Scaife v. Associated Air Center Inc.

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 95-11127
RICHARD M. SCAIFE, doing business as
Scaife Flight Operations;
Plaintiff - Appellant,
H. YALE GUTNICK,
Appellant,
VERSUS
ASSOCIATED AIR CENTER INC., a corporation,
Defendant - Appellee.
Appeal from the United States District Court
for the Northern District of Texas
November 14, 1996
Before REYNALDO G. GARZA, DeMOSS, and PARKER, Circuit Judges.
DeMOSS, Circuit Judge:
In this case, we are asked to review the district court’s
decision granting summary judgment in favor of Associated Air
Center and against Richard M. Scaife t/d/b/a Scaife Flight
Operations on Scaife’s breach of contract claim. The district
court also entered an order imposing monetary sanctions against
Scaife and non-monetary sanctions against H. Yale Gutnick, Scaife’s
Pittsburgh counsel. Scaife appeals from the summary judgment order
and Gutnick appeals from the order imposing sanctions. For the
forthcoming reasons, we hold that no contract was ever made and,
therefore, we AFFIRM the district court’s decision granting summary
judgment. However, we find that the district court abused its
discretion by ordering sanctions against Gutnick and VACATE the
order of sanctions against Gutnick.
BACKGROUND
In 1993, Scaife Flight Operations began accepting bids for a
corrosion inspection and customized renovation of the interior of
Richard Scaife’s personal aircraft, a DC9-15. Scaife hangers and
maintains the aircraft in Latrobe, Pennsylvania. On March 24,
1994, Jeff Bosque, one of Associated Air Center’s (“AAC”)
representatives, sent a letter and an original proposed
Modification Agreement to perform a corrosion inspection and
renovate the aircraft to Scaife’s chief pilot, Dan Harbaugh. AAC,
a Texas corporation with its principal place of business in Dallas,
Texas, repairs and renovates aircraft. The proposal and bid for
$2,300,000 was executed by AAC’s president, Roy Gilbreath. In a
letter attached to the proposal, AAC expressly requested that
Harbaugh execute the agreement and “return one fully executed copy
to [AAC] for our files.”
Harbaugh sent the agreement to one of Scaife’s attorneys,
Thomas Zwilling of Strassburger McKenna Gutnick & Potter. On March
30, AAC representative Bosque faxed an unexecuted second proposed
Modification Agreement directly to Zwilling. This second agreement
incorporated suggestions from Zwilling which materially changed the
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first agreement. Zwilling then faxed the second revised agreement
to Harbaugh.
The next day, Zwilling sent an unexecuted four-page fax to
Bosque with several changes to the second revised agreement.
Bosque made these revisions and faxed an unexecuted third proposed
Modification Agreement back to Zwilling. Bosque was supposed to
send a final Modification Agreement with AAC’s authorized signature
to Zwilling by April 4. In fact, expecting Bosque to send the
signed agreement to Zwilling, Harbaugh had arranged to travel to
Zwilling’s office on April 4 to sign the agreement on behalf of
Scaife Flight Operations.
Bosque never sent a final agreement to Zwilling or any other
Scaife representative. Harbaugh contacted AAC and asked Bosque why
AAC never sent the final agreement. Bosque explained that AAC had
concerns about the scope of work to be performed on the aircraft.
Bosque asked Harbaugh whether Scaife would consider changes in the
agreement to reduce certain costs for AAC. Harbaugh declined.
AAC’s President, Roy Gilbreath, also told Harbaugh that AAC had
underbid the job by $200,000 to $250,000. Gilbreath then attempted
to continue the negotiations with Harbaugh. Harbaugh again refused
to modify the agreement and stated that Scaife expected AAC to
honor the final agreement.
When AAC failed to begin work on the aircraft, Scaife brought
this breach of contract action in the United States District Court
for the Western District of Pennsylvania. The case was later
transferred to the Northern District of Texas on the basis of a
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forum selection clause in the proposed contract.1 After receiving
the case from Pennsylvania, the federal district court in Texas
entered its standard order for the parties to participate in a pre-
trial settlement conference. Paragraph 9(a) of the order required
that all parties and counsel participate in person, not by
telephone or other remote means. Later, the district court entered
a Mediation Order stating:
The named parties shall be present during the
entire mediation process and each party which is
not a natural person must be represented by an
executive officer with authority to negotiate a
settlement. Counsel and parties shall proceed in a
good faith effort to try to resolve this case.
The instructions from the mediator also required that “party
representatives must have authority to settle and all persons
necessary to the decision to settle shall be present.”
Before the scheduled mediation, AAC learned that Richard
Scaife was not going to attend and that Scaife planned on sending
Harbaugh in his place. AAC contacted the district court and told
the court of this development. Scaife’s local counsel requested a
conference for the purpose of determining whether Richard Scaife
was required to attend the mediation. At the conference, local
counsel explained to the district court that Mr. Gutnick, Scaife’s
1
All of the drafts of the modification agreement relied upon
by Scaife as constituting the alleged contract required that any
disputes arising under the agreement “shall be governed by the law
of the State of Texas.”
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Pittsburgh lawyer, told Scaife that Harbaugh should attend the
mediation and that his attendance was not required. As a result,
Scaife had not made plans to attend.
The district court made it clear during the conference call
that Scaife was expected to attend the mediation. Local counsel
advised Gutnick of the district court’s position. Scaife
purportedly told Gutnick that he did not want to appear and
authorized Gutnick to file a motion to voluntarily dismiss the case
without prejudice to avoid violating the court’s order requiring
him to appear at the mediation. This motion was filed on September
20, 1995.
The next day, Scaife’s local counsel appeared at the mediation
without Scaife and tendered a check to the mediator. AAC filed a
motion to dismiss with prejudice under Rule 16(f) and 41(b) as a
sanction for Scaife’s failure to appear. The district court
scheduled a hearing for both Scaife’s voluntary motion to dismiss
and AAC’s motion to dismiss, which included a motion for sanctions.
After the hearing, the district court denied AAC’s motion to
dismiss and entered a sanction order against Scaife and Gutnick.
The district court ordered Scaife to pay all of AAC’s expenses,
including attorney’s fees, incurred in preparing for and attending
the mediation session and the subsequent hearing on the motions to
dismiss. The district court sanctioned Gutnick by admonishing him
that his role, as officer of the court, is not to unilaterally
interpret away a court order by advising his client to do something
other than what the court’s order plainly requires. The district
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court ordered Gutnick to (a) publish the district court’s
memorandum order to all members of his firm; (b) bring the
memorandum order to the attention of any court to which he may
apply in the future; and (c) file a personally signed certificate
acknowledging that he read the memorandum and agrees to comply with
the stated terms of the sanction order. Five days later the
district court entered summary judgment against Scaife on the
breach of contract claims. Scaife appealed from the district
court’s summary judgment order and Gutnick appealed from the
district court’s order imposing sanctions.
DISCUSSION
We review the district court’s decision to grant summary
judgment de novo. Burditt v. West American Ins. Co., 86 F.3d 475,
476 (5th Cir. 1996). The district court’s sanction order is
reviewed for abuse of discretion. Natural Gas Pipeline Co. of
America v. Energy Gathering, Inc., 86 F.3d 464, 467 (5th Cir.
1996).
1. The Contract
Scaife contends that the district court erred in treating the
formation of a binding contract as a legal issue for the court to
decide. Foreca, S.A. v. GRD Development Co., Inc., 758 S.W.2d 744,
746 (Tex. 1988) (holding that questions concerning the formation
and terms of a particular contract, and the intent of the parties,
were properly considered questions of fact for a jury to decide).
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Scaife argues that substantial evidence of offer and acceptance
exists in this case to warrant submitting the case to a jury.
Scaife notes that AAC executives, Bosque and Gilbreath, admitted in
deposition testimony that the terms and conditions of the
Modification Agreement had been fully and fairly agreed upon by the
parties and that AAC was willing to proceed until Gilbreath
unilaterally terminated the contract.
Scaife also argues that the district court incorrectly framed
the issue as whether the parties intended to make a signed or
unsigned written contract. Scaife contends that the issue turns on
whether the parties intended signatures to be a condition precedent
to an enforceable contract. As support for this proposition,
Scaife notes that Bosque’s March 24 cover letter to Harbaugh states
“[w]e now have everyones [sic] verbal approval on both the contract
language and payment schedule. The enclosed contracts are for the
modification and maintenance of [the aircraft]. Please return one
fully executed copy to us for our files.” Scaife contends that
this letter shows AAC’s intent to have the execution of the
contract considered a mere formality.
Scaife argues next that the district court ignored the factual
distinctions between the cases it cited and the present case.
Scaife contends that in the case heavily relied upon by the
district court, Simmons and Simmons Constr. Co. v. Rea, 286 S.W.2d
415, 418 (Tex. 1955), the Texas Supreme Court found no evidence
that the parties intended the writing to be a binding contract
absent their signatures. In contrast, Scaife argues that a wealth
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of evidence exists to show that signatures were not required to
make a binding contract in this case. As support, Scaife contends
that it deposited $800,000 into its bank account on April 5 as the
first installment became due and cut a check payable to AAC on the
same day. Scaife also notes that Harbaugh made lodging
arrangements near AAC’s facilities for the three months that the
aircraft was scheduled to be worked on and that Harbaugh told two
other bidders that Scaife had chosen AAC for the renovation work.
Scaife also argues that, in Simmons, the plaintiff sued to
enforce a contract even though the defendant never indicated that
he accepted the contract. Scaife contends that the district court
erred in relying on this case because the defendant AAC is the
signatory and there is no question that AAC intended to be bound by
this agreement. Scaife maintains that the district court also
incorrectly cited Simmons for the proposition that “if parties
negotiating a contract intend for the contract to be reduced to
writing and signed, then no contract is formed unless and until the
writing has been executed by both the parties.” According to
Scaife, Simmons does not stand for this proposition.
AAC argues that Texas law states that if the parties intend
for the contract to be reduced to writing, no offer and acceptance
exists unless and until the writing is executed by all the parties.
Simmons, 286 S.W.2d at 418. AAC contends that the summary judgment
evidence proves that Scaife and AAC intended the agreement to be
signed by both parties. For example, AAC notes that (1) the
agreement had signature blocks for the parties to sign; (2) the
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language in the agreement provided “IN WITNESS WHEREOF, the parties
have caused this agreement to be executed by their duly authorized
representative at Dallas, Texas, on the first date written above;”
(3) one third of the contract price was due “upon the signing of
the contract;” (4) the aircraft was to be delivered to the owner
within 90 days subject to the execution of the contract; and (5) a
clause in the contract stated that no party could alter or amend
the contract except in writing signed by both parties.
Furthermore, AAC argues that Harbaugh’s deposition testimony
stated that Bosque would have Gilbreath sign the agreement and then
ship it to Scaife Flight Operations for Harbaugh to sign. Harbaugh
stated that he did not want to make another trip to Zwilling’s
office to sign the agreement unless it would definitely be there.
AAC maintains that this evidence shows that Scaife and AAC intended
for the agreement to be signed before a binding contract was
formed.
Further, AAC maintains that the district court’s reliance on
Simmons was proper because that case reached the issue of whether
a signature was required on a contract as a condition precedent for
formation of the contract. As in the present case, the summary
judgment evidence shows that AAC and Scaife intended for the
signatures to be a condition precedent to the formation of the
contract. AAC contends that regardless of how the issue was
framed, each party’s signature was required for the formation of
this contract. Scaife’s attempt to distinguish Simmons fails
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because Simmons established that if parties negotiating a contract
intend to require signatures, then a contract is not formed unless
both parties sign the contract. Simmons, 286 S.W.2d at 419.
The issue of whether the parties required that the agreement
be signed to be considered binding is one of intent, and,
therefore, the issue is normally a fact question for the jury to
decide. Foreca, 758 S.W.2d at 746; Scott v. Ingle Bros. Pacific,
Inc., 489 S.W.2d 554, 556 (Tex. 1972); and Simmons, 286 S.W.2d at
417. However, the district court decided that Scaife’s assertions
did not raise a genuine issue of material fact concerning whether
the parties intended to make signatures a requirement for the
formation of a binding contract and, on these grounds, the district
court granted summary judgment. We note that parties may enter
into an oral contract even though they are contemplating a formal
writing. See Simmons, 286 S.W.2d at 418. The subsequent writing
then becomes merely a “convenient memorial” of the agreement.
Cothron Aviation, Inc. v. Avco Corp., 843 S.W.2d 260, 263 (Tex. Ct.
App.--Fort Worth 1992, writ denied). The “convenient memorial”
doctrine usually requires a finder of fact to ascertain whether the
parties intended to be bound by the agreement before the agreement
was formally executed. Id.
However, the question presented here is not whether there was
a prior oral contract. The evidence clearly shows that the parties
intended that a written contract would govern their agreed upon
obligations. Instead, the question presented is whether the third
proposed agreement was accepted and became a binding contract
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without the signatures of the parties. When reviewing written
negotiations, the question of whether an offer was accepted and a
contract was formed is primarily a question of law for the court to
decide. S & A Marinas, Inc. v. Leonard Marine Corp., 875 S.W.2d
766, 769 (Tex. Ct. App.--Austin 1994, writ denied). If an agree-
ment has been reduced to writing, as it was in this case, an assent
to the writing must be manifested. Simmons, 286 S.W.2d at 418;
Cothron Aviation, 843 S.W.2d at 264. Manifestation of assent
“commonly consists of signing and delivery.” Simmons, 286 S.W.2d
at 418; and see Cothron, 843 S.W.2d at 264.
The contract in this case was revised at least three times and
expressly contained signature blocks for the parties. All three of
the proposed agreements, entitled “Aircraft Modification
Agreement,” included the following clause and signature blocks:
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their duly authorized
representative at Dallas, Texas, on the date first
above written.
SCAIFE FLIGHT OPERATIONS
By:_____________________
Duly Authorized Representative
Date:___________________
ASSOCIATED AIR CENTER, INC.
By:________________________
Roy G. Gilbreath
President
Date:_____________________
Harbaugh’s deposition testimony explained that Gilbreath was to
sign the agreement for AAC and send it to Zwilling’s office for
Harbaugh’s signature. The contract was never delivered and neither
party ever signed the agreement. “If parties negotiating a
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contract intend that the contract shall be reduced to writing and
signed by the parties, ... then either party may withdraw at any
time before the written agreement is drawn up and signed by both
parties.” Gasmark, Ltd. v. Kimball Energy Corp., 868 S.W.2d 925,
929 (Tex. Ct. App.--Fort Worth 1994, no writ) (citing Premier Oil
Refining Co. of Texas v. Bates, 367 S.W.2d 904, 907 (Tex. Ct. App.
--Eastland 1963, writ ref’d n.r.e.)).
In this case the contract was never signed. Signature blocks
were included on the contract and Scaife took affirmative steps to
ensure that a representative would be able to sign the agreement
once a finalized contract had been prepared and signed by AAC. We
hold that the parties contemplated the formation of a binding
agreement to include the signatures of both parties. No evidence
shows that AAC began work on the aircraft or acted in any
affirmative manner to assent to the agreement notwithstanding the
lack of delivery and formal execution of the contract. Foreca, 758
S.W.2d at 746 n.2 (listing criteria which may be helpful in
determining whether a contract has been formed, such as whether a
party takes action in preparation of performance). After carefully
reviewing the summary judgment evidence, we agree with the district
court that the parties intended to manifest their assent to this
agreement through a formal written contract signed by both parties.
We hold that no contract was ever formed and, as a result, summary
judgment was appropriate in this case.
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2. Sanctions
Federal courts have inherent powers which include the
authority to sanction a party or attorney when necessary to achieve
the orderly and expeditious disposition of their dockets. Chambers
v. NASCO, Inc., 501 U.S. 32, 43 (1991); Natural Gas Pipeline Co.,
86 F.3d at 467. We review sanctions imposed under the district
court’s inherent powers for abuse of discretion. Natural Gas
Pipeline Co., 86 F.3d at 467.
“[T]he threshold for the use of inherent power sanctions is
high.” Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir.
1995). “Such powers may be exercised only if essential to preserve
the authority of the court and the sanction chosen must employ the
least possible power adequate to the end proposed.” Energy
Gathering, 86 F.3d at 467 (internal quotations omitted).
At the conference held the day before the mediation, the court
advised Gutnick that Scaife would be required to attend. Because
Scaife was unable to attend the mediation on such short notice,
Gutnick filed a motion to dismiss without prejudice to avoid
violating the district court’s order.
The district court then held a hearing on the motions to
dismiss filed by both parties. AAC’s motion also included a motion
for sanctions. After the hearing, the district court issued an
order imposing sanctions on Scaife, requiring Scaife to pay all
costs associated with the aborted mediation and the motions to
dismiss. This sanction order was not appealed by Scaife.
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The district court also sanctioned Gutnick by admonishing him
not to unilaterally interpret away a court order by advising his
client to do something other than what a district court’s order
requires that client to do. The district court sanctioned Gutnick
by requiring him to (a) publish the district court’s memorandum
order to all members of his firm; (b) bring the memorandum order to
the attention of any court to which he may apply in the future; and
(c) file a personally signed certificate acknowledging that he read
the memorandum and agrees to comply with the stated terms of the
sanction order.
Gutnick argues that the district court abused its discretion
because the sanctions order is grossly excessive and the court did
not issue specific findings to show that Gutnick acted in bad
faith. See Dawson v. United States, 68 F.3d 886, 895 (5th Cir.
1995) (noting that in order for a district court to impose
sanctions under its inherent power a specific finding of bad faith
must be made). Gutnick contends that he never advised Scaife to
disobey the court order to appear at the mediation hearing and that
Scaife never wilfully violated the court’s order. Gutnick argues
that he and Scaife acted on good faith reliance that Harbaugh’s
attendance was sufficient to satisfy the requirements of Rule 16
and the pretrial and mediation orders to send a person with
settlement authority to the mediation.
Gutnick contends that the sanctions assessed not only harm his
personal reputation, but restrict his ability to practice in other
state and federal courts by requiring him to submit a copy of the
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sanction order to any bar which Gutnick is not currently a member.
Gutnick argues that the sanction order violates the Tenth Amendment
by invading the exclusive authority of state courts to regulate
admission to their respective bars. Further, Gutnick contends that
the district court’s order violates 28 U.S.C. § 2071 because it
creates new conditions for Gutnick’s admission to practice in other
federal courts. Finally, Gutnick argues that he was denied due
process because the district court failed to provide him with an
adequate notice and opportunity to be heard on the sanction issue.
After carefully reviewing the record in this case, we hold
that the district court abused its discretion by failing to employ
the least severe sanction adequate to achieve the desired result.
It is understandable that the district court would believe that
some sanction was required when, after issuing an order and holding
a conference to clarify the order, Scaife and Gutnick ignored such
order. However, Gutnick explained that he made the decision to
have Harbaugh attend the mediation because he was the only person
involved with the contractual negotiations for Scaife Flight
Operations. Harbaugh had all the requisite authority to settle the
case. Scaife was not involved in the contractual negotiations and
had no knowledge of the underlying facts of this dispute.
Therefore, Gutnick decided that Harbaugh would be the best person
to attend the mediation.
We hold that the sanctions imposed on Gutnick are overbroad
and excessive. We believe that the sanctions requiring Scaife to
pay all costs associated with the mediation and subsequent motions
15
to dismiss is adequate and sufficient to serve the necessary
purpose of deterrence. Therefore, we vacate the district court’s
order imposing sanctions on Gutnick.
CONCLUSION
For the foregoing reasons, we AFFIRM the decision of the
district court granting summary judgment in favor of AAC and VACATE
the sanctions assessed by the district court against Gutnick.
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