In re Prudential Ins. Co. America Sales Practice

• Decision Date: 24 January 2002
• Docket Number: No. 99-5960.,99-5960.
• Citation: 278 F.3d 175
• Parties: In re PRUDENTIAL INSURANCE COMPANY AMERICA SALES PRACTICE LITIGATION AGENT ACTIONS, Michael P. Malakoff, Esquire, and Malakoff, Doyle & Finberg, P.C., Appellants.
• Court: U.S. Court of Appeals — Third Circuit

278 F.3d 175

In re PRUDENTIAL INSURANCE COMPANY AMERICA SALES PRACTICE LITIGATION AGENT ACTIONS, Michael P. Malakoff, Esquire, and Malakoff, Doyle & Finberg, P.C., Appellants.

No. 99-5960.

United States Court of Appeals, Third Circuit.

Argued December 5, 2000.

January 24, 2002.

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David J. Armstrong (Argued), Dickie, McCamey & Chilcote, P.C., Michael P. Malakoff, Malakoff Doyle & Finberg, P.C., Pittsburgh, PA, Counsel for Appellants.

Allyn Z. Lite (Argued), Bruce D. Greenberg, Lite DePalma Greenberg & Rivas, LLC, Newark, NJ, Melvyn I. Weiss, Barry A. Weprin, Brad N. Friedman, Milberg Weiss Bershad Hynes & Lerach LLP, Reid L. Ashinoff, Sonnenschein, Nath & Rosenthal, New York, NY, Michael B. Hyman, Deborah S. Bussert, Ellyn M. Lansing, Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C., Chicago, IL, Counsel for Appellees.

Brian S. Wolfman, Public Citizen Litigation Group, Washington, D.C., Counsel for Amicus-Appellant, Public Citizen, Inc.

Before: McKEE, ROSENN, and CUDAHY,^* Circuit Judges.

OPINION OF THE COURT

McKEE, Circuit Judge.

This appeal arises from numerous state and federal class actions that the Judicial Panel on Multi-district Litigation consolidated for disposition in the United States District Court for the District of New Jersey. This massive, national class action involved the claims of over eight million policy holders of Prudential Life Insurance Company who were represented by many lawyers, including the appellant, Michael P. Malakoff and his law firm, Malakoff, Doyle and Finberg. The class action eventually reached a settlement. However, on the eve of settlement, Lead Counsel for the plaintiffs asked the court to sanction Malakoff based upon his conduct during the course of the litigation.

After issuing a rule to show cause on the motion for sanctions, the District Court referred the matter to a magistrate judge who issued a Report and Recommendation ("R and R") recommending rather severe disciplinary and monetary sanctions. The Chief Judge of the District Court then assigned Judge Walls to review the R and R. Judge Walls approved the R and R with modifications and directed the magistrate judge to recalculate the monetary sanctions according to the precise costs and expenses resulting from the sanctionable conduct. See In re The Prudential Insurance Co., 63 F.Supp.2d 516 (D.N.J.1999). This appeal followed imposition of the modified sanctions. For the reasons that follow, we will affirm in part and reverse in part.

I. Background.

In 1995, Michael P. Malakoff, a Pennsylvania attorney experienced in class action litigation, brought two statewide class actions against Prudential Insurance Company of America in Ohio and West Virginia state courts on behalf of Prudential policy holders in those states. Prudential removed those class actions to federal district court and Malakoff's subsequent motions to remand were denied. The Judicial Panel on Multi-District Litigation centralized those and other class actions that had been brought on behalf of Prudential policy holders before Judge Alfred M. Wolin of the United States District Court for the District of New Jersey. The centralization order also appointed the law firms of Milberg, Weiss, Bershad, Hynes & Lerach of New York City and Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein, P.C. of Chicago as Lead Counsel in the national consolidated action. From the outset, Lead Counsel and Malakoff disagreed as to whether the actions should be litigated in statewide classes or as a national class. Malakoff argued that the two state class actions in which he was counsel should be litigated separately from the national class asserted by Lead Counsel.

The consolidated cases, from which Malakoff had successfully excluded his clients, were settled on a nationwide basis in late 1996, and Malakoff retained objector status in the nationwide action. On December 2, 1996, Malakoff filed an "emergency" motion to recuse Judge Wolin. A few days later, Lead Counsel filed a cross-motion for sanctions predicated primarily on Malakoff's recusal motion. Judge Wolin referred the sanctions motion to then Magistrate Judge Joel A. Pisano. Following Malakoff's voluminous objections to the proposed settlement, Lead Counsel supplemented their cross-motion for sanctions with citations to numerous other instances of Malakoff's alleged sanctionable conduct.

As proponent of the statewide claims for Ohio and West Virginia, Malakoff raised many objections to the proposed national class settlement, and to Lead Counsel's request for $90 million in attorneys' fees. In March, 1997, Malakoff filed his own motion to sanction Lead Counsel under 28 U.S.C. § 1927. Shortly thereafter, Malakoff filed an additional motion for sanctions, this time relying upon Fed. R. Civ. Proc. 11, but alleging the same conduct that formed the basis of his § 1927 motion. See A-2818, 3485. On March 17, 1997, Judge Wolin, in an exhaustive and carefully drafted opinion, approved the settlement. In re Prudential Sales Practice Litig., 962 F.Supp. 450 (D.N.J.1997). Shortly thereafter, the District Court issued an order and opinion awarding attorneys' fees to Lead Counsel. 962 F.Supp. 572 (D.N.J.1997).

We affirmed Judge Wolin's approval of the settlement on appeal, but vacated the attorneys' fee award and remanded for further consideration. See In Re Prudential Sales Practice Litig., 148 F.3d 283 (3d Cir.1998). On remand, Lead Counsel moved for an interim fee award which Malakoff opposed. Lead Counsel also moved for sanctions against Malakoff based upon statements Malakoff made in his opposition documents. However, that request for sanctions was withdrawn within the "safe harbor" period.¹ See A-3192, 3485. Nonetheless, a week later Malakoff filed yet another motion against Lead Counsel under 28 U.S.C. § 1927. That motion was based on the sanctions that Lead Counsel had requested under Rule 11 even though that motion had been withdrawn. See A-3485(23).

Following the United States Supreme Court's denial of a petition for certiorari from our decision affirming the settlement,² Judge Wolin referred all motions for sanctions to Magistrate Judge Pisano. Judge Pisano issued an R and R recommending that sanctions be imposed against Malakoff. The sanctions included a compensatory payment of $100,000 to Lead Counsel under 28 U.S.C. § 1927, and a non-monetary requirement that Malakoff attach a copy of that R and R as well as a certification that he had paid the attorneys fees ordered therein, to all future motions for pro hac vice admission in the United States District Court for the District of New Jersey. See A-3485A(35).

Malakoff objected to the R and R. Judge Wolin recused himself, and the Chief Judge of the District Court assigned Malakoff's objections to Judge William H. Walls of the United States District Court for the District of New Jersey. Judge Walls substantially adopted Judge Pisano's report and rejected Malakoff's objection; however, Judge Walls remanded the recommendation for compensatory payment to Lead Counsel of $100,000 to Judge Pisano. The remand was for a determination of the precise amount of excess fees and expenses lead counsel incurred as a result of Malakoff's sanctionable conduct. Judge Walls also reduced the time that Malakoff would have to attach the R and R and the aforementioned certification of compliance to subsequent motions for pro hac vice admission to five years from the date of the first motion for pro hac vice admission. On remand, Malakoff and Lead Counsel agreed that the compensatory sanction award be reduced to $50,000 if we uphold the sanctions on appeal. That modification was approved, and Malakoff filed this appeal.

We are only concerned with the propriety of the sanctions imposed by the District Court against Malakoff following the protracted and hard-fought consolidated class action proceedings. Malakoff contends that his conduct did not warrant monetary or disciplinary sanctions, and that sanctions were imposed without adequate notice or "opportunity to be heard."³ Issues pertaining to the adequacy of Malakoff's "opportunity to be heard," are questions of law subject to plenary review. In Re Tutu Wells Contamination Litig., 120 F.3d 368, 383 (3d Cir.1997). However, we review whether the facts warrant the imposition of monetary and disciplinary sanctions for an abuse of discretion. Accordingly, we will only reverse the District Court if the sanctions resulted from an unsupported finding of fact, an errant conclusion of law, or an improper application of law to fact. See In re: Orthopedic Bone Screw Prods. Litig., 193 F.3d 781, 795 (3d Cir.1999).

The District Court imposed sanctions pursuant to 28 U.S.C. § 1927, as well as its inherent power to control the course of litigation. Although we will discuss the legal principles underlying these sanctions in more detail below, it will be helpful to preliminarily set forth the underlying legal principles for imposing sanctions. We will then examine Malakoff's conduct to determine if the sanctions were appropriate here.

In Hackman v. Valley Fair, 932 F.2d 239 (3rd Cir.1991) we noted that:

a finding of willful bad faith on the part of the offending lawyer is a prerequisite... [for imposing sanctions under 28 U.S.C. § 1927]. Bad faith is a factual determination reviewable under the clearly erroneous standard. Once a finding of bad faith is made, the appropriateness of sanctions is a matter entrusted to the discretion of the district court.

932 F.2d at 242.

Similarly, an award of fees and costs pursuant to the court's inherent authority to control litigation will usually require a finding of bad faith.⁴ In Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991) the Supreme Court stated that a court has the inherent authority to impose sanctions when an attorney has acted "in bad faith, vexatiously, wantonly, or for oppressive...