Gaiardo v. Ethyl Corp.

• Decision Date: 05 October 1987
• Docket Number: No. 87-5248,87-5248
• Citation: 835 F.2d 479
• Parties: , 56 USLW 2350, 108 Lab.Cas. P 55,851, 9 Fed.R.Serv.3d 1378, 2 Indiv.Empl.Rts.Cas. 1587 Albert J. GAIARDO and Patricia Gaiardo, his wife, Appellees, v. ETHYL CORPORATION, a/k/a Ethyl Corporation, Visqueen Division, Appellant. . Submitted Pursuant To Third Circuit Rule 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 479

835 F.2d 479

95 A.L.R.Fed. 93, 56 USLW 2350, 108

Lab.Cas. P 55,851,

9 Fed.R.Serv.3d 1378,

2 Indiv.Empl.Rts.Cas. 1587

Albert J. GAIARDO and Patricia Gaiardo, his wife, Appellees, v. ETHYL CORPORATION, a/k/a Ethyl Corporation, Visqueen Division, Appellant.

No. 87-5248.

United States Court of Appeals, Third Circuit.

Submitted Pursuant To Third Circuit Rule 12(6)

Oct. 5, 1987.

Decided Dec. 14, 1987.

Joseph P. Lenahan, Frank T. Blasi, Edward J. Panichas, Scranton, Pa., for appellant.

Gene E. Goldenziel, Needle and Goldenziel, Scranton, Pa., for appellees.

Before WEIS and STAPLETON, Circuit Judges, and COHILL, ^* District Judge.

OPINION OF THE COURT

WEIS, Circuit Judge.

Although defendant company succeeded on its motion for summary judgment, the district court refused to grant its request for counsel fees under Federal Rule of Civil Procedure 11. We agree with the district court that plaintiff employee had reasonable grounds to bring suit and that no violation of Rule 11 occurred. Accordingly, we will affirm the order of the district court.

More than two months after summary judgment had been entered in its favor, defendant, Ethyl Corporation, requested Rule 11 sanctions against plaintiffs Albert and Patricia Gaiardo ¹ for counsel fees and expenses totalling $11,000. The district court denied the motion, finding that when plaintiff and his counsel filed suit they had reason to believe the complaint had merit. Additionally, the court found no evidence in the record to substantiate the defendant's assertion that the plaintiff's suit was intended as harassment. Defendant has appealed.

The plaintiff's detailed complaint alleged that after almost sixteen years of exemplary service, defendant company discharged him because he had refused to falsify quality control documents. Plaintiff contends that his termination was not for just cause or for any reason listed in the company's employee handbook and that he was not warned as specified in the procedures set out in the handbook. Plaintiff sought compensatory and punitive damages for breach of his asserted contract of employment as well as for a tort cause of action.

In granting summary judgment for defendant, the district court determined that, under applicable Pennsylvania law, employee handbooks describing company policy do not constitute employment contracts. After examining submitted documents, the court concluded that plaintiff was an employee-at-will who was not assured continued employment. Moreover, the court found inapplicable to the plaintiff's circumstances the "public policy" exception to at-will employment contracts articulated in Geary v. United States Steel Corp., 456 Pa. 171, 319 A.2d 174 (1974). Accordingly, plaintiff could not prevail. The court also held for defendant on counts alleging defamation and intentional infliction of emotional distress.

In refusing to award Rule 11 sanctions the district court observed that, although it had determined the Geary public policy exception did not apply, reliance on that theory was not unreasonable. Additionally, plaintiff had argued that he was trying to expand the public policy exception.

On appeal, defendant contends that the district court abused its discretion in failing to award sanctions because the plaintiff's claim clearly was not warranted under settled Pennsylvania law. Defendant cites state appellate decisions holding that employment manuals do not constitute employment contracts. More specifically defendant asserts in its brief that the Geary case stated: "A refusal to falsify quality control records is not a violation of the public policy of Pennsylvania."

Plaintiff responds that a state appellate ruling, which the district court cited in support of summary judgment, had not yet been published when he filed his complaint. He points also to his affidavit, which in opposing the defendant's summary judgment motion, asserted that other employees had been terminated for misconduct only after receiving the warnings required by the handbook. In short, plaintiff insists that his decision to bring suit was reasonable under the circumstances and, consequently, the district court did not abuse its discretion in refusing to impose sanctions.

In pertinent part, Fed.R.Civ.P. 11 reads:

"The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

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"If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred...."

Formulating a rule broad enough to curb abusive litigation tactics and misuse of the court's process but yet not so sweeping as to hinder zealous advocacy was obviously a formidable task. In drafting Rule 11, the Advisory Committee realized that enforcement might spawn satellite litigation counter-productive to efficient disposition of cases and that time might be required to familiarize both bench and bar with the terms and aims of the new measure. Although somewhat slow in emerging, case law and commentary has proliferated and it might now be helpful to review both the language and purposes of the Rule. ² As the Advisory Committee noted, the 1983 revision of Rule 11 was designed to prevent abuse caused not only by bad faith but by negligence and, to some extent, by professional incompetence. Consequently, an objective test was adopted to determine if, after "reasonable inquiry," the pleading, motion or other paper is "well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law."

The standard for testing conduct is reasonableness under the circumstances. Eavenson, Auchmuty & Greenwald v. Holtzman, 775 F.2d 535, 540 (3d Cir.1985). As a commentator has observed, the Rule does not permit use of the "pure heart and empty head" defense. Schwarzer, Sanctions Under The New Rule 11--A Closer Look, 104 F.R.D. 181, 187 (1985). See Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 253 (2d Cir.1985) ("Simply put, subjective good faith no longer provides the safe harbor it once did."), cert. denied, --- U.S. ----, 108 S.Ct. 269, 98 L.Ed.2d 226 (1987).

The Rule imposes an obligation on counsel and client analogous to the railroad crossing sign, "Stop, Look and Listen." It may be rephrased, "Stop, Think, Investigate and Research" before filing papers either to initiate a suit or to conduct the litigation. These obligations conform to those practices which responsible lawyers have always employed in vigorously representing their clients while recognizing the court's duty to serve the public efficiently. It bears repeating that the target is abuse--the Rule must not be used as an automatic penalty against an attorney or a party advocating the losing side of a dispute.

Possible sanctions include requiring the offending client, lawyer, or both, to pay all or part of the adversary's counsel fees incurred as a result of the violation. This sanction combines the concepts of deterrence and reimbursement for the wronged party.

The Advisory Committee notes that willfulness is relevant in selecting a sanction. In addition to financial penalties courts may sanction by warning, oral reprimands in open court, or written admonition. One court ordered the attorneys who violated the rule to circulate in their firm a copy of the opinion in which the pleadings were criticized. Golden Eagle Distrib. Corp. v. Burroughs Corp., 103 F.R.D. 124, 129 (N.D.Cal.1984), rev'd, 801 F.2d 1531 (9th Cir.1986). Another district judge directed the offending lawyers to attend a seminar on Federal Practice and Procedure. William Stevens v. City of Brockton, 676 F.Supp. 26 (D.Mass. 1987) (Skinner, J.). Although dismissal of a case is an additional alternative, judges are reluctant to jeopardize a client's case because of the lawyer's indiscretion. Kassin, An Empirical Study of Rule 11 Sanctions (Federal Judicial Center 1985).

Rule 11 sanctions should not be viewed as a general fee shifting device. By and large federal courts are bound by the "American Rule," requiring parties to shoulder their own legal expenses. Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). This Rule applies in the absence of specific statutory authorization for thrusting the winner's counsel fees on the losing party. Cf. 42 U.S.C. Sec. 1988.

The Rules Enabling Act, 28 U.S.C. Sec. 2072, bars enactment of substantive provisions masked as rulemaking. The Advisory Committee, aware of this limitation, consequently did not intend to effect a major change in the American Rule in the guise of expansive Rule 11 sanctions. Complete or partial fee shifting is but one form of disciplinary action which a court may invoke in appropriate circumstances.

The goal of Rule 11, therefore, is not wholesale fee shifting but correction of litigation abuse. The Rule authorizes "reasonable" fees, based on what is fair and reasonable in the particular circumstances--not necessarily actual fees. When counsel fees are sought under Rule 11, the duty of mitigation should minimize any excessive burden on the sanctioned party and diminish the tactical value of orchestrating motions to increase the cost of litigation for the other side. See United Food & Commercial Workers Local No. 115 v....