Penn West Associates, Inc. v. Cohen
| Decision Date | 09 June 2004 |
| Docket Number | No. 02-4344.,02-4344. |
| Parties | PENN WEST ASSOCIATES, INC., a Corporation t/d/b/a The Wilkins House, Appellant v. Katherine COHEN, Co-Executrix of the Estate of Eugene M. Litman;<SMALL><SUP>*</SUP></SMALL> Michael Litman, Co-Executor of the Estate of Eugene M. Litman;<SMALL><SUP>*</SUP></SMALL> James W. McCarthy; Penn West Associates, also known as Penn West Office Building, a limited partnership; Brandywine Agency; Alpine Construction Co., a Corporation; Property Development Associates, Inc., a Corporation; Pittsburgh Investment Company, a Partnership; Patricia Katz, general partner; Able Home Center, Inc.; Dianna Boback, an individual; Margaret Mull, an individual. |
| Court | U.S. Court of Appeals — Third Circuit |
Bela A. Karlowitz (Argued), Daniel M. Flynn, Karlowitz & Cromer, Pittsburgh, PA, for Appellant.
Robert L. Potter (Argued), David A. Strassburger, Strassburger, McKenna, Gutnick & Potter, Pittsburgh, James A. Ashton, Pittsburgh, PA, for Appellees.
Before ALITO, AMBRO and CHERTOFF, Circuit Judges.
We review the District Court's November 5, 2002 order denying the motion of Penn West Associates, Inc. ("Penn West") to re-open its civil RICO case. That case was administratively closed by order of the District Court on August 19, 1999, after both parties informed the Court that they tentatively settled their dispute. In fact, the civil RICO case was not concluded. The District Court mistook its administrative closure of the case as a final decision, which mistakenly led it to treat Penn West's motion to re-open the case and list it for trial as one under Federal Rule of Civil Procedure 60(b). Thus it erred in denying Penn West's motion to re-open.
On September 11, 1997, Penn West filed suit in the Court of Common Pleas of Allegheny County, Pennsylvania against Eugene M. Litman (individually and in his capacity as Executor of the Estate of H. Raymond Litman); James W. McCarthy; Penn West Associates, a partnership comprised of Eugene M. Litman, Michael A. Litman, and James W. McCarthy (Eugene M. Litman, James W. McCarthy, and Penn West Associates being hereinafter collectively referred to as the "Litman Group"); and numerous other defendants. The suit arose from Lawrence A. Levine's purchase in 1993 of all of the capital stock of Penn West from Eugene M. Litman, James W. McCarthy, and the Estate of H. Raymond Litman. Penn West's complaint contained, inter alia, a cause of action under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968. According to the complaint, the defendants had purportedly looted, and aided in the looting of, Penn West's assets between February 1988 and late 1993, when Eugene M. Litman, H. Raymond Litman, and McCarthy owned the company. Levine was never a named party to the action.
On September 17, 1997, the action was removed to the United States District Court for the Western District of Pennsylvania. Prior to trial, all counts of the complaint were dismissed except for the civil RICO claim against the Litman Group. For trial purposes, the case was also joined with a related qui tam action under the False Claims Act, 31 U.S.C. §§ 3729-3731, captioned United States ex rel. Weinstein v. Litman, No. 96-1860. Robert Potter, Esq. was lead counsel for the Litman Group in both actions. Robert Ridge, Esq. was lead counsel for the private plaintiff in the False Claims Act case. While the RICO case was pending trial Penn West and Levine both filed bankruptcy petitions in the United States Bankruptcy Court for the Western District of Pennsylvania. Mary Reitmeyer, Esq., was appointed as Trustee for Penn West in its case, and thereafter obtained an order appointing John Orie, Esq. as special counsel for Penn West for purposes of pursuing the RICO action.
On July 1, 1999, after six days of trial in the RICO case, counsel for the parties informed the District Judge that they had reached a settlement. During a telephone conference on the record that day among, inter alia, the District Judge, Potter and Orie, Potter informed the District Court that his clients (the Litman Group) had agreed to pay $25,000 to the United States Department of Justice to settle the False Claims Act case and that the Department of Justice had approved the settlement. Furthermore, the Litman Group had agreed to pay $75,000 to Penn West to settle the RICO case. Potter informed the District Court that "[m]utual releases will be exchanged with everybody in the RICO case [,] including attorneys." Potter also stated that, as part of the settlement, the Litman Group would be dropping its claims against Levine individually in his bankruptcy proceeding and would assert no further claims in either Levine's or Penn West's bankruptcy proceedings. Moreover, the Litman Group would be marking as satisfied any state court judgments it had obtained against Levine personally.1
Although Orie did not speak at the conference, at no time did he object to the description of the terms of the settlement. The parties then agreed that they would not file the settlement agreement of record in the District Court because of concern that, if filed, the agreement could not be sealed. The District Judge ended the conference by stating: "We'll advise the jury that they are discharged, and we'll wait to receive from you the settlement papers that I have to approve."
Seven weeks later, the Court, having heard nothing further from the parties and making no inquiry of them, issued the following order:
AND NOW, this 19th day of August, 1999, having been advised by the parties of the full and final settlement of the above captioned matter and there are no further matters pending before the Court,
IT IS HEREBY ORDERED that the Clerk of the Court mark the above captioned matter closed.
The triggering premise of the order (final settlement) proved, however, to be premature. No settlement agreement was ever drafted and settlement papers had never been sent to, nor approved by, the District Court. Nevertheless, the order was entered by the Clerk and counsel were notified accordingly.2
As a result of the August 19, 1999 order, the parties and the District Court appear to have operated under the assumption that the litigation was terminated. Approximately three months later, Reitmeyer, the bankruptcy Trustee for Penn West, filed a motion with the District Court to compel enforcement of the purported settlement terms of the RICO case. The motion stated that the settlement had not been finalized because the Litman Group had insisted that Levine personally join in the "mutual release" referred to during the July 1, 1999 teleconference. The Litman Group's response to Penn West's motion stated that the settlement had not been completed for the sole reason that Levine "consistently refused to execute a general release in favor of the Litman Group Defendants, notwithstanding that he expects the Litman Group Defendants to release all of their claims against him individually."3
A conference with the parties (including Levine) was convened by the District Court on November 18, 1999 to discuss the motion. During this conference, Levine stated that he was not personally represented by Orie and that he had never authorized Orie to include him in the settlement. As later recounted in its opinion, the District Court found it "incredulous that the defendants would pay money to [Penn West], solely owned by Lawrence Levine, and yet leave themselves open to lawsuits filed by Levine." Penn West Associates, Inc. v. Litman, No. 97-1678, slip op. at 6 (W.D.Pa. Nov. 5, 2002). Nevertheless, the District Court stated that the case was "settled and closed." The Court further stated that the settlement agreement, which had not been made a part of the record, was a contract between the parties whose terms would have to be litigated in another forum. It therefore denied Penn West's motion to enforce the settlement.4
Penn West's Trustee (Reitmeyer) did not seek immediately to re-open Penn West's civil RICO case. Instead, she filed an adversary proceeding in Penn West's ongoing bankruptcy case to enforce the purported settlement against the Litman Group. On September 11, 2000, the Bankruptcy Court issued an opinion stating that
[t]here existed a mistake in the understanding of the parties as to the terms of settlement. The mistake was basic and central to any settlement. Defendants were not going to settle on the terms offered without the release from Mr. Levine and Mr. Levine, believing he had no control over matters having to do with the corporation, was willing to let the Trustee settle for the corporation, but he individually was not going to release the defendants.
The Bankruptcy Court concluded that, due to the mistake, no settlement agreement existed and therefore denied Penn West's motion to enforce the settlement.
The Trustee again did not return to the District Court to seek re-opening the closed RICO civil case. Rather, Penn West proceeded through its bankruptcy until March 15, 2002, when a plan of reorganization was approved by the Bankruptcy Court. Under the plan, Levine regained control of Penn West.
Subsequently, on May 10, 2002, Penn West filed with the District Court a Motion to List the Case for Trial and Other Relief. The motion related the foregoing facts and that the Litman Group had filed a substantial claim against Levine in his ongoing individual bankruptcy case. Penn West argued that the resolution of its civil RICO case would affect substantially the claims of the Litman Group and others in Levine's individual bankruptcy case. Finally, the motion requested that "(i) the docket entry in this Civil Action showing that the case is settled be stricken and (ii) the case be scheduled for trial forthwith...." No legal authority for this request was cited.
The Litman Group's memorandum in opposition to Penn West's motion argued that "[t]o declare a `clos...
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