American Society, Testing v. Corrpro Companies

• Decision Date: 06 March 2007
• Docket Number: No. 05-4164.,05-4164.
• Citation: 478 F.3d 557
• Parties: AMERICAN SOCIETY FOR TESTING & MATERIALS, Appellant v. CORRPRO COMPANIES, INC., Michael Baach; Warren Rogers; Warren Rogers & Associates, Inc.
• Court: U.S. Court of Appeals — Third Circuit

478 F.3d 557

AMERICAN SOCIETY FOR TESTING & MATERIALS, Appellant v. CORRPRO COMPANIES, INC., Michael Baach; Warren Rogers; Warren Rogers & Associates, Inc.

No. 05-4164.

United States Court of Appeals, Third Circuit.

Argued December 14, 2006.

Filed March 6, 2007.

Marc J. Sonnenfeld (argued), Karen Pieslak Pohlmann, Morgan, Lewis & Bockius, Philadelphia, PA, Attorneys for Appellant.

William W. Jacobs (argued), Thompson Hine, Cleveland, OH, Attorneys for Appellees.

Before FISHER, CHAGARES, and GREENBERG, Circuit Judges.

GREENBERG, Circuit Judge.

I. INTRODUCTION

In this declaratory judgment action plaintiff, American Society for Testing & Materials ("ASTM"), appeals from the district court's order dated August 10, 2005, and entered August 12, 2005, granting judgment in favor of defendants Corrpro Companies, Inc. ("Corrpro"), Michael Baach ("Baach"), Warren Rogers Associates, Inc. ("WRA"), and Dr. Warren Rogers ("Rogers") (collectively "defendants"). Am. Soc'y for Testing & Materials v. Corrpro Cos., 2005 WL 1941653 (E.D.Pa. Aug.10, 2005) ("ASTM"). Specifically, the district court found that ASTM had a duty in accordance with its bylaws to indemnify defendants for their attorney's fees and settlement costs in defending against and settling an underlying suit as well as attorney's fees defendants incurred in this action. For the reasons that follow, we will affirm the order of August 12, 2005, in part, dismiss the appeal in part, and remand the case to the district court for further proceedings.

II. FACTS AND PROCEDURAL HISTORY

A. The Parties

ASTM is a Pennsylvania non-profit corporation whose mission is to provide a forum for volunteer technical experts to develop and publish standards for materials, products, systems, and services. ASTM also develops methods for testing different properties and materials. ASTM has an approximate total membership of 30,000, drawing individuals from academic institutions, government agencies, consulting groups, testing laboratories, and private corporations. ASTM has 136 technical committees that do the actual work of developing standards. These committees are broken down further into 2,200 subcommittees and some 6,000 different task groups. ASTM has a 25-member Board of Directors (the "Board") that meets twice a year and that governs the standard-setting process. The Board, in turn, has a six-member Executive Committee that acts on its behalf when the full Board is not in session. Out of ASTM's 30,000 members, approximately 22,000 participate in technical committees and/or subcommittees.

Defendant Corrpro is in the business of providing corrosion control and cathodic protection (i.e., rust/corrosion prevention) services. At all times relevant to this action, defendant Baach was the Executive Vice President of Sales and Marketing for Corrpro. Defendant WRA is primarily in the business of providing mathematical and statistical consulting services. At all times relevant to this action, Rogers was President of WRA. In addition, Rogers was a member of Corrpro's Board of Directors from sometime in the mid-1990s until 2001 or 2002.

B. ASTM's Policies and Procedures

ASTM requires individuals applying for membership to disclose their corporate affiliations. But ASTM's policies, procedures, and guidelines do not prohibit an individual from participating in a standard-setting activity by reason of his association with or employment by a company with a financial interest in the technical standard on which he is working.

ASTM does not pay or otherwise compensate its members for time they expend on standard-setting activities. ASTM, however, does provide protection to its members with respect to litigation stemming from that activity. Specifically, under ASTM Bylaw No. 10.1:

Any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the Society, or by reason of the fact that he is or was serving on a committee operating under the auspices of the Society, shall be indemnified by the Society against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Society and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

ASTM, 2005 WL 1941653, at *4. ASTM Bylaw No. 10.1 essentially tracks 15 Pa. Cons.Stat. Ann. § 5741 (West 1995), which governs indemnification for third-party actions as they pertain to nonprofit corporations.¹

C. Development of the ES-40 Standard

In 1988, the United States Environmental Protection Agency ("EPA") promulgated regulations under the Resource Conservation and Recovery Act mandating the upgrading of all underground storage tanks ("USTs") by December 22, 1998. 40 C.F.R. § 280.21(a). The regulations permit the use of the following three alternative methods for upgrading USTs: (1) complete replacement; (2) replacement of the USTs' interior lining only; or (3) corrosion prevention through cathodic protection in appropriate circumstances.² See id. at § 280.21(b).

Prior to 1994, the only method for assessing USTs over ten years of age that the EPA and states adhering to EPA regulations had approved involved manned-entry internal inspections. Such inspections most often led to the replacement of the USTs' interior lining, rather than to cathodic protection. In July 1993, Randall Nelson ("Nelson"), an EPA employee, invited a number of persons, including Baach and Rogers, to a preliminary meeting regarding the development of an ASTM standard³ which would permit alternate methods of UST assessment, including the evaluation of soil conditions around USTs to assess whether and when those USTs would corrode (which, in turn, would determine the most appropriate form of upgrade for a particular UST). Notably, in the late 1970s, Rogers had developed a statistical method for assessing and predicting when USTs would corrode and fail by evaluating variables in the soil surrounding them. The method that Rogers developed came to be known as "meantime to corrosion failure" or "MTCF." In the mid-1980s, WRA began regularly subcontracting with Corrpro for it to do the field work necessary for WRA to make its storage tank assessments. Most of the major oil companies retained WRA to implement Rogers' procedure so that the removal and replacement of existing USTs could be prioritized.

Nelson also invited Derick Sharp ("Sharp"), President of Armor Shield Corporation ("Armor Shield"), to attend the meeting. Armor Shield was in the business of providing equipment, materials, and installation services with respect to the interior linings of USTs, as well as manned-entry internal inspections of USTs. According to the defendants, at that time, given the lack of approved alternatives, Armor Shield enjoyed a "virtual de facto monopoly for UST assessments and upgrades." Appellees' br. at 6.⁴

Nelson's meeting resulted in the creation of an ASTM task group charged with developing a draft standard regarding alternative methods of assessing USTs. The task group's membership included Baach and Thomas Mehalick ("Mehalick"), who represented Corrpro; Rogers and William Jones ("Jones"), who represented WRA; Tony Rieck, who represented the National Leak Prevention Association; and Sharp and Hirsch Caudill ("Caudill"), who represented Armor Shield. The task group's work resulted in ASTM promulgating an emergency standard ("ES-40") in November 1994 that recognized, among other things, that Rogers' MTCF statistical method was a viable, non-invasive method for evaluating whether the use of cathodic protection could result in a successful upgrade of a UST. But because it was an emergency standard, ES-40 had a "life span" of only two years at which time it would expire. Not surprisingly, according to a finding the district court made, Sharp and Caudill were "adamantly opposed" to the creation of ES-40 and "frequently endeavored to disrupt and impede" the group's progress. ASTM, 2005 WL 1941653, at *4. Additionally, the court indicated that Sharp "frequently threatened to sue various individuals and companies on numerous occasions throughout the standard development process." Id. As will be seen these threats were not idle.

D. Creation of GS-148 and Armor Shield's Appeal to the ASTM's Committee on Standards

Sometime after the promulgation of ES-40, the G-01 (corrosion) committee assumed control over the development of a permanent standard. It also appears that ASTM's E-50 (environmental assessment committee) was involved in the development of the standards.⁵ While Rogers did not serve on the G-01 committee, Sharp not only served on that committee but also opposed the drafting of a permanent standard based on ES-40. Notwithstanding Sharp's objections, in October 1998, the G-01 Committee and ASTM's entire membership voted to create a permanent standard that was designated G-158. Like ES-40, G-158 recognized MTCF as a viable, non-invasive method for evaluating whether a UST could be upgraded via cathodic protection. During the above process, ASTM neither restricted nor suspended Baach or Rogers from participating in the task group or the E-50 and G-01 committees, and similarly did not tell either Baach or Rogers that his activities were either unwelcome or improper.

Acting on behalf of Armor Shield, Sharp immediately appealed the decision to create the G-158 standard to ASTM's Committee on Standards ("COS") arguing, among other things, that ASTM members with a commercial stake in the creation of G-158 were overrepresented on the G-01 committee and that the process used in the creation of...