Villa to launder the proceeds of his family's drug trafficking organization, which supplied cocaine to the Sinaloa drug cartel in Mexico. Cifuentes-Villa was close friends with Avila-Barraza's husband before his death. From 2001 to 2012, the government alleges, Timber Development and LaOstriches traded millions of dollars between their various banking and brokerage accounts.

II. LaOstriches's Appeal.

In July 2013, the government noticed depositions of Avila-Barraza, her children, and LaOstriches's corporate [*4]  secretary and treasurer. The depositions were rescheduled at claimants' request for the week of September 16. On September 5, claimants moved for protective orders canceling the depositions. When the district court denied that motion, claimants other than Avila-Barraza moved for emergency protective orders, arguing the orders were necessary given their lack of personal knowledge of the relevant events and the unduly burdensome nature of the depositions. The government moved to compel their appearances. The district court denied the claimants' motions and granted the government's motion to compel. The deponents failed to appear.

In October 2013, the government moved for an order to show cause why claimants' claims and answers should not be stricken for failure to comply with discovery orders. The district court denied the motion. Noting that "dismissal is an extreme sanction that should be used prudently," the court instead provided claimants "one final opportunity to comply with the discovery orders and appear for depositions." The court cautioned that it "will not accept any further excuses or explanations for failure to attend depositions." The orders stated in bold and underlined [*5]  text: "Claimants are warned that failure to appear for depositions will result in the dismissal of their individual claims along with any additional sanctions the Court deems appropriate." The parties then rescheduled the depositions for December 13 through December 18. Only Avila-Barraza appeared and was extensively deposed.

The government moved for dismissal of the claims by LaOstriches and Avila-Barraza's children (the children then withdrew their claims). The district court dismissed LaOstriches's claim. Again rejecting proffered excuses for failure to comply, the court found that "the extreme sanction of striking [LaOstriches's] claims and answers is warranted" because LaOstriches "obstructed discovery" when it "willfully disobeyed" three separate orders directing its corporate officers to attend properly noticed depositions. LaOstriches sought reconsideration, which the court denied in a detailed Memorandum and Order, explaining that "[t]he continued failure of LaOstriches to produce their corporate [treasurer and secretary] that were properly noticed for deposition by the government is sufficient to show that any other sanction would be ineffective."

On appeal, LaOstriches argues the [*6]  district court abused its discretion by striking its claim and answer due to repeated failures to comply with discovery orders. The Federal Rules of Civil Procedure expressly authorize sanctions for failure to comply with a court's discovery order, including striking pleadings or dismissing an action in whole or in part. See Fed. R. Civ. P. 37(b)(2)(A)(iii), (v). We review Rule 37 sanctions for abuse of discretion. See St. Louis Produce Mkt. v. Hughes, 735 F.3d 829, 832-33 (8th Cir. 2013). As the district court recognized, dismissal is an extreme sanction that should be applied "only where there is an order compelling discovery, a willful violation of the order, and prejudice to the other party." Hughes, 735 F.3d at 832; see Hairston v. Alert Safety Light Prods., Inc., 307 F.3d 717, 719-20 (8th Cir. 2002). "[B]efore dismissing a case under Rule 37(b)(2) the court must investigate whether a sanction less extreme than dismissal would suffice, unless the party's failure was deliberate or in bad faith." Comstock v. UPS Ground Freight, Inc., 775 F.3d 990, 992 (8th Cir. 2014) (quotation omitted).

Here, the district court issued three discovery orders directing LaOstriches to appear for scheduled depositions through its corporate officers. When given one last chance to comply, Avila-Barraza attended her long-delayed deposition, but the other corporate officers -- members of Avila-Barraza's immediate family -- willfully and deliberately failed to attend. LaOstriches admitted that it "knew prior [*7]  to scheduling and prior to making many representations to the [government] that neither the corporate secretary nor treasurer would appear for the depositions." Before striking LaOstriches's claim and answer, the district court explained that failure to attend the December depositions would be "bad faith conduct." LaOstriches's assertion that the government failed to establish bad faith is without merit. Its repeated flaunting of the court's unambiguous orders demonstrated bad faith.

LaOstriches argues that the government was not prejudiced by the failure of its "nominal officers" to appear for their properly scheduled depositions because they "had no personal knowledge of the business affairs of LaOstriches." In general, "[t]he sworn testimony of a party . . . will hardly ever be so irrelevant that it should be dispensed with on that party's mere say-so." In re O'Brien, 351 F.3d 832, 839 (8th Cir. 2003). That is particularly true in this case. To establish its forfeiture claim, the government sought to prove that the proceeds of unlawful drug trafficking were transferred to LaOstriches in financial transactions designed to conceal "the source, the ownership, or the control of specified unlawful activity." 18 U.S.C. § 1956(a)(1)(B)(i). The testimony of LaOstriches's [*8]  corporate officers was clearly relevant to these issues, and to its assertion of the innocent owner defense, even if -- perhaps particularly if -- these family members disclaimed all knowledge of the initial source of LaOstriches's corporate assets. See 18 U.S.C. §§ 981(k)(2), 984(a)(1). As these individuals resided outside the country and could not be subpoenaed for trial, the district court correctly concluded that LaOstriches's continued failure to produce its corporate secretary and treasurer officers for depositions reflected its refusal to participate in discovery and was "sufficient to show that any other sanction would be ineffective."

LaOstriches further argues that it should not suffer the "ultimate sanction" of dismissal for discovery violations that were the fault of claimants' prior attorney, not his clients. This contention is without merit. "[T]his court follows the well-established principle that a party is responsible for the actions and conduct of [its] counsel and that, under appropriate circumstances, dismissal or default may be entered against a party as a result of counsel's actions." Everyday Learning Corp. v. Larson, 242 F.3d 815, 817 (8th Cir. 2001) (quotation omitted). Though dismissal is a harsh Rule 37 sanction, it is entrusted to the district court's sound discretion. [*9]  "Thus, even if this Court would have imposed a less onerous sanction, we cannot substitute our judgment for that of the [District] Court, and we limit our review to whether the evidence supports the chosen sanction." In re O'Brien, 351 F.3d at 839. There was no abuse of discretion. We decline to take up the question of the prior attorney's alleged misconduct.

Finally, LaOstriches argues for the first time on appeal that the district court violated the Excessive Fines Clause of the Eighth Amendment by striking its claim and answer, effectively levying an $11 million fine. There was no error, much less plain error, in the district court's failure to consider this issue sua sponte. It is true that the forfeiture of property pursuant to a civil in rem statute which provides an innocent owner defense is "a payment to a sovereign as punishment for some offense" and is therefore "subject to the limitations of the Eighth Amendment's Excessive Fines Clause." Austin v. United States, 509 U.S. 602, 622 (1993), quoting Browning-Ferris Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 265 (1989). However, the district court order merely struck LaOstriches's claim that it was an innocent owner of funds the government sought to have forfeited. This was not a forfeiture order, and it did not extract a payment "as punishment for some offense." The order simply terminated LaOstriches's participation in a civil proceeding to determine whether [*10]  the funds should be forfeited because of its willful, bad faith Rule 37 discovery violations. That Avila-Barraza, the remaining claimant, was ultimately unsuccessful in defeating the government's forfeiture claim did not convert the order dismissing LaOstriches's claim into punishment that was subject to the Eighth Amendment's Excessive Fines Clause. Cf. United States v. Union Bank for Sav. & Invest. (Jordan), 487 F.3d 8, 22-23 (1st Cir. 2007).

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For the foregoing reasons, the judgment of the district court is affirmed.