United States District Court, M.D. Pennsylvania
December 7, 2004.
NADIA MACHESKA, Plaintiff,
THOMSON LEARNING and HARCOURT LEARNING DIRECT, A Harcourt Higher Learning Co., Defendants.
The opinion of the court was delivered by: JOHN E. JONES, District Judge
MEMORANDUM AND ORDER
THE BACKGROUND OF THIS ORDER IS AS FOLLOWS:
Following Nadia Macheska's ("Macheska" or "Plaintiff")
voluntary dismissal of all claims against Thomson Learning and
Harcourt Learning Direct ("Thomson" or "Defendants"), the
Defendants filed this Motion for Fees and Costs (doc. 30) against
Macheska's counsel of record, Paul M. Jennings, Esq.,
("Jennings") pursuant to 28 U.S.C. § 1927.
This case arose out of the termination of Plaintiff's
employment at Thomson on September 17, 2001 and the legality of
the Separation Agreement and General Release (the "Release")
signed by the Plaintiff on November 5, 2001, and by Thomson's
Vice President Steven A. Moll ("Moll") on December 1, 2001. On
October 31, 2003, Macheska initiated this action, wherein she
alleges that she lacked the capacity necessary to legally execute
the Release. Following somewhat limited but costly and
time-consuming discovery by Thomson, as well as an aborted
attempt to appoint a guardian for Macheska in the Lackawanna
County Court of Common Pleas, Macheska voluntarily withdrew all
of her claims against Thomson. Subsequently, the instant motion
seeking costs and fees was filed by Thomson. A timely response
was filed by Jennings, and oral argument was conducted on October
25, 2004. At oral argument, certain additional exhibits were
requested and received by the Court. Following these supplements
to the record by both parties, the Motion is now ripe for our
We will grant Thomson's Motion to the extent that we will
consider an award of fees and costs incurred by Thomson between
March 1, 2004 and July 7, 2004.
STATEMENT OF FACTS:
The facts relevant to our disposition of this Motion, and which
we will review, commence with the Plaintiff's termination by
Thomson and extend through July 2004, when the underlying suit
was voluntarily withdrawn by her. Since, as noted, Thomson
asserts this claim against Jennings, we will in particular
emphasize his conduct as Macheska's counsel during the pendency
of the lawsuit which gives rise to this action.
A. Macheska's Separation Agreement with Thomson Learning
Macheska was employed by Thomson Learning, and its corporate
predecessors, for thirty-three years, until her employment was
terminated on September 17, 2001. (doc. 1; Complaint ¶ 11). The
exact circumstances of Macheska's termination are unclear.
However, it appears that she was diagnosed as afflicted with
adjustment disorder with depressive mood, and that she was
terminated by the Defendants following many months of turmoil
regarding her employment. Defendants then offered Macheska the
Release, which included sixty-six (66) weeks of severance pay
with benefits. The Release also included reimbursement for unused
vacation days as well as job outplacement counseling. (Def. M. to
Dismiss Ex. B; Release ¶ 3).
Macheska then embarked on an extended odyssey during which she
consulted with a number of attorneys regarding her termination
and the proposed Release. Macheska first consulted with an
employment law attorney, Joseph Sileo, Esq. Sileo met with
Macheska on October 1, 2001 to discuss her termination from
Thomson and to explain the various legal avenues she could
pursue. Sileo spent four hours at Macheska's residence discussing
the relevant aspects of her employment. Sileo stated in his
deposition, "[t]here was nothing to me that would indicate that
she was incapacitated or incompetent, if you will, for the
purposes of what we were discussing [the Release]." (doc. 31;
Def. Br. for Fees Ex. 4; Sileo Dep. at 38.). Sileo recommended
that Macheska accept the severance offered by Thomson.
Subsequent to her extended consultation with Sileo, Macheska
sought the advice of another attorney, Doug Thomas, Esq., to whom
she was directed to by her physician, Dr. Richard
Martin.*fn1 Later in October 2001, she first spoke with
Thomas, who is a trusts and estates lawyer and who then
recommended to her an employment lawyer, Andrew Katsock, Esq.
Both Thomas and Katsock met with Macheska at her home on October
8, 2001 for two to three hours. Both attorneys testified in their
depositions that Macheska was entirely competent during both that
meeting and in later conversations between Katsock and Macheska.
(doc. 31; Def. Br. for Fees Ex. 6, Katsock Dep. at 20-24; Ex. 3,
Thomas Dep. at 24-28.). Both attorneys strongly recommended to
Macheska that the severance offered by Thompson represented a
good deal for her. Because Macheska signed the Release during
their representation of her, Thomas and Katsock also concluded
that she did so knowingly and voluntarily, after the lengthy
period within which she evaluated her options. (doc. 31; Thomas
Dep. at 1, Katsock Dep. at 59-60).
In addition to consulting the three previously noted attorneys,
it is notable that Macheska was observed and treated by two
physicians during the same period. First, Macheska met with her
treating physician, the aforementioned Dr. Richard Martin,
several times in the Fall of 2001. Macheska had been a patient of
Dr. Martin since prior to 2000. On January 5, 2000, Dr. Martin
diagnosed Macheska with "adjustment disorder with depressive
mood." (doc. 31; Def. Br. for Fees Ex. 9; Martin Dep. at 7-8.).
Dr. Martin also met with Macheska on the day she was terminated,
(September 17, 2001), once during the period she was considering
signing the Release, (October 8, 2001), and again three days
after she signed the Release, on November 8, 2001. Dr. Martin,
while agreeing that Macheska needed a leave of absence from her
work, did not believe that she was incompetent or that she could
not understand and voluntarily sign the Release. (doc. 31; Def.
Br. for Fees Ex. 9; Martin Dep. at 71-74.). In fact and as noted,
it was Dr. Martin who referred Macheska to attorney Thomas for
further explanation of her legal rights.
Macheska was also treated during the same period by Dr. Daniel
de Soto, a psychiatrist who met with her on October 4, October
19, and November 12, 2001. After taking detailed background
information on Macheska, Dr. de Soto evaluated her condition as
"moderate," saying that she was alert, with coherent speech,
relevant thoughts, and without any more severe symptoms such as
suicidal tendencies, hallucinations, or delusions. Dr. de Soto
concluded that Macheska was a future-oriented individual able to
consent to treatment. (doc. 31; Def. Br. for Fees Ex. 13; Dr. de
Soto Report at 2.). In his opinion, she was competent to both
consider the severance offer and sign the Release. Id.
In summary, the magnitude of the evidence demonstrating that
Macheska was competent at all of the times during which she
considered the severance and Release, as well as at the moment
she signed the Release, is overwhelming. This evidence includes
her consultation with no less than three attorneys (Sileo,
Thomas, and Katsock) and two physicians (Drs. Martin and de
Soto). Thomson also extended the statutory seven day waiting
period three times, thus allowing Macheska more time to consider
her options. In the face of this factual panoply, and after
having signed the Release, Macheska presented herself to Jennings
in March 2002. Sadly, and as noted below, we can only conclude
that Jennings utterly failed to conduct an appropriate
investigation into the circumstances surrounding Macheska's
execution of the Release.*fn2
It is relevant to our determination that both attorneys Katsock
and Thomas provided sworn affidavits stating that:
[u]ntil ? deposed in this case, Mr. Jennings never
asked me about the circumstances surrounding Ms.
Macheska's execution of her severance agreement with
Thomson, about my discussions with her concerning the
severance agreement, or about my observations of her
mental capacity at the time she executed the
agreement or while I represented her.
(doc. 31; Def. Br. for Fees Ex. 7, 8; Affidavit of Doug Thomas ¶
4; Affidavit of Andrew Katsock ¶ 2).
B. Jennings' Complaint and the Expert Reports it Relied Upon
After consulting with Macheska for over a year, Jennings filed
the instant action on October 30, 2003, just as the statute of
limitations was about to expire. His two count complaint alleged:
(1) that Thomson violated the Americans with Disabilities Act by
terminating Macheska's employment because of her disability, and
(2) that Thomson violated the Family and Medical Leave Act by
terminating Macheska when she requested medical leave. (doc. 1 ¶¶
In his complaint and in pre-filing correspondence to Thomson,
Jennings made several problematic assertions. First, in the
complaint, Jennings alleged that "Plaintiff clearly could not
make an informed decision." (doc. 1 ¶ 75). It is now evident,
however, that during the extended period which he counseled
Macheska prior to the filing of the complaint, not once did
Jennings endeavor to speak to the aforementioned attorneys or
physicians, all of whom were satisfied with Macheska's ability to
comprehend the Release.
Next, more troubling misrepresentations occurred when Jennings
attempted to use the reports of his retained experts,
psychiatrists Dr. Michael A. Church and Dr. Richard A. Fischbein,
to show that Macheska was mentally unstable at the time she
signed the Release. According to his deposition, Dr. Fischbein
was retained by Jennings on March 27, 2002 and asked by him to
examine Macheska and prepare a written report. Regrettably, in
this process, Jennings led Dr. Fischbein to believe that he would
provide sworn declarations of "individuals who inter-acted [sic]
with Ms. Macheska during the time frame of her execution of that
legal document [the Release]." (doc. 31; Def. Br. for Fees Ex.
11; Jennings letter to Fischbein of 3/27/02) who would support a
finding of her incompetence. In fact, Jennings did nothing of the
sort, obviously because he could not produce any declarations
of that nature. As a consequence, Dr. Fischbein proceeded to
construct his analysis based on a false premise as related to him
Dr. Fischbein then prepared two reports. Notably, his second
report contained small but quite significant changes from the
first. Dr. Fischbein submitted his first report to Jennings on
April 3, 2002. This report included the following conclusion:
It is clear to this examiner that [Macheska] needed
legal advice at the time and needed to consult with
an attorney before making such an important decision
and she was in no frame of mind to make that decision
(doc. 31; Def. Br. for Fees Ex. 16; Dr. Fischbein Report of
4/3/02 at 8.). Jennings reviewed this preliminary report and sent
a fax to Dr. Fischbein indicating some of his "problems with the
report." (doc. 31; Def. Br. for Fees Ex. 17; Jennings fax to Dr.
Fischbein of 4/15/02).*fn3
Within his fax to Dr. Fischbein,
Jennings included a request to change the date of the report, and
an instruction regarding the "claim of Dr. Fischbein [that
Macheska needed to consult with an attorney] is destructive &
wrong. She had two attorneys at the time." Id. (emphasis in
original). Jennings' fax went on to state: "Remind Dr. Fischbein
that I told her she had 2 attorneys and to have him write up a
report consistent with the facts of being unable to render a
decision at that time." Id. (emphasis added).
Dr. Fischbein accepted Jennings' changes and issued a second
report dated April 13, 2002.*fn4 This report contained a
revision of Dr. Fischbein's earlier conclusion in his first
report concerning the lack of legal advice to Macheska, and
whatever legal advisors she had at the time should
have requested a consult with a psychiatrist of
psychologist before permitting Ms. Macheska to make
such an important decision [signing the Release].
(doc. 31; Def. Br. for Fees Ex. 18; Fischbein Report of 3/13/02
at 8.). Thus, bolstered by new information from Jennings,
Fischbein altered his report. Evidently unknown to Dr. Fischbein,
due to Jennings' failure to reveal it, was the fact that Macheska
had in fact consulted not only with a psychiatrist but also her
treating physician at, or directly prior to, and after the point
when she signed the Release, and that both physicians had found
her to be competent and able to understand her legal rights.
Jennings also misled another retained expert, Dr. Michael
Church (who later performed a psychological examination of
Macheska) when, in his original instructions to Dr. Church, he
wrote: "I believe that there is support to invalidate that
signature." (Hearing Ex. 4; Jennings letter to Church of
3/27/02). It is apparent that this is at best speculation by
Jennings with no basis in fact, much like his pre-evaluation
comments to Dr. Fischbein.
C. Jennings' Conduct Following the Commencement of Litigation
Not long after Jennings filed the underlying action against
Thomson, Thomson filed a Motion for Summary Judgment and/or to
Dismiss (doc. 4). In essence, Thomson alleged that the complaint
failed to state a claim upon which relief could be granted
because Macheska had signed the Release and had accordingly
relinquished her rights to bring an action against Thomson.
We held oral argument on Thomson's Motion on February 19, 2004.
Following the argument, in an Order issued that same day, we
denied Defendant's Motion to Dismiss, deferred ruling on the
Motion for Summary Judgment, and allowed for a limited ninety
(90) day discovery period in aid of our resolution of the Motion.
We took this step in the interest of providing Macheska the
opportunity to develop facts in support of her contention that
the Release did not act as a bar to her suit. In particular,
Jennings represented to the Court during oral argument that his
experts, if given the opportunity, would support Macheska's claim
that she lacked the capacity to sign the Release. Although
Macheska's cause of action appeared tenuous, we considered the
course of action ordered by us to have been in the interest of
justice, and an alternative to dismissing Macheska's claims at
Less than a week after the oral argument held February 19,
2004, Jennings contacted our chambers via fax with two requests.
(Jennings fax to the Court of 2/23/04). First, Jennings asked the
Court for assistance in appointing a legal guardian for Macheska,
who could "not understand what is being told to [her, regarding
this litigation.]" Id. Second, Jennings asked the Court to stay
the proceedings while he attempted to have a guardian appointed.
In this letter, Jennings stated:
I represent to the Court that I informed Nadia
Macheska that I will strongly recommend to a
Guardian that this case be withdrawn, with
prejudice, and that acceptance of the 66 weeks of
pay occur, as offered to me by Atty. Steven [sic]
Sundheim at the conclusion of oral argument [on
Id. (emphasis added). Thus, it is significant that as early as
February 23, Jennings understood that Macheska's case lacked
merit and should have been withdrawn. We can easily infer that
Jennings' client either did not, or could not, agree with his
recommendation to her in that regard. Facing this, Jennings, in
what now appears to have been a moment of extreme and perhaps
ill-advised candor, conceded to both opposing counsel and the
Court that, in his view, his client's case should not proceed
further. We note parenthetically that the 66 weeks referenced in
Jennings' letter referred to the resumption and completion of the
previously agreed to compensation, and not to any additional
consideration by Thomson, since payments had been suspended by
Thomson after Macheska filed suit to open the Release.
Following this fax, and a fax response to the Court from
Thomson not concurring in Jennings' request for a stay (and in
fact questioning why the case could not be dismissed forthwith),
an informal conference call involving counsel and the Court was
held on March 1, 2004. As according to our usual protocols, this
call was an off-the-record attempt to resolve the matters raised
in Jennings' letter without the necessity of a formal motion. The
substance of this call can be summarized thusly: Jennings
reiterated that he had advised Macheska to withdraw her action;
that Macheska would not consent to same; that Jennings believed
that Macheska might not be competent to make any decision with
respect to her case and thus he intended to seek the appointment
of a legal guardian for her; and, as a result of all of this,
that Jennings had sought the consent of Thomson's counsel to
extend the discovery deadlines implemented by our February 19,
2004 Order. Thomson's counsel would not agree. Because as noted
this was an informal conference call, we advised Jennings that in
the absence of an agreement, his only alternative was to file a
formal motion to extend the discovery deadlines if he in fact
proceeded with the guardianship on Macheska's behalf, citing M.D.
Local Rule 7.1. For reasons unknown to us, Jennings never filed
such a motion, and the discovery deadlines remained in place.
We now know that on the day following the informal conference
call with this Court, a guardianship action was filed in the
Lackawanna County Court of Common Pleas on Macheska's behalf. Our
examination of the record of that proceeding, which was submitted
as a supplement to the record at our request, reveals that the
action appeared to follow a normal course, with one critical and
significant exception. On the eve of the entry of a final order
appointing a guardian for Macheska, the action was withdrawn on
June 30, 2004.
While the guardianship proceeding was developing, and because
Jennings did not obtain a stay of discovery, that process rolled
onward. Depositions of Drs. de Soto, Fischbein, Church, and
Martin, as well as attorneys Sileo, Thomas, and Katsock were
noticed and taken by Thomson, as was the additional deposition of
Macheska's therapist, Helen Hughes.
A reasonable person might question why Thomson chose not to
agree to permit Jennings to stay the action in the face of the
guardianship proceeding. However, an examination of the facts
tends to verify why Thomson did not so agree. Thomson's counsel,
Stephen J. Sundheim, Esq., stated in a letter to Jennings prior
to the March 1, 2004 conference call with the Court that: "I do
not agree that a stay is warranted. I still have not seen any
contemporaneous evidence that plaintiff was so impaired that,
from a legal standpoint, she was not able to agree to the
release." (doc. 46; Def. Supp. Ex. 14; Sundheim letter to
Jennings of 2/27/04). Moreover, Thomson certainly had no
assurance that the guardianship process would result in the
appointment of a guardian who presumably would make the
determination which Jennings had represented that Macheska could
not, i.e. whether to proceed with her claim against Thomson, and
in fact it did not so conclude. Faced with Thomson's position,
Jennings clearly had the option of filing either a formal motion
to stay discovery as aforestated, or to withdraw as her counsel.
It is critical to our analysis that he did neither. Rather,
Jennings allowed Thomson to incur significant costs during
discovery despite his belief that the "case should be withdrawn."
(Jennings fax to the Court of 2/23/04).
At this point in our analysis, it is well to revisit the fact
that as early as his February 23, 2004 fax to the Court, and
during the March 1, 2004 telephonic conference, Jennings made
representations that he had recommended that Macheska withdraw
her action because it lacked merit. However, despite these
admissions, months later on June 11, 2004, Jennings made a
proposal to settle the action for $26,000, which was rejected by
Thomson. (doc. 46; Def. Supp. Ex. 43; letter from Jennings to
Sundheim of 6/16/04). Notably, in the face of this "last gasp"
attempt to settle a case that he himself had concluded some three
and one-half months previously had no merit, Jennings folded his
hand and as a result the guardianship action was discontinued on
June 30, 2004 and then the underlying suit on July, 7, 2004.
Finally, it is also relevant to our analysis that the Motion
before us is far from the first indication by Thomson that they
intended to seek fees and costs from Jennings. In fact, in what
appears to be the first written correspondence from Thomson to
Jennings there was included an indication of an intention to:
"seek all appropriate remedies including our costs." (doc. 46;
Def. Supp. Ex. 1; Moll letter to Jennings of 3/20/02). In later
correspondence, Thomson and its counsel at Pepper Hamilton LLP
also indicated an intention to seek fees and costs. For example,
a March 17, 2004 letter from defense, Glenn A. Beard, Esq., to
Jennings, expresses that if Jennings intended to withdraw the
case, he should do so soon, because "continued litigation [was] a
material breach of the severance agreement." (doc. 46; Def. Supp.
Ex. 23; Beard letter to Jennings of 3/17/04). An e-mail, from
attorney Sundheim dated March 18, 2004, indicated, "my client
will seek all of its costs." (doc. 46; Def. Supp. Ex. 24;
Sundheim e-mail to Jennings of 3/18/04). Another letter from
attorney Sundheim, dated April 8, 2004 stated, "I wanted to
advise you that, if we obtain dismissal of this action, my client
intends to seek to recover all of the costs it incurs. Of course,
all of these costs are a direct result of what my client views as
a breach of the settlement agreement and release." (doc. 46; Def.
Supp. Ex. 30; Sundheim letter to Jennings of 4/8/04). Another
letter from attorney Beard, in advance of the deposition of Dr.
de Soto, dated April 22, 2004 explained:
Our client is distressed by the mounting costs of
this baseless and apparently frivolous litigation.
Please take this opportunity either to tell us what
evidence we are miscomprehending or to rethink
whether you should maintain this lawsuit any longer.
If your client will agree to dismiss the action with
prejudice before we proceed with the deposition of
Dr. de Soto on April 30, then our client will refrain
from taking further action based on what it believes
is the prosecution of a patently meritless lawsuit.
Please be advised, however, that any such dismissal
would not affect our client's position that Ms.
Macheska's filing and maintaining the suit breached
the release agreement and forfeited her right to the
severance benefits it provided."
(doc. 46; Def. Supp. Ex. 36; Beard letter to Jennings of
4/22/04). A final letter from attorney Sundheim was sent to
Jennings on June 8, 2004 reiterating his:
increasingly grave concerns regarding the
frivolousness of this lawsuit. . . . Please be
advised that, if our client is forced to spend more
money briefing the motion for summary judgment, we
intend to move for sanctions against you under
Fed.R.Civ.P. 11, seek attorneys' fees from your client
under the ADA and consider a separate action for
wrongful use of civil proceedings under Pennsylvania
law. We urge you to withdraw your complaint with
(doc. 46; Def. Supp. Ex. 41; Sundheim letter to Jennings of
6/8/04). In the face of these repeated warnings, which began as
rifle bursts but then escalated to cannon shots across his bow,
Jennings allowed Thomson to expend considerable resources in
defending what Jennings himself had long since concluded was a
D. Thomson's Costs Accrued in Defense During this
From the records and affidavit submitted by Thomson's counsel,
Pepper Hamilton LLP, we are able to discern that Thomson was
billed a total of $99,396.22 for the defense of this action,
which was comprised of $84,393 in attorney's fees, $11,393.32 in
costs, and $3,610 in expert witness fees. (Def. Counsel Aff. ¶¶
5-8). From the records, it appears that Pepper Hamilton billed
Thomson at the end of every month for all non-attorney costs and
fees. We note that in the period following March 1, 2004 Pepper
Hamilton billed approximately $7686.86 to Thomson for
non-attorney fees and costs in this matter. Id. The attorney's
fees in this case were not broken down in the same manner, and
thus we cannot calculate, on the record before us, the precise
amount of attorney's fees incurred and paid by Thomson to Pepper
Hamilton for certain individual periods. We are thus dealing with
fee amounts which we cannot precisely calculate, but that will
not forestall an analysis of the merits of Thomson's claim.
Jennings' mistakes in handling this matter are manifest and
obvious. Perhaps his most fatal error, however, was the failure
to properly seek a stay of discovery after initiating the
guardianship action in state court, once he had concluded in late
February 2004 that the "case be withdrawn, with prejudice."
(Jennings fax to the Court of 2/23/04). Unquestionably, such a
motion would have been seriously considered and likely granted by
the Court. Further, and as expressed previously, Jennings had the
additional options of terminating his relationship with Macheska
with her consent, or in the face of a refusal by her to allow him
to withdraw as counsel, he could have sought to have the Court
permit his withdrawal over her objection. Because he elected none
of these options, and since he knowingly exposed Thomson to
significant costs in aid of bringing this matter to a conclusion,
we will now proceed to evaluate both the merits of Thomson's
Motion, as well as any defenses asserted by Jennings.
A. Thomson's Stipulation of Dismissal does not Bar the
Jennings has raised a threshold issue in response to the Motion
by Thomson. That is, Jennings, through his counsel, avers that
any right Thomson had to recover fees and costs was waived by the
stipulation of dismissal pursuant to Fed.R.Civ.P.
41(a)(1).*fn5 We find this argument to be unavailing.
Thomson's Motion is brought pursuant to 28 U.S.C. § 1927, which
Any attorney or other person admitted to conduct
cases in any court of the United States or any
Territory thereof who so multiplies the proceedings
in any case unreasonably and vexatiously may be
required by the court to satisfy personally the
excess costs, expenses, and attorneys' fees
reasonably incurred because of such conduct.
28 U.S.C. § 1927.
Jennings argues that a Motion pursuant to § 1927 is barred in
this Court because we lost subject matter jurisdiction once the
case was removed from our docket by the stipulation of voluntary
dismissal with prejudice. However, according to Fed.R.Civ.P.
54, "[t]he provisions of subparagraphs (A) through (D) [limiting,
inter alia, to fourteen days the time in which a motion for
fees and costs can be filed] do not apply to claims for fees and
expenses as sanctions for violations of these rules or under
28 U.S.C. § 1927." Fed.R.Civ.P. 54(d)(2)(E).
Several courts have held that a voluntary dismissal pursuant to
Fed.R.Civ.P. 41(a)(1) does not remove jurisdiction from the
district court with respect to a motion for fees and costs
pursuant to 28 U.S.C. § 1927. In Bolivar v. Pocklington, the
First Circuit explained that a § 1927 motion is a collateral
matter. As such, courts properly retain jurisdiction following
dismissal. 975 F.2d 28, 31 (1st Cir. 1992); see also Szabo
Food Serv., Inc. v. Canteen Corp., 823 F.2d 1073, 1079 (7th Cir.
1987) ("The obligation to answer for one's act accompanies the
act; a lawyer cannot absolve himself of responsibility by
dismissing his client's suit."). The Supreme Court addressed this
in Cooter & Gell v. Hartmarx Corp., when it held that,
"district courts may enforce Rule 11 even after the plaintiff has
filed a notice of dismissal under Rule 41(a)(1)." 496 U.S. 384,
395 (1990). In his concurrence, Justice Stevens explained that
this was equally applicable to § 1927. Id. at 412 (Stevens, J.
concurring in part and dissenting in part) ("I agree that
dismissal of an action pursuant to Rule 41(a)(1) does not deprive
the district court of jurisdiction to resolve collateral issues.
A court thus may impose sanctions for contempt on a party who has
voluntarily dismissed his complaint or impose sanctions under
28 U.S.C. § 1927 against lawyers who have multiplied court
At oral argument, counsel for Jennings argued that subsequent
changes to Rule 11 no longer make Cooter & Gell applicable to a
motion brought pursuant to § 1927. While in some areas this may
be so, courts have repeatedly upheld the holdings of both Cooter
& Gell and Bolivar since Rule 11 was most recently updated in
1993, inasmuch as they apply to a post-dismissal filing of a §
1927 motion. See Thomason v. Norman E. Lehrer, P.C.,
182 F.R.D. 121, 127, 42 Fed.R.Serv.3d 335, 335 n. 1 (D.N.J. Aug 21,
1998) (citing Bolivar for the proposition that the court
could impose sanctions following dismissal); Matos v. Richard A.
Nellis, Inc. 101 F.3d 1193, 1196 (7th Cir. 1996) (citing Cooter
& Gell, Judge Easterbrook held that a court lacking subject
matter jurisdiction could nonetheless impose § 1927 sanctions).
Finally, we will briefly address the unpublished District Court
decisions cited by Jennings. The first case cited, Sokoloff v.
General Nutrition Co., disallowed a motion for fees and costs
filed pursuant to the terms of a franchise agreement that was the
basis for the underlying lawsuit. Sokoloff v. General Nutrition
Companies, Inc., No. 00-641, 2001 WL 536072, *3 (D.N.J. May 21,
2001). This case did not discuss the statutory right to sanctions
pursuant to § 1927, but rather was an attempt by the movant to
reopen litigation regarding the terms of the franchise agreement.
The second case cited by Jennings, Dorfsman v. Law Sch. Adm.
Council, did not allow a motion for fees and costs because the
defendants in that case were saved the expense of trial, as the
case concluded on a motion to dismiss. No. 00-306, 2001 WL
1754726 (E.D.Pa. Nov. 28, 2001). While it is true that Thomson
was spared the cost of trial, it was not spared the cost of
discovery, despite Jennings' stated belief prior thereto that the
"case [should] be withdrawn." (Jennings fax to the Court of
2/23/04). We do not disagree with our colleague Judge Hutton that
a motion for fees should only be granted following a voluntary
dismissal in "exceptional circumstances." Dorfman, WL 1754726
at *3. As explained herein, we have determined that exceptional
circumstances exist in this case, in that Jennings allowed the
litigation to continue without appropriate pause, resulting in
costly and time-consuming discovery, long after his admission
that he had concluded that the case should "be withdrawn."
(Jennings fax to the Court of 2/23/04). Therefore, we conclude
that Thomson is not barred from asserting a § 1927 motion
subsequent to the stipulated voluntary dismissal filed in this
B. Standard to be Applied under 28 U.S.C. § 1927
Having determined that we have jurisdiction over this Motion,
we next turn to the merits of Defendant's Motion. For a court to
award fees and costs pursuant to 28 U.S.C. § 1927, the statute
and relevant case law instruct us that we must examine whether
counsel: "(1) multiplied proceedings; (2) in an unreasonable and
vexatious manner; (3) thereby increasing the cost of the
proceedings; and (4) doing so in bad faith or by intentional
misconduct." In re Prudential Ins. Co. America Sales Practice
Litigation Agent Actions 278 F.3d 175, 188 (3d Cir. 2002)
(quoting Williams v. Giant Eagle Markets, Inc.,
883 F.2d 1184, 1191 (3d Cir. 1989)). Specifically, we must find that there
was "behavior `of an egregious nature, stamped by bad faith that
is violative of recognized standards in the conduct of
litigation.'" In re Orthopedic Bone Screw Products Liability,
193 F.3d 781, 795 (3d Cir. 1999) (quoting Baker Indus., Inc.
v. Cerberus Ltd., 764 F.2d 204, 208 (3d Cir. 1985)) (other
internal citations omitted). We must, therefore, find "willful
bad faith on the part of the offending attorney." Id.
The Third Circuit Court of Appeals has held that bad faith has
an expansive definition and that it is a finding of fact to be
made by the District Court. See Hackman v. Valley Fair,
932 F.2d 239, 242 (3d Cir. 1991). Bad faith is evident when "claims
advanced were meritless, that counsel knew or should have
known this, and that the motive for filing the suit was for an
improper purpose such as harassment." In re Prudential,
278 F.3d at 188 (quoting Smith v. Detroit Fed'n of Teachers Local
231, Am. Fed. of Teachers, AFL-CIO, 829 F.2d 1370, 1375 (6th
Cir. 1987)) (emphasis added). We find Jennings' bad faith to be
evident both because of his February 23 and March 1, 2004
admissions that his client's case had no merit, as well as his
failure to either stay, terminate the litigation, or withdraw as
counsel within a reasonable period of time thereafter.
We note with some caution that the remedy available to use
under § 1927 is one we should choose to use sparingly. See In
re Orthopedic, 193 F.3d at 796) (holding that sanctioning powers
should be used sparingly in order to avoid chilling novel legal
or factual arguments from counsel). As the Supreme Court held in
Christiansburg Garment Co. v. EEOC, "[I]t is important that a
district court resist the understandable temptation to engage in
post hoc reasoning by concluding that, because a plaintiff did
not prevail, his action must have been unreasonable or without
foundation. This kind of hindsight logic could discourage all but
the most airtight claims. . . ." 434 U.S. 412, 421-22 (1978).
Here, we need not use hindsight nor post hoc analysis, but
again refer to counsel's own words to the Court that "the case
[should] be withdrawn."
Additionally, § 1927 does not allow us to award sanctions for
all of the fees and costs Thomson accrued in defense of this
action. See Schutts v. Bentley Nevada Corp. 966 F.Supp. 1549,
1559 (D.Nev. 1997) ("Section 1927 applies only to unnecessary
filings and tactics once a lawsuit has begun: It is only possible
to "multiply" a proceeding after the complaint is filed."); see
also In re Keegan Management Co. Sec. Litig., 78 F.3d 431,
435 (9th Cir. 1996). Therefore, we will limit any recovery by
Thomson to the period during which it is apparent that Jennings
needlessly prolonged the litigation, rather than the entirety of
the litigation dating back to the filing of the complaint on
Macheska's behalf. While as previously noted Jennings embarked
upon an ill-considered course on Macheska's behalf from the very
moment his representation commenced, his most egregious behavior
was saved for the period after he conceded the futility of
C. Fees and Costs to be Awarded to Thomson
Both Jennings and his counsel spill considerable ink arguing
that Jennings pursued this litigation ab initio on behalf of
his client in good faith. The facts give us considerable pause in
that regard, however, as it is readily apparent that Jennings
utterly failed to undertake a responsible investigation of the
circumstances surrounding Macheska's execution of the Release
prior to forging ahead with the underlying lawsuit. Despite this
deficient conduct, we believe that Thomson has not overcome the
significant hurdle interposed by § 1927 as to conduct by Jennings
prior to March 1, 2004. While as stated Jennings' course prior to
that date was dubious and questionable at best, we cannot find
that it was for a purpose so improper or inappropriate as to
trigger an award of fees and costs.
By March 1, 2004 however, the underlying suit had been placed
in a posture which we believe implicates the sanctions allowed by
§ 1927. At that point, Jennings clearly knew that his client's
case lacked merit. Metaphorically, rather than pulling off of the
road or applying the brakes, Jennings allowed his client's
vehicle to tumble down a hill towards certain disaster. Sanctions
under § 1927 are appropriate to "Deter an attorney under from
intentionally and unnecessarily delaying judicial proceedings,
and they are limited to the costs that result from such delay."
LaSalle National Bank v. First Connecticut Holding Group,
287 F.3d 279, 288 (3d Cir. 2002).
While Jennings argues that his actions post-March 1, 2004 were
appropriate, we cannot agree. In particular, we are struck by the
fact that in the face of a prior admission that his client's case
had no merit, he persisted, as late as June 2004, in an attempt
to accomplish a nominal settlement of her claim. We also derive
an adverse inference from the fact that Jennings instigated a
guardianship proceeding on his client's behalf, which was
presumably for her benefit in areas not limited to the underlying
litigation. However, it is telling that upon the failure of
Jennings' just described "eleventh hour" attempt to resolve the
litigation, the guardianship proceeding evaporated, and Macheska
was, in Jennings' evident view, suddenly competent and able to
direct him to withdraw her action. Because we believe that
Jennings had a larger obligation than he fulfilled to Macheska,
this Court, and most of all to Thomson, we will consider an award
comprising at least part, if not all of the fees and costs
incurred by Thomson after March 1, 2004 in its defense of this
As noted previously, we do not have a breakdown of the costs
and fees incurred by Thomson subsequent to March 1, 2004. As such
we will enter an appropriate order so that sanctions can be
computed consistent with this analysis.
THEREFORE, IT IS HEREBY ORDERED THAT:
1. Defendants' Motion for Fees and Costs (doc. 30) is
GRANTED to the extent that the Court will consider an
award of costs and fees accrued after March 1, 2004.
2. Within twenty (20) days of the date of this Order,
Defendants' counsel will submit an itemized,
month-by-month statement of its fees and costs as
billed by Pepper Hamilton LLP and paid by Thomson
from the period of March 1, 2004 to July 7, 2004.