In Re: Prudential ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
1-24-2002
In Re: Prudential
Precedential or Non-Precedential:
Docket 99-5960
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Recommended Citation
"In Re: Prudential" (2002). 2002 Decisions. Paper 39.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/39
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Filed January 24, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-5960
IN RE:
PRUDENTIAL INSURANCE COMPANY
AMERICA SALES PRACTICE LITIGATION
AGENT ACTIONS
Michael P. Malakoff, Esquire, and
Malakoff, Doyle & Finberg, P.C.,
Appellants
Appeal from the United States District Court
For the District of New Jersey
D.C. No.: 95-cv-04704
District Judge: Honorable William H. Walls
(Argued: December 5, 2000)
Before: McKEE, ROSENN, and CUDAHY,*
Circuit Judges.
(Filed: January 24, 2002)
David J. Armstrong, Esq. (Argued)
Dickie, McCamey & Chilcote, P.C.
Two PPG Place, Suite 400
Pittsburgh, PA 15222
_________________________________________________________________
* The Honorable Richard Cudahy, Senior Circuit Judge of the United
States Court of Appeals for the Seventh Circuit, sitting by designation.
Michael P. Malakoff, Esq.
Malakoff Doyle & Finberg, P.C.
The Frick Building, Suite 200
Pittsburgh, PA 15219
Counsel for Appellants
Allyn Z. Lite, Esq. (Argued)
Bruce D. Greenberg, Esq.
Lite DePalma Greenberg &
Rivas, LLC
Two Gateway Center, 12th Floor
Newark, NJ 07102
Melvyn I. Weiss, Esq.
Barry A. Weprin, Esq.
Brad N. Friedman, Esq.
Milberg Weiss Bershad Hynes
& Lerach LLP
One Pennsylvania Plaza, 48th Floor
New York, NY 10119
Reid L. Ashinoff, Esq.
Sonnenschein, Nath & Rosenthal
1221 Avenue of the Americas,
24th Floor
New York, NY 10020
Michael B. Hyman, Esq.
Deborah S. Bussert, Esq.
Ellyn M. Lansing, Esq.
Much Shelist Freed Denenberg
Ament Bell & Rubenstein, P.C.
200 North LaSalle Street, Suite 2100
Chicago, IL 60601
Counsel for Appellees
Brian S. Wolfman, Esq.
Public Citizen Litigation Group
1600 20th Street, N.W.
Washington, D.C. 20009
Counsel for Amicus-Appellant,
Public Citizen, Inc.
2
OPINION OF THE COURT
McKEE, Circuit Judge:
This appeal arises from numerous state and federal class
actions that the Judicial Panel on Multi-district Litigation
consolidated for disposition in the United States District
Court for the District of New Jersey. This massive, national
class action involved the claims of over eight million policy
holders of Prudential Life Insurance Company who were
represented by many lawyers, including the appellant,
Michael P. Malakoff and his law firm, Malakoff, Doyle and
Finberg. The class action eventually reached a settlement.
However, on the eve of settlement, Lead Counsel for the
plaintiffs asked the court to sanction Malakoff based upon
his conduct during the course of the litigation.
After issuing a rule to show cause on the motion for
sanctions, the District Court referred the matter to a
magistrate judge who issued a Report and Recommendation
("R and R") recommending rather severe disciplinary and
monetary sanctions. The Chief Judge of the District Court
then assigned Judge Walls to review the R and R. Judge
Walls approved the R and R with modifications and directed
the magistrate judge to recalculate the monetary sanctions
according to the precise costs and expenses resulting from
the sanctionable conduct. See In re The Prudential
Insurance Co., 63 F. Supp. 2d 516 (D. N.J. 1999). This
appeal followed imposition of the modified sanctions. For
the reasons that follow, we will affirm in part and reverse in
part.
I. Background.
In 1995, Michael P. Malakoff, a Pennsylvania attorney
experienced in class action litigation, brought two statewide
class actions against Prudential Insurance Company of
America in Ohio and West Virginia state courts on behalf of
Prudential policy holders in those states. Prudential
removed those class actions to federal district court and
Malakoff's subsequent motions to remand were denied. The
3
Judicial Panel on Multi-District Litigation centralized those
and other class actions that had been brought on behalf of
Prudential policy holders before Judge Alfred M. Wolin of
the United States District Court for the District of New
Jersey. The centralization order also appointed the law
firms of Milberg, Weiss, Bershad, Hynes & Lerach of New
York City and Much, Shelist, Freed, Denenberg, Ament,
Bell & Rubenstein, P.C. of Chicago as Lead Counsel in the
national consolidated action. From the outset, Lead
Counsel and Malakoff disagreed as to whether the actions
should be litigated in statewide classes or as a national
class. Malakoff argued that the two state class actions in
which he was counsel should be litigated separately from
the national class asserted by Lead Counsel.
The consolidated cases, from which Malakoff had
successfully excluded his clients, were settled on a
nationwide basis in late 1996, and Malakoff retained
objector status in the nationwide action. On December 2,
1996, Malakoff filed an "emergency" motion to recuse Judge
Wolin. A few days later, Lead Counsel filed a cross-motion
for sanctions predicated primarily on Malakoff's recusal
motion. Judge Wolin referred the sanctions motion to then
Magistrate Judge Joel A. Pisano. Following Malakoff's
voluminous objections to the proposed settlement, Lead
Counsel supplemented their cross-motion for sanctions
with citations to numerous other instances of Malakoff's
alleged sanctionable conduct.
As proponent of the statewide claims for Ohio and West
Virginia, Malakoff raised many objections to the proposed
national class settlement, and to Lead Counsel's request for
$90 million in attorneys' fees. In March, 1997, Malakoff
filed his own motion to sanction Lead Counsel under 28
U.S.C. S 1927. Shortly thereafter, Malakoff filed an
additional motion for sanctions, this time relying upon Fed.
R. Civ. Proc. 11, but alleging the same conduct that formed
the basis of his S 1927 motion. See A-2818, 3485. On
March 17, 1997, Judge Wolin, in an exhaustive and
carefully drafted opinion, approved the settlement. In re
Prudential Sales Practice Litig., 962 F. Supp. 450 (D. N. J.
1997). Shortly thereafter, the District Court issued an order
and opinion awarding attorneys' fees to Lead Counsel. 962
F. Supp. 572 (D. N. J. 1997).
4
We affirmed Judge Wolin's approval of the settlement on
appeal, but vacated the attorneys' fee award and remanded
for further consideration. See In Re Prudential Sales
Practice Litig., 148 F.3d 283 (3d Cir. 1998). On remand,
Lead Counsel moved for an interim fee award which
Malakoff opposed. Lead Counsel also moved for sanctions
against Malakoff based upon statements Malakoff made in
his opposition documents. However, that request for
sanctions was withdrawn within the "safe harbor" period.1
See A-3192, 3485. Nonetheless, a week later Malakoff filed
yet another motion against Lead Counsel under 28 U.S.C.
S 1927. That motion was based on the sanctions that Lead
Counsel had requested under Rule 11 even though that
motion had been withdrawn. See A-3485(23).
Following the United States Supreme Court's denial of a
petition for certiorari from our decision affirming the
settlement,2 Judge Wolin referred all motions for sanctions
to Magistrate Judge Pisano. Judge Pisano issued an R and
R recommending that sanctions be imposed against
Malakoff. The sanctions included a compensatory payment
of $100,000 to Lead Counsel under 28 U.S.C. S 1927, and
a non-monetary requirement that Malakoff attach a copy of
that R and R as well as a certification that he had paid the
attorneys fees ordered therein, to all future motions for pro
hac vice admission in the United States District Court for
the District of New Jersey. See A-3485A(35).
Malakoff objected to the R and R. Judge Wolin recused
himself, and the Chief Judge of the District Court assigned
Malakoff's objections to Judge William H. Walls of the
United States District Court for the District of New Jersey.
Judge Walls substantially adopted Judge Pisano's report
and rejected Malakoff's objection; however, Judge Walls
remanded the recommendation for compensatory payment
to Lead Counsel of $100,000 to Judge Pisano. The remand
was for a determination of the precise amount of excess
fees and expenses lead counsel incurred as a result of
_________________________________________________________________
1. For a discussion of the 21 day "safe harbor" provision contained in
Fed. R. Civ. P. 11 see Zuk v. Eastern Pennsylvania Psychiatric Institute,
103 F.3d 294 (3rd Cir. 1996).
2. 525 U.S. 1114 (1999).
5
Malakoff's sanctionable conduct. Judge Walls also reduced
the time that Malakoff would have to attach the R and R
and the aforementioned certification of compliance to
subsequent motions for pro hac vice admission to five years
from the date of the first motion for pro hac vice admission.
On remand, Malakoff and Lead Counsel agreed that the
compensatory sanction award be reduced to $50,000 if we
uphold the sanctions on appeal. That modification was
approved, and Malakoff filed this appeal.
We are only concerned with the propriety of the sanctions
imposed by the District Court against Malakoff following
the protracted and hard-fought consolidated class action
proceedings. Malakoff contends that his conduct did not
warrant monetary or disciplinary sanctions, and that
sanctions were imposed without adequate notice or
"opportunity to be heard."3 Issues pertaining to the
adequacy of Malakoff's "opportunity to be heard," are
questions of law subject to plenary review. In Re Tutu Wells
Contamination Litig., 120 F.3d 368, 383 (3d Cir. 1997).
However, we review whether the facts warrant the
imposition of monetary and disciplinary sanctions for an
abuse of discretion. Accordingly, we will only reverse the
District Court if the sanctions resulted from an
unsupported finding of fact, an errant conclusion of law, or
an improper application of law to fact. See In re: Orthopedic
Bone Screw Prods. Litig., 193 F.3d 781,795 (3d Cir. 1999).
The District Court imposed sanctions pursuant to 28
U.S.C. S 1927, as well as its inherent power to control the
course of litigation. Although we will discuss the legal
principles underlying these sanctions in more detail below,
it will be helpful to preliminarily set forth the underlying
legal principles for imposing sanctions. We will then
examine Malakoff's conduct to determine if the sanctions
were appropriate here.
_________________________________________________________________
3. Malakoff argues that he was denied the opportunity to be heard in
opposition to the sanctions motion because of the District Court's denial
of his discovery requests regarding submissions made after he filed his
recusal motion. We have previously held that Malakoff was not entitled
to more discovery. See Prudential Sales Practices Litig., 148 F.3d at 343-
45.
6
In Hackman v. Valley Fair, 932 F.2d 239 (3rd Cir. 1991)
we noted that:
a finding of willful bad faith on the part of the
offending lawyer is a prerequisite . . . [for imposing
sanctions under 28 U.S.C. S 1927]. Bad faith is a
factual determination reviewable under the clearly
erroneous standard. Once a finding of bad faith is
made, the appropriateness of sanctions is a matter
entrusted to the discretion of the district court.
932 F.2d at 242.
Similarly, an award of fees and costs pursuant to the
court's inherent authority to control litigation will usually
require a finding of bad faith.4 In Chambers v. NASCO, Inc.,
501 U.S. 32, 45-46 (1991) the Supreme Court stated that
a court has the inherent authority to impose sanctions
when an attorney has acted "in bad faith, vexatiously,
wantonly, or for oppressive reasons." We also review an
award of sanctions pursuant to the court's inherent powers
for an abuse of discretion. "[S]uch an abuse occurs when
the court's decision rests upon a clearly erroneous finding
of fact, an errant conclusion of law or an improper
application of law to fact." In Re: Orthopedic Bone Screw
Products Liability Litig., 193 F.3d 781, 795 (3rd Cir. 1999)
(internal quotation marks omitted).
II. Malakoff's Conduct.
Judge Walls rested the S 1927 sanctions upon the
following conduct: (1) Malakoff's motion to recuse Judge
Wolin; (2) Malakoff's criticism of the fee examiner; (3)
_________________________________________________________________
4. We state that a finding of bad faith is "usually" required under the
court's inherent powers because we noted in Republic of Philippines v.
Westinghouse Electric Corp., 43 F.3d 65, 74 n.11 that such sanctions do
not always require a showing of bad faith. Thus, in Martin v. Brown, we
were careful to note that "[u]sually the inherent power that a district
court retains to sanction attorneys also requires a finding of bad faith."
63 F.3d 1252 at 1265 (emphasis added). We need not dwell on when, if
at all, a court may impose such sanctions without first finding bad faith
because, as we discuss below, the district court here implicitly made
such a finding, and that finding was not clearly erroneous.
7
Malakoff's releasing recusal motion papers to the press; (4)
affidavits Malakoff filed in March of 1997; (5) Malakoff's
demand for a "keyword" search of discovery documents
provided by Prudential as well as a demand that Class
Counsel provide him with charts summarizing evidence to
be used at the fairness hearing; and (6) sanctions motions
Malakoff filed under Rule 11 and S 1927. We will examine
each of these in turn.
(1). The Motion to Recuse.
Malakoff filed a motion to recuse as an emergency motion
on December 2, 1996. He alleged that Judge Wolin had
improper ex parte communications with various people
involved in the nationwide litigation, that Judge Wolin
obstructed reasonable access to documents related to the
fairness of the settlement and that Judge Wolin had shown
partiality towards Prudential and towards the fairness of
the settlement. App. at 833-859.
Malakoff rested the motion primarily upon the charge
that Judge Wolin had improper ex parte meetings with
Prudential's President and counsel on August 12, 1996 at
a settlement conference, and an October 16, 1996, on the
record conference with certain state insurance regulators.
Finally, Malakoff alleged that Judge Wolin had improperly
attempted to influence a state court trial judge in a
Pennsylvania state court case.
Prudential and Class Counsel opposed the recusal
motion. Judge Wolin set an expedited schedule for
responses and scheduled a hearing on the motion for
December 13, 1996. However, when Prudential and Class
Counsel voiced their opposition, Malakoff demanded a delay
of twenty days to reply. The District Court denied that
request and held the hearing as scheduled. Judge Wolin
denied the recusal motion after that hearing and argument
on the motion. Malakoff then petitioned for a writ of
mandamus which we denied. His mandamus papers
reiterated the same arguments that we had rejected on
appeal from the approval of the class settlement and
fairness hearing. See 148 F.3d at 342-34.
8
In sanctioning Malakoff under S 1927, Judge Walls
rejected Malakoff's contention that the recusal motion had
a colorable basis in fact and was not filed in bad faith.
Rather, Judge Walls concluded that "Malakoff intentionally
filed an unreasonable recusal motion." 63 F. Supp. 2d at
520. In his appeal to us, Malakoff has dropped most of the
charges he had previously based his recusal motion on,
including his charge that Judge Wolin had improper ex
parte settlement communications with Prudential's
President and counsel.5 Instead, he asserts that the
following three bases for recusal demonstrate that his
motion for recusal had a colorable basis and was not filed
in bad faith.
First, Malakoff alleges that Judge Wolin attempted to
intervene on Prudential's behalf in a Pennsylvania state
court case called Rutt v. Prudential. According to Malakoff,
in a hearing in that case before the state court trial judge,
Prudential's counsel, Hirshman, argued for the
disqualification of a lawyer named Miller who represented
the Rutts. According to Malakoff, Hirshman told the state
trial judge that Judge Wolin had information for the court
regarding Miller and that Judge Wolin "is receptive to a
discussion with Your Honor by telephone about his views."
Malakoff's Br. at 13. Malakoff alleges that Hirsham told the
state judge that Judge Wolin had "information to share"
and suggested that the state judge call Judge Wolin. Id. at
13-14. The state court trial judge purportedly declined
Hirshman's invitation, saying that it would be "highly
improper" for him to contact Judge Wolin. Id . at 14.
_________________________________________________________________
5. The District Court correctly noted, "the Manual for Complex Litigation
acknowledges that federal judges may meet separately with parties for
confidential settlement conferences. Finally, the Code of Judicial
Conduct for United States Judges permits separate conversations with
parties with the consent of counsel who are authorized to object. This
Court concludes that any reasonable attorney would have understood
that Judge Wolin could permissibly engage in ex parte communication in
a complex class action such as In re Prudential." 63 F. Supp.2d at 520.
The district court found that Malakoff waived entitlement to notice of,
and opportunity to object to, such meetings because he had consented
to ex parte communications relating to settlement long before he filed the
recusal motion. Id.9
According to Malakoff, the whole purpose of this contact
with the state judge was delaying the trial of the Rutt case
until after the nationwide settlement was approved.
At the recusal hearing, Judge Wolin stated that he would
have spoken to the state judge "as a matter of courtesy,"
however, he categorically denied knowing the state judge
ever attempting to contact him, or even caring about the
outcome of the Rutt case. App. at 891-92. Nothing on this
record contradicts Judge Wolin's assertion. To the contrary,
Malakoff's own brief now belies his charge that Judge
Wolin attempted to intervene, and affirms that what
actually happened was "that Prudential attorneys urged
[the state trial judge] to contact Judge Wolin." Malakoff's
Br. at 38. Therefore, Malakoff's charge was not based on
anything Judge Wolin said or did. Rather, it was based
upon something Prudential's counsel tried to get the state
trial court judge to do. When Malakoff leveled this
allegation of bias in his merits appeal we stated:"[t]here is
no basis for believing the District Court was attempting to
influence the state court proceedings in Rutt . . . [and
Malakoff's claims to the contrary] are clearly without
merit." 148 F.3d at 345.
Malakoff also alleged that Judge Wolin ought to be
recused because the judge had an improper ex parte
communication with David Gross. Gross' client was a
former Prudential employee named David Fastenberg, and
Fastenberg had been accused of destroying documents
relevant to the Prudential litigation. Malakoff based this
allegation of Judge Wolin's impropriety upon a statement
Judge Wolin made at an October 16, 1996 hearing. During
the course of that hearing, Judge Wolin stated that
"Fastenberg's own lawyers say there was no document
destruction." Malakoff's Br. at 15. Malakoff alleged that
this purportedly improper communication on a matter
concerning destruction of material and disputed
documents, demonstrates Judge Wolin's favoring of
Prudential.
However, Prudential had fired Fastenberg for allegedly
allowing the destruction of documents in offices he
supervised, and Fastenberg responded by suing Prudential
for wrongful determination. The alleged document
10
destruction was a matter of public record. Moreover,
Fastenberg's termination and his suit against Prudential
had been widely reported in the press. Judge Wolin
explained to Malakoff at the recusal hearing that he learned
of Fastenberg's denial in the press and through a letter
written to him by Lead Counsel for Prudential in a related
case. Nothing on this record contradicts that. There was no
improper communication by Judge Wolin with Fastenberg's
lawyer. In fact, there was no communication at all.
Furthermore, Malakoff should have readily dismissed any
suggestion that Judge Wolin favored Prudential when Judge
Wolin directed Class Counsel to conduct an accelerated
investigation of document destruction allegations. On
January 6, 1997 Judge Wolin fined Prudential $1,000,000
for destroying documents. In re Prudential Ins. Co. of
America Sales Practices Litig., 169 F. R. D. 598 (D. N. J.
1997). Yet, Malakoff persists in this accusation to this very
day.
Malakoff's third reason for insisting that his recusal
motion had a colorable basis and was not filed in bad faith
is his charge that Judge Wolin had an October 16, 1996 on
the record conference with state insurance regulators
during which Judge Wolin indicated that he favored a
national settlement of the policyholders' claims against
Prudential. In Malakoff's view, the court's indication that it
favored a settlement showed that it was partial to
Prudential and could not, therefore, be an impartial,
objective reviewer of the settlement. Malakoff rests this
claim upon the following statement of Judge Wolin at the
October 16 hearing:
I'd like to be on the same page with you, realizing that
we all have the same constituency. When I say
`constituency,' I'm talking about the claimants, the
10.7 million people who are policyholders of Prudential
. . . . Because I think that our goals have to be the
same: we want to eliminate confusion, we want to
make sure that claimants are . . . remediated properly.
Malakoff's Br. at 41. Judge Wolin also referred to the
proposed settlement as "my settlement" and said "although
I wasn't in all of the negotiations, I wasn't just a pretty
11
face." Id. at 42. However, nothing suggests that these
remarks have the significance that Malakoff attempts to
attach to them. Moreover, Malakoff does not bother to
mention that Judge Wolin was careful to add the following
caveat at the end of the October conference:
No one should leave here today thinking that Judge
Wolin's silence, Judge Wolin's nod, a smile at a
particular time, means that he will approve this
settlement. I don't have the slightest idea. I don't know
who the objectors are, I haven't heard any evidence.
App. at 603. Moreover, we have already rejected the"spin"
Malakoff's recusal motion sought to put on those
statements. Malakoff made the same argument regarding
these remarks on appeal from the fairness hearing. We
stated that the "allegation [of impropriety] has no merit."
148 F.3d at 344.
(2). Criticism of the Fee Examiner.
On November 6, 1996, the District Court appointed
Stephen M. Greenberg, Esq., as a Fee Examiner to"review
the application for attorneys' fees and expenses" for Class
Counsel. App. at 677. According to Prudential, that
appointment was made after consultation with Class
Counsel and Prudential and after those counsel had met
with Greenberg. Malakoff received a copy of the Order
appointing Greenberg and on November 15, 1996, Malakoff
wrote a letter to Greenberg introducing himself.
Significantly, Malakoff did not object to the fact or the
manner of Greenberg's appointment in that letter.
However, two months later, Malakoff filed an emergency
motion seeking to have Greenberg's appointment vacated.
Malakoff alleged that Greenberg's appointment had been ex
parte and in violation of Fed. R. Civ. P. 53(d)(1), because
the first meeting of the parties and their attorneys was not
held within 20 days of the order appointing the examiner.6
_________________________________________________________________
6. Fed. R. Civ. P. 53(d)(1) requires the fee examiner to conduct a "first
meeting of the parties or their attorneys to be held within 20 days after
the order [appointing the examiner] and notify the parties or their
attorneys." Malakoff says that when he requested that the district court
enforce Rule 53 and direct the fee examiner to hold the meeting, the
district court replied, "It's not a perfect world, is it Mr. Malakoff?"
12
Judge Wolin denied Malakoff's motion to vacate
Greenberg's appointment. The judge found that Malakoff
had waived his right to object by (1) not objecting at the
time Greenberg was appointed; (2) writing to Greenberg
nine days after Greenberg was appointed proposing that
they collaborate in efforts to obtain materials related to the
application for attorneys' fees; (3) waiting two months
before seeking to vacate Greenberg's appointment, and (4)
failing to provide any reason for waiting those two months.
App. at 2501(4). Judge Wolin also found that Malakoff's
Rule 53 objections were "hyper-technical" since "Greenberg
met with the parties five days prior to the date of the
November order and 27 days after the date of the November
order." Id. at 2501(1)-2504(14)(a)).
In his "sanctions opinion," Judge Walls concluded that
Malakoff had no basis for trying to vacate Greenberg's
appointment because Malakoff had initially approved
Greenberg's appointment. 63 F. Supp.2d at 521. Moreover,
Judge Walls agreed that Malakoff's Rule 53 argument was
"hyper-technical." Id.(3). Release of Motion to Recuse to the Press.
Judge Walls accepted Magistrate Judge Pisano's
consideration of Malakoff's failure to provide Judge Wolin
with courtesy copies of motion papers in imposing
sanctions. Judge Walls noted that:
Magistrate Judge Pisano indicates that Mr. Malakoff
repeatedly failed to send courtesy copies of motion
papers to Judge Wolin's chambers. This deficiency was
specifically addressed by Judge Wolin in Mr.
Malakoff's December 13, 1996 motion to recuse.
In re: The Prudential Insurance Co., 63 F. Supp. 2d at 522.
Malakoff submits that Judge Walls found that his failure
to provide courtesy copies of his various motions to Judge
Wolin was sanctionable conduct. He contends he did not
provide courtesy copies because, until that time, he had
always filed his motions in accordance with local rules and
Judge Wolin never had objected to that practice. Under
local rules, the clerk of court forwards filings to the
13
assigned judge. According to Malakoff, it was only at the
end of the recusal hearing that Judge Wolin chastised him
for not providing the courtesy copies of filings. Malakoff
asserts that Judge Walls was therefore wrong in finding
that his failure to provide courtesy copies was sanctionable.
However, Judge Walls did not consider Malakoff's general
failure to provide courtesy copies to Judge Wolin in
imposing sanctions. Rather, Judge Walls considered
Malakoff's release of his recusal motion to the press
without first providing a copy to Judge Wolin.
At the recusal hearing, Judge Wolin expressly found that
"copies of the Malakoff motion were submitted or leaked to
the press in advance of their receipt by the Court. At least
three major newspapers sought comment from this Court
as to applications, the existence of which the Court was
unaware." App. at 1492. Malakoff claims that several days
after he filed the motion to recuse, he was contacted by the
press and provided copies to them. Thus, because he
complied with the rules of court and because the press
initiated the contact, he insists that this conduct was not
sanctionable. But, Judge Walls found otherwise. He
concluded: "as an experienced attorney, [Malakoff] should
have realized that the clerk's office would not deliver
courtesy copies to chambers immediately. [Malakoff's]
failure to accord Judge Wolin the same respect as the
media was `unacceptable' and indicates that he acted in
bad faith." 63 F. Supp.2d at 522.
(4). The March 1997 Affidavits.
In December of 1996, Judge Wolin held a hearing to
address accusations that Prudential had destroyed
documents related to the class action. Malakoff was not in
court that day, but he maintains that his associate, David
Snyder, was. Nonetheless, on January 13, 1997, Malakoff
filed his "Tenth Affidavit," alleging that an improper ex
parte communication occurred on December 30, 1996
between Judge Wolin, Karen Suter, Deputy Attorney
General for the New Jersey Department of Banking, and
Anita Kartalopolous, Deputy Commissioner for that
Department. Subsequent to the filing of Malakoff's "Tenth
14
Affidavit," Suter and Kartalopolous filed affidavits denying
any improper ex parte discussion with Judge Wolin. In fact,
in those affidavits, both women said they asked the
courtroom clerk if there was an attorney conference room
where they could make a phone call to the Banking
Commissioner. According to those sworn affidavits, a
courtroom deputy told them none was available. However,
Judge Wolin overheard that conversation and offered the
use of one of the phones in his library conference room.
That was the extent of their conversation with Judge Wolin.
However, despite the affidavits from Suter and
Kartalopolous, Malakoff filed a "Corrected Tenth Affidavit,"
on February 17, 1997, which was identical to the"Tenth
Affidavit" except that it changed, without explanation, the
date of the alleged ex parte communication from December
30th to December 16. Then, on March 14, 1997, Malakoff
filed his "Twenty Third Affidavit," in which he once again
alleged that an improper ex parte discussion occurred on
December 16, between Judge Wolin, Suter and
Kartalopolous. Three days later, Malakoff filed his"Twenty
Fourth Affidavit," in which he repeatedly accused Judge
Wolin of catering to the interests of Prudential and Class
Counsel.
Judge Walls found that the 23rd and 24th affidavits
merely restated already rejected arguments, attempted to
explain Malakoff's reasons for filing motions that had
already been denied, and repeated allegations of Judge
Wolin's impropriety that Malakoff had made in his recusal
motion. Judge Walls also found that the 24th affidavit was
not filed in connection with any new or pending motion.
Consequently, Judge Walls concluded that Malakoff filed
the 23rd and 24th affidavits for the sole purpose of
embarrassing Judge Wolin. 63 F. Supp.2d at 522.
(5). Discovery Matters.
Judge Walls considered two instances of Malakoff's
conduct over discovery materials in sanctioning Malakoff.
The first involved Malakoff's demand for a "keyword"
search of documents produced during discovery. On
October 28, 1996, Class Counsel and Prudential received
15
Judge Wolin's order conditionally approving the settlement
of the consolidated class action. Judge Wolin made
available to all policyholders who signed a Stipulation of
Confidentiality "deposition transcripts and attached
exhibits as well as . . . all other documents generated in
this lawsuit."
According to Class Counsel, over 1,000,000 pages of
documents, 160 computer diskettes, 500 audio and video
tapes, hundreds of interviews with current and former
Prudential employees, twenty depositions, plus all of the
documents that Prudential had produced to the Multi-State
Task Force was then available. Numerous lawyers for
policyholders apparently reviewed the documents in three
document depositories around the country that Class
Counsel had established for that purpose. According to
Class Counsel, Malakoff indicated in early November 1996
that he intended to review the documents and Class
Counsel sent him copies of their own indices to the
documents to assist with that review. However, Malakoff
did not review the materials. Rather, he demanded
additional discovery despite not having reviewed the
discovery material already available. On December 30,
1996, after Malakoff complained about not being able to
review the documents, Judge Wolin suggested that he go to
Class Counsel's offices in New York for document review.
Malakoff maintains that he asked Judge Wolin to direct
Class Counsel to allow him (Malakoff) to use the class
keyword search facility because only a few of the many
documents were relevant to Malakoff's objections. Judge
Wolin denied that request as unfair, and Malakoff sent an
associate to Class Counsel's office. However, the associate
only demanded that Class Counsel conduct keyword
searches for him. He did not review any discovery material.
The second set of circumstances involving discovery that
Judge Walls considered concerned Malakoff's demand for
"charts" summarizing evidence. On January 28, 1997,
Judge Wolin entered an order permitting Class Counsel to
use demonstrative evidence at the fairness hearing, and
requiring Class Counsel to provide an adequate opportunity
for any interested party to inspect the demonstrative
evidence at Class Counsel's New York office. Judge Wolin's
16
order specified, however, that the "opportunity for such
inspection does not create any obligation [on Class
Counsel] to provide any copies of such demonstrative
evidence to any person inspecting the same."
Malakoff asserts that it was not feasible for him to review
this demonstrative evidence in New York, and he therefore
requested that Prudential and Class Counsel fax copies of
the charts to him. According to Malakoff, Prudential
complied with his request, but Class Counsel refused and
demanded that he go to New York to review the charts.
Rather than doing that, Malakoff filed yet another
"emergency" motion on February 19, 1997. Judge Wolin
denied that motion finding, among other things, that
Malakoff had not shown why compliance with the previous
order allowing inspection was not feasible. Judge Wolin was
also concerned that Malakoff waited until the eleventh hour
to raise the issue (the fairness hearing was set for February
24, 1997).
Judge Walls considered these actions and wrote:
Mr. Malakoff's actions demonstrate a failure on his
part to abide with the discovery process agreed to by
counsel and the Court in this action. That no other
attorney objected to the process or sought specific
concessions from the court or opposing counsel
demonstrates that the procedure was unobjectionable.
Mr. Malakoff's resistance to the discovery process and
his attempts to exempt himself therefrom unreasonably
multiplied the straightforward discovery process and
delayed the ultimate settlement of the case.
63 F. Supp.2d at 522.
(6). Filing Rule 11 and S 1927 Sanctions Motions.
As noted, when Malakoff filed his recusal motion, Class
Counsel cross-moved for sanctions against Malakoff under
S 1927, and then, on the same day as the fairness hearing,
supplemented their cross-motion for sanctions. In
response, Malakoff filed his own motion for sanctions
against Class Counsel under S 1927, and shortly thereafter,
he served a motion for sanctions against Class Counsel
17
under Fed. R. Civ. P. 11 based upon Class Counsel's
sanctions motion.
Malakoff's S 1927 motion consisted entirely of his
defenses to Class Counsel's sanctions motion. In his R and
R, Magistrate Judge Pisano concluded that Malakoff's
S 1927 motion "fails mightily to show why the court should
sanction Class Counsel." R&R at 31. Magistrate Judge
Pisano also concluded that Malakoff's Rule 11 motion was
absolutely identical to his S 1927 sanctions motion. Judge
Walls held that both motions were only defenses to Class
Counsel's S 1927 motion and did "not advance a coherent
legal argument as to why [Class Counsel] should be
sanctioned." 63 F. Supp.2d at 523. Inasmuch as Malakoff
conceded that the legal standards for S 1927 and Rule 11
are different, Judge Walls concluded that these duplicitous
motions demonstrated that Malakoff had abused the
sanctions process.7 Id. Judge Walls concluded that
Malakoff's "identical motions were baseless and filed in bad
faith." Id.III. Sanctions Under 18 U.S.C. S 1927.
As noted above, the monetary sanctions here were
imposed pursuant to 28 U.S.C. S 1927. Section 1927
provides:
Any attorney or other person admitted to conduct
cases in any court of the United States or any Territory
thereof who so multiplies the proceedings in any case
unreasonably and vexatiously may be required by the
court to satisfy personally the excess costs, expenses,
and attorneys' fees reasonably incurred because of
such conduct.
28 U.S.C. S 1927. "Although a trial court has broad
_________________________________________________________________
7. For example, S 1927 sanctions are applicable only to an attorney and
requires a finding of bad faith. Williams v. Giant Eagle Markets, Inc.,
883
F.2d 1184, 1191 (3d Cir. 1989). Rule 11 authorizes sanctions against a
signer of a pleading, etc. presented for an improper purpose and requires
only a showing of objectively unreasonable conduct. Fellheimer, Eichen &
Braverman v. Charter Technologies, Inc., 57 F.3d 1215, 1225 (3d Cir.
1995).
18
discretion in managing litigation before it, the principal
purpose of imposing sanctions under 28 U.S.C. S 1927 is
the deterrence of intentional and unnecessary delay in the
proceedings." Zuk v. Eastern Pennsylvania Psychiatric
Institute, 103 F.3d 294, 297 (3d Cir. 1996) (citation and
internal quotations omitted).
As is evident from the text of the statute, S 1927 requires
a court to find an attorney has (1) multiplied proceedings;
(2) in an unreasonable and vexatious manner; (3) thereby
increasing the cost of the proceedings; and (4) doing so in
bad faith or by intentional misconduct. Williams v Giant
Eagle Markets, Inc. 883 F.2d 1184, 1191 (3rd Cir. 1989).
"[B]efore a court can order the imposition of attorneys' fees
under S 1927, it must find willful bad faith on the part of
the offending attorney." Zuk, 103 F.3d at 297. "Indications
of this bad faith are findings that the claims advanced were
meritless, that counsel knew or should have known this,
and that the motive for filing the suit was for an improper
purpose such as harassment." Smith v. Detroit Fed'n of
Teachers Local 231, Am. Fed. of Teachers, AFL-CIO , 829
F.2d 1370, 1375 (6th Cir. 1987). Inasmuch as S 1927
addresses the impact conduct has on the proceedings,
sanctions that are imposed under S 1927 must only impose
costs and expenses that result from the particular
misconduct. Martin v. Brown, 63 F.3d 1252, 1264 (3d Cir.
1995). Moreover, these costs and expenses are limited to
those that could be taxed under 28 U.S.C. S 1920. Id.IV. Sanctions Pursuant to the Court's Inherent Power.
In addition to the monetary sanctions imposed under
S 1927, the District Court also imposed disciplinary
sanctions. These sanctions required Malakoff to certify that
he had paid the monetary fine, and attach a copy of the R
and R to all applications for admission pro hac vice for five
years from the date of the first such application. This
sanction was imposed under the court's inherent power.
Moreover, the sanctioning order also provided that, if
Malakoff were to be sanctioned again within the five year
period, the five year limitation would disappear and he
would thereafter be required to submit the proof of
payment, together with a copy of the R and R, with every
19
application for pro hac vice admission to the District Court
for as long as he practiced law. In re Prudential Ins. Co. of
Am. Sales Prac. Litig., 63 F. Supp. 516, 525 (D. N.J. 1999).
"It has long been understood that certain 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." Fellheimer, Eichen & Braverman,
P. C., v. Charter Technologies, Inc., 57 F.3d 1215, 1224
(quoting Chambers v. NASCO, Inc., 501 U.S. 32, 43
(1991)(internal brackets and citations omitted))."Among the
implied and incidental powers of a federal court is the
power to discipline attorneys who appear before it." Id.(quoting Chambers, at 43).
Circumstances that may justify sanctions pursuant to a
court's inherent power include
cases where a party has acted in bad faith, vexatiously,
wantonly, or for oppressive reasons. . . . The imposition
of sanctions in this instance transcends a court's
equitable power concerning relations between the
parties and reaches a court's inherent power to police
itself, thus serving the dual purpose of vindicating
judicial authority without resort to the more drastic
sanctions available for contempt of court and making
the prevailing party whole for expenses caused by his
opponent's obstinacy. Id.(quoting Chambers, at 45-46).
A court may resort to its inherent power to impose
sanctions even if much of the misconduct at issue is also
sanctionable under statute or rules of court. Chambers, at
45. However, "[b]ecause of their very potency, inherent
powers must be exercised with restraint and caution."
Chambers, at 44; see also Eash v. Riggins Trucking, Inc.,
757 F.2d 557, 562 (3d Cir. 1985)(en banc). Although a
court retains the inherent right to sanction when rules of
court or statutes also provide a vehicle for sanctioning
misconduct, resort to these inherent powers is not
preferred when other remedies are available. Moreover, the
analysis in Chambers "leads to the conclusion that if
statutory or rules-based sanctions are entirely adequate,
20
they should be invoked, rather than the inherent power."
Gregory P. Joseph, Sanctions: The Federal Law of Litigation
Abuse, 428 (3rd ed. 1999) (hereinafter Sanctions Treatise).
Therefore, "[g]enerally, a court's inherent power should be
reserved for those cases in which the conduct of a party or
an attorney is egregious and no other basis for sanctions
exists." Martin v. Brown, 63 F.3d at 1265.
V. The Court did not Abuse its Discretion in Imposing
Sanctions Under S 1927
As we stated at the outset, sanctions under S 1927 or the
court's inherent power may not be made in the absence of
a finding of bad faith. However, that finding need not be
explicit. An implicit finding of bad faith will support
sanctions just as well so long as it is not an abuse of
discretion, not based upon clearly erroneous factual
findings, and not based upon an error of law. Baker
Industries at 209.
Here, Judge Walls did not make an express finding of bad
faith. Nor did Judge Walls rely upon any of the above-
specified conduct in particular. Rather, he based his finding
of the requisite bad faith and vexatious conduct on the
totality of the campaign Malakoff waged during the course
of this litigation, not upon any single maneuver. The
District Court assessed that conduct in its totality in
imposing sanctions and affirming the findings of the
Magistrate Judge. In his R and R, the Magistrate Judge
explained:
[w]hen viewed individually, each single instance of
misbehavior by Mr. Malakoff might not warrant the
sanctions arrived at by the court. But considered as a
whole, his transgressions evidence a pattern of
obfuscation and mean spiritedness. Thankfully, it is
not often that the Court encounters such behavior, and
the undersigned is completely satisfied that, under
disciplinary rubric, Mr. Malakoff's conduct warrants
stern sanctions.
R&R at 25 (emphasis added). Moreover, the District Court
specifically cited this finding in affirming the sanctions. See
In Re Prudential 63 F. Supp. 2d at 521 ("The Magistrate
21
Judge concluded that Mr. Malakoff `abused the privileges of
practicing before this Court. His behavior since his arrival
on the scene in this litigation has been deplorable.
Examples of this conduct are numerous and . . .[not] a
one-time lapse in judgment.' The Court thus found that
`considered as a whole, his transgressions evidence a
pattern of obfuscation and mean spiritedness.' ").
Judge Walls noted that Malakoff "began bombard[ing] the
Court with paper soon after the transfers." In Re Prudential
Insurance Co., 63 F. Supp 2d at 518. This record readily
discloses implicit findings of bad faith, and those findings
were not clearly erroneous.
The district court's finding of willfulness on
[Malakoff's] part, as a finding of fact, is subject to
reversal only if clearly erroneous. This standard
requires us to pay deference to the district court's
interpretation of the factual record before it. Once such
a finding is made, the appropriateness of assessing
attorneys' fees against counsel under section 1927 is a
matter for the district court's discretion.
Baker Industries, 764 F.2d at 209-10 (citations omitted).
Accordingly, we do not second-guess the District Court that
was managing the front lines of this massive class action
unless its findings were clearly erroneous or its exercise of
decision arbitrary or unjustified.
The course of conduct here allows for only one
conclusion, and it is the one reached by the Magistrate
Judge and District Court. We can not conclude that the
District Court's finding that Malakoff litigated in a
vexatious manner and in bad faith was clearly erroneous.
He multiplied the proceedings at nearly every turn, and
increased the cost of this litigation accordingly. His
baseless recusal motion required responses by Class
Counsel and a hearing by Judge Wolin. His emergency
motion to vacate the fee examiner's appointment, an
appointment that he originally approved, also necessitated
responses by Class Counsel and required Judge Wolin to
write a thirteen page opinion in support of his order
denying the motion. His demand for a key word search
(after he failed to make any efforts to review the documents
22
available at Class Counsel's New York Office) meant that
Judge Wolin had to address that demand at a case
management conference held to discuss the proposed
settlement hearing. Malakoff's emergency motion
demanding that Class Counsel fax charts summarizing the
evidence to be used at the fairness hearing once again
necessitated responses by Class Counsel and once again
meant that Judge Wolin had to write an opinion and order
denying that motion. His filing of two identical sanctions
motions, despite the fact that they were filed under different
provisions having different standards of proof, necessitated
responses by Class Counsel and an examination and
analysis by Magistrate Judge Pisano. Finally, even though
his March 1997 affidavit may not have required the use of
judicial resources, the subjects of those affidavits, viz., New
Jersey Deputy Attorney General Suter and New Jersey
Deputy Insurance Commissioner Kartalopolous, felt
compelled to respond to the erroneous allegations Malakoff
made in the affidavit of improper ex parte discussions with
Judge Wolin.
The sanctions that were imposed were a direct result of
that vexatious conduct and not an abuse of discretion. The
only real question with regard to those sanctions is whether
Malakoff was properly afforded due process before the
sanctions was imposed. Although we believe Malakoff was
afforded due process as to the additional costs and fees
taxed against him under S 1927, we are troubled by the
absence of particularized notice of sanctions imposed under
the court's inherent powers.
VI. Due Process Requirements.
"The Due Process Clause of the Fifth Amendment
requires a federal court to provide notice and an
opportunity to be heard before sanctions are imposed on
a[n] . . . attorney." Martin v. Brown, at 1262. We have held
that "particularized notice is required to comport with due
process." Fellheimer, at 1225. "Generally speaking,
particularized notice will usually require notice of the
precise sanctioning tool that the court intends to employ."
Id. An opportunity to be heard is "especially important"
where a lawyer or firm's "reputation is at stake," because
23
sanctions "act as a symbolic statement about the quality
and integrity of an attorney's work -- a statement which
may have a tangible effect upon the attorney's career." Id.
at 1227.
Here, Malakoff did receive notice in the form of the
motion for sanctions that Lead Counsel filed on December
10, 1996. Moreover, on December 10, 1996, plaintiff's
liaison counsel, co-lead counsel and executive counsel gave
Malakoff written notice that on December 13, 1996, they
would cross-move before Judge Wolin for an order
pursuant to 28 U.S.C. S 1927 to impose sanctions.
However, that notice informed Malakoff that sanctions
would be sought
upon the firm of Malakoff, Doyle & Finley, P.C., for
unreasonably and vexatiously multiplying the
proceedings in this matter, and seeking payment by
Malakoff, Doyle & Finley, P.C. of the excess costs,
expenses and attorneys' fees reasonably incurred to
respond to the application of Kittle and Krell to
disqualify the judge in this matter."
The notice only referred to sanctions under 28 U.S.C.
S 1927, and made no mention of sanctioning Malakoff
under the court's inherent powers. The supporting
affidavits of attorney Allyn Z. Lite and Brad N. Friedman
also referred only to sanctions under 28 U.S.C.S 1927
without any reference to the court sanctioning Malakoff
under its inherent powers.
In upholding the Magistrate Judge's determination that
Malakoff had not been denied due process, Judge Walls
cited to page 24 of the R and R. See 63 F. Supp 2d at 523.
There, the Magistrate judge stated:
In the sanctions matters currently before the Court, all
parties were given ample notice of what behavior was
in dispute. Each side's motion papers and affidavits set
forth in detail why it believes actions taken by the
other party's attorneys should result in sanctions.
Furthermore, the questions posed at oral argument
afforded to the parties an inkling of the Court's
concerns about what behavior might be objectionable.
Finally, each party was able to listen at oral argument
24
to the concerns voiced by the other. Surely, each side
was on particularized notice of what behavior and
actions were at issue.
Class Counsel and Mr. Malakoff were also given at
least four opportunities to be heard. First, both sides
presented legal arguments in their numerous and
lengthy briefs and memoranda accompanying the
various sanctions motions. Second, Mr. Malakoff and
Class Counsel both sent to the Court letter memoranda
accompanying their submissions regarding the
sanctions record. Third, at oral argument, each side
was given time for a presentation to the Court, and
additional time for rebuttal. Finally, at the end of oral
argument, the Court advised the parties that it would
entertain one final letter memorandum from each side,
so long as each was no longer than five pages. Both
took advantage of all four of these opportunities to
present arguments to the Court. Certainly, the parties
have been given meaningful and numerous
opportunities to be heard.
R&R. at 23-24. We agree as to the statutory sanctions.
This record clearly establishes that the sanctions that
were imposed under S 1927 satisfied due process
requirements.8 However, as we suggest above, we are
_________________________________________________________________
8. Malakoff argues that the District Court deprived him of due process by
refusing discovery regarding record submissions after he filed his recusal
motions. He argues that those submissions were used to deny the
recusal motion and to justify the award of sanctions against him. Yet,
Malakoff chose to demarcate his recusal motion as an"emergency"
motion. In denying discovery, the court merely treated Malakoff's motion
like the emergency he himself declared it to be, and afforded it the
immediate attention Malakoff's assertion of"emergency" demanded. He
now seeks to use the court's prompt handling of his"emergency" to
argue that the court denied him due process by not granting a month
long continuance to take discovery to establish that the emergency he
had alleged did in fact exist.
Malakoff's claim of denial of due process as to his "emergency" motion
thus reduces to a claim that without discovery he was denied an
opportunity to develop a full and complete sanction record. Malakoff's
Br. at 54. However, he never explains why this is so, and we doubt that
any explanation is possible given the District Court's finding of bad
faith.
25
troubled by the propriety of the non-monetary sanctions
imposed pursuant to the court's inherent powers.
VII. Sanctions Under the Court's Inherent Powers and
Conditions on Pro Hac Vice Admission.
Malakoff does not challenge the court's authority to
impose the aforementioned conditions on his applications
for pro hac vice admission in the District Court of New
Jersey. He does, however, argue that he was denied notice
and an opportunity to be heard as to those sanctions. He
claims that he first became aware that the Magistrate
Judge was considering requiring him to attach this"scarlet
letter" (our term, not Malakoff's) to his pro hac vice
applications only upon reading the July 15, 1999, R and R.
Class Counsel argues to the contrary and insists that
Malakoff had ample notice. According to Class Counsel, the
issue was raised by Class Counsel at oral argument during
the sanctions hearing and again in their post-argument
brief.
The Magistrate Judge found that Malakoff was given four
opportunities to be heard on the sanctions that were being
considered. See R&R at 24. Judge Walls found that
Malakoff received particularized notice in the original
S 1927 sanctions motion filed in December of 1996. He also
found that "[a] survey of the competing sanctions motions
filed over the course of the Prudential litigation further
indicates that Mr. Malakoff was on notice to the particular
factors that he had to address if he were to avoid
sanctions." 63 F. Supp.2d at 524 (internal quotations
omitted).
However, the sanction pertaining to pro hac vice
admissions is substantially more severe than the sanction
imposed under S 1927 because it more directly impacts
Malakoff's ability to practice. It is also at least arguably
more damaging to his reputation and that of his firm.9
Moreover, although Malakoff was clearly on notice that the
_________________________________________________________________
9. There is, no doubt, more than a grain of truth in Shakespeare's
familiar pronouncement: "he that filches from me my good name . . .
makes me poor indeed. . .". Othello; Act 3, Scene3.
26
court was empowered to make him pay for the increase in
cost resulting from his vexatious conduct and that Lead
Counsel would request those costs, it is not as clear that
Malakoff had notice that the court was considering
requiring him to attach his scarlet letter to his pro hace vice
admissions in the District of New Jersey.
The Magistrate Judge explained this sanction as follows:
In addition to the monetary sanction for hisS 1927
violations, Mr. Malakoff should be required to answer
to the Court for his conduct. One would have hoped for
an apology but none was offered. And having read his
numerous submissions, having observed his demeanor
at oral argument, and having evaluated his concept of
professional responsibility, the Court is not satisfied
that even a forced apology would have any impact on
Mr. Malakoff.
Therefore, and pursuant to its inherent power, the
Court recommends that, prior to Mr. Malakoff's
applying for pro hac vice admission in any subsequent
litigation in this district, he be required to attach to the
motion papers supporting his admission (1) a
certification that he has paid the monetary sanction
ordered herein, and (2) a copy of this R and R.
R&R at 35.
We do not believe that the notice Malakoff received in
connection with the motion for sanctions under S 1927
afforded the kind of "particularized" notice and opportunity
to defend against this unique sanction that due process
requires.
In concluding that Malakoff did not have adequate notice
of this sanction we are particularly mindful of the impact
that such a sanction would no doubt have on Malakoff's
ability to practice his trade. Although the sanction is not a
suspension from practice per se, it certainly raises similar
concerns, and those concerns ought to inform the
particularity of notice that must be given to allow Malakoff
to properly defend against such a sanction. See In re: Tutu
Wells, 120 F.3d at 381 n.10.("Any suspension from practice
[and to a lesser degree, severe disciplinary impediments
27
pertaining to admission to practice], even in a jurisdiction
in which an attorney does not regularly practice, would
leave an indelible and deleterious imprint on the attorney's
career, reputation, and future opportunities."). We do not
believe that the notice afforded Malakoff was sufficient to
allow the court to impose the non-monetary sanctions that
were imposed under the court's inherent power.
Accordingly, that order will be reversed.
CONCLUSION
For the reasons set forth above, the order of the District
Court will be affirmed insofar as it imposes sanctions under
18 U.S.C. S 1927 requiring Malakoff to pay the increase in
costs and fees resulting from his conduct. However, the
order is reversed insofar as it imposes conditions on his pro
hac vice applications under the court's inherent powers.
In affirming these sanctions we merely conclude that,
inasmuch as the district court's finding of bad faith was not
clearly erroneous, we do not think that the monetary
sanctions were an abuse of discretion. However, nothing
we say is intended to detract from the important
role of objectors' counsel that Judge Rosenn so eloquently
notes in his concurring/dissenting opinion. See
Concurring/dissenting Op. at 43. Nor do we in any way
intend to suggest that forceful advocacy ought to invite
sanctions in the absence of bad faith, and vexatious
conduct that unduly increases the costs and burdens of
litigation.
28
ROSENN, Circuit Judge, concurring and dissenting:
I concur and join in Part VII of the majority's decision
that the judgment of the District Court be reversed with
respect to the sanctions imposed under the court's inherent
power. Because the evidence does not show that Malakoff's
actions vexatiously and unreasonably prolonged the
litigation in violation of 28 U.S.C. S 1927 and there is no
evidence of or findings that he acted in wilful bad faith, the
sanctions under that statute also should be reversed. I
therefore respectfully dissent from the imposition of any
sanctions.
I.
Because of the many lawyers involved and their
adversarial interests, the underlying case was destined to
sail on stormy waters. Despite some tensions and
occasional aberrations in civility, but with considerable
judicial patience and skill, the case had reached a point for
settlement consideration. Regrettably, as later resulting
proceedings revealed, because of a lack of precise
information and a misreading of the sense and scope of
some of the ex parte conferences, Malakoff filed a motion
for Judge Wolin's recusal. Until that moment, no motion,
complaints, or judicial warnings had been even addressed
to Malakoff. His motion triggered sanction proceedings
which are now the aftermath of lengthy underlying
litigation which has long been settled, appealed, and closed.
Malakoff substantively challenges the monetary sanctions
on the ground that he always acted in this litigation in good
faith and did not multiply the proceedings unreasonably
and vexatiously. As a lawyer at the bar for approximately
thirty years, experienced in class action practice and never
previously sanctioned,1 he contends that the motions he
_________________________________________________________________
1. Malakoff claims that he practiced law for thirty years and has a
substantial professional interest in class action procedures. He asserts
that he was a member of this Court's 1985 Task Force on Court
Awarded Attorneys' Fees, and, as a founding member and board member
of the National Association of Consumer Advocates, he contributed to the
Standards and Guidelines for Litigating and Settling Class Actions. See
176 F.R.D. 375 (1987). He also states that he is a frequent contributor
to and faculty member of the American Law Institute, the National
Consumer Law Center, and that his legal rating in Martindale-Hubbell is
AV.
29
filed were reasonably warranted. Even the Magistrate Judge
(MJ) in assessing the sanction, stated that "[w]hen viewed
individually, each single instance of misbehavior by Mr.
Malakoff might not warrant the sanction arrived at by the
Court. But considered as a whole, his transgressions
evidence a pattern of obfuscation and mean spiritedness."
(Maj. Op. at 21). This sweeping statement, however, is not
supported by a single finding of fact and does not support
the conclusion that Malakoff multiplied the proceedings
vexatiously and acted wilfully in bad faith. Obfuscation and
mean spiritedness, even if true, are indeed not
commendable, but they do not amount to a violation of
S 1927.
The District Court correctly stated that the purpose of
S 1927 is to deter intentional and unnecessary delay and
that in imposing sanctions, a court must find: "(1) a
multiplication of the proceedings by an attorney; (2) by
conduct that can be characterized as unreasonable and
vexatious; with a (3) resulting increase in the cost of
proceedings; and (4) bad faith or intentional misconduct."
In re Prudential, 63 F.Supp.2d 516, 520 (D.N.J. 1999).
There is no evidence whatsoever that Malakoff filed the
motion to recuse Judge Wolin for the purpose of
intentionally or unnecessarily delaying the proceedings.
Malakoff argued to the MJ that his motion to recuse, which
prompted Lead Counsel's first motion for sanctions, was
not filed in bad faith and in fact had a colorable basis.
Judge Walls concluded that any reasonable attorney would
have understood that Judge Wolin could permissibly
engage in ex parte communication in a complex class action
such as In re Prudential. Id. The Court also rejected
Malakoff's contention that even if ex parte communication
was permissible, he was entitled to notice of the meetings
and an opportunity to object. The Court reasoned that
Malakoff had consented to the Court's ex parte
communication pertaining to settlement long before his
recusal motion, and the alleged communications between
counsel and the court involved settlement of the nationwide
class action in which Malakoff's clients did not wish to be
involved. Id.Initially, it should be noted that a review of Malakoff's
30
December 3, 1996, recusal motion reveals that his
objection was not directed to communication between
Judge Wolin and Lead Counsel. His concern was that the
judge met ex parte with Prudential's Chairman, Arthur F.
Ryan, and that he met with Select Insurance Regulators
about the proposed settlement without advance notice to
Kettle/Krell, Malakoff's clients. Malakoff also believed that
those meetings went beyond the scope of his original
consent. Malakoff also complained, inter alia , about the
Court's failure to allow discovery pertaining to the fairness
of the proposed settlement.2
Malakoff may have misconceived the extent of the District
Court's authority and its justifiable necessity in meeting
with officers of Prudential in effectuating this complex
settlement. Malakoff also may not have shown good
judgment in his motion to recuse, but mistake of judgment
is not uncommon among lawyers or even judges. A mistake
of judgment does not per se constitute wilful bad faith.
Baker Indus. Inc. v. Cerberus Ltd., 764 F.2d 204, 209 (3d
Cir. 1985). Judge Walls made no specific finding that
Malakoff filed the motion in bad faith but only concurred in
the MJ's "conclusions" rejecting Malakoff's contention that
the motion was objectively reasonable and filed in good
faith. In re Prudential, 63 F.Supp.2d at 521.
Understandably, Judge Walls only referred to the MJ's
conclusions because the MJ, too, made no fact finding of
bad faith with respect to Malakoff's recusal motion.
In addition to the foregoing reasons, Malakoff's motion
for recusal was based on three additional grounds. A fair
and balanced reading of these grounds, however, renders
questionable at best any finding of intent to delay,
vexatiousness, or bad faith. To sanction an attorney for
questionably egregious conduct unfairly burdens legitimate,
zealous advocacy, especially in a massive national class
_________________________________________________________________
2. Malakoff was not the only person to object to the fairness of the
proposed settlement. The docket entries show that there were many
others, including the Insurance Commissioner for the Commonwealth of
Massachusetts, the Texas Department of Insurance, the Commissioner of
Insurance for California, and the state of Florida. Malakoff, however, was
the only one who filed a motion for Judge Wolin to recuse.
31
action, which in itself is sui juris and requires, as in this
case, innovative and resourceful procedures.
In the Pennsylvania proceedings in Rutt v. Prudential,
Prudential's attorney informed the state judge that Judge
Wolin was "receptive to a discussion" with the state judge
regarding potential ethical improprieties regarding Rutt's
counsel. Malakoff reasonably may have believed that
Prudential's suggestion to contact Judge Wolin implicated
Judge Wolin in an improper plan to aid Prudential in
delaying state court trials like Rutt until the class action
settled. Malakoff believed that evidence produced at the
state court in Rutt and other state cases could "be crucial
in evaluating the fairness of the proposed settlement" in the
federal court. Although later developments revealed that
Malakoff erred on this basis for recusal, such an error is
not a violation of S 1927. An attorney who reasonably
believed in the merits of a motion when filed should not be
sanctioned. To do so subjects every litigating lawyer whose
motion is denied the risk of sanctions.
Malakoff also based his recusal motion on alleged ex
parte contacts between Judge Wolin and David Gross,
Esquire, counsel for a former Prudential employee named
David Fastenburg who was accused of destroying material
Prudential documents. During an October 21, 1996,
hearing, Judge Wolin appeared to refer to a personal
conversation with Mr. Gross by stating, "I know Mr.
Fastenburg's lawyer . . . [a]nd Mr. Gross vehemently denies
on behalf of Mr. Fastenburg that any document was ever
destroyed by Mr. Fastenburg." The Judge's comments come
in connection with charges (later proven) that Prudential
had destroyed material documents. Prudential fired
Fastenburg for allowing the destruction of documents in
the office he supervised. In response, Fastenburg sued for
wrongful termination. In re Prudential, 148 F.3d 283, 343
(3d Cir. 1998). Although it became clear to some by mid-
December, 1996, that Judge Wolin had a legitimate basis
for his October statement3 and that he had not engaged in
improper ex parte communications with Mr. Gross,
Malakoff already had filed his recusal motion on December
3, 1996, well before his belief was challenged.
_________________________________________________________________
3. Mr. Gross's denial was reported in some newspapers.
32
Malakoff believed that Judge Wolin had engaged in
improper ex parte communications because the legitimate
sources of information cited by Judge Wolin never
mentioned a "vehement" denial by Mr. Gross, and Judge
Wolin never denied speaking privately to Mr. Gross. 4 Hence,
while five years later it is clear that Malakoff's perception
concerning Gross was misplaced, it was not unreasonable
or made in bad faith. Again, there is no evidence that
Malakoff's interpretation of these proceedings intentionally
or vexatiously extended or delayed the proceedings.
Lastly, Malakoff claims he based his recusal motion on
the District Court's comments at the October 16, 1996,
conference with state insurance regulators. Malakoff cites
statements made by the Judge that this was "my
settlement," that all of those present must "hang together"
so that they could accomplish what they wanted to
accomplish for their respective interests, and the Judge's
comment that "although I wasn't in all the negotiations, I
wasn't just a pretty face." In the underlying appeal of the
settlement on the merits, the Court reviewed the claims
that these statements of Judge Wolin demonstrated his
bias in favor of the settlement. In re Prudential, 148 F.3d at
340-45. Moreover, the Court of Appeals stated that the
District Court made it clear at the same conference that it
had not yet made any decision regarding the proposed
settlement or the proposed settlement class.
Whether the foregoing incident offered a colorable basis
for a motion to recuse may be arguable, but there is
nothing about it that warrants the imposition of sanctions
under S 1927. Malakoff only needed a single reasonable,
non-vexatious, non-bad faith basis for his recusal motion.
Malakoff had several colorable bases for the motion.
Focusing on the District Court's opinion imposing
sanctions, there is an absence of specific findings of
intentional misconduct, of bad faith or of any delay or
extension of the proceedings. The record reasonably
supports the conclusion that Malakoff had a colorable basis
_________________________________________________________________
4. Malakoff alleged improper ex parte communications, and those
communications, if true, would have been a valid basis for recusal
regardless of the District Court's further orders against Prudential.
33
for his recusal motion. Moreover, in this high profile class
action, Malakoff's motion probably served a very useful
public purpose in removing any mis-perception of the
impartiality of the court on the part of any of the policy
holders, including Malakoff's clients and the many others
who filed objections to the fairness of the proposed
settlement. There is no evidence that the recusal motion
justified sanctions under S 1927 and no findings of wilful
bad faith to support it. Punishment under this statute is
"sparingly applied" and requires a detailed finding that the
proceedings were both `unreasonable and vexatious.' " FDIC
v. Calhoun, 34 F.3d 1291, 1297 (5th Cir. 1994). In this
case, there is an absence of detailed findings and an
absence of a "sparing" application of punishment.
In reviewing the District Court's opinion, it is sometimes
difficult to distinguish between sanctions imposed under
S 1927 and those imposed under the inherent power of the
court. The distinction is crucial, because we hold that the
disciplinary conduct sanctions under the court's inherent
powers violated due process. Sanctions under S 1927 are
compensatory in nature and are intended to compensate
opposing counsel for vexatious and unreasonable conduct
that unnecessarily delayed or extended the litigation. Yet,
in considering "Additional Bases for Sanctions" under
S 1927, the District Court stated that the MJ"concluded
that Mr. Malakoff abused the privilege of practicing before
this Court. His behavior since his arrival on the scene in
this litigation has been deplorable." In re Prudential, 63
F.Supp.2d at 521. This sweeping assessment of the
attorney's conduct, even if it were unchallenged, does not
support a violation of the statute. This unsupported,
conclusory statement reflects a mindset of the inherent
power of the court that colored the District Court's
judgment with respect to the motion for sanctions under
S 1927.
The majority points to the rejection of Malakoff's
argument on the recusal motion on the appeal to this court
from the fairness hearings. This court rejected the
argument but it never suggested or stated that the motion
for recusal was made in bad faith or may have otherwise
violated S 1927.
34
II.
Among the subsequent tag-along allegations filed by Lead
Counsel to bolster their S 1927 cross-motion for sanctions
was Malakoff's criticism of the fee examiner. This Court
considered the issues on the appeal of the underlying
litigation and reiterated Judge Wolin's conclusions that
Malakoff had "misunderstood the fee examiner's role" and
had advanced "hypertechnical arguments" in support of his
motion for disqualification. Judge Walls, in reviewing the
imposition of sanctions, concluded that Malakoff"may have
been entitled to object to Mr. Greenberg's ultimate
conclusion." In fact, the objection resulted in a remand by
the Court of Appeals for further consideration of attorneys'
fees. Judge Walls, however, concluded that Malakoff had no
basis for objecting to the appointment. However, such an
objection in no way violated S 1927; Judge Walls made no
finding that it did, and neither did the MJ. There is no
evidence that the objection unreasonably prolonged the
litigation or that it was made in bad faith. In light of this
Court's remand to the District Court for further
consideration of the attorneys' fees, the objection arguably
had merit. Whether it did or not is insignificant at this
point; what is significant is that there is no evidence that
the objection unreasonably multiplied the litigation in
violation of S 1927.
Judge Walls then turned to the MJ's observations that
Malakoff had failed to provide Judge Wolin with courtesy
copies of his motions before releasing them to the media.
Malakoff responded that he was advised for the first time in
Judge Wolin's December 1996 hearing of the judge's desire
for courtesy copies; up until that point, Malakoff had filed
pursuant to the local rules and provided copies to the
media only upon filing. Judge Walls concluded that even if
the Court were to accept Malakoff's response that he never
released copies of his motions to the press before their
filing, he "should have known that the media would contact
Judge Wolin's chambers upon receipt of any motion papers.
As an experienced attorney, he should have realized that
the clerk's office would not deliver courtesy copies to
chambers immediately." Id. at 521-522. Judge Walls
asserted that Malakoff's failure to accord Judge Wolin the
35
same respect as the media was unacceptable "and indicates
that he acted in bad faith." Id. at 522.
The failure, however, to provide copies of the motion
papers to the Court may have been arguably thoughtless or
even discourteous, but clearly not a violation ofS 1927. The
Court did not find that the failure to supply copies of
Malakoff's motions to Judge Wolin at the time of filing
multiplied or prolonged the litigation. It could not have
done so. In no way did this conduct delay the litigation or
add to the burden of Lead Counsel as to warrant
compensatory sanctions under S 1927. Neither the District
Court nor the MJ could or did make such a finding.
The District Court then examined Malakoff's 23rd and
24th affidavits, both filed within three days of each other
and subsequent to Malakoff's motion for recusal. Malakoff
claimed that the affidavits were warranted. He argued that
the 24th affidavit was intended to supplement and correct
the legal and factual bases for motions then pending before
the District Court. The District Court, however, concluded
that the affidavits merely restated arguments previously
rejected, and repeated allegations of impropriety on the part
of the trial judge initially presented in Malakoff's recusal
motion. Quoting the MJ, Judge Walls found that they
"evidence[d] no purpose other than to embarrass the
Court." Id. This is an arguable conclusion. However, there
is no evidence that they violated S 1927 and the court made
no findings that they multiplied the proceedings and were
filed in bad faith.5
As for Malakoff's problems with the discovery process,
the MJ in his Report and Recommendation pointed to two
incidents which he concluded caused "colossal time delays
and monumental obstacles to the orderly settlement of this
action." These two incidents consisted of: (1) a reluctance to
review the thousands of documents in the proceedings and
_________________________________________________________________
5. The majority offers no explanation how the affidavits multiplied the
litigation and why they justify compensatory compensation to Lead
Counsel as sanctions under S 1927. Class Counsel, including Lead
Counsel, already were awarded fees in the sum of $45 million by the
District Court, conditional on another $45 million in the event 330,000
claims were filed by June 1, 1997. In re Prudential, 148 F.3d at 332.
36
instead requesting a keyword search of precedential
documents in New York; and (2) a disregard of Judge
Wolin's order to parties seeking to present evidence at a
fairness hearing to examine the evidence at the movant's
offices. The MJ found that Malakoff demanded charts
summarizing the evidence. Malakoff, in his defense, argues
that he only requested a "keyword" search when he saw the
enormous volume of material at the document depository,
amounting to hundreds of thousands of documents. As for
the charts, Malakoff argues that he moved to compel their
production only after Lead Counsel refused his request that
they fax them at Malakoff's expense. Judge Walls
concluded that this conduct "unreasonably multiplied the
straightforward discovery process and delayed the ultimate
settlement of the case." In re Prudential, 63 F.Supp.2d at
522.
Judge Walls relies on the MJ's conclusions as to the
effect of these two incidents. Neither he nor the MJ explain,
however, how an effort on the part of a lawyer to simplify
and expedite the discovery process by requesting a
"keyword" search and a chart of the enormous mountain of
documents multiplied or prolonged the proceedings. It is
incomprehensible that a request for a "keyword" search of
precedential documents intentionally multiplied, delayed, or
extended the litigation. No explanation is given how it did
do so. The "keyword" search was denied. Had it been
granted, it would have expedited discovery rather than
delayed it or the settlement. Similarly, it is not
understandable why the request for charts summarizing
the evidence or for the "keyword" search resulted in
"colossal time delays and monumental obstacles" in the
settlement of the litigation. Id. Again, no finding or
explanation is given. The requests may have been
presumptuous, but they could not have violated S 1927. By
no stretch of the imagination could such requests have
unreasonably "multiplied the straightforward discovery
process and delayed the ultimate settlement of the case," as
the Court concluded. Id. In fact, until Lead Counsel
endeavored to reinforce their motion for sanctions with
their tag-along filings, no one had ever complained of
Malakoff's conduct during discovery and no one had ever
invoked Rule 11 for sanctions. The supplementary motion
37
is a belated and unreasonable effort to support the motion
for S 1927 sanctions, and there is no finding that these two
requests were made in wilful bad faith.
Finally, we review the action of the District Court with
respect to Malakoff's Rule 11 and S 1927 motions. Judge
Walls noted in his opinion that the MJ had examined the
two motions and had concluded that they were identical,
only refuted Lead Counsel's December 1999 cross-motion,
did not present an affirmative ground for sanctions, and
improperly side-stepped Rule 11's twenty-one day safe
harbor provisions. Id. at 523. The District Court saw no
merit to Malakoff's objections to these conclusions,
although it acknowledged that Malakoff was entitled to
pursue his S 1927 motion. The Court did not, however,
believe that Malakoff was "entitled to cut-and-paste his
Rule 11 motion and transform it into a S 1927 motion." Id.The District Court ultimately concluded that the two
motions were identical, baseless, and filed in bad faith.
On appeal, Malakoff contends that he was entitled to
seek both S 1927 and Rule 11 sanctions for the same
conduct, and was entitled to pursue the S 1927 sanctions,
regardless of whether Lead Counsel took advantage of Rule
11's safe harbor in withdrawing the offending documents.
He argues that the legal standard for S 1927 sanctions is
different and far more stringent than for Rule 11 sanctions.
He asserts that S 1927 sanctions are warranted against a
party who unreasonably and vexatiously multiplied the
proceedings and that a finding of bad faith is necessary. On
the other hand, Rule 11 sanctions require a more lenient
standard of proof, no requirement of bad faith, and aims at
a party who has made unsupported or frivolous arguments
in the filings. He reasonably believed that the two motions
satisfied the requisite standards because they alleged:
Liaison and Lead Counsel's motion [for sanctions],
supporting briefs, affidavits and other papers referred
to herein were filed unreasonably and vexatiously in
order to multiply the proceedings. Further, these
motions and other papers were frivolous. Finally, these
papers were filed solely to intimidate Michael P.
Malakoff who is objecting to the settlement procedures
38
used, the settlement, and the request for $90 million in
attorneys' fees.
(A-2617).
Malakoff concedes that the motions are largely identical
because they are based on the same conduct. This, he
argues, does not necessarily render them improper. The
standards and purposes of each differ. He also denies that
his motions only refute the cross-motion of Lead Counsel.
On the contrary, he argues his motions explicitly state that
Lead Counsel's motion for sanctions was filed frivolously in
bad faith for an improper purpose, and unreasonably and
vexatiously multiplied the proceedings.
We do not need to decide whether the motions were
identical, whether they contained affirmative grounds for
sanctions, or whether the S 1927 motion was for the
purpose of side-stepping Rule 11's safe harbor provision.
We must determine whether the District Court erred when
it "conclud[ed] that these identical motions were baseless
and filed in bad faith." Id. at 523. The District Court made
no findings in this respect; it merely announced its
conclusion. Id. We do not know from this conclusory
statement whether the motions were baseless in law or in
fact, and have no explanation of how they violatedS 1927.6
In summarizing the sanctions imposed on Malakoff under
S 1927, the District Court "adopt[ed] Magistrate Judge
Pisano's conclusion that `it is clear that, after viewing his
entire course of conduct over more than three years before
this Court, Mr. Malakoff takes an impractical, hyper-
technical, and unreasonable approach to litigation.' " Id.The purpose of S 1927, however, is not to alter the style,
_________________________________________________________________
6. Judge Walls held that both motions were only defenses to Lead
Counsel's S 1927 motion and advanced no coherent legal argument as to
why they should be sanctioned; that by submitting identical papers on
the two sanctioned motions Malakoff abused the sanctions process. Id.The motions are different in that Rule 11 does not require a finding of
bad faith. Even though they may have been filed as a defense to Lead
Counsel's motion for sanctions, it is arguable that this constituted an
abuse of the sanctions process. Moreover, there is no evidence or finding
that they prolonged the proceedings and were made in violation of the
Statute.
39
personality, practicality, or even the judgment of a trial
lawyer. It empowers the punishment of a lawyer who, in
wilful bad faith, unreasonably and vexatiously multiplies
the proceedings.
Significantly, the MJ recommended "that pursuant to
S 1927, Mr. Malakoff should pay to Class Counsel the sum
of $100,000 and this amount of money is justifiably
significant and will require Mr. Malakoff to suffer sacrifices
in order to pay." In formulating this harsh and draconian
sanction, it is obvious from reading the MJ's Report and
Recommendation that he ignored the statute. The statute
does not empower a court to fine a lawyer for poor
lawyering or even misconduct. The statute provides for
sanctions in the form of compensation for provable loss of
time and additional expenses incurred by the offended
lawyer as a result of the alleged unreasonable delaying
action. The record here is devoid of any evidence proving
"the excess costs, expenses and attorney's fees" reasonably
incurred because of Malakoff.
The majority acknowledges that Judge Walls did not
make express findings of bad faith and did not rely upon
any of "the above-specified conduct in particular, [but]
based his finding of the requisite bad faith and vexatious
conduct on the totality of the campaign Malakoff waged
during the course of this litigation." (Maj. op. at 21).
Notwithstanding, it adopts the "conclusion" reached by the
MJ and the District Court. (Maj. op. at 22). However,
Malakoff and his clients were captives of the order
consolidating their state cases in the New Jersey federal
court.7 Malakoff respectfully and professionally satisfied the
procedures and tools for objection provided by statute and
the rules of court. Falling back on the "totality of the
campaign" in lieu of specific findings of wilful bad faith and
evidence of excess costs and time incurred by Lead Counsel
is not, in my opinion, an acceptable basis for sanctions
_________________________________________________________________
7. Prudential's conduct had been under investigation for several years.
Malakoff filed suit in behalf of his clients in two state courts. Malakoff
did not appear in the New Jersey District Court until after the Judicial
Panel on Multidistrict Litigation centralized all the cases before Judge
Wolin on August 3, 1995.
40
under a penal statute and ignores the "detailed finding"
required under FDIC v. Calhoun, supra at 34.
It appears clear that the MJ was influenced by his
mindset on the inherent power of the court. This is shown
by his statement just prior to the MJ's determination to
impose monetary sanctions pertaining to Malakoff's
behavior. Yet, the MJ acknowledges that "[w]hen viewed
individually, each single instance of misbehavior by Mr.
Malakoff might not warrant the sanction arrived at by the
Court." (Maj. op. at 21) Also significant, Lead Counsel never
introduced evidence of increased costs and time to support
their cross-motion for sanctions. Moreover, this court has
stated that before a court can order the imposition of
attorneys' fees under S 1927, it must find bad faith on the
part of the offending attorney that is wilful. Zuk v. Eppi of
the Med. Coll. of Pa., 103 F.3d 294, 297 (quoting Williams
v. Giant Eagle Mkt., 883 F.2d, 1184, 1191 (3d Cir. 1989)).
There are no such findings and no basis for them.
III.
Finally, I think a reviewing court should carefully note
the role of an objecting lawyer, especially in as complex and
massive class action as was this. Malakoff opposed a large
battery of lawyers intent on reaching a settlement and the
payment of huge fees. Class actions are unique, each is
different, and here many state and federal actions were
consolidated for disposition. An objecting lawyer should not
be expected to be a quiescent, listless participant in the
proceedings without expressing contrary view or theories;
the lawyer should have reasonable leeway for expression
and argument.8 In another class action, this Court recently
_________________________________________________________________
8. Malakoff concedes that he was a zealous advocate but denies that he
acted in bad faith. Amicus Curiae Public Citizen Litigation Group argues
that objectors like Malakoff play a vital but difficult role in class
action
settlements. Public Citizen argues that objectors should be encouraged,
not chilled, because of the beneficial role they play. Objectors and their
counsel pursue legitimate and important goals by seeking to block or
significantly improve class settlements. "Objecting is often the only way
to protect some class members' interests, even if class members have the
opportunity to opt out of the class." Amicus Br. at 10-11.
41
noted some of the uncertainties and difficulties that beset
the court in litigation where most of the parties are not
personally represented. We stated that there is a
recognition
that in the class action context there is no way for"the
class" to select, retain, or monitor its lawyers in the
way that an individual client would, and because of
doubts that a typical lead plaintiff . . . is a terribly good
agent for the class.
In re Cendant Corp. Litig., 264 F.3d 201, 282 (3d Cir. 2001).
Because of the conflicting interests between Lead
Counsel and this extremely large class over fees to be
derived from the settlement, there is a high degree of
professional responsibility that they owe a largely absent
class who depend on lawyers they never saw or retained.
The degree of responsibility is further enhanced in this case
because the class consists of ordinary policy holders and
not sophisticated institutions or investors. Therefore, a
lawyer with objector status plays a highly important role for
the class and the court because he or she raises challenges
free from the burden of conflicting baggage that Class
Counsel carries. The objecting lawyer independently can
monitor the proposed settlement, costs, and fees for Class
Counsel and, thus, aid the court in arriving at a fair and
just settlement for the members of the class who
individually are largely unrepresented.
When objecting counsel raises pertinent questions
concerning the conduct of Lead Counsel, the terms of the
proposed settlement, and the costs and fees to be paid from
the settlement fund, he or she not only renders a service to
the class, but also aids the court. The record reasonably
supports the conclusion that Malakoff's objector status had
the wholesome effect of providing a careful scrutiny of the
fairness of a gigantic settlement affecting millions of
policyholders nationwide. He indisputably enhanced the
amount of the settlement, and secured a reconsideration of
class counsel fees.
After all, Class Counsel has very little communication
with the members of the class and knows little about them
individually. The members of the class play little or no role
42
in the selection of lead or liaison counsel. Defendants'
counsel and Class Counsel reach a point where they are
cooperating in an effort to consummate the settlements.
Even the court at this point may be inclined to favor
settlement of a huge, complex action, and the general
atmosphere becomes largely cooperative.
Under such circumstances, the motions and arguments
of an objecting lawyer understandably may be discordant
and disagreeable, but not necessarily unreasonable. The
objections may be worthy and, at least useful because, as
the distinguished historian, Allan Nevins, wrote many years
ago, from the conflict of ideas comes crystallization of
thought. Objections serve a highly useful vehicle for the
members of the class and the public generally; they require
consideration by the court and its disposition of them
usually provides reassurance that the settlement and the
fees approved are fair and just.
Thus, I believe that as counsel for objecting plaintiffs,
Malakoff played a useful and even constructive role in this
litigation. He may have been overzealous and tenacious,
but Lead Counsel, as experienced, seasoned class action
lawyers, are no shrinking violets. They do not complain that
Malakoff was deceptive or mendacious. On the other hand,
his services, acknowledged by Lead Counsel, enhanced the
class settlement by $50 million, and he succeeded in
having this Court on appeal remand for further
consideration the $90 million fee provided by the
settlement.
For the reasons set forth above, I would also reverse the
imposition of the severe sanctions imposed on Malakoff
under S 1927.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
43