United States District Court, E.D. Pennsylvania
July 16, 2004.
PENDA CORP., Plaintiff
STK, LLC, Defendant.
The opinion of the court was delivered by: MARY A. McLAUGHLIN, District Judge
MEMORANDUM AND ORDER
The plaintiff in these consolidated patent infringement cases,
Penda Corporation ("Penda"), brings suit against STK, L.L.C.
("STK"), in civil action No. 03-5578, and against Rick's Auto
Repair ("Rick's") and CAR-MIC Enterprises, Inc. ("CAR-MIC"), in
civil action No. 03-6240. STK and CAR-MIC have filed three
motions for sanctions against Penda. In two motions, STK and
CAR-MIC seek sanctions for alleged violations of Rule 11 of the
Federal Rules of Civil Procedure. In the third motion, STK has
moved for sanctions for violations of Rules 4.2 and 8.4 of the
Pennsylvania Rules of Professional Conduct for alleged ex
parte communications with a person known to be represented by
counsel. For the reasons set forth below, the Court will grant
STK's Rule 11 motion, grant in part and deny in part STK's motion
for sanctions for violations of the Rules of Professional
Conduct, and deny CAR-MIC's motion. I. Procedural History
Penda filed civil action No. 03-5578 ("Penda I") on October
6, 2003, alleging patent infringement, unfair competition, and
false designation of origin under the Lanham Act. Penda filed an
amended complaint on October 14, 2004. On October 27, 2003, the
defendant STK answered, counterclaimed, and filed a motion to
transfer the action to the Western District of Pennsylvania
pursuant to 28 U.S.C. § 1404(a).
In support of its motion, STK filed an affidavit claiming that
it manufactures and sells the allegedly infringing pickup truck
bedliners, has its principal place of business, maintains all of
its records, and does substantially all of its business in the
Western District. STK states that it sells its products to
independent distributors outside of the Eastern District and that
it does not do business here. The plaintiff is a Florida
corporation whose principal place of business is in Michigan.
The plaintiff filed its opposition to the motion to transfer on
November 7, 2003.*fn1 The plaintiff argued that STK sells
the infringing product in the Eastern District through its
largest distributor, Armor Deck. Although Armor Deck is located
in New Jersey, Penda claimed that the distributor sells the infringing product directly to numerous retailers including
Rick's and Stylecraft Auto Seat Covers ("Stylecraft") in
Philadelphia. Penda claimed that Rick's and Stylecraft in turn
sell the product to end users in this district.
On November 14, 2003, in further opposition to STK's motion to
transfer, Penda sent a letter to the Court stating that it had
filed a separate action against Stylecraft and Rick's for selling
the infringing product in this district. The case against the
retailers was docketed as civil action No. 03-6240 ("Penda
II"). As later reaffirmed in attachment D of Penda's response to
the Rule 4.2 motion, the letter stated that Penda II had been
initiated because STK, in its motion to transfer, claimed that it
did not offer the product for sale in this district, that it
would not withdraw its motion to transfer, and that it would
oppose any motion to amend the complaint to include the
The Court held a Rule 16 conference with counsel for the
parties in Penda I on November 24, 2003. In its preconference
submission, Penda indicated that Penda I and Penda II should
be consolidated. STK opposed consolidation.
Before the conference, counsel for STK sent to the Court
letters from Armor Deck, Stylecraft, and a representative of STK,
which stated that neither STK nor Armor Deck had ever sold any
STK product to either Stylecraft or Rick's. During the conference, counsel for Penda represented that prior to filing
the complaint in Penda I, they had made phone inquiries to a
representative of STK and a representative of Armor Deck that
gave them a good faith basis to believe that the retailers sold
the allegedly infringing product in this district. Neither
retailer had been served with the complaint in Penda II at the
time of the conference.
On December 3, 2003, the Court entered a memorandum and order
putting Penda I into suspense until the earlier of 60 days or
the date when the retailer defendants responded to the complaint
in Penda II. The Court stated that it would have granted the
motion to transfer absent the existence of Penda II, and that
it may yet do so even if the two cases were consolidated. The
Court said, however, that it was reluctant to rule on the motion
to transfer until it knew whether Penda would go forward with
Penda II despite the evidence provided to Penda by STK.
On January 5, 2004, the plaintiff filed an amended complaint in
Penda II adding CAR-MIC, keeping Rick's, but dropping
Stylecraft as a defendant. Penda attached several photographs and
some receipts in support of its allegation that CAR-MIC, a
retailer in Lancaster, sells the allegedly infringing STK products in this district. The amended complaint contains no
new allegations regarding Rick's.*fn2
On February 2, 2004, Penda moved to consolidate the cases. STK
filed its Rule 11 motion together with its opposition to
consolidation on February 10, 2004.*fn3 On February 19,
2004, STK filed its motion for sanctions based on a violation of
the Pennsylvania Rules of Professional Conduct. CAR-MIC, which
had been served and is represented by counsel for STK, filed its
Rule 11 motion on the same day. The Court heard oral argument on
all the pending motions on April 28, 2004.
II. Relevant Facts
The affidavits and documents submitted to the Court reveal that
on October 6, 2003, a partner at the Woodcock Washburn firm,
local counsel for Penda, directed a paralegal to call STK to
inquire whether STK bedliners could be purchased in the
Philadelphia area. The paralegal made the call and spoke to a
person who identified himself as "Dan". STK has since identified
this individual as Daniel Kuritz, a Customer Service Manager. Kuritz told the paralegal that STK did not sell its
products in Philadelphia, but that she should contact their
distributor, Armor Deck, who did.
The paralegal called Armor Deck and spoke to a person who
identified himself as "Ray." The paralegal told Ray that her
husband wanted to get a bedliner for his new pick-up truck. She
asked if she could purchase an STK bedliner in Philadelphia. Ray
said "yes" and gave her the name of two retailers: Stylecraft and
Rick's. Ray told the paralegal to speak with "Eppie" at
Stylecraft and with "Rick" at Rick's. Neither she nor any other
agent of Penda ever called anyone at Stylecraft or Rick's.
The paralegal made the calls between 4:00 p.m. and 4:30 p.m. on
October 6, 2003. The Penda I complaint was filed at 6:10 p.m.
on that day.
At oral argument, local counsel for Penda represented that he
directed the paralegal to make the call to verify the allegations
that venue was proper, but that he did not tell the paralegal
what to say or how to conduct her calls. Local counsel for Penda
also explained that prior to filing the suit, he visited the
Armor Deck website and found that the allegedly infringing
product was the only STK product Armor Deck advertised on the
website. Apr. 28, 2004, Hr'g Tr. ("Hr'g Tr.") at 41-42, 57-60. III. Motions for Sanctions
In its sanction motion based on violations of the Rules of
Professional Conduct, STK argues that the communication to Dan
Kuritz violates: (1) Rule 4.2 because it was ex parte and
concerned matters in which Penda knew STK to be represented; and
(2) Rule 8.4(c), because neither Kuritz nor Ray were told that
they were speaking to an agent of an attorney for litigation
purposes. In its Rule 11 motion, STK argues that there was no
basis in fact to support Penda's claim, made in its opposition to
transfer, that Rick's and Stylecraft had sold the product in
Philadelphia. STK also argues that Penda, relying on its baseless
claim that the retailers sold the product, filed Penda II
merely to defeat transfer.*fn4 In its Rule 11 motion,
CAR-MIC argues that the amended complaint in Penda II is
frivolous because it contains false factual allegations regarding
the codefendant, Rick's.
A. Violations of the Rules of Professional Conduct
The Eastern District has adopted Pennsylvania's Rules of
Professional Conduct. LOC. R. CIV. P.E.D. PA. 83.6 (IV)(B)
(2003). Rule 4.2 provides in full: In representing a client, a lawyer shall not
communicate about the subject of the representation
with a party the lawyer knows to be represented by
another lawyer in the matter, unless the lawyer has
the consent of the other lawyer or is authorized by
law to do so.
PA. RULES OF PROF'L CONDUCT Rule 4.2 (2004)
Penda does not dispute that it knew that STK was represented by
counsel or that it did not have consent of STK's
counsel.*fn5 Penda instead argues that because the
communication occurred prior to the filing of suit, Rule 4.2 does
not apply. Penda also argues that even if the rule applies,
Kuritz is not covered by the rule and the communication was not
about the subject matter of the representation.
The Official Comment to Rule 4.2 expressly provides that the
rule "also covers any person, whether or not a party to a formal
proceeding, who is represented by counsel concerning the matter
in question." PA. RULES OF PROF'L CONDUCT Rule 4.2 cmt. According
to the language of this comment, the rule is applicable to STK
even though it was not yet a party to a formal proceeding.
The plaintiff relies on Faragher v. National Railroad
Passenger Corp., No. 91-2380, 1992 U.S. Dist. LEXIS 1810, *4-*5,
(E.D. Pa. Feb. 7, 1992), which held that Rule 4.2 does not apply
before a complaint has been filed. Faragher, however, did not acknowledge the comment and so does not provide a reason why the
comment's language should not apply.
At least two courts in the Third Circuit that have addressed
the comment held that the rule applies pre-complaint. See,
e.g., United States v. Grass, 239 F. Supp.2d 535, 540-41
(M.D. Pa. 2003); Inorganic Coatings, Inc. v. Falberg,
926 F. Supp. 517, 519 n. 3 (E.D. Pa. 1995). The Court agrees and finds
that Rule 4.2 is applicable in this case.
This result comports with the reasoning behind the American Bar
Association's ("ABA") 1995 amendment to the Model Rule. Because
of the tendency of some courts to focus narrowly on the word
"party" in the rule rather than on the word "person" in the
comment, the ABA substituted the word "party" with the word
"person" to clarify that the interests sought to be protected by
the rule may equally well be involved when litigation is merely
under consideration, even though it has not actually been
instituted, and the persons who are potentially parties to the
litigation have retained counsel with respect to the matter in
dispute. See Excerpt from ABA Report Explaining the 1995
Amendment, reprinted in STEPHEN GILLERS & ROY D. SIMON,
REGULATION OF LAWYERS: STATUTES AND STANDARDS 279 (2000 ed.).
The next question is whether local counsel for Penda violated
Rule 4.2. The Official Comment to the rule addresses how it
applies to an organization such as STK: [T]his Rule prohibits communications by a lawyer for
one party concerning the matter in representation
with persons having a managerial responsibility on
behalf of the organization, and with any other person
whose act or omission in connection with the matter
may be imputed to the organization for purposes of
civil or criminal liability or whose statement may
constitute an admission on the part of the
PA. RULES OF PROFESSIONAL CONDUCT Rule 4.2 cmt.
The rule, therefore, applies to ex parte communications
with Kuritz if he is either (1) a person with managerial
responsibility, (2) a person whose acts could be imputed to STK
for the purposes of civil liability, or (3) a person whose
statement may constitute an admission on the part of STK.
Kuritz is a customer service manager for STK. Penda argues that
Rule 4.2 does not apply to Kuritz because he does not have the
requisite level of managerial responsibility, notwithstanding his
title. Pennsylvania federal courts have held that a person has
the requisite managerial responsibility if he or she supervises a
significant number of subordinates or exercises a significant
amount of individual discretion in his day to day duties. See
Belote v. Maritrans Operating Partners, No. 97-3993, 1998 U.S.
Dist. LEXIS 3571, *6 (E.D. Pa. Mar. 20, 1998); Carter-Herman v.
City of Philadelphia, 897 F. Supp. 899, 904 (E.D. Pa. 1995).
In his affidavit, Kuritz says that his duties include receiving
and processing all incoming sales calls. There is no evidence
that he supervises a significant number of subordinates or that he exercises a significant amount of individual
discretion. The Court cannot find on this record that Kurtiz has
the requisite level of managerial responsibility.
The Court, however, finds that Kuritz is a person whose
statements may constitute an admission on the part of the
organization. An admission is a statement by the party's agent or
servant concerning a matter within the scope of the agency or
employment, made during the existence of the relationship. Fed.
R. Evid. 801(d)(2)(D); see also Univ. Patents, Inc. v.
Kligman, 737 F. Supp. 325, 328 (adopting Rule 801(d)(2)(D)
definition of "admission" for Rule 4.2 purposes).
Kuritz's statements may constitute an admission on the part of
STK. They were made while he was on duty as an employee of STK.
The statements address how and where a customer may purchase
STK's products a matter which is within the scope of his
employment as a customer service manager responsible for
receiving and processing sales calls. In fact, Penda relied on
his statement to conclude that STK had a distributor who sold the
bedliners in Philadelphia. The rule, therefore, applies to
Penda's ex parte contact with Kuritz.
Because the Court finds that Kuritz's statements may constitute
an admission by STK, it does not rule on whether he is also a
person whose acts may be imputed to the STK for the purposes of
civil or criminal liability. Penda next argues that there was no Rule 4.2 violation because
the communication did not regard the subject matter of the
representation. The Court is unpersuaded. Whether or not STK sold
or offered for sale infringing products in this district is
directly relevant to this litigation. Indeed, as local counsel
for Penda stated, the phone call to Kuritz was made to verify the
allegation in the complaint that venue was proper in this
district. Hr'g Tr. at 41-42. The Court, therefore, finds that
local counsel for Penda violated Rule 4.2.
The Court does not want to overstate the violation. It was not
egregious. But Rule 4.2 is designed to protect the represented
but uncounseled layperson against overreaching by adverse counsel
and to safeguard the integrity of the clientlawyer relationship.
See ABA Comm. on Ethics and Prof'l Responsibility, Formal Op.
95-396 (1995). Penda's actions invaded both these interests.
There was no violation of Rule 8.4(c), which provides that
"[i]t is professional misconduct for a lawyer to: . . . engage in
conduct involving dishonesty, fraud, deceit or
misrepresentation." The paralegal for local counsel may have
engaged in misrepresentation when she failed to identify herself
as an agent for the plaintiff and suggested that she was a
potential customer. Under certain circumstances, a lawyer may be
responsible for his paralegal's actions if he directs her to engage in the conduct or, knowing of the conduct, ratifies it.
PA. RULES OF PROF'L CONDUCT Rule 5.3(c)(1)-(2). At oral argument,
local counsel for Penda assured the Court that he merely directed
her to make the call to verify whether the product could be
purchased in the district, and that he did not instruct her in
any particular way what to say, how to say it, or what to do.
Hr'g Tr. at 41-42.
B. Violation of Rule 11
Under Rule 11 any party must conduct a reasonable inquiry into
the facts and the law in connection with every filing. Bradgate
Assocs., Inc. v. Fellows, Read & Assocs., Inc., 999 F.2d 745 (3d
Cir. 1993). With respect to STK's Rule 11 motion, the core issue
is whether in opposing the motion to transfer, the plaintiff did
a reasonable inquiry into the facts to allow it to allege that
STK had sold the bedliners in the past and were currently
offering them for sale in Philadelphia through Rick's and
Stylecraft. The Court finds that counsel for Penda did not
conduct a reasonable enough inquiry.
Penda admitted at oral argument that its entire investigation
into whether Rick's and Stylecraft sold the bedliners consisted
of a visit to Armor Deck's website and the ex parte phone
calls to STK and Armor Deck. It was not reasonable for Penda to
have concluded on the basis of this investigation that Rick's and Stylecraft had sold the bedliners in the past and
were currently offering them for sale.
In an email that the paralegal sent to her supervising attorney
regarding her call, and which counsel for Penda submitted to the
Court at oral argument, the paralegal states that she:
. . . called Armor Dick (sic) and spoke to Ray and
explained that my husband wanted to get a bed liner
for his new pick up. Ray then gave me the following
two names where I could purchase bed liners. I then
specifically asked if they were STK bed liners and
Ray said `yes, that he was an STK distributor.'
See November 4, 2003 email from paralegal to partner at Penda's
Ray did not state that Rick's and Stylecraft had sold STK
bedliners in the past or were currently selling them. Ray's
statements are consistent with his merely assuring the paralegal
that he is an STK distributor who could supply STK bedliners to
the two retailers in Philadelphia if the paralegal ordered the
bedliners from them. Counsel for Penda merely assumed,
erroneously as it turns out, that Rick's and Stylecraft were
currently selling the bedliners. It was unreasonable for Penda's
counsel to make and rely on this assumption. It was also
unnecessary to do so. Counsel could have visited or even just
telephoned Rick's or Stylecraft to see if they sold the
bedliners. Unlike STK, neither retailer was known to be represented by counsel in the matter at the time. The Court,
therefore, finds that counsel for Penda violated Rule 11.
The Court, however, will deny CAR-MIC's motion for sanctions.
Unlike STK, it is not clear how CAR-MIC was harmed by the
violation of Rule 11. CAR-MIC argues that absent the allegations
and suit against Rick's and Stylecraft, Penda I would have
already been transferred and Penda would not have been compelled
to sue or add CAR-MIC to keep the case here. The Court finds this
unpersuasive. Penda appears to have complied with its
Rule 11 obligations with respect to the claims it makes against CAR-MIC,
and could have sued CAR-MIC even if Penda I had been
Although Rule 4.2 contains no provisions regarding remedies for
violations of the rule, federal courts have the inherent power to
discipline attorneys practicing before them. See In re Corn
Derivatives Antitrust Litig., 748 F.2d 157, 160 (3d Cir. 1984).
Courts have broad, but not unlimited, discretion in fashioning an
appropriate penalty or sanction to discipline attorneys and
remedy the problems caused by improper ex parte contacts.
See In re Abrams, 521 F.2d 1094, 1099 (3d Cir. 1975);
Kligman, 737 F. Supp. at 329. Courts have fashioned various remedies for violations of
Rule 4.2: preclusion of the use of the evidence and information
obtained through such ex parte communication; requiring the
production of all work product related to or generated as a
result of the prohibited contact; disqualification of the
offending attorney(s); the awarding of fees; and, in exceptional
cases, dismissal of the pending litigation. See, e.g.,
Belote, 1998 U.S. Dist. LEXIS 3571 at *21 (preclusion of
evidence); Kligman, 737 F. Supp. at 328 (production of work
product); Inorganic Coatings, 926 F. Supp. at 521
(disqualification of counsel); Hill v. St. Louis Univ.,
123 F.3d 1114, 1121 (8th Cir. 1997) (affirming award of fees in
preparing sanctions motions); Link v. Wabash R.R. Co.,
370 U.S. 626 (1962) (dismissal of litigation).
STK seeks (1) the preclusion of evidence that was obtained
through the ex parte contact; (2) disqualification of Penda's
local counsel; and (3) reasonable expenses and fees associated
with the sanction motion.*fn6
The Court will preclude the plaintiff from using during this
litigation any information obtained through the ex parte contact.*fn7 The plaintiff has already used the information
gained through the communication to the detriment of STK. It
would be inequitable to permit the plaintiff to keep any
advantage it may have gained from the ethical violation. See
Kligman, 737 F. Supp. at 329.
The Court will deny STK's request for disqualification of
Penda's local counsel. The Court must balance a party's right to
be represented by counsel of his or her choice, as well as the
opposing party's right to prepare and try its case without
prejudice. See id. STK's ability to litigate the merits of
the core issues of this case has not been sufficiently prejudiced
by this violation to warrant a disqualification of Penda's local
counsel. The communications did not deal with whether the
bedliners infringed any of Penda's patents.
The Court will also deny STK's request for fees and costs
associated with the 4.2 sanctions motion. As STK correctly points
out, federal courts have awarded such fees for violations of
Rule 4.2. See Faison v. Thornton, 863 F. Supp. 1204, 1218 (D. Nev.
1993). These cases, however, involve egregious, willful, or bad
faith violations of the rule. See, e.g., Hill, 123 F.3d at
1117 (plaintiff's counsel interviewed and obtained an affidavit
from a chairperson of the defendant University despite having been warned in writing by opposing counsel that such contact
would violate Rule 4.2). Indeed, Faison, upon which STK relies,
involved a five-hour ex parte contact with a named defendant
who reviewed documents relevant to the litigation during the
communication.*fn8 863 F. Supp. at 1211-12. Penda's
violation of the rule does not rise to this level of
egregiousness. The communication lasted a few minutes and was
very limited in scope. Although local counsel for Penda should
have known that the call to STK presented at least the potential
for violating Rule 4.2, there is no evidence that the
communication was done knowing such a violation would necessarily
With respect to the Rule 11 violation, the Court may impose an
appropriate sanction limited to an amount sufficient to deter
repetition of the conduct. If warranted, the Court may also award
to the party prevailing on the motion the reasonable expenses and
fees in presenting the motion.*fn9 Fed.R.Civ.P. Rule 11(c)(1)(A), (c)(2). The Court finds that the violation of
Rule 11 warrants the award of STK's expenses and fees associated
with litigation of its Rule 11 motion. The Court will also grant
STK's request for an award of its reasonable expenses and fees
associated with the additional work STK had to put into
litigating the transfer motion as a result of the
Rule 11 violation. This sanction is imposed jointly and severally against
Penda's local and lead counsel.
An appropriate Order follows. ORDER
AND NOW, this 16th day of July, 2004, upon consideration of the
defendant STK's Motion For Sanctions Pursuant to Fed.R.Civ.P.
Rule 11 (Doc. No. 19 in civil action No. 03-5578), all responses
and replies thereto, STK's Motion for Sanctions for Violations of
the Rules of Professional Conduct (Doc. No. 25 in civil action
No. 03-5578), all responses and replies thereto, and defendant
CAR-MIC's Motion for Sanctions Pursuant to Fed.R.Civ.P.
Rule 11 (Doc. No. 8 in civil action No. 03-6240), all responses and
replies thereto, and following oral argument in the above
captioned cases, IT IS HEREBY ORDERED, for the reasons stated in
a memorandum of today's date, that:
1. The defendant STK's Motion for Sanctions Pursuant to
Fed.R.Civ.P. Rule 11 is GRANTED. Lead and local counsel for Penda are
jointly and severally liable for the reasonable costs and fees
incurred by STK associated with said motion, as well as for the
reasonable costs and fees associated with the additional work STK
put into litigating its transfer motion as a result of the Rule 11 violation. STK shall file an application
that outlines in detail such costs and fees on or before July 30,
2. The defendant STK's Motion for Sanctions for Violations of
Rules of Professional Conduct is GRANTED in part and DENIED in
part. The plaintiff is prohibited from using any information
obtained as a result of the telephone conversations with Daniel
Kuritz of STK and Ray of Armor Deck. The motion is denied to the
extent it seeks to disqualify local counsel for Penda and to the
extent it seeks reasonable fees and costs associated with the
Rule 4.2 sanctions motion; and
3. The defendant CAR-MIC's Motion for Sanctions Pursuant to
Fed.R.Civ.P. Rule 11 is DENIED.