Amer Society Testing v. Corrpro Co Inc

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
3-6-2007
Amer Society Testing v. Corrpro Co Inc
Precedential or Non-Precedential: Precedential
Docket No. 05-4164
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-4164
AMERICAN SOCIETY FOR TESTING & MATERIALS,
Appellant
v.
CORRPRO COMPANIES, INC., MICHAEL BAACH;
WARREN ROGERS; WARREN ROGERS & ASSOCIATES,
INC.
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 02-07217)
Honorable J. Curtis Joyner, District Judge
Argued December 14, 2006
BEFORE: FISHER, CHAGARES, and GREENBERG, Circuit
Judges
(Filed: March 6, 2007)
Marc J. Sonnenfeld (argued)
Karen Pieslak Pohlmann
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103-2921
Attorneys for Appellant
William W. Jacobs (argued)
Thompson Hine
127 Public Square
3900 Key Center
Cleveland, OH 44114
Attorneys for Appellees
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
In this declaratory judgment action plaintiff, American
Society for Testing & Materials (“ASTM”), appeals from the
district court’s order dated August 10, 2005, and entered August
12, 2005, granting judgment in favor of defendants Corrpro
Companies, Inc. (“Corrpro”), Michael Baach (“Baach”), Warren
Rogers Associates, Inc. (“WRA”), and Dr. Warren Rogers
(“Rogers”) (collectively “defendants”). Am. Soc’y for Testing
& Materials v. Corrpro Cos., No. Civ. A. 02-7217, 2005 WL
1941653 (E.D. Pa. Aug. 10, 2005) (“ASTM”). Specifically, the
district court found that ASTM had a duty in accordance with its
bylaws to indemnify defendants for their attorney’s fees and
settlement costs in defending against and settling an underlying
suit as well as attorney’s fees defendants incurred in this action.
For the reasons that follow, we will affirm the order of August
12, 2005, in part, dismiss the appeal in part, and remand the case
to the district court for further proceedings.
II. FACTS AND PROCEDURAL HISTORY
A. The Parties
ASTM is a Pennsylvania non-profit corporation whose
mission is to provide a forum for volunteer technical experts to
2
develop and publish standards for materials, products, systems,
and services. ASTM also develops methods for testing different
properties and materials. ASTM has an approximate total
membership of 30,000, drawing individuals from academic
institutions, government agencies, consulting groups, testing
laboratories, and private corporations. ASTM has 136 technical
committees that do the actual work of developing standards.
These committees are broken down further into 2,200
subcommittees and some 6,000 different task groups. ASTM
has a 25-member Board of Directors (the “Board”) that meets
twice a year and that governs the standard-setting process. The
Board, in turn, has a six-member Executive Committee that acts
on its behalf when the full Board is not in session. Out of
ASTM’s 30,000 members, approximately 22,000 participate in
technical committees and/or subcommittees.
Defendant Corrpro is in the business of providing
corrosion control and cathodic protection (i.e., rust/corrosion
prevention) services. At all times relevant to this action,
defendant Baach was the Executive Vice President of Sales and
Marketing for Corrpro. Defendant WRA is primarily in the
business of providing mathematical and statistical consulting
services. At all times relevant to this action, Rogers was
President of WRA. In addition, Rogers was a member of
Corrpro’s Board of Directors from sometime in the mid-1990s
until 2001 or 2002.
B. ASTM’s Policies and Procedures
ASTM requires individuals applying for membership to
disclose their corporate affiliations. But ASTM’s policies,
procedures, and guidelines do not prohibit an individual from
participating in a standard-setting activity by reason of his
association with or employment by a company with a financial
interest in the technical standard on which he is working.
ASTM does not pay or otherwise compensate its
members for time they expend on standard-setting activities.
ASTM, however, does provide protection to its members with
respect to litigation stemming from that activity. Specifically,
under ASTM Bylaw No. 10.1:
3
Any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or
completed action, suit or proceeding whether civil,
criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer,
employee or agent of the Society, or by reason of
the fact that he is or was serving on a committee
operating under the auspices of the Society, shall
be indemnified by the Society against expenses
(including attorney’s fees), judgments, fines and
amounts paid in settlement actually and reasonably
incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in, or not
opposed to, the best interests of the Society and,
with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was
unlawful.
ASTM, 2005 WL 19141653, at *4. ASTM Bylaw No. 10.1
essentially tracks 15 Pa. Cons. Stat. Ann. § 5741 (West 1995),
which governs indemnification for third-party actions as they
pertain to nonprofit corporations.1
1
Specifically, 15 Pa. Cons. Stat. Ann. § 5741 provides that:
Unless otherwise restricted in its bylaws, a nonprofit
corporation shall have power to indemnify any person
who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of
the corporation), by reason of the fact that he is or was a
representative of the corporation . . . against expenses
(including attorneys’ fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by
him in connection with the action or proceeding if he
acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of
the corporation . . . . The termination of any action or
proceeding by judgment, order, settlement or conviction
or upon a plea of nolo contendere or its equivalent shall
4
C. Development of the ES-40 Standard
In 1988, the United States Environmental Protection
Agency (“EPA”) promulgated regulations under the Resource
Conservation and Recovery Act mandating the upgrading of all
underground storage tanks (“USTs”) by December 22, 1998. 40
C.F.R. § 280.21(a). The regulations permit the use of the
following three alternative methods for upgrading USTs: (1)
complete replacement; (2) replacement of the USTs’ interior
lining only; or (3) corrosion prevention through cathodic
protection in appropriate circumstances.2 See id. at § 280.21(b).
Prior to 1994, the only method for assessing USTs over
ten years of age that the EPA and states adhering to EPA
regulations had approved involved manned-entry internal
inspections. Such inspections most often led to the replacement
of the USTs’ interior lining, rather than to cathodic protection.
In July 1993, Randall Nelson (“Nelson”), an EPA employee,
not of itself create a presumption that the person did not
act in good faith and in a manner that he reasonably
believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal
proceeding, had reasonable cause to believe that his
conduct was unlawful.
2
In its brief ASTM explains that cathodic protection is:
a process through which a low-voltage electrical charge
is administered into the soils surrounding the UST.
Metal rods are driven into the soil several feet from the
UST, and wires are installed to connect the rods to the
UST, establishing an electrical circuit. The flow of
electricity through this circuit retards corrosion of the
metallic UST. Because cathodic protection only slows
future corrosion, and does not repair corrosion that has
already occurred, it is not an appropriate upgrade for
tanks that have already experienced threshold levels of
corrosion.
Appellant’s br. at 6 n.1 (citing J.A. at 949-50); see also appellees’ br. at
5 n.1.
5
invited a number of persons, including Baach and Rogers, to a
preliminary meeting regarding the development of an ASTM
standard3 which would permit alternate methods of UST
assessment, including the evaluation of soil conditions around
USTs to assess whether and when those USTs would corrode
(which, in turn, would determine the most appropriate form of
upgrade for a particular UST). Notably, in the late 1970s,
Rogers had developed a statistical method for assessing and
predicting when USTs would corrode and fail by evaluating
variables in the soil surrounding them. The method that Rogers
developed came to be known as “meantime to corrosion failure”
or “MTCF.” In the mid-1980s, WRA began regularly
3
As the district court explained:
[A] standard first begins to be developed through the
formation of a task force or group, which is a small
group of members who work to develop an initial
consensus and first draft of something and then move it
forward. . . . After the completion of the task group’s
work, the proposed standard will move to the
subcommittee level, where it is first officially balloted.
There is a percentage affirmative requirement and any
negative votes that are submitted must be considered by
the originating subcommittee. From there, the proposed
standard moves to the main committee, which can vary
in size from 50 to over 1,000 members with every
member receiving a ballot. There are percentage return
requirements, i.e., a certain percentage of committee
members must cast their ballots and a certain percentage
must vote affirmatively. From there, all 22,000 members
of ASTM working on technical committees have the
opportunity to review the proposed standard and then it’s
reviewed by the 9-member Committee on Standards,
which looks to see whether or not the process of ASTM
has been followed and that the committee which
developed the standard was balanced (i.e., that the
committee was made up of individuals with diverse areas
of expertise and divergent economic, business, etc.
interests).
ASTM, 2005 WL 1941653, at *2 (internal citations omitted).
6
subcontracting with Corrpro for it to do the field work necessary
for WRA to make its storage tank assessments. Most of the
major oil companies retained WRA to implement Rogers’
procedure so that the removal and replacement of existing USTs
could be prioritized.
Nelson also invited Derick Sharp (“Sharp”), President of
Armor Shield Corporation (“Armor Shield”), to attend the
meeting. Armor Shield was in the business of providing
equipment, materials, and installation services with respect to the
interior linings of USTs, as well as manned-entry internal
inspections of USTs. According to the defendants, at that time,
given the lack of approved alternatives, Armor Shield enjoyed a
“virtual de facto monopoly for UST assessments and upgrades.”
Appellees’ br. at 6.4
Nelson’s meeting resulted in the creation of an ASTM
task group charged with developing a draft standard regarding
alternative methods of assessing USTs. The task group’s
membership included Baach and Thomas Mehalick
(“Mehalick”), who represented Corrpro; Rogers and William
Jones (“Jones”), who represented WRA; Tony Rieck, who
represented the National Leak Prevention Association; and
Sharp and Hirsch Caudill (“Caudill”), who represented Armor
Shield. The task group’s work resulted in ASTM promulgating
an emergency standard (“ES-40”) in November 1994 that
recognized, among other things, that Rogers’ MTCF statistical
method was a viable, non-invasive method for evaluating
whether the use of cathodic protection could result in a
successful upgrade of a UST. But because it was an emergency
standard, ES-40 had a “life span” of only two years at which
time it would expire. Not surprisingly, according to a finding
the district court made, Sharp and Caudill were “adamantly
opposed” to the creation of ES-40 and “frequently endeavored to
disrupt and impede” the group’s progress. ASTM, 2005 WL
4
Even if defendants overstate Armor Shield’s position in the
market, our result would not be different as it does not turn on this point.
In any event, regardless of Armor Shield’s market share, it is obvious
that the adoption of a standard recognizing MTCF as a viable, non-
evasive method for evaluating USTs was not in its interest.
7
1941653, at *4. Additionally, the court indicated that Sharp
“frequently threatened to sue various individuals and companies
on numerous occasions throughout the standard development
process.” Id. As will be seen these threats were not idle.
D. Creation of GS-148 and Armor Shield’s Appeal to
the ASTM’s Committee on Standards
Sometime after the promulgation of ES-40, the G-01
(corrosion) committee assumed control over the development of
a permanent standard. It also appears that ASTM’s E-50
(environmental assessment committee) was involved in the
development of the standards.5 While Rogers did not serve on
the G-01 committee, Sharp not only served on that committee
but also opposed the drafting of a permanent standard based on
ES-40. Notwithstanding Sharp’s objections, in October 1998,
the G-01 Committee and ASTM’s entire membership voted to
create a permanent standard that was designated G-158. Like
ES-40, G-158 recognized MTCF as a viable, non-invasive
method for evaluating whether a UST could be upgraded via
cathodic protection. During the above process, ASTM neither
restricted nor suspended Baach or Rogers from participating in
the task group or the E-50 and G-01 committees, and similarly
did not tell either Baach or Rogers that his activities were either
unwelcome or improper.
Acting on behalf of Armor Shield, Sharp immediately
appealed the decision to create the G-158 standard to ASTM’s
Committee on Standards (“COS”) arguing, among other things,
that ASTM members with a commercial stake in the creation of
G-158 were overrepresented on the G-01 committee and that the
process used in the creation of the permanent standard was
inconsistent with ASTM’s standard-setting procedures. Sharp
further argued that the G-158 standard would have anti-
competitive effects and violate antitrust laws. The COS denied
5
We are uncertain to what extent, if any, membership in the task
group and the E-50 and G-01 committees differed.
8
Sharp’s appeal, finding that the composition of the G-01
committee did not violate ASTM’s condition of balance6 and
that the committee had followed both ASTM’s procedural
requirements as well as its criteria for due process. Sharp
appealed from the COS’s decision to the Board, raising many of
the same issues he had argued previously. The Board, after
hearing from Philip Schworer, Sharp’s attorney, Victor Chaker,
chairman of the G-01 committee, and James Bushman
(“Bushman”), a member of the G-01 committee,7 affirmed the
COS’s findings, concluding that G-158 had been developed
properly. Thereafter, the G-158 standard was officially adopted
and released for publication.
E. The Armor Shield Litigation
The dispute regarding the adoption of the ES-40 and G-
158 standards reflected a highly technical struggle between
proponents of different methods of upgrading USTs, setting the
stage for litigation between them. Sure enough, on November
12, 1998, less than a month after adoption of G-158 and its
publication as a permanent standard, Armor Shield instituted an
action charging antitrust violations in the United States District
Court for the Northern District of Ohio (the “Armor Shield
litigation”). Armor Shield named as defendants, among others,
ASTM, Corrpro, Harco Technologies, Inc. (a Corrpro
subsidiary), WRA, Baach, Rogers, and Bushman. The suit,
however, did not include Mehalick or Jones, or any other
employees or representatives of Corrpro or WRA. In its
complaint, Armor Shield alleged, among other things, that the
6
To be “balanced,” a committee “could not be made up of more
members who are or were affiliated with a commercial ‘producer’ than
members who were classified as ‘users’ or ‘general interest.’” ASTM,
2005 WL 1941653, at *4 n.1 (internal citation omitted).
7
Bushman, for a time, also had served as Chairman of the E-50
(environmental assessment) committee and was one of Corrpro’s co-
founders. Bushman’s affiliation with Corrpro ended in September 1993,
when, pursuant to a negotiated severance agreement, he formally
resigned as an officer, employee, and member of Corrpro’s board of
directors.
9
defendants had restrained trade by “conspiring with one another
to manipulate and violate ASTM’s regulations that all standards
be developed through a rigorous and unbiased review process so
as to promulgate the emergency ES-40 and G-158 permanent
standards.” ASTM, 2005 WL 1941653, at *4.
It is undisputed that the defendants strongly denied the
allegations contained in Armor Shield’s complaint and defended
themselves vigorously in the action. Nonetheless, effective
December 14, 2001, the parties settled the Armor Shield
litigation, with the defendants paying Armor Shield $1.4 million.
The settlement agreement did not apportion responsibility among
the defendants, but Rogers and WRA contributed $50,000 to the
total settlement and Baach and Corrpro contributed $1.225
million.8 ASTM, 2005 WL 1941653, at *6 (“The settlement
agreement did not specify how much of those amounts were
attributable to Warren Rogers or Michael Baach individually or
to separate the individual defendants from the corporate entities
with which they were affiliated.”). The settlement agreement
provided for Armor Shield’s complaint to be dismissed with
prejudice, without any findings or admissions of wrongdoing by
Baach, Rogers, or ASTM, or, for that matter, any of the
defendants.
The defendants in the Armor Shield litigation, who are
the defendants here as well, incurred substantial costs and
expenses. Specifically, in addition to their contributions to the
settlement, Rogers and WRA incurred $338,083.85 in attorney’s
fees, costs, and expenses. Ultimately, WRA paid the total
amount on behalf of both itself and Rogers.9 Similarly, in
8
ASTM did not make a contribution towards the settlement. We
note that the Rogers-WRA and Baach-Corrpro contributions do not
equal $1.4 million, and thus conclude that other defendants in the
underlying Armor Shield litigation, not involved in this litigation, must
have contributed the balance.
9
On March 28, 2002, Rogers and WRA’s Board of Directors
entered into a formal agreement whereby Rogers agreed to remit any
monies he recovered from ASTM (pursuant to its indemnification
provision) to WRA as reimbursement for the attorney’s fees, costs, and
10
addition to paying their share of the settlement costs, Baach and
Corrpro incurred $615,121.68 in attorney’s fees, costs, and
expenses. Of that amount, $80,408.61 was attributable to Baach
alone, as he was represented in the litigation both jointly with
Corrpro and individually. Although Corrpro advanced Baach’s
individual legal fees, National Union Fire Insurance Company of
Pittsburgh (“National Union”), Corrpro’s Director’s and
Officer’s (“D&O”) liability insurance carrier, reimbursed it for
these expenses. Moreover, after the exclusion of a $150,000
deductible, National Union reimbursed Corrpro for 50% of the
reasonable defense costs and expenses it paid to its own law
firm. Ultimately, Corrpro incurred a total of over $300,000 in
unreimbursed legal fees, costs, and expenses defending against
the Armor Shield litigation.10 Finally, in addition to making the
above reimbursements, National Union paid $700,000 of the
$1.225 million settlement, reducing Corrpro’s net contribution to
the settlement to $525,000.11
F. Defendants’ Requests for Indemnification
In or around May 1999, about six months after the Armor
Shield litigation was initiated, defendants first requested that
ASTM indemnify them for their reasonable attorney’s fees,
costs, and expenses as well as for any liability they might incur
with respect to that litigation pursuant to ASTM Bylaw No. 10.1.
But even earlier, ASTM President James Thomas, via letter
expenses related to the Armor Shield litigation that WRA had paid on
his behalf.
10
As Rogers had done with WRA, Baach entered into a formal
agreement with Corrpro whereby he agreed to remit to Corrpro any
monies he recovered from ASTM (pursuant to its indemnification
provision) as reimbursement for the attorney’s fees, costs, and expenses
related to the Armor Shield litigation that Corrpro paid on his behalf.
Neither Baach nor Corrpro, however, assumed any similar obligation to
reimburse National Union.
11
The district court, in an unchallenged determination, found that
National Union paid $700,000 of the settlement which we note is one-
half of the total settlement paid by all the defendants but more than one-
half of what Corrpro paid.
11
dated December 2, 1998, had agreed that ASTM would
reimburse Bushman for his reasonable attorney’s fees and costs
arising from the Armor Shield litigation “unless and until it
becomes apparent to ASTM that Armor Shield’s allegations
concerning your conduct are supported by evidence. That is,
until ASTM believes that you operated outside the auspices of
the Society, in bad faith, or in a manner that was not in the best
interests of the Society.” J.A. at 982-83.
On August 26, 1999, ASTM’s Executive Committee met
via telephone conference call to consider what by then had
become defendants’ repeated requests for indemnification. At
the time, “[i]t was the Committee’s judgment, after thorough
discussion, that it was not possible to say with assurance at this
time that all of the requirements for the granting of
indemnification contained in ASTM’s by-laws (and in the
Pennsylvania not-for-profit corporation law) had been met by
any of the parties requesting indemnification . . . .” ASTM,
2005 WL 1941653, at *5 (internal quotations and citations
omitted). Accordingly, the Executive Committee concluded it
could not grant any of the defendants indemnification or, in the
case of Bushman, continued indemnification. The Executive
Committee made clear, however, that its judgment was not
“final” but rather was subject to change depending upon
additional information and developments in the case.
Subsequently, the Board during a meeting held October 12-13,
1999, voted to approve the Executive Committee’s denial of
defendants’ indemnification requests.12
12
In its findings of fact, the district court observed that
notwithstanding defendants’ repeated offers “to present evidence,
provide information or answer any questions that ASTM may have had
regarding the allegations in the Armor Shield complaint . . . . ASTM
gave the defendants no opportunity whatsoever to present any
information or evidence to either the Board of Directors or the Executive
Committee . . . .” ASTM, 2005 WL 1941653, at *5 (internal citations
omitted). The court further observed that:
In deciding that the defendants were not made parties to
the Armor Shield suit by reason of the fact that they were
serving on a committee operating under the auspices of
12
After the parties finalized the settlement in the Armor
Shield litigation in 2002, defendants again requested that ASTM
indemnify them for their settlement costs and attorney’s fees and
costs in that litigation. But neither the Board nor the Executive
Committee took any action in response to defendants’ renewed
request for indemnification.
the Society and that they were not acting in good faith
and in a manner which they reasonably believed to be in,
or not opposed to, the best interests of the Society,
Plaintiff ASTM considered only the allegations
contained in Armor Shield’s complaint and amended
complaint. ASTM undertook absolutely no investigation
whatsoever to determine the veracity of those averments,
despite the fact that it believed the allegations against it
in the Armor Shield pleadings to be false and that it had
voted to uphold the findings of its own Committee on
Standards that its internal regulations and balance
requirements had been followed by the E-50 and G-01
Committees in their development of the ES-40 and G-
158 standards.
Id. (internal citations omitted).
The Board and Executive Committee were not, however, in the
dark about the Armor Shield litigation. With respect to their knowledge
of it, ASTM notes that in April 1999, Thomas O’Brien, ASTM’s outside
counsel, made a presentation to the entire Board summarizing the
allegations in the Armor Shield litigation based on his review of the
pleadings and outlining the legal and factual bases of the antitrust claims
raised. O’Brien also explained the substance of a motion to dismiss that
he had drafted on ASTM’s behalf. Morris Brooke, ASTM’s general
counsel supplemented Brown’s presentation with a white paper
circulated to the Executive Committee that “‘walked the [E]xecutive
[C]ommittee members through an analysis and an understanding of the
. . . not-for-profit laws of the state of Pennsylvania.’” Appellant’s br. at
17 (quoting J.A. at 126). Finally, inasmuch as most members of the
Executive Committee also were serving on the Board when Sharp filed
his appeal regarding the creation of G-158, they were “familiar with the
facts underlying the controversy . . . even prior to hearing the
presentations and reviewing the materials prepared by counsel.” Id.
13
G. Procedural History
ASTM filed the complaint leading to this appeal against
defendants in the district court on September 10, 2002. In its
complaint, ASTM sought a declaration that it was not required to
indemnify defendants for attorney’s fees and settlement costs
arising from the Armor Shield litigation. Defendants answered
ASTM’s complaint, asserting counterclaims predicated on
breach of contract and promissory estoppel theories. In their
counterclaim defendants also sought a declaratory judgment
based on ASTM Bylaw No. 10.1 ordering ASTM to indemnify
them for their attorney’s fees and settlement costs in the Armor
Shield litigation. Moreover, defendants sought indemnification
for any attorney’s fees they would incur in this action attempting
to enforce their rights under Bylaw No. 10.1.
From January 4 to January 7, 2005, the district court
conducted a bench trial on the parties’ respective claims.
Thereafter, on August 12, 2005, the district court entered an
order in which it found in favor of defendants, entering judgment
against ASTM on defendants’ counterclaim in the amount of
$1,422,747.86, which sum included defendants’ attorney’s fees
in the Armor Shield litigation. The district court further ruled
that the defendants were entitled to recover attorney’s fees
incurred in this action and ordered them to submit their bills for
the fees within 20 days and gave ASTM 20 days thereafter to
object to them. The district court, however, never has fixed the
fee award for this litigation.13 Id. ASTM appeals from the
August 10, 2005 order both with respect to the indemnification
order for the Armor Shield litigation and the unquantified award
of fees against it in this case.
III. JURISDICTION AND STANDARD OF REVIEW
13
On August 30, 2005, defendants filed a joint bill of attorney’s
fees and costs as well as a motion to file unredacted copies of materials
relating to their attorney’s fees under seal, which ASTM opposed. On
September 21, 2005, the district court stayed defendants’ motion until
such time as we issue our decision on ASTM’s appeal.
14
The district court exercised jurisdiction pursuant to 28
U.S.C. § 1332. Though we initially questioned our jurisdiction,
for the reasons we explain below, we have concluded that we
have jurisdiction pursuant to 28 U.S.C. § 1291.
We review a district court’s findings of fact following a
bench trial under the clearly erroneous standard. Gordon v.
Lewistown Hosp., 423 F.3d 184, 201 (3d Cir. 2005); Fed. R.
Civ. P. 52(a) (“Findings of fact, whether based on oral or
documentary evidence, shall not be set aside unless clearly
erroneous, and due regard shall be given to the opportunity of
the trial court to judge of the credibility of the witnesses.”). By
contrast, “[w]e have plenary review over a district court’s
conclusions of law.” Kosiba v. Merck & Co., 384 F.3d 58, 64
(3d Cir. 2004) (internal quotations and citation omitted). We
similarly exercise plenary review “over a district court’s choice
and interpretation of legal precepts.” Blasband v. Rales, 971
F.2d 1034, 1040 (3d Cir. 1992). We apply this standard
regardless of whether the district court has relied on federal or
state law. Id. In this case, the parties are in agreement that
Pennsylvania law governs the indemnification issues. Therefore,
we are deciding this case the way that we believe that the
Supreme Court of Pennsylvania would decide it except, of
course, that we determine whether we have jurisdiction by
applying principles of federal law.
IV. DISCUSSION
A. Jurisdiction over ASTM’s appeal
Preliminarily, we address the threshold question of
whether we have jurisdiction over this appeal. See Am.
Motorists Ins. Co. v. Levolor Lorentzen, Inc., 879 F.2d 1165,
1169 (3d Cir. 1989) (noting “we have the responsibility to
satisfy ourselves of our jurisdiction”); Thermice Corp. v. Vistron
Corp., 832 F.2d 248, 251 (3d Cir. 1987). Because we questioned
our jurisdiction, we directed the parties to provide letter briefs
addressing whether the district court’s failure to quantify its
award of attorney’s fees in this action, as distinguished from in
15
the underlying Armor Shield litigation, precludes us from
exercising jurisdiction. We asked for these briefs by reason of
our opinion in Beckwith Machinery Co. v. Travelers Indemnity
Co., 815 F.2d 286 (3d Cir. 1987), dealing with our jurisdiction
over an appeal of an attorney’s fees award before the district
court had determined its amount. The parties have filed these
briefs agreeing that we have jurisdiction over this entire appeal,
and we agree with them that we have jurisdiction but only to a
limited extent.
Surprisingly, Beckwith was our first case addressing the
question of whether a district court order awarding, but not yet
quantifying, attorney’s fees is a final order from which an appeal
may be taken when the fee award results from the underlying
cause of action, rather than as a collateral matter. In Beckwith,
the plaintiff stated a claim for breach of contract against the
defendant insurer based on the insurer’s decision to withdraw its
defense of the plaintiff in an underlying action. After finding in
the plaintiff’s favor, the district court entered judgment on his
behalf for, among other things, his attorney’s fees and costs in
the underlying action. The district court similarly awarded the
plaintiff attorney’s fees and costs for the breach of contract
litigation against the insurer, i.e., in the case before it. Notably,
however, the district court did not quantify either of these
awards.
On the insurer’s subsequent appeal, after outlining the
relevant case law, we ruled that “when the award of attorney’s
fees arises out of and is part of the claimant’s cause of action and
is not separately authorized by a statute providing for such an
award, an order does not become final until the attorney’s fees
are quantified.” Id. at 290. We further observed that, although
not at issue, to the extent the district court similarly had not
quantified the attorney’s fee award for the breach of contract
litigation against the insurer, it “should be regarded no
differently than the award of attorney’s fees in the [underlying]
litigation inasmuch as both were incurred as a direct
consequence and result of [defendant’s] breach of the insurance
contract, and both constitute a part of the damages due
[plaintiff].” Id. at 292. Thus, we dismissed the insurer’s appeal
in Beckwith.
16
But the Supreme Court’s decision in Budinich v. Becton
Dickinson & Co., 486 U.S. 196, 108 S. Ct. 1717 (1988),
promptly cast doubt on the latter observation. In Budinich, the
court entered judgment for the plaintiff in an employment
compensation action on a jury verdict for an amount
considerably less than he had sought. The plaintiff filed timely
new trial motions as well as a motion for attorney’s fees. The
district court subsequently denied the new trial motions on May
14, 1984, but found that the plaintiff was entitled to attorney’s
fees, though it did not then fix the fee award. Subsequently,
however, the district court entered a final order on August 1,
1984, determining the amount of those fees. Thereafter, the
plaintiff appealed from the district court’s post-trial orders in
their entirety. Although affirming the attorney’s fees award, the
Court of Appeals for the Tenth Circuit granted defendant’s
motion to dismiss the appeal as to all other issues on the ground
that the judgment was final and immediately appealable upon
entry of the May 14, 1984 order, and the plaintiff’s appeal was
not timely because the plaintiff did not file it within 30 days of
that order.
In ensuing proceedings, the Supreme Court affirmed,
finding that “[a]s a general matter, at least, we think it
indisputable that a claim for attorney’s fees is not part of the
merits of the action to which the fees pertain. Such an award
does not remedy the injury giving rise to the action, and indeed
is often available to the party defending against the action.”14
Budinich, 486 U.S. at 200, 108 S.Ct. at 1721. The Court added,
“[c]ourts and litigants are best served by the bright-line rule,
which accords with traditional understanding, that a decision on
the merits is a ‘final decision’ for purposes of § 1291 whether or
not there remains for adjudication a request for attorney’s fees
attributable to the case.” Id. at 202-03, 108 S.Ct. at 1722.
Since the Supreme Court’s ruling in Budinich, we have
14
On appeal, the Supreme Court framed the question presented
as follows: “[W]hether a decision on the merits is a ‘final decision’ as
a matter of federal law under § 1291 when the recoverability or amount
of attorney’s fees for the litigation remains to be determined.” Budinich,
486 U.S. at 199, 108 S.Ct. at 1720.
17
on several occasions applied its rationale, starting with Frangos
v. Doering Equipment Corp., 860 F.2d 70 (3d Cir. 1988). In
Frangos, defendants Doering Equipment (“Doering”) and Logan
Equipment (“Logan”) settled a suit filed by a worker who had
been injured in a fall from a manlift. Thereafter, Doering and
Logan pursued a claim for indemnity or contribution against
Parker-Hannifin Corporation (“Parker”), a named defendant in
the underlying suit. Although the district court granted Parker’s
motion for a directed verdict as to some of Doering’s and
Logan’s claims at the close of their case, Doering and Logan
ultimately obtained a jury verdict in the amount of $52,000 on
the remaining claims. Parker subsequently filed a motion for a
judgment notwithstanding the verdict and for a new trial while,
still later, Doering and Logan filed a petition for attorney’s fees.
The court dismissed Parker’s post-trial motions, but concluded
Doering and Logan were entitled to attorney’s fees, albeit to the
extent they related only to their defense in the underlying action.
Parker then appealed.
Significantly, at the time of the appeal the district court
had not yet determined the fees to which Doering and Logan
were entitled. Although Doering and Logan argued that the
court’s “failure to quantify attorneys’ fees render[ed] all aspects
of the case unappealable,” Frangos, 860 F.2d at 72, we
disagreed, citing Budinich for the proposition that “a decision on
the merits is a ‘final decision’ as a matter of federal law under §
1291 [even] when the recoverability or amount of attorney’s fees
for the litigation remains to be determined.” Id. (internal
quotations and citation omitted). Accordingly, we found that
although that portion of the appeal dealing with Doering’s and
Logan’s attorney’s fees must be dismissed, we nonetheless had
jurisdiction over the appeal from the underlying judgment. Id.
The next case in which we dealt with a similar
appealability issue at length was Vargas v. Hudson County
Board of Elections, 949 F.2d 665 (3d Cir. 1991). In Vargas, a
plaintiff class filed a complaint against Gerald McCann, a
candidate for mayor, and members of his campaign staff (the
“McCann defendants”), among others, alleging that the McCann
defendants had engaged in a conspiracy to prevent them from
voting in a mayoral election. After the National Union Fire
18
Insurance Company (“National Union”) refused to defend or
indemnify the McCann defendants, they joined National Union
as a third-party defendant to the litigation. The district court
subsequently granted summary judgment against National
Union, declaring it owed coverage to the McCann defendants.
Soon thereafter, the McCann defendants settled the class action.
On April 24, 1990, the district court, finding the settlement to be
in good faith, directed National Union to indemnify the McCann
defendants for both the settlement amounts and “any attorneys’
fees award which may be made in favor of [class] plaintiffs
and/or plaintiffs’ attorneys against the [McCann] defendants.”
Vargas, 949 F.2d at 667 (internal quotations omitted).
Additionally, the district court ordered National Union to
reimburse the McCann defendants for their own attorney’s fees.
Finally, on December 13, 1990, the district court entered an
attorney’s fees and expense award in favor of the plaintiff class
(i.e., fixed the attorney’s fees and expenses due the class
plaintiffs).
Approximately one month later, on January 11, 1991,
National Union filed its notice of appeal, which the McCann
defendants and class plaintiffs moved to dismiss on timeliness
grounds as to all orders other than that of December 13, 1990.
We denied the motion as we concluded that there had not been
an appealable order until the district court quantified the amount
of attorney’s fees which the McCann defendants owed the
plaintiffs (and thus for which National Union was liable). In
reaching the result we explained:
The monetary claim presented by the McCann
defendants in this case against National Union
consisted of two elements-the damages that they
were required to pay the class plaintiffs and the
attorneys’ fees that the McCann defendants were
required to pay the class plaintiffs. The McCann
defendants[’] total obligation to the class plaintiffs,
and hence their total claim for damages against
National Union, was not determined until the
amount of the class action counsel fees had been
set.
19
Id. at 670. Additionally, we noted it was “critical to recognize
that the relevant claim for fees here was not that made by the
McCann defendants pursuant to state statute to recover for
representation in this case against National Union” which was,
by contrast, “clearly” a Budinich claim. Id. at 669 (“Essentially,
Budinich concluded that an award of counsel fees to the
prevailing party is not a part of the judgment, but rather is due
because of the judgment.”).
Following Vargas, we again addressed the attorney’s fees
finality issue in Ragan v. Tri-County Excavating, Inc., 62 F.3d
501 (3d Cir. 1995). There, defendant-appellant Hartford Fire
Insurance Co. (“Hartford”) served as the surety on a labor and
material payment bond purchased by Mele Construction Co.,
Inc. (“Mele”). Hartford’s bond required prospective claimants
not in “direct contract” with Mele to give written notice of their
claims to Hartford within 90 days after they ceased work.
Plaintiffs-appellees, the International Union of Operating
Engineers, Local 542 and Michael J. Ragan, its administrator of
“fringe benefit” funds (together, “Local 542”), had a collective
bargaining agreement with and did work for Tri-County
Excavating, Inc. (“Tri-County”), a corporation that three
daughters of John Mele, president of Mele, owned, on a job for
Mele. Hartford subsequently rejected a claim for fringe benefits
Local 542 made 120 days after it ceased work because Local 542
was not in “direct contract” with Mele, and thus Hartford’s bond
required Local 542 to give notice of its claim within 90 days of
the last labor performed.
Local 542 then sued Tri-County and Hartford. Following
a bench trial, the district court rejected Hartford’s untimeliness
argument, and entered judgment in favor of Local 542. In so
doing, the district court awarded Local 542 its reasonable
attorney’s fees, although it did not quantify their amount until
nearly a year later. On Hartford’s subsequent appeal, taken
before the district court quantified the fees, when addressing the
basis for our jurisdiction, we noted that the district court
premised its fee award on a provision in the agreement between
Local 542 and Tri-County. Accordingly, we ruled, “[b]ecause
the attorney fees awarded in this case were part of the
contractual damages sought by Local 542, the district court’s
20
delay in quantifying the amount of such fees until February 13,
1995 rendered the earlier order non-final for purposes of
appeal.”15 Ragan, 62 F.3d at 505.
Most recently we attempted to reconcile Budinich and
Ragan in Gleason v. Norwest Mortgage, Inc., 243 F.3d 130 (3d
Cir. 2001). In Gleason, the litigants stipulated to a final
judgment order under Federal Rule of Civil Procedure 54(b),
where the district court stated that all claims were resolved
through judgment, settlement, or mootness, except that each
party’s claim for contractual attorney’s fees and costs remained
outstanding. Citing to Budinich, we first acknowledged that
“[w]hen an outstanding claim for attorneys’ fees is by a statutory
prevailing party, the unresolved issue of those fees does not
prevent judgment on the merits from being final.” Gleason, 243
F.3d at 137. Citing to Ragan, however, we added that “when
attorneys’ fees are part of the contractual damages at issue on the
merits, a District Court’s order delaying quantifying the amount
of such fees is non-final for purposes of appeal.” Id. Noting the
claim for attorney’s fees in Gleason was predicated not on a
statutory prevailing party provision but on a contractual
obligation to pay attorney’s fees “to the prevailing party in
whose favor judgment is entered,” we found “[f]or all practical
purposes” there was “no difference under these circumstances,
for § 1291 finality purposes, between payment of attorneys’ fees
to a prevailing party under statute and payment of attorneys’ fees
under the contract to a ‘prevailing party.’” Id. at 137-38.
Accordingly, we concluded, given the attorney’s fees provided
for were “not an integral part of the contractual relief sought[,]
the issue of which party prevailed in the litigation on the merits
is collateral to the substantive issues on appeal and does not
prevent judgment on the merits from being final.” Id. at 138.
Applying the foregoing precedents to this appeal, we
conclude that we have jurisdiction over the appeal insofar as it is
from the order providing for defendants’ indemnification for
15
The earlier order became final when the court entered the
February 13, 1995 order. Consequently, we then had jurisdiction over
the appeal from the earlier order. Ragan, 62 F.3d at 505-06.
21
settlement costs and attorney’s fees incurred in the Armor Shield
litigation, sums that the district court has quantified. It is true
that, like the plaintiffs in Ragan, defendants included their
request for attorney’s fees with respect to this indemnification
litigation in their respective answers to ASTM’s complaint,
citing ASTM Bylaw No. 10.1 in support of their request.
Notably, however, inasmuch as this request was expressly “not
an integral part of the contractual relief sought, the issue of
which party prevailed in the litigation on the merits is collateral
to the substantive issues on appeal and does not prevent
judgment on the merits from being final.” Gleason, 243 F.3d at
138. Put another way, the substantive issues on appeal plainly
center on defendants’ request for indemnification in the Armor
Shield litigation, rather than on their request for attorney’s fees
with respect to enforcing ASTM’s indemnification obligations in
this litigation as it pertains to that litigation. See Vargas, 949
F.2d at 670 (finding “[t]he McCann defendants[’] total
obligation to the class plaintiffs, and hence their total claim for
damages against National Union, was not determined until the
amount of the class action counsel fees had been set.”).
Accordingly, we have jurisdiction over this appeal to the
extent that it relates to defendants’ indemnification request for
settlement costs and attorney’s fees in the Armor Shield
litigation, but, for the reasons outlined above and for the reasons
we discuss in section IVG, infra, relating to pendent jurisdiction,
we do not have jurisdiction over this appeal to the extent that it
relates to the unquantified attorney’s fees in this litigation.
Therefore, we will entertain the appeal on the merits with respect
to defendants’ indemnification request for settlement costs and
attorney’s fees in the Armor Shield litigation, but will dismiss
the appeal to the extent that it relates to attorney’s fees and costs
in this litigation.
B. Business judgment rule
We now reach the merits of this appeal and first consider
application of the business judgment rule. In this regard, ASTM
claims that the district court incorrectly rejected its argument
that the Board’s decision not to indemnify Baach and Rogers
was protected under that rule as adopted by the Supreme Court
22
of Pennsylvania.
Even though the parties have briefed and argued this case
on their understanding that the business judgment rule could be a
defense here to the counterclaim for indemnification, we
question whether this case implicates the business judgment rule
in the first instance. ASTM, as it had every right to do, initiated
this litigation as a declaratory judgment action and thereby
reversed the usual order of the parties when there is a dispute
over the payment of money, for in such a case the claimant
usually is the plaintiff. But the unusual procedure posture of this
case should not change the governing law. Thus, we believe that
essentially, particularly in the light of defendants’ counterclaim,
this case involves an action by the defendants to recover money
from the plaintiff. Therefore, the defendants should be regarded
as being in the same position as an ordinary trade creditor
seeking to recover on a contract for the delivery of goods. In
such a case, as, for example, a case in which the purchaser-
defendant has refused to pay the creditor-plaintiff for goods the
latter delivered on grounds that they were defective, the
defendant surely could not invoke the business judgment rule in
opposition to the creditor’s claim and assert that its good faith
conclusion that the delivered goods were defective should
protect it from liability. Rather, if the suitability of the goods is
in dispute, the court entertaining the case would determine
whether the goods complied with the applicable specifications in
a process that would not implicate the business judgment rule.
In this regard, we point out that ASTM Bylaw No. 10.1,
which is the foundation for defendants’ claim, is mandatory and
provides that, when the bylaw is implicated, the protected person
“shall be indemnified by” ASTM. While it is true that the bylaw
three times uses the word “reasonably” or “reasonable,” it does
so when referring to amounts an indemnitee expended, to the
indemnitee’s belief that he was acting in the best interests of
ASTM, and to his belief that his conduct was lawful. Thus, the
bylaw does not suggest that merely because ASTM “reasonably”
challenges the reasonableness of an indemnitee’s actions or
expenditures, the business judgment rule will protect it from
liability.
23
In making our observation that the parties may have taken
this litigation off track by focusing on the business judgment
rule, we reiterate that, in reality, ASTM, i.e., the corporate-
indemnitor, should be regarded as the actual defendant in this
case because it is ASTM against whom a monetary judgment has
been sought. Accordingly, after we reverse the order of the
parties, it becomes apparent that we are not dealing with the
usual situation in which officers or directors seek to insulate
themselves from liability from a claim or from a direction by a
court by invoking the business judgment rule. Thus, this
litigation differs from that in Cuker v. Mikalauskas, 692 A.2d
1042 (Pa. 1997), the case in which the Pennsylvania Supreme
Court first explicitly recognized the business judgment rule.
There, the court indicated that “[t]he issue is whether the
business judgment rule permits the board of directors of a
Pennsylvania corporation to terminate derivative lawsuits
brought by minority shareholders.” Id. at 1045. The court went
on to say that “[t]he business judgment rule should insulate
officers and directors from judicial intervention in the absence of
fraud or self-dealing,” id. at 1048, and then explained when they
would be insulated.
Finally, we point out that the district court initiated the
discussion portion of its opinion by indicating that “[g]enerally
speaking, under the law of Pennsylvania, construction of an
indemnity contract is a question of law for the court to decide . .
. .” ASTM, 2005 WL 1941653, at *7. It went on to hold that
Rogers and Baach satisfied the indemnification criteria. Only
then did it point out that “ASTM argues that even if it may have
erred in denying the defendants’ indemnification claims, its
Board of Directors’ decision should be upheld as it is protected
from Court scrutiny by Pennsylvania’s Business Judgment
Rule.” Id. at *11. But we are at a loss to see why, if ASTM
erred, the business judgment rule should protect it, the corporate-
indemnitor, as distinguished from its officers and directors who
are not parties to this litigation, from liability. Nevertheless,
notwithstanding our reservations regarding the applicability of
the business judgment rule in this case, we will decide the case
as the parties treated it in the district court and have treated it
here, i.e., the application of the business judgment rule is an
issue in this case and the rule could be a defense to defendants’
24
indemnification claims.
As we have indicated, Pennsylvania first explicitly
recognized the business judgment rule in Cuker v. Mikalauskas,
692 A.2d 1042. The Cuker court indicated that the business
judgment rule is a rule of law that “insulates an officer or
director of a corporation from liability for a business decision
made in good faith if he is not interested in the subject of the
business judgment, is informed with respect to the subject of the
business judgment to the extent he reasonably believes to be
appropriate under the circumstances, and rationally believes that
the business judgment is in the best interests of the corporation.”
Id. at 1045. As such, the rule “reflects a policy of judicial
noninterference with business decisions of corporate managers,
presuming that they pursue the best interests of their
corporations, insulating such managers from second-guessing or
liability for their business decisions in the absence of fraud or
self-dealing or other misconduct or malfeasance.” Id. at 1046.
In determining whether a business decision should be insulated
from review, the court considers the following factors:
whether the board or its special litigation
committee was disinterested, whether it was
assisted by counsel, whether it prepared a written
report, whether it was independent, whether it
conducted an adequate investigation, and whether
it rationally believed its decision was in the best
interests of the corporation (i.e., acted in good
faith). If all of these criteria are satisfied, the
business judgment rule applies and the court
should dismiss the action.
Id. at 1048. Thus, where the business judgment rule applies, it
prohibits the court from examining the merits of the underlying
business decision.
Here, the district court’s determination that ASTM’s
decision to deny Baach’s and Rogers’ requests for
indemnification did not merit protection under the business
judgment rule hinged on its finding as to the adequacy of
ASTM’s investigation. On this point, the district court
25
explained:
[A]s all of the various members of the Board called
as witnesses in this case, and as ASTM’s former
General Counsel and President both testified,
neither they nor anyone else acting on ASTM’s
behalf conducted any investigation whatsoever
into the veracity of the allegations against
Defendants. Rather, the only evidence which they
had before them at the time they made their
decision to not indemnify was the Armor Shield
complaint. Although Defendants repeatedly
offered to provide whatever evidence the ASTM
Board deemed necessary and repeatedly sought to
be heard by the full Board on the issue of
indemnification, ASTM never responded to any of
the defendants’ offers or requests. It is the opinion
of this Court that this does not constitute
reasonable diligence on the part of the ASTM
Board.
ASTM, 2005 WL 1941653, at *11.
ASTM protests that “the information before the Board
(which included the advice of ASTM’s general counsel, outside
counsel and an ASTM officer)” provided a sufficient basis for
the Board’s decision and the district court unfairly faulted the
Board “for not conducting a detailed investigation, which
apparently would have required that the Board personally review
all material relating to the litigation and hold a hearing during a
Board meeting.” Appellant’s br. at 25. To be sure, “[r]eliance
on reports, representations, statements, and opinions prepared by
officers and employees of the corporation and by outside
professionals and experts will often be necessary and will, in
many situations, satisfy the informational requirement . . . .” 1
American Law Institute (“ALI”) Principles of Corporate
Governance: Analysis and Recommendations, § 4.01(c),
26
comment e (1994).16 Here, however, ASTM refused to reveal
the content of those “reports, representations, statements, and
opinions” prepared by counsel for purposes of its discussions
with the Executive Committee and Board regarding Baach’s and
Rogers’ respective requests for indemnification. Indeed, it was
for this reason that the district court admonished an ASTM
witness at trial who sought to discuss counsel’s role in the
discussions, stating “Don’t use advice of counsel as a defense
because it’s not a defense here.” J.A. at 215. Relatedly, and not
surprisingly, defendants argue that ASTM “cannot now rely
upon such advice in order to claim that the Board conducted a
reasonable investigation.” Appellees’ br. at 31.
Unfortunately, the cases cited by the parties do not
provide much illumination as to whether the Pennsylvania courts
would require a nonprofit corporation in the position of ASTM
to disclose the advice that counsel gave its members to receive
protection under the business judgment rule. But even assuming
the validity of ASTM’s position that it did not have to disclose
that information, several factors serve to bolster the district
court’s finding that application of the business judgment rule
does not insulate ASTM from liability in this case. First, it is
undisputed that no one at ASTM consented to speak with either
Baach or Rogers regarding their indemnification requests,
notwithstanding their repeated offers to engage in such
conversations. Second, it is similarly undisputed that no one at
ASTM (and no one acting on its behalf) conducted any
investigation into the veracity of the allegations levied in the
Armor Shield complaint. To this end, it again bears noting that
ASTM itself approved both the process pursuant to which the
ES-40 and G-158 standards were promulgated as well as the
substance of the standards. Additionally, ASTM never restricted
or suspended either Baach or Rogers from participating in any
relevant standard-setting activities. We believe that these
circumstances support a finding that ASTM failed to act in good
16
The Pennsylvania Supreme Court in Cuker pointed out that the
ALI Principles pertaining to the business judgment rule were similar to
but not identical with Pennsylvania statutory law. See Cuker, 692 A.2d
at 1049 n.3.
27
faith, see Cuker, 692 A.2d at 1048, as well as the district court’s
conclusion that ASTM failed to exercise “reasonable diligence in
deciding defendants should not be indemnified.”17 ASTM, 2005
WL 1941653, at *11. Accordingly, we decline to apply the
business judgment rule so as to reverse the district court’s
indemnification order challenged on this appeal.18
C. Indemnification for intentional acts
ASTM next argues that inasmuch as Armor Shield sued
17
We note that ASTM additionally has advanced the “public
policy” argument that if we allow the district court’s decision to stand,
our decision will have a “chilling” effect insofar as it fails to show “any
deference to board decision-making unless arduous procedures are
followed.” Appellant’s br. at 32. The contention is without merit. The
district court’s decision merely requires that an “adequate investigation”
be conducted as that term has been interpreted in the case law – nothing
more.
18
We point out that it appears that if ASTM had wanted to do so
it could have vested its officers or directors with power to exercise the
type of discretion that the business judgment rule is intended to protect.
In this regard, we observe that 15 Pa. Cons. Stat. Ann. § 5741 is not
mandatory. Thus, rather than requiring a nonprofit corporation to
indemnify the protected persons, it merely gives the corporation the
“power” to do so, but limits the power to corporations not “otherwise
restricted in [their] bylaws.” Thus, ASTM did not have an obligation to
adopt Bylaw No. 10.1 or its equivalent. Accordingly, it follows that
ASTM could have adopted a bylaw reserving discretion in itself to
determine whether in a particular case it would indemnify a person
seeking indemnification. But it eschewed that approach and instead
used the mandatory words that a person protected “shall be indemnified”
in the circumstances the bylaw sets forth. We can understand why
ASTM took that approach as it encourages persons to participate in its
activities. Moreover, ASTM had a particular reason to take the
mandatory obligation approach as its members serve in standard-setting
activities without pay or other compensation and might be unwilling to
do so without protection against liability for their activities.
Nevertheless, in view of the fact that ASTM adopted the mandatory right
to indemnification approach, it is difficult to understand how it can
abandon that approach retroactively by reliance on the business
judgment rule when a protected person seeks to be indemnified.
28
Baach and Rogers for alleged violations of Sections 1 and 2 of
the Sherman Act and analogous state antitrust statutes, violations
of the Lanham Act, and unfair competition, the district court’s
holding violates the “fundamental public policy of
Pennsylvania” that parties may not contract away liability
resulting from their intentional acts. In sum, ASTM essentially
contends that it “lacked the power” to indemnify defendants
“even if [it] wanted to.” Appellant’s br. at 35. Defendants
respond that there is no evidence that either Rogers or Baach
engaged in any intentional wrongdoing and thus ASTM’s
argument is without merit. Defendants are correct.
Preliminarily, however, before reaching the substance of
the intentional acts issue, we address defendants’ contention that
ASTM waived this argument by failing to assert it in the district
court. See Ark-Tenn Distrib. Corp. v. Breidt, 209 F.2d 359, 360-
61 (3d Cir. 1954) (noting when an issue is “raised by the
pleadings, but not pressed at trial, in the absence of unusual
circumstances, the ends of justice requiring it, [it] will not serve
as a basis for the appellate tribunal to reverse the trial court”).
On this procedural point, defendants are mistaken. Specifically,
in its proposed Post-Trial Findings of Fact and Conclusions of
Law filed in the district court, ASTM pressed the very same
argument it asserts here regarding indemnification for intentional
acts. Accordingly, ASTM did not waive its intentional acts
argument.
Turning to the merits, we reject ASTM’s position.
According to ASTM, “[t]here are numerous cases in
Pennsylvania and federal courts sitting in Pennsylvania holding
that public policy precludes indemnification clauses from
covering intentional or wrongful conduct of the indemnitee.”
Appellant’s br. at 34 (quoting Mahon v. City of Bethlehem, 898
F. Supp. 310, 314 (E.D. Pa. 1995)). But the majority of the
cases ASTM cites discuss indemnification in the context of
insurance law, as distinguished from the law relating to nonprofit
corporations. See, e.g., Brown v. Creative Collections, Inc., No.
Civ. A. 01-2809, 2002 WL 32345937 (E.D. Pa. June 10, 2002);
State Farm Fire & Cas. Co. v. Dalrymple, 153 F. Supp. 2d 624
(E.D. Pa. 2001); Allstate Ins. Co. v. Fischer, No. 97-4806, 1998
WL 205693 (E.D. Pa. Apr. 28, 1998). In this sense, they are all
29
arguably inapposite.19 Further, even assuming these cases are on
point, the policy consideration driving their respective holdings
– namely, that individuals not receive indemnification “against
the consequences of [their] willful, criminal [i.e., intentional]”
acts, see Esmond v. Liscio, 224 A.2d 793, 798 (Pa. Super. Ct.
1966) – is captured fully by that section of Pennsylvania’s
nonprofit corporations law (as echoed by ASTM Bylaw No. 10)
prohibiting indemnification unless a claimant “acted in good
faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation.” See 15 Pa.
Cons. Stat. Ann. § 5741; see also appellant’s br. at 35 (noting
that Pennsylvania’s Nonprofit Corporations Law and ASTM
Bylaw No. 10.1 are consistent with “Pennsylvania’s strong
policy prohibiting indemnification for intentional acts,” and
section 5741 “prohibits payment of indemnification benefits to
individuals who did not act in ‘good faith’”).
In this case, by contrast, the settlement agreement reached
in the Armor Shield litigation expressly provides it “does not
constitute an admission of liability or responsibility . . . or an
admission of the truth or validity of any allegations or claims
made by any party in the Lawsuit, it being agreed that the
aforesaid specifically deny the truth and validity of all
allegations or claims made against them.”20 J.A. at 1460-61; see
19
In making this point, we fully are aware of ASTM’s contention
that, in determining a claimant’s contractual right to indemnity, some
district courts have found it appropriate to analogize that claim to those
in cases dealing with an insured’s right to insurance coverage. See
Mahon v. City of Bethlehem, 902 F. Supp. 76, 78 (E.D. Pa. 1995).
20
This case differs from St. Paul Ins. Cos. v. Talladega Nursing
Home, Inc., 606 F.2d 631 (5th Cir. 1979), which ASTM cites in support
of the proposition that mere allegations of anticompetitive acts against
the defendants, regardless of their actual intent, provide sufficient
grounds upon which to deny defendants’ request for indemnification
given Pennsylvania’s policy prohibiting individuals from contracting
away liability resulting from their own intentional torts. In
Pennsylvania, as elsewhere, an insurer’s duty to defend is measured by
a claimant’s pleadings. Pac. Indem. Co. v. Linn, 766 F.3d 754, 760 (3d
Cir. 1985). Accordingly, if there is no possibility that the facts alleged,
if true, could fall under the policy’s scope of coverage, as is the usual
30
also 15 Pa. Cons. Stat. § 5741 (stating “[t]he termination of any
action or proceeding by . . . settlement . . . shall not of itself
create a presumption that the person did not act in good faith and
in a manner that he reasonably believed to be in, or not opposed
to, the best interests of the corporation . . . .”). Further, the
district court expressly found that:
While it is true that the Armor Shield complaint
also accused the defendants of willful misconduct,
there is simply no evidence that those accusations
were true or that the defendants acted in any
manner other than in good faith and in a manner
which they reasonably believed to be in the best
interests of the Society. ASTM, through its
Committee on Standards and its Committee on
Technical Committee Operations, essentially made
just such a finding when it heard and subsequently
case when an intentional tort is at issue, the insurer has no duty to defend
the insured. Id. (citing Terra Nova Ins. Co. v. 900 Bar, Inc., 887 F.2d
1213, 1216 (3d Cir. 1989)). So it was in St. Paul Insurance Cos., where
the Court of Appeals for the Fifth Circuit affirmed the district court’s
decision that plaintiff insurers had no duty to defend, in part because the
allegations of the underlying complaint constituted intentional wrongs.
606 F.3d at 633-34 (applying Alabama law). This case, however, is
plainly in a different procedural posture inasmuch as the underlying
action (i.e., the Armor Shield litigation) was settled prior to defendants’
final demands for indemnification. As such, what instead appears to be
required is a determination of whether defendants acted in “good faith.”
Here, the district court made an affirmative determination on that issue.
ASTM attempts to refute this conclusion by relying on Allstate
Insurance Co., 1998 WL 205693, for the proposition that “where the
underlying litigation either has settled or has not yet gone to judgment,
the court need only look to the facts alleged in the underlying complaint
. . . to determine whether indemnification is appropriate.” Appellant’s
br. at 39. In Allstate Insurance Co., however, an arbitrator expressly
ruled against the insured; it was on that basis that plaintiff insurer filed
its declaratory judgment action seeking an order that it had no duty to
defend. 1998 WL 205693, at *1. Thus, inasmuch as neither Baach nor
Rogers ever has admitted liability in this or in the underlying litigation,
Allstate Insurance Co. is factually distinguishable.
31
denied Derek Sharp’s appeal of the standard in
September, 1998.
ASTM, 2005 WL 1941653, at *10. Given the above, we cannot
say the district court’s holding violates Pennsylvania’s policy
that parties not be allowed to contract away liability resulting
from their intentional acts.
We also point out that if we accepted ASTM’s argument,
we would establish an unfortunate precedent discouraging, rather
than encouraging the settlement of litigation. It is, of course,
fundamental that courts should encourage parties to litigation to
settle their cases. Bell Atl. Corp. v. Bolger, 2 F.3d 1304, 1314
n.16 (3d Cir. 1993); Walton v. Avco Corp., 610 A.2d 454, 461
(Pa. 1992). But the practical consequence of ASTM’s argument,
if accepted, would be to make a defendant with an
indemnification claim reluctant to settle a case against him if the
complaint in that case alleged that he had engaged in intentional
wrongful conduct because, by doing so, he would be waiving his
indemnification rights. While we do not suggest that a
defendant necessarily may ensure that he will have an
enforceable indemnification claim by settling an action against
him charging him with intentional misconduct, inasmuch as the
Armor Shield litigation did not establish that defendants engaged
in such misconduct, if ASTM wanted to defeat their claim for
indemnification, it should have presented evidence that they had
done so. Yet it never did.
On this point, we reiterate that ASTM Bylaw No. 10.1
provides that the scope of ASTM’s obligation for
indemnification includes “amounts paid in settlement,” and we
add that it does so without any exclusion for settlement of claims
asserting that the indemnitees intentionally acted in a wrongful
way. Moreover, in authorizing a nonprofit corporation to
indemnify certain persons for their expenses, 15 Pa. Cons. Stat.
Ann. § 5741 includes “amounts paid in settlement,” without
exclusion of payment for expenses in litigation charging the
indemnitee with intentional wrongful acts. Thus, ASTM surely
is wrong when it claims that Pennsylvania law precludes it from
indemnifying the defendants for their costs and expenses in the
Armor Shield litigation.
32
D. Whether defendants were sued “by reason of” their
service on ASTM committees
In addition to its business judgment and intentional acts
arguments, ASTM contends that inasmuch as indemnification is
available only to those persons who were or are parties to any
threatened, pending, or completed litigation by reason of their
service on an ASTM committee, the district court erred in
summarily determining the “by reason of” condition in Bylaw
No. 10.1 was satisfied. We reject this contention as we, like the
district court, find that the evidence establishes that the “by
reason of” condition was satisfied.
In support of its argument, ASTM asserts that under
either a proximate or “but for” causation standard, the district
court “was required to conclude that but for the participation of
Rogers and Baach on ASTM committees, Armor Shield and its
co-plaintiffs lacked viable grounds for a lawsuit against Rogers
and Baach.” Appellant’s br. at 43. We believe that ASTM
overstates defendants’ burden here. Rather, we are satisfied that
the “by reason of” language on which ASTM relies requires
nothing more than there be a showing of a nexus between an
indemnitee’s activity and the matter for which indemnification is
being sought. See Witco Corp. v. Beekhuis, 38 F.3d 682, 692-
93 (3d Cir. 1994) (applying Delaware law); In re Miller, 290
F.3d 263, 267 (5th Cir. 2002) (same). But even if we accepted
ASTM’s formulation of the law regarding the nexus required,
the district court made the finding that ASTM says is required.
Specifically, the court concluded:
Dr. Rogers and Mr. Baach were clearly sued by
Armor Shield and its co-plaintiffs solely because
of their involvement in the ASTM standard setting
process and their service on the E-50 and G-01
Committees. To be sure, the gravamen of Armor
Shield’s complaint is that by their service on the
ASTM committees, the defendants manipulated
the development and promulgation of the ES-40
and G-158 standards to violate Sections 1 and 2 of
the Sherman Act, Section 43 of the Lanham Act
and various other provisions of Ohio state law.
33
ASTM, 2005 WL 1941653, at *10.
We recognize that, as ASTM contends, some of the
allegations in the Armor Shield complaint “describe conduct that
simply has nothing to do with ASTM’s standard-setting
process.” Appellant’s br. at 43. But a plain reading of the
factual allegations contained in the complaint evidences that
Armor Shield predicated most of its claims on the promulgation
of the ES-40 and G-158 standards in the absence of which
Armor Shield would not have initiated its litigation. In this
regard, it bears noting that Armor Shield did not initiate its
litigation until after ASTM adopted the ES-40 and G-158
standards and denied Sharp’s appeals attempting to preclude
their adoption and publication. This order of events hardly is
immaterial.
ASTM asserts as well that the district court “committed a
second legal error by presuming . . . that Rogers and Baach
satisfied the ‘by reason of’ requirement where the purpose of
their unlawful actions, as alleged in the Armor Shield
Complaint, was not to benefit the indemnitor, ASTM, but rather
to advance the goals of their private employers at ASTM’s
expense.”21 Appellant’s br. at 45. Defendants respond that the
contention is devoid of evidentiary support. Again, we hold
defendants are correct. Initially, as discussed supra, there is no
per se impropriety in an ASTM member having a financial
interest in the standard-setting activities he is engaged in on
behalf of ASTM. Moreover, any concerns ASTM might have
21
In support of its argument, ASTM cites In re Miller, 290 F.3d
263 (5th Cir. 2002). In In re Miller, the trustee of the estate of William
Miller sought “indemnification of legal expenses and a litigation
judgment entered against Miller and in favor of his former employer,
Abrams, Inc.” Appellant’s br. at 45; see also In re Miller, 290 F.3d at
265-66. By contrast, however, judgment was not (and can never be)
entered against Baach and Rogers in the Armor Shield litigation.
Moreover, the district court expressly found “there is no evidence that
Defendants were acting in bad faith or in a manner which they
reasonably believed to be in opposition to the best interests of the
Society.” ASTM, 2005 WL 1941653, at *12. Accordingly, In re Miller
is factually inapposite.
34
had along the lines it asserts on this point were no doubt
addressed by the COS’s finding that the G-01 committee did not
violate ASTM’s condition of balance and had followed ASTM’s
procedural requirements as well as its criteria for due process– a
decision the Board subsequently affirmed. Finally, and most
notably, there is simply no evidence that Baach’s or Rogers’
conduct was detrimental to ASTM. Indeed, so far as we are
aware, the permanent standard approved in ASTM’s layered
process remains in effect today. Certainly, at least, ASTM does
not claim that it rescinded the standard by reason of the
allegations in the Armor Shield litigation.
For the foregoing reasons, we reject ASTM’s request that
we reverse the district court’s judgment on the basis that the “by
reason of” clause precluded indemnification here.
E. Reasonableness of Armor Shield litigation
settlement
ASTM argues next that “[b]ecause the underlying Armor
Shield litigation was settled, Rogers and Baach had to show that
the settlement was reasonable in order to be entitled to
indemnification.” Appellant’s br. at 47; see also ASTM, 2005
WL 1941653, at *4 (noting indemnification limited to
“‘expenses (including attorney’s fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
[claimant]’”) (quoting ASTM Bylaw No. 10.1). ASTM
contends that because the district court did not make such a
finding, we should reverse its order granting the indemnification
award. ASTM is mistaken.
It is true that in Pennsylvania, “[w]here a claim against an
indemnitee has been settled, the burden falls on the indemnitee
to prove that the settlement was reasonable.” County of
Delaware v. J.P. Mascaro & Sons, Inc., 830 A.2d 587, 593 (Pa.
Super. Ct. 2003). Here, Baach and Rogers submitted expert
testimony on the reasonableness of the attorney’s fees incurred
as well as on the settlement amount. On the other hand, ASTM
does not appear to have submitted any expert testimony – and
indeed, cites to none in the three pages devoted to its
reasonableness argument in its briefs before this court –
35
regarding the unreasonableness of the settlement amount.
Therefore it is not surprising that in its order granting defendants
a declaratory judgment in their favor, the district court made the
following finding of fact:
The hourly rates charged by the defendants’
attorneys and other costs which the defendants
incurred in defending and settling the Armor
Shield litigation were fair and reasonable,
particularly in light of the complexity of the case,
the amount sought in the plaintiff’s complaint, the
inherent risks and overall unpredictability of
litigation, and the Cleveland, Ohio marketplace.
ASTM, 2005 WL 1941653, at *7. Even though the district court
did not state expressly that the settlement itself was reasonable,
given its ruling in defendants’ favor, it appears implicitly to have
reached just such a conclusion based on the evidence before it.22
22
ASTM takes the position that unless the district court expressly
states that the settlement was reasonable, its judgment cannot be upheld.
That position might be true in a case involving conflicting evidence on
a reasonableness issue, but this case does not fall within that category.
Thus, we see no reason for protracting this litigation by remanding this
case to the district court to make an express finding on the
reasonableness of the settlement.
We, however, do make the following observation regarding the
reasonableness of the settlement, taking our computations from the
district court opinion and our study of the record. See ASTM, 2005 WL
1941653, at *12. It appears that Rogers’ and WRA’s attorney’s fees in
the Armor Shield litigation were $338,083.85. Moreover, Rogers
testified that “we could anticipate defense costs roughly equal to what
we already expended in order to go to trial on this matter.” J.A. at 443.
Thus, regardless of what the outcome at trial would have been if the
parties had not settled the Armor Shield litigation, by paying $50,000 in
settlement of Armor Shield’s claim, Rogers and WRA certainly saved
money.
Corrpro had over $300,000 in unreimbursed legal fees, costs, and
expenses in the Armor Shield litigation that it incurred on behalf of itself
and Baach. It settled the case for $1.225 million but National Union
36
We thus decline ASTM’s request to reverse the district court’s
judgment on these grounds as well.
F. Attribution of settlement amount
ASTM contends that the district court “erred when it
calculated the amount of the settlement for which ASTM was
required to indemnify Rogers and Baach” insofar as it “treated
the entire amount of the settlement and attorneys’ fees as if it
were attributable to Rogers’ and Baach’s service on ASTM
committees.” Appellant’s br. at 48. Specifically, ASTM says
that, “the Armor Shield Complaint contains numerous
allegations relating to conduct by individuals and corporations
named as defendants, other than ASTM, conduct that is
completely unrelated to Rogers’ and Baach’s service on ASTM
committees” and “Corrpro’s Director’s and Officer’s liability
insurer also concluded that the thrust of the Armor Shield
Complaint was ‘necessarily asserted principally against
Corrpro.’” Id. (quoting J.A. at 858). Again, ASTM is mistaken.
Analogizing this case to those in an insurance context,
ASTM claims, appellant’s br. at 49 (quoting Lang Tendons, Inc.
paid $700,000 of that amount so that the net cost of the settlement to
Corrpro was $525,000. While we cannot say that it was less expensive
for Corrpro and Baach to settle the Armor Shield litigation than it would
have been to win after a trial, because their expenses were ongoing it
similarly made good sense for them to settle.
Aside from the expense factor the defendants faced the risk of
losing in the Armor Shield litigation and suffering damages judgments
that might have ruined them. Thus, Rogers testified that Armor Shield
was demanding “something like $90 million,” id., so that considering his
choices the settlement was reasonable. Baach also testified that the
settlement was reasonable because Armor Shield was requesting $30
million and that he “understood because of the nature of the allegation
[that request] could be multiplied time three to $90 million.” Id. at 89.
Moreover Baach believed, correctly as it turned out, that National Union
would pay a little better than half of the settlement costs. Overall,
considering Roger’s and Baach’s cases either separately or together their
settlement was reasonable. The fact is that they were engaged in “bet
the company” litigation and it was in their interest that they end it.
37
v. N. Ins. Co. of N.Y., No. Civ. A. 00-2030, 2001 WL 228920,
at *11 (E.D. Pa. Mar. 7, 2001)), “where there has been no
adjudication of liability because the insured has settled the
claims against it, and no apportionment of the settlement amount
among the different counts of the underlying complaint, the
court must determine whether an equitable apportionment
between covered and uncovered claims must be made.” Here,
for reasons we set forth above, the district court found that
ASTM Bylaw No. 10.1 covered all the claims asserted in the
Armor Shield complaint. In doing so the district court
indicated that, “[a]lthough WRA and Corrpro paid the entirety of
these amounts on behalf of both themselves and Baach and
Rogers individually, the settlement agreement did not distinguish
what portion(s) of the settlement were attributable to the actions
of the individual defendants and which were attributable to the
actions of the corporations.” ASTM, 2005 WL 1941653, at *12.
The district court went on to state, however, that “nothing
through [its] scrutiny of the Armor Shield pleadings . . . suggests
that the corporate entities were sued because of the activities of
any individuals other than Baach or Rogers.” Id.; see also
appellees’ br. at 50 (asserting the “undisputed testimony at the
trial” was that Baach’s defense costs were inseparable from
those of Corrpro while Rogers’ defense costs were inseparable
from those of WRA and Baach and Rogers were the only alleged
wrongdoers identified in the Armor Shield complaint acting on
behalf of Corrpro and WRA respectively). Additionally, it again
bears noting that the promulgation of the ES-40 and G-158
standards was the trigger for the Armor Shield litigation. Thus,
because the district court has made the determination ASTM
says is necessary, we reject ASTM’s request that we reverse the
district court’s order on attribution grounds.
G. Award of attorney’s fees in present litigation
ASTM argues finally that the district court erred in
holding Baach and Rogers were entitled “to recoup the legal fees
that they incurred in defending this declaratory judgment action
regarding their right to indemnification.” Appellant’s br. at 57.
Specifically, ASTM says that the district court’s holding
38
“confuses an indemnitee’s ability to recover fees associated with
an underlying liability litigation with its ability to recover fees
associated with indemnification litigation.” Id. Defendants
respond that both ASTM Bylaw No. 10.1 and general principles
of equity demand that Baach and Rogers be allowed to “recoup”
legal fees incurred in defending this declaratory judgment action
regarding their right to indemnification. The merits of the
parties’ respective arguments aside, we do not have jurisdiction
to resolve the issue at this time and thus will dismiss the appeal
to the extent it challenges the award of attorney’s fees in this
case.
As discussed above, our jurisdiction over ASTM’s appeal
relating to defendants’ right to indemnification for their costs
and expenses in the Armor Shield litigation is unaffected by the
district court’s failure to quantify its award of attorney’s fees in
this action, given the Supreme Court’s holding that “an
unresolved issue of attorney’s fees for the litigation at hand”
does not prevent judgment on the merits from being final.
Budinich, 486 U.S. at 202, 108 S.Ct. at 1721. Implicit in this
finding, however, is the necessary corollary that we do not have
jurisdiction to determine those issues pertaining to the
“unresolved issue of attorney’s fees” itself. See Frangos, 860
F.2d at 72 (dismissing that portion of the appeal dealing with
attorney’s fees attributable to the case where such fees had not
yet been quantified).
ASTM attempts an end-run around this seemingly
inescapable point by citing to the doctrine of pendent appellate
jurisdiction. Although admitting “[t]he relatively sparse case
law . . . suggests the history of pendent appellate jurisdiction is
more murky than [clear],” ASTM nonetheless urges that
“[w]hatever the limits of pendent appellate jurisdiction may be,
ASTM believes the Court would have the power to vacate the
district court’s ruling that Appellees are entitled to undetermined
fees in this case, if it separately reaches a decision that may
undermine that ruling, i.e., if it concludes Appellees were not
entitled to indemnification for the Armor Shield litigation.”
Appellant’s letter br. at 7. We disagree.
To start with, of course, we are not making the
39
determination ASTM asserts that would empower us to vacate
the attorney’s fees ruling with respect to this case. In any event,
even setting that point aside, in its “broadest formulation,” the
doctrine of pendent appellate jurisdiction merely “allows an
appellate court in its discretion to exercise jurisdiction over
issues that are not independently appealable but that are
intertwined with issues over which the appellate court properly
and independently exercises its jurisdiction.” In re Tutu Wells
Contamination Litig., 120 F.3d 368, 382 (3d Cir. 1987),
overruled on other grounds by Comuso v. Nat’l R.R. Passenger
Corp., 267 F.3d 331, 338-39 (3d Cir. 2001). To this end, we
have held “that the discretionary exercise of pendent appellate
jurisdiction is appropriate when the issue over which we have
jurisdiction cannot be resolved without reference to the
otherwise nonappealable issue.” Id. (citing Kershner v.
Mazurkiewicz, 670 F.2d 440, 449 (3d Cir. 1982)); see also Nat’l
Union Fire Ins. Co. v. City Sav., F.S.B., 28 F.3d 376, 382 (3d
Cir. 1994) (“We have stated that pendent appellate jurisdiction
over an otherwise unappealable order is available only to the
extent necessary to ensure meaningful review of an appealable
order.”) (internal quotations and citation omitted). We are
satisfied that the rigorous standard for invoking pendent
appellate jurisdiction has not been met here. As the above
discussion illustrates, ASTM’s appeal regarding defendants’
indemnification requests (i.e., “the issue over which we have
jurisdiction”) plainly can be resolved without reference to
whether defendants are entitled to attorney’s fees in this
litigation (i.e., the “otherwise unappealable order”). Indeed, that
is exactly what we have done. Moreover, it is difficult to see
why, if we exercised pendent jurisdiction here, such jurisdiction
would not always be available in standard two-part litigation
such as that involving a third-party claim against an insured
followed by the insured’s claim against his disclaiming
insurance carrier. Overall, we think that it is quite clear that we
do not have pendent appellate jurisdiction in this case.
V. CONCLUSION
For the legal and factual reasons that we have set forth,
40
we will affirm the district court’s order entered August 12, 2005
order with respect to settlement costs and attorney’s fees in the
Armor Shield litigation, dismiss the appeal to the extent that it
relates to attorney’s fees and costs in this litigation, and remand
the case for further proceedings as they pertain to defendants’
entitlement to attorney’s fees in this litigation.
41