Zuk v. Eastern Pennsylvania Psychiatric Institute of the Medical College of Pennsylvania

Decision Date31 December 1996
Docket NumberNo. 96-1199,96-1199
Citation103 F.3d 294
Parties1997 Copr.L.Dec. P 27,603, 36 Fed.R.Serv.3d 1515, 41 U.S.P.Q.2d 1296 Gerald ZUK v. EASTERN PENNSYLVANIA PSYCHIATRIC INSTITUTE OF THE MEDICAL COLLEGE OF PENNSYLVANIA, Appellee, Benjamin G. Lipman, Appellant.
CourtU.S. Court of Appeals — Third Circuit

Benjamin G. Lipman, Philadelphia, PA, pro se (argued).

Michael I. Shamos (argued), The Webb Law Firm, Pittsburgh, PA, for Appellee.

Before: SLOVITER, Chief Judge, MCKEE and ROSENN, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

This appeal brings into focus difficult questions relating to the evolving uses and purposes of Federal Rules of Civil Procedure (Fed.R.Civ.P.) Rule 11 sanctions, the more narrow statutory function of sanctions permitted under 28 U.S.C. § 1927, and differences between the two. The sanctions here stem from a suit filed in the United States District Court for the Eastern District of Pennsylvania by Benjamin Lipman, the appellant, in behalf of Dr. Gerald Zuk for copyright infringement against the Eastern Pennsylvania Psychiatric Institute (EPPI). 1 The district court dismissed the action on a Rule 12(b)(6) motion filed by the defendant, and appellant and his client thereafter were subjected to joint and several liability in the sum of $15,000 for sanctions and defendant's counsel fees. Dr. Zuk settled his liability and Lipman appealed. We affirm in part and vacate in part.

I.

Dr. Zuk, a psychologist on the faculty EPPI, early in the 1970s had an EPPI technician film two of Dr. Zuk's family therapy sessions. As academic demand for the films developed, Zuk had EPPI duplicate the films and make them available for rental through their library. Zuk subsequently wrote a book which, among other things, contained transcripts of the therapy sessions. He registered the book in 1975 with the United States Copyright Office.

In 1980, upon a change in its ownership, EPPI furloughed Zuk. He thereupon requested that all copies of the films be returned to him; EPPI ignored the request. It would appear that EPPI continued to rent out the films for at least some time thereafter. For reasons which have not been made clear, after a long hiatus, Zuk renewed his attempts to recover the films in 1994. In 1995, appellant filed a suit in Zuk's behalf, alleging that EPPI was renting out the films and thereby infringed his copyright.

On June 19, 1995, EPPI moved for dismissal under Rule 12(b), and appellant filed a memorandum in opposition. While the motion was pending, EPPI mailed to Lipman a notice of its intention to move for sanctions under Rule 11(c)(1)(A) on the grounds essentially that appellant had failed to conduct an inquiry into the facts reasonable under the circumstances and into the law. The district court entered an order granting the motion to dismiss. The court found that the copyright of the book afforded no protection to the films, that EPPI owned the copies of the films in its possession and that their use was not an infringement, and that in any event, Zuk's claims were barred by the statute of limitations.

On August 16, EPPI filed a motion for attorney's fees pursuant to 17 U.S.C. § 505 which appellant opposed by a memorandum in opposition on August 31. On September 15, EPPI also filed a Rule 11 motion for sanctions, and appellant filed a memorandum in opposition. On November 1, the court entered an order to "show cause why Rule 11 sanctions should not be imposed for (a) filing the complaint, and failing to withdraw it; and (b) signing and filing each and every document presented." Appellant responded on December 1 with a declaration reiterating the facts of the case as he viewed them.

On February 1, 1996, the court, upon consideration of defendant's motion for attorney's fees and sanctions, ordered: "That plaintiff, Gerald Zuk, Ph.D., and plaintiff's counsel, Benjamin G. Lipman, Esq. are jointly and severally liable to the defendant for counsel fees in the sum of $15,000." We must ascertain the underpinnings for the Order. It appears that Dr. Zuk subsequently settled his liability with EPPI in the amount of $6,250, leaving appellant liable for $8,750. Appellant timely appealed.

II.

We turn first to the Copyright Act which provides in relevant part: "In any civil action under this title [Copyrights], the court in its discretion may allow the recovery of full costs by or against any party.... [T]he court may also award a reasonable attorney's fee to the prevailing party as part of the costs." 17 U.S.C. § 505.

Under this Act, a reasonable attorney's fees may be awarded in the court's discretion to the prevailing party against the other party as costs. This court has in the past recognized that the statutory authorization is broad, does not require bad faith on the part of the adversaries, and reveals an intent to rely on the sound judgment of the district court. Lieb v. Topstone Industries, Inc. 788 F.2d 151, 155 (3rd Cir.1986). In the instant case, the trial judge aptly recognized that fees were not automatically awarded to the prevailing party, but believed that this was the kind of case in which an award was clearly justified. He therefore concluded that reasonable compensation for all the time spent in this litigation, including the fees and sanctions issues, was to enter a total award of $15,000. Therefore the district court committed no error in making an award under this Act. However, under the statutory directive, the attorney's fee is considered an element of costs and therefore liability attached only to Dr. Zuk and not his attorney, Benjamin G. Lipman. Dr. Zuk has settled his liability, and the appellant's liability under the Copyright Act should not detain us. There is none. We therefore turn to the other statute that figures in this appeal, 28 U.S.C. § 1927.

The short memorandum of the district court accompanying its Order of February 1, 1996 also shows that the district court concluded that "joint and several liability should be imposed under both Fed.R.Civ.P. 11 and 28 U.S.C. § 1927 upon plaintiff's counsel, as well as plaintiff, for the $15,000 counsel fee award." D.C. Memo at 2.

We turn first to the propriety of the district court's imposition of sanctions under 28 U.S.C. § 1927. We review a district court's decision to impose sanctions for abuse of discretion. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 385, 110 S.Ct. 2447, 2450, 110 L.Ed.2d 359 (1990); Jones v. Pittsburgh Nat'l Corp., 899 F.2d 1350, 1357 (3rd Cir.1990).

Section 1927 provides in pertinent part: "Any attorney or person admitted to conduct cases who so multiplies the proceeding in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses and attorney's fees reasonably incurred because of such conduct." Although a trial court has broad discretion in managing litigation before it, the principal purpose of imposing sanctions under 28 U.S.C. § 1927 is "the deterrence of intentional and unnecessary delay in the proceedings." Beatrice Foods v. New England Printing, 899 F.2d 1171, 1177 (Fed.Cir.1990). In this case, the trial court imposed sanctions on plaintiff and his counsel, not because of any multiplicity of the proceedings or delaying tactics, but for failure to make a reasonably adequate inquiry into the facts and law before filing the lawsuit. Thus, the statute does not apply to the set of facts before us. Furthermore, the statute is designed to discipline counsel only and does not authorize imposition of sanctions on the attorney's client.

Finally, this court has stated that "before a court can order the imposition of attorneys' fees under § 1927, it must find wilful bad faith on the part of the offending attorney." Williams v. Giant Eagle Markets, Inc., 883 F.2d 1184, 1191 (3d Cir.1989). Although the court need not "make an express finding of bad faith in so many words," Baker Industries, Inc. v. Cerberus Ltd., 764 F.2d 204, 209 (3d Cir.1985), there must at least be statements on the record which this court can construe as an implicit finding of bad faith. Id.

At oral argument before us, counsel for EPPI conceded that the district court had made no express finding of bad faith. Our review of the record, which in relevant part consists only of a two-page Memorandum and Order, reveals no statements which we can interpret as an implicit finding of willful bad faith. At most, the court's statements might be interpreted to indicate a finding of negligence on appellant's part. 2

We have also interpreted § 1927 as requiring specific notice and the opportunity to be heard before sanctions are imposed. In Jones v. Pittsburgh Nat'l Corp., we confronted a situation very much like the current one; the appellant had been sanctioned under both Rule 11 and § 1927, but had received notice only in regard to Rule 11. In vacating the order imposing sanctions, we noted that "particularized notice is required to comport with due process," and that "the mere existence of ... § 1927 does not constitute sufficient notice in our view." 899 F.2d at 1357.

We therefore hold that because the court had made no finding of wilful bad faith, and because it failed to give appellant notice and an opportunity to defend, it was an abuse of discretion to award sanctions against plaintiff's counsel under 28 U.S.C. § 1927.

III.

In imposing joint and several liability upon appellant, the district court stated only that it was acting pursuant to Fed.R.Civ.P. 11 and 28 U.S.C. § 1927. It did not set forth the portion of the sanctions imposed as a result of the perceived § 1927 violation, as opposed to the portion to be allocated pursuant to Rule 11. Thus, we are denied meaningful review.

This court confronted a similar situation in Jones, supra. In that case, we concluded that "the court did not identify and relate the violations to each source of authority in a way that would permit meaningful appellate review.... In...

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