Kenneth Ferguson v. Valero Energy Corp ( 2011 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 11-2007
____________
KENNETH L. FERGUSON,
Administrator of The Estate of John Jerry Ferguson, Jr., Deceased;
JOHN J. FERGUSON, SR.
v.
VALERO ENERGY CORPORATION
D/B/A DELAWARE CITY REFINERY;
PREMCOR REFINING GROUP, INC.
A/K/A PREMCOR, INC., D/B/A DELAWARE CITY REFINERY
*MCCANN , SCHAIBLE & WALL, LLC;
*WAYNE A. SCHAIBLE,
Appellants
*(Pursuant to Rule 12(a), Fed. R. App. P.)
____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 06-cv-00540)
District Judge: Honorable Mary A. McLaughlin
____________
Submitted Under Third Circuit LAR 34.1(a)
December 6, 2011
Before: HARDIMAN, BARRY and VAN ANTWERPEN, Circuit Judges.
(Filed: December 6, 2011)
____________
OPINION OF THE COURT
____________
HARDIMAN, Circuit Judge.
Attorney Wayne A. Schaible and his law firm, McCann, Schaible & Wall, LLC
(the Firm), appeal the District Court‘s orders imposing sanctions. We will affirm.
I
Because we write for the parties and their counsel, who are well acquainted with
the case, we recount only the essential facts and procedural history.
John Ferguson died tragically from nitrogen asphyxiation while working as a
boilermaker at an oil refinery. A wrongful death and survival action ensued against
Valero Energy Corporation and Premcor Refining Group, Inc. The District Court made
several evidentiary rulings in limine, and the case proceeded to trial.
During his opening statement, attorney Schaible repeatedly violated the Court‘s
orders, which prompted Defendants to move for a mistrial. That motion was withdrawn,
however, after a conference with the judge, a curative instruction to the jury, and a
promise from Schaible that ―his conduct would not be repeated.‖ Unfortunately, the
direct examination of Schaible‘s first witness provoked a flurry of objections, nearly all of
which the Court sustained. This pattern continued during Schaible‘s second direct
examination. The Court found Schaible‘s conduct ―very disturbing,‖ and counsel for
2
Defendants contemplated a second motion for a mistrial. The following morning, defense
counsel so moved and the motion was unopposed by Schaible‘s partner and co-counsel,
Brian A. Wall, Jr.
Soon after the mistrial was granted, Defendants moved for sanctions pursuant to
28 U.S.C. § 1927 and the District Court‘s inherent power. The Court granted the motion
and set a briefing schedule to help it determine the amount of sanctions. In the meantime,
the parties prepared for a second trial. On the third day of jury selection, the case settled
and the parties executed a routine settlement agreement. After additional proceedings, the
District Court ordered Schaible and the Firm to pay Defendants $100,436.25 in sanctions.
Schaible and the Firm filed this timely appeal.1
II
Appellants challenge both the propriety and the amount of the sanctions. We will
affirm largely for the reasons stated by Judge McLaughlin in her prudent and thorough
consideration of the matter.
A
We review an order awarding sanctions under 28 U.S.C. § 1927 or the court‘s
inherent power for an abuse of discretion. In re Prudential Ins. Co. Am. Sales Practice
Litig. Agent Actions, 278 F.3d 175, 181, 189 (3d Cir. 2002). ―When the procedure the
1
The District Court exercised jurisdiction pursuant to 28 U.S.C. § 1332. Our
jurisdiction lies under 28 U.S.C. § 1291.
3
court uses to impose sanctions raises due process issues of fair notice and the right to be
heard, the standard of review is plenary.‖ Adams v. Ford Motor Co., 653 F.3d 299, 304
(3d Cir. 2011) (citing Martin v. Brown, 63 F.3d 1252, 1262 (3d Cir. 1995)).
―Any attorney or other person admitted to conduct cases in any court of the United
States . . . 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. § 1927.
―Section 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.‘‖ In re Schaefer Salt
Recovery, Inc., 542 F.3d 90, 101 (3d Cir. 2008) (quoting Prudential, 278 F.3d at 188).
―[T]he principal purpose of sanctions under § 1927 is ‗the deterrence of intentional and
unnecessary delay in the proceedings.‘‖ Id. (quoting Zuk v. E. Pa. Psychiatric Inst. of the
Med. Coll. of Pa., 103 F.3d 294, 297 (3d Cir. 1996)).
Federal courts possess the inherent power to ―assess attorney‘s fees when a party
has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.‖ Chambers v.
NASCO, Inc., 501 U.S. 32, 45–46 (1991) (quoting Alyeska Pipeline Serv. Co. v.
Wilderness Soc’y, 421 U.S. 240, 258–59 (1975)) (internal quotation marks omitted). The
power extends to the regulation of attorneys as well. See Prudential, 278 F.3d at 189;
Martin, 63 F.3d at 1265. ―A court may resort to its inherent power to impose sanctions
4
even if much of the misconduct at issue is also sanctionable under statute or rules of
court.‖ Prudential, 278 F.3d at 189. But ―[a] court must . . . exercise caution in invoking
its inherent power, and it must comply with the mandates of due process, both in
determining that the requisite bad faith exists and in assessing fees.‖ Chambers, 501 U.S.
at 50; accord Prudential, 278 F.3d at 189, 191. Thus, ―a finding of bad faith is ‗usually‘
required‖ before inherent-power sanctions are ordered, and generally a court should not
resort to such sanctions unless ―‗the conduct of a party or an attorney is egregious and no
other basis for sanctions exists.‘‖ Prudential, 278 F.3d at 181 & n.4, 189 (quoting
Martin, 63 F.3d at 1265).
The imposition of sanctions [where a party ―shows bad faith by delaying or
disrupting the litigation or by hampering enforcement of a court order‖]
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 ―vindicat[ing] judicial authority without resort to the more
drastic sanctions available for contempt of court and mak[ing] the
prevailing party whole for expenses caused by his opponent‘s obstinacy.‖
Chambers, 501 U.S. at 46 (last two alterations in original) (quoting Hutto v. Finney, 437
U.S. 678, 689 n.14 (1978)).
B
Schaible and the Firm argue that sanctions were unwarranted for three reasons.
First, they claim the broad release language in the parties‘ settlement agreement—which
resolved ―any and all differences and claims‖—applies to Defendants‘ ―claim‖ for
sanctions. This argument fails for the simple and obvious reason that Schaible and the
5
Firm were not parties to the settlement agreement. That contract bound Plaintiffs and
Defendants, and ―legal representatives‖ are mentioned only in a paragraph in which
Plaintiffs and their legal representatives agree to release Defendants from ―any and all
claims.‖ The agreement is signed by the Firm in its capacity as counsel for Plaintiffs, and
attorney Robert E. McCann—not Schaible—signed for the Firm. Thus, the settlement
agreement does not in any way purport to release Plaintiffs‘ counsel.2
Appellants next argue that sanctions were inappropriate under § 1927 because the
proceedings were not multiplied as a result of the mistrial. This claim is factually
incorrect, however, because the trial was delayed several months, which caused additional
pretrial motions practice, a second jury selection process, and some duplication of trial
preparation efforts. See Ferguson v. Valero Energy Corp., No. 06-540, 2010 WL
2164493, at *8 (E.D. Pa. May 27, 2010).
Finally, Appellants claim that Schaible either did not violate any court order or, if
he did violate a court order, he did not do so in bad faith. The notion that Schaible did
not run afoul of the District Court‘s orders is fanciful. During his opening statement and
2
We also note that had Schaible and the Firm negotiated their own release from
sanctions during the settlement talks with respect to their clients‘ suit, they could have
been subject to disciplinary action under the conflict-of-interest provisions of the
Pennsylvania Rules of Professional Conduct. See Pa. R. Prof‘l Conduct 1.7 (―[A] lawyer
shall not represent a client if the representation involves a concurrent conflict of interest.
A concurrent conflict of interest exists if . . . there is a significant risk that the
representation of one or more clients will be materially limited . . . by a personal interest
of the lawyer.‖).
6
examinations of the first two witnesses, Schaible broached several topics that the Court
had ruled either inadmissible, or inadmissible subject to reconsideration based on a proper
foundation being laid at trial. Defense counsel objected more than thirty times and,
remarkably, almost every objection was sustained. The Court gently reminded Schaible
to comply with its orders more than once, and held seven sidebar conferences during the
opening statement and testimony of the first two witnesses as a result of Schaible‘s antics.
When Defendants moved for a mistrial following opening statements, the Court held an
in camera conference, which was later summarized on the record. The Court considered
declaring a mistrial, recognizing there had been numerous violations of its in limine
orders, but defense counsel relented in favor of a curative instruction and Schaible‘s
assurances that he would comply with the orders going forward. See id. at *5.
Appellants would have us believe that these repeated breaches of the District
Court‘s orders were all a misunderstanding. Schaible claims he was confused because the
Court‘s in limine orders permitted certain deposition testimony to be read into the record,
and because some of that testimony touched upon issues the Court had otherwise
excluded from evidence. We are unpersuaded. Any confusion on Schaible‘s part should
have been resolved following the first sidebar and chambers conference. But Schaible
continued to flout the Court‘s orders even after these admonitions. Accordingly, the
District Court did not abuse its discretion when it sanctioned Schaible after finding that
7
he breached the Court‘s orders in bad faith.3
C
Appellants also challenge the amount of the sanctions imposed by the District
Court. They claim: (1) the fees awarded were not reasonable or necessary; (2) costs and
expenses were awarded contrary to statute; and (3) they were denied due process.
We readily conclude that the amount of the sanctions was reasonable. The District
Court trimmed the final amount from an already conservative submission of the fees,
costs, and expenses that the defense team incurred during the two days leading up to the
mistrial. Notwithstanding Appellants‘ assertions, the District Court reviewed the
requested amount for reasonableness and properly declined to review for ―necessity.‖
The District Court merely sought to compensate Defendants for the fees and costs they
incurred because of Schaible‘s misconduct, and an inquiry into the ―necessity‖ of each
expense would not have served that objective.
Appellants also rely on the statutory limitations imposed on fees assessed under 28
U.S.C. § 1927, including the types of expenses that may be awarded as set forth in 28
3
Our decision in this regard is buttressed by the fact that Schaible began defying
the Court‘s orders during discovery. The Court held a telephone conference on the record
after it was alerted to certain conduct by Schaible during depositions, including: asking
for opinion testimony from lay deponents, asking deponents questions about topics of
which they had no personal knowledge, and ―clapping‖ at a deponent. Schaible assured
the Court that he would cease this abusive behavior, but repeated some of it shortly
thereafter, leaving the Court no choice but to sanction him for his discovery abuses. See
Ferguson, 2010 WL 2164493, at *2–3.
8
U.S.C. § 1920. We need not decide whether the Court‘s awarded sanctions are
inconsistent with these provisions, however, because the District Court made clear it was
exercising its inherent power as well. Even though inherent-authority sanctions are
generally disfavored where another provision—such as § 1927—authorizes sanctions, our
decision in Prudential allows a district court to depart from this preference when the
conduct is egregious or where the statutory provision is not adequate to sanction the
conduct. Here, the District Court carefully explained in its memorandum opinion that
limiting its award to those categories of costs in § 1920 would not adequately compensate
Defendants. Therefore, it was not improper for the District Court to resort to its inherent
power to fully compensate Defendants.
Finally, we turn to Appellants‘ due process claim. Parties and attorneys are
entitled to notice and the opportunity to be heard before sanctions are imposed.
Prudential, 278 F.3d at 191 (citing Martin, 63 F.3d at 1262); see Chambers, 501 U.S. at
50. Here, Defendants‘ motion for sanctions provided notice, and the District Court
scheduled a hearing. Instead of appearing for the hearing, Schaible and the Firm
submitted an affidavit presenting their side of the matter. In addition, after sanctions
were assessed, the Court allowed Appellants to submit a letter setting forth their reasons
for seeking discovery into Defendants‘ claimed expenditures. Thus, the Court afforded
Schaible and the Firm all the process that was due. They were not entitled to discovery or
a hearing on the amount of sanctions. See Jones v. Pittsburgh Nat’l Corp., 899 F.2d
9
1350, 1358–59 (3d Cir. 1990) (―[A] district court in the exercise of its sound discretion
must identify and determine the legal basis for each sanction charge sought to be
imposed, and whether its resolution requires further proceedings, including the need for
an evidentiary hearing.‖).
III
For the foregoing reasons, we will affirm the District Court‘s judgment in all
respects.
10