Dura Systems, Inc. v. Rothbury Investments, Ltd.

• Decision Date: 16 October 1989
• Docket Number: 89-3023,Nos. 89-3005,s. 89-3005
• Citation: 886 F.2d 551
• Parties: DURA SYSTEMS, INC., A Pennsylvania Business Corporation, Appellant in 89-3005, v. ROTHBURY INVESTMENTS, LTD., A Canadian Corporation, Appellant in 89-3023.
• Court: U.S. Court of Appeals — Third Circuit

Page 551

886 F.2d 551

15 Fed.R.Serv.3d 9

DURA SYSTEMS, INC., A Pennsylvania Business Corporation Appellant in 89-3005, v. ROTHBURY INVESTMENTS, LTD., A Canadian Corporation Appellant in 89-3023.

Nos. 89-3005, 89-3023.

United States Court of Appeals, Third Circuit.

Argued July 17, 1989.

Decided Sept. 19, 1989.

Rehearing and Rehearing In Banc

Denied Oct. 13, 1989.

As Amended Oct. 16, 1989.

John D. Eddy (argued), Eddy & Osterman, Pittsburgh, Pa., for appellant-cross-appellee Dura Systems, Inc.

Hunter A. McGeary, Jr. (argued) and Charles W. Kenrick, Dickie, McCamey & Chilcote, P.C., Pittsburgh, Pa., for appellee-cross-appellant Rothbury Investments, Ltd.

Before STAPLETON, SCIRICA and ROSENN, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

Plaintiff Dura Systems, Inc., the law firm of Eddy & Osterman and its members Thomas R. Eddy, John D. Eddy and Thomas G. Eddy, individually, appeal the district court's imposition of Rule 11 sanctions. We will reverse the order of the district court.

I.

This is an appeal from an order of the United States district court awarding $12,275.00 in attorneys fees and expenses to the defendant Rothbury Investments, Ltd. under Rule 11 of the Federal Rules of Civil Procedure.

The underlying lawsuit from which these Rule 11 proceedings developed arose from a written franchising agreement between Dura Systems and Rothbury Investments dated January 29, 1984. The franchising agreement granted Dura Systems the right to act as exclusive agent for Rothbury to sell franchises in the United States for the manufacture and distribution of certain patented concrete products developed by Rothbury, and established performance standards to be met by Dura Systems. On April 23, 1986, Rothbury attempted to terminate the franchising agreement on the grounds that Dura Systems had failed to meet the performance standards. In response, Dura Systems sued for a declaratory judgment establishing its right to act as exclusive franchising agent and to enjoin Rothbury from granting to any third party the right to manufacture, distribute, or sell the products. The district court granted summary judgment for Rothbury and this court affirmed. Dura Systems, Inc. v. Rothbury Investments Ltd., 866 F.2d 1409 (3d Cir.1988).

Rothbury Investments, Ltd. is a Canadian corporation which owns certain United States patents and trademarks on a concrete retaining wall system invented by Angelo and Anthony Risi, Canadian citizens. These patents and trademarks were originally applied for and transferred to Rothbury by another Canadian corporation, Risi Stone, Ltd. Both Rothbury and Risi Stone are owned and managed by the Risis. Seeking to market and distribute the Risi retaining wall system in the United States, Rothbury entered into the franchising agreement described above with Thomas R. Eddy, an attorney, Kenneth Dehus, a former client of the Eddy's law firm, Eddy & Osterman, and the Risis. Pursuant to the franchising agreement, the individuals agreed to form another corporation (Dura Systems) to act as Rothbury's exclusive agent for franchising the right to manufacture and sell Risi products in the United States.

Dura Systems was thereafter incorporated on October 22, 1984 in Pennsylvania by Thomas R. Eddy. The shares of Dura Systems were to be owned one-third by the Risis, one-third by Dehus, and one-third by Thomas R. Eddy. On June 10, 1985, Thomas R. Eddy, as permitted by Pennsylvania business corporation law "elected" a board of directors for Dura Systems, which included himself and his two sons, John D. Eddy, and Thomas G. Eddy, all members of the law firm of Eddy & Osterman. The board then met and elected officers: Thomas R. Eddy, President; Kenneth Dehus, Vice-President; Angelo Risi, Vice-President; and John D. Eddy, Secretary.

In the meantime, differences arose between the franchisee and Rothbury Investments concerning the performance of the terms of the franchising agreement, ultimately resulting in the litigation referred to above. As a consequence, on May 13, 1987, the shareholders of Dura Systems met at the request of the Risis and Dehus. At the meeting, the shareholders voted, in this sequence, to (1) amend the by-laws; (2) dismiss the law firm of Eddy & Osterman as legal counsel to the corporation and hire Randal E. McCamey, Esq. as counsel to the corporation; (3) withdraw the lawsuit against Rothbury concerning the franchising agreement; (4) elect a new Board of Directors; (5) elect new officers; and (6) dissolve the corporation. As a result, McCamey filed his appearance as counsel for Dura Systems and moved to dismiss the lawsuit against Rothbury with prejudice. Thomas R. Eddy, as minority shareholder, objected to the May 13 shareholder resolutions on the grounds that they were ultra vires and unlawful. Despite the May 13 resolutions, Eddy & Osterman continued to prosecute the law suit against Rothbury by filing pleadings in the name of the corporation. Consequently, Rothbury has been obliged to retain and compensate counsel to defend the suit.

Rothbury filed its motion for Rule 11 sanctions the day after the May 13 shareholders' meeting, alleging that:

(1) neither Dura Systems nor the law firm of Eddy & Osterman has "legal authority to institute and prosecute suit in the above matter;" and (2) Eddy & Osterman "knew or should have known that no valid basis existed for instituting a lawsuit, but nevertheless persisted in maintaining the above action without a well-grounded basis in law or fact."

After considering both parties memoranda, the district court granted Rothbury's motion for Rule 11 sanctions on October 11, 1988, pending Rothbury's submission of an accounting of attorney's fees and expenses. On January 3, 1989, the court amended its earlier order to include Plaintiff Dura Systems, the law firm of Eddy & Osterman, and attorneys Thomas R. Eddy, John D. Eddy, and Thomas G. Eddy as the parties subject to the order, and granted Rothbury $12,250.00 in attorney's fees and expenses. Dura Systems appeals the award of counsel fees and expenses under Rule 11. Rothbury cross-appeals, seeking an increase in the amount of the awarded attorney's fees and expenses to $30,325.00.

II.

Before we can address the merits of the district court's decision to grant Rule 11 sanctions in this case, we must first determine whether Eddy & Osterman, and the Eddy brothers individually, may be considered parties to this appeal because they were not specifically named in the notice of appeal. The content of a notice of appeal is prescribed by Fed.R.App.P. 3(c) of the Federal Rules of Appellate Procedure:

(c) Content of the Notice of Appeal

The notice of appeal shall specify the party or parties taking the appeal; shall designate the judgment, order or part thereof appealed from; and shall name the court to which the appeal is taken.... An appeal shall not be dismissed for informality of form or title of the notice of appeal.

Fed.R.App.P 3(c). Compliance with Fed.R.App.P. 3(c) is a jurisdictional prerequisite. Failure to file a notice of appeal in accordance with the specificity requirement of Fed.R.App.P. 3(c) presents a jurisdictional bar to the appeal. Torres v. Oakland Scavenger Co., --- U.S. ----, 108 S.Ct. 2405, 2409, 101 L.Ed.2d 285 (1988); Kowaleski v. Dep't of Labor, 879 F.2d 1173, 1175 (3d Cir.1989).

Dura Systems was the only party named in the notice of appeal from the district court's order imposing Rule 11 sanctions, an order which specifically named Dura Systems, the law firm of Eddy & Osterman, and the Eddys individually, as the parties subject to the order to pay attorney's fees and expenses. Appellees contend that this discrepancy violates the requirements of Fed.R.App.P. 3(c).

The Eddys and the law firm make several arguments in response. ¹ First, they contend that the requirements of Fed.R.App.P. 3(c) may be deemed satisfied by a Consent Order of January 31, 1989, entered by this court granting stay of the district court judgment pending appeal, in which the judgment was secured by the accounts receivable of the law firm of Eddy & Osterman. The Consent Order specifically names, in addition to Dura Systems, the law firm of Eddy & Osterman and Thomas R. Eddy, John D. Eddy and Thomas G. Eddy, individually, as parties against whom Rothbury may confess judgment in the event that this court affirms the award of attorney's fees, and was entered within the period required for timely notice of appeal under Fed.R.App.P. 4(a)(1). Second, they claim that they could reasonably have read Fed.R.App.P. 3(c) to have required only that the named "party or parties" to the underlying action be included in the notice of appeal. This interpretation would have led them to conclude that only Dura Systems was properly named in the notice of appeal, since neither Eddy & Osterman nor the Eddys individually were originally named "parties" to the underlying action.

The sufficiency requirements of a notice of appeal under Fed.R.App.P. 3(c) were recently addressed by the United States Supreme Court in Torres v. Oakland Scavenger Co., --- U.S. ----, 108 S.Ct. 2405, 101 L.Ed.2d 285 (1988), in which the petitioner, as one of sixteen plaintiffs seeking to appeal the district court's dismissal of the complaint, was not named in the notice of appeal because of a clerical error. The Court granted certiorari "to resolve a conflict in the Circuits over whether a failure to file a notice of appeal in accordance with the specificity requirement of Fed.R.App.P. 3(c) presents a jurisdictional bar to the appeal." ²

In formulating its holding, the Court made clear that Rules 3 and 4 of the Federal Rules of Appellate Procedure create a jurisdictional threshold, and that the requirements of the two rules may not be abrogated for "good cause shown" under Fed.R.App.P. 2. ³ Id. 108 S.Ct. at 2409. Moreover, the fact that Rule 3 excuses "informality of form or title" in a notice of appeal does not forgive compliance with the...