Appeal from the United States District Court for the District of New Jersey. (D.C. Civil Action No. 87-01509)
Present: Becker, Hutchinson and Alito, Circuit Judges
HUTCHINSON, Circuit Judge.
Carmine J. Liotta, Esquire (Liotta) appeals an order of the United States District Court for the District of New Jersey imposing sanctions on him for his actions in this case as counsel for Gilette Foods Incorporated (Gilette).*fn1 The district court reprimanded Liotta under its inherent power even though it had previously decided not to impose sanctions against Liotta under Federal Rule of Civil Procedure 11 for bringing the claim at issue. Liotta contends that the district court erred in sanctioning him because its finding of bad faith was clearly erroneous, he was not given sufficient notice that he might be sanctioned, the motion for sanctions was not timely and because the district court's finding of bad faith, a necessary prerequisite to the use of inherent power, was in irreconcilable conflict with its earlier ruling that the questionable claim he presented for his client met Federal Rule 11's objectively reasonable standard. Under the circumstances of this case, we hold that the district court's finding of bad faith was clearly erroneous. Accordingly, we will reverse the district court's order imposing sanctions on Liotta.*fn2
Gilette Foods, Incorporated (Gilette), represented by Liotta, brought an action in the Superior Court of New Jersey, Chancery Division against Bayernwald-Fruchteverwertung, GmbH (Bayernwald) and Ocean Spray Cranberries, Incorporated (Ocean Spray). Bayernwald and Ocean Spray removed the case to the United States District Court for the District of New Jersey in April of 1987. The complaint sought injunctive relief and damages, claiming that Bayernwald breached an exclusive sales contract under which Gilette would be Bayernwald's sole United States distributor of an elderberry extract known as "Sambucus-N" or "Rubini." Gilette also sought relief against Ocean Spray on a claim of tortious interference with the alleged contract between Gilette and Bayernwald.*fn3
Bayernwald and Ocean Spray first moved for summary judgment on the breach of contract claim in October of 1987. Although Gilette brought its contract claim against Bayernwald, Ocean Spray joined the motion because the tortious interference claim against Ocean Spray would disappear if the district court determined that there was no exclusive contract between Gilette and Bayernwald.*fn4 Gilette cross-moved for summary judgment on its contract claim. The district court denied Bayernwald's and Ocean Spray's motion as well as Gilette's cross-motion on November 23, 1987, because genuine issues of material fact existed about the existence of the contract Gilette alleged at the time the breach was said to have occurred.
Gilette filed a Second Amended Complaint on November 24, 1987. It alleged essentially the same claims but added an additional prayer for relief. Bayernwald and Ocean Spray filed a second motion for summary judgment on December 4, 1987. In this motion for summary judgment, Ocean Spray specifically contended that it did not interfere with the exclusive contract between Gilette and Bayernwald.*fn5 The district court denied the motion for summary judgment on the tortious interference claim, holding that there were still genuinely disputed facts material to the existence of the contract at the time the alleged tortious conduct took place and on the extent of Ocean Spray's knowledge of the disputed contract between Gilette and Bayernwald. Appendix (App.) at 83-84.
Bayernwald and Ocean Spray filed a third motion for partial summary judgment in November of 1989. This motion focused on whether the exclusive contract between Gilette and Bayernwald, if it existed, was terminated. The district court denied the motion and ordered the case to be tried without a jury.
The trial lasted from January 14 through 18, 1991. During the trial, Ocean Spray moved for involuntary dismissal of Gilette's tortious interference claim. The court summarily denied that motion. In an opinion entered on February 12, 1991, however, the district court held that "Ocean Spray did not intentionally and unjustifiably induce Bayernwald to breach any agreement it had with Gilette." App. at 535. It also held "after having an opportunity to hear the witnesses and review the documents," that the tortious interference claim against Ocean Spray was
totally without merit. It narrowly escapes the assessment of a Rule 11 sanction. The inclusion of Ocean Spray as a defendant in this dispute was an egregious litigation tactic calculated to disrupt a long and honorable relationship that pre-existed Gilette's corporate existence. In the aftermath of this litigation, counsel for Gilette should rethink its obligations to both the client and the Court as it pertains to claims of this nature.
Id. at 536. The district court entered judgment in favor of Bayernwald and Ocean Spray on February 19, 1991.
On March 1, 1991, pursuant to Federal Rule of Civil Procedure 59(e), Bayernwald moved for attorney's fees it had incurred in defending Ocean Spray and for costs incurred by both Ocean Spray and Bayernwald. Bayernwald asked the district court to award the attorney's fees attributable to the defense of Ocean Spray under its inherent power and claimed those fees amounted to approximately $300,000.00. Bayernwald also asked the district court to reconsider its earlier denial of ...