On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-01-cv-05641) District Judge: Honorable James Knoll Gardner.
The opinion of the court was delivered by: Sloviter, Circuit Judge
Before: SLOVITER, AMBRO, and JORDAN, Circuit Judges.
The promulgation of the Federal Rules of Civil Procedure ushered in a new era of federal litigation, directed to the goal of securing "the just, speedy, and inexpensive determination of every action and proceeding." Fed. R. Civ. P. 1. It would be reasonable to expect, in light of all the applicable rules and governing precedents, that experienced attorneys, especially those who have handled major litigation, would be able to proceed through the discovery and pretrial stages with a conciliatory attitude and a minimum of obstruction, and that, under the guiding hand of the district court, the path to ultimate disposition would be a relatively smooth one. The record of the case before us shows exactly the opposite. The parties were unable to reach agreement on even minor matters and the discovery was noncompliant, delayed, or protracted, leading to the District Court's entry of the sanction orders that are the subject of these appeals. We conclude, without enthusiasm, that none of the players is without responsibility for the unfortunate state of affairs that developed, but we view with particular concern the lawyers' attitude and conduct toward the district judge who, if given more cooperation, would undoubtedly have been able to preside more effectively.
Keystone Health Plan Central, Inc., ("Keystone"), Capital Blue Cross ("Capital"), and Highmark Inc., ("Highmark"), together with three law firms that represented them in the class action law suit in the District Court, Hangley Aronchick Segal & Pudin, and its partner John S. Summers, and Stevens & Lee, P.C., its partners Jeffrey D. Bukowski and Daniel B. Huyett, and Stradley, Ronon, Stevens & Young, LLP, and its partner, Sandra A. Girifalco, appeal two District Court orders imposing sanctions and the order denying the motion to vacate.
Natalie M. Grider, M.D., and her medical practice, Kutztown Family Medicine, P.C., filed the class action underlying this appeal on October 5, 2001, in Pennsylvania state court on behalf of a state-wide class of doctors and medical practices ("Plaintiffs") that were medical "providers with the Keystone health maintenance organization." Grider v. Keystone Health Plan Central, Inc., 500 F.3d 322, 324 (3d Cir. 2007). Plaintiffs alleged that Keystone failed to pay, or underpaid, Plaintiffs for medical services provided to Keystone's policyholders, in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and Pennsylvania's "prompt pay" statute, 40 Pa. Cons. Stat. Ann. § 991.2101 et seq. Grider, 500 F.3d at 323. Plaintiffs also named as Defendants Capital and Highmark, each of which owned 50% of Keystone when the suit was filed, but now a wholly-owned subsidiary of Capital.*fn1 Defendants removed the case to the United States District Court for the Eastern District of Pennsylvania on November 7, 2001.
The firm Hangley, Aronchick, Segal & Pudin and attorney Summers (together, "Hangley") represented Keystone from October 2003 to July 2006. The firm Stradley, Ronon, Stevens & Young LLP and attorney Girifalco (together, "Stradley") represented Highmark from January 2004 until at least July 24, 2007. The firm Stevens & Lee, P.C., and attorneys Bukowski and Huyett (together, "Stevens & Lee") represented Capital in these proceedings until October 3, 2006.
Discovery began in 2003 and ended five years later with the parties' settlement in February 2008. The process involved District Judge James Knoll Gardner, Magistrate Judge Arnold C. Rapoport, and Special Discovery Master Karolyn Vreeland Blume. Defendants moved to dismiss the complaint on January 23, 2002. On December 19, 2002, the case was transferred to the Honorable James Knoll Gardner, who granted in part, and denied in part, the motion on September 18, 2003. It appears that the plaintiffs made no discovery requests during that time, filing their first such request (which was related to class certification) in September 2003. Defendants entered into a joint-defense agreement sometime between October and the end of December 2003 and, as the District Court found, Summers (representing Keystone) "took the lead in defending this case on behalf of all defendants and their counsel," App. at 75, a statement Stradley denies.
Between 2003 and 2005, proceedings and conferences concerning discovery and other matters were held before Magistrate Judge Arnold C. Rapoport, to whom the District Court delegated such matters. Plaintiffs served five sets of discovery requests "directed to all defendants," App. at 8977, seeking information regarding subjects such as "capitation, provider reimbursement, complaints by providers about reimbursement and information concerning the elements that would be required to be proved for class certification." App. at 75.*fn2 Highmark estimates that the total number of requests it alone received (counting subparts) was over 422.
Highmark, Keystone and Capital responded to each request. They interposed general objections to many of Plaintiffs' discovery requests. Those objections included that Plaintiffs sought privileged or confidential material, that the requests were vague and/or overly broad, and that Plaintiffs sought documents not in Defendants' possession or whose production would impose on Defendants undue burden or expense.
In addition to these general objections, each Defendant responded with specific objections to some of Plaintiffs' individual requests, such as objections on the same grounds as the general objections described above or on the ground that it had already responded to such a request in an earlier response. In addition, Defendants raised objections to the "definitions and instructions," claiming that Plaintiffs' use of terms in their requests was vague - such as using "the term 'Defendant' . . . without specifying to which defendant they are referring." App. at 7281. Defendants assert that they produced documents despite these objections.*fn3 Defendants' responses span from December 2003 to November 2004.
As provided in Federal Rule of Civil Procedure 16, Judge Gardner held a status conference in January 2004 and at that time set discovery deadlines. The bickering among the parties ensured that the deadlines would not be met. Although the parties conferred frequently about discovery issues, the principal issues were not resolved. Plaintiffs requested that Defendants withdraw their general objections and Defendants repeatedly declined to do so. In addition, Keystone denied having the claims data, which was critical discovery information, requested by Plaintiffs or the ability to obtain such data from Synertech, its claims processor and a subsidiary of Keystone. Highmark advised Plaintiffs that it did not have Keystone's claims processing documents because it did not itself process such claims. Similarly, Highmark and Capital claimed not to possess documents related to audits of Keystone, but both parties eventually produced such documents at the last minute or late, years after plaintiffs' initial requests and not until after the appointment of the Special Discovery Master.
As all parties admit, the spirit of the discovery disputes was hostile. At the very least, it lacked the civility and professionalism one expects from such experienced attorneys. Plaintiffs filed a total of twelve motions for sanctions and/or contempt, seeking to sanction all Defendants and all their attorneys, as well as two non-parties and their counsel. Magistrate Judge Rapoport denied the five requests for sanctions or contempt before him.*fn4 Only two of Judge Gardner's subsequent rulings on the sanctions requests are the subjects of this appeal.
On April 26, 2004, Judge Gardner extended the original discovery deadlines of March 1, 2004, for class discovery and August 2, 2004, for all other discovery, to June 25, 2004, for class discovery and January 3, 2005, for all other discovery. In addition, "because of the inability of the parties to resolve any of their discovery disputes without intervention, [Judge Gardner] placed this matter into civil suspense [on August 5, 2004,] but required the parties to continue the discovery process." App. at 63. During this period, he required discovery and document production to continue to move forward. For all practical purposes, it did not, and instead the parties reached a discovery stalemate. Judge Gardner described the parties' behavior during the civil suspense period as follows: "From late 2004 into the summer of 2005 the parties continued their incessant motion practice and exhibited a complete inability to agree on even the most basic matters." App. at 63. On September 26, 2005, Judge Gardner ordered the case removed from civil suspense and set new discovery deadlines.
In the meantime, on July 26, 2005, Judge Rapoport granted "Plaintiffs' Combined Motion to Strike Defendants' 'General' and Other Objections," App. at 804, with the explanation that "[t]his Court notes that the parties have entered into a Stipulated Protective Order which protects their interests." App. at 804 n.1 (listing the extensive general objections to be stricken). Defendants petitioned Judge Gardner for reconsideration of that order and, on November 2, 2005, Judge Gardner granted in part and denied in part those petitions for reconsideration. He stated, "[W]e decline to specifically address all of defendants' contentions because we conclude that the Stipulated Protective Order entered into between the parties may be a legal basis to strike some, but is not a legal basis to strike all, of defendants objections. Accordingly, to that extent, we agree with defendants that Judge Rapoport's Order is clearly erroneous and contrary to law." App. at 1123 n.1. The Court then ordered that the "defendants' general objections to plaintiffs' interrogatories and requests for productions of documents are referred to the Special Discovery Master." App. at 1124.*fn5
At the beginning of the civil suspense period, Plaintiffs filed a request for the appointment of a special discovery master to help move discovery along. In late summer of 2004, Judge Gardner ordered all parties to brief whether a Special Master should be appointed to oversee discovery. The parties did so promptly and, on August 25, 2005, the Court entered an order appointing Karolyn Vreeland Blume as Special Discovery Master. Under the direction of Blume, including weekly meetings and intensive monitoring, discovery began to run more smoothly. On December 5, 2005, the Special Discovery Master wrote in an email to the parties: "It was not my intent to blame any party for the discovery delays that have occurred in this case. As I have stated on multiple occasions, the system has failed this case, and we are all trying to get it back on track at the eleventh hour. When you look at what has been accomplished due to everyone's diligent efforts in the last six weeks, it is truly amazing." App. at 10089. Over the next two years, however, she changed her view of the parties' cooperation. See p. 15 infra.
The parties disagree as to the cause of the improvement in the discovery process. Appellants attribute this improvement to Special Discovery Master Blume's new focus on Defendants' specific objections because, as Stradley argues, she "instructed Plaintiffs to provide a 'High Priority List' of those documents sought from Defendants that were most important to Plaintiffs' case," and to withdraw "220 of their pending discovery requests," and because the Special Discovery Master "concluded, just as Highmark had maintained all along, that Highmark had no obligation to produce the claims data Plaintiffs sought." Stradley Br. at 18-19. That was because Highmark did not have custody and control of the data when discovery requests were made.
In contrast, Appellees suggest that the improvement in document production was due to the "discovery" of "recently located" responsive documents that Defendants had previously denied existed or had failed to produce for more than a year. Appellees' Br. at 9-10. Appellees assert that "after the coincidental rash of 'recent discovery' by all Appellants of long sought after documents that coincided with the appointment [of] the Special Discovery Master, Appellants, and all of them, began to utilize a tactic of last minute, piecemeal, late production of discovery material, all of which was designed to frustrate and encumber the ability of the class action Plaintiffs to properly conduct discovery and prosecute their claims." Appellees' Br. at 10. To this effect, Special Discovery Master Blume noted the following on February 1, 2006: "Although document production has been ongoing, tens of thousands of pages were produced yesterday, the final day of [class] discovery." App. at 6800 (emphasis added). Moreover, the Special Discovery Master took the general objections "off the table," App. 10329, requiring that Defendants assert only specific objections, and noted that the "general objections filed by [D]efendants were a major barrier to discovery." App. at 7806.
On another occasion, Judge Gardner remarked that "[w]hile February 1, 2006 was the deadline established by the court for the completion of class discovery in this matter, . . . [d]ocuments offered and received into evidence at the class certification hearings included those produced on the evening of Friday, March 3, 2006 when defense counsel forwarded to plaintiffs' counsel computer disks containing thousands of pages of information regarding claims submissions." App. at 65 n.16.
From March 6 to 10, 2006, Judge Gardner held a class certification hearing, officially closing the record on March 10, 2006. On December 20, 2006, he certified a class in this action, certified several factual and legal issues, and approved Dr. Grider as the sole class representative.
B. The March 30, 2006 Order*fn6
On July 20, 2005, shortly before the case was removed from civil suspense, Magistrate Judge Rapoport issued an order stating that "Defendants' Counsel are admonished for their violations of the Stipulated Protective Order," for placing highly confidential material in the public record that should have been kept under seal. App. at 803. He further ordered that "all counsel are directed to strictly adhere to the terms of the Protective Order, and if counsel for any party fails to comply with this Order and violates [that order], other counsel may apply to the Court for imposition of appropriate sanctions." App. at 803 (emphasis in original). However, Magistrate Judge Rapoport did not explain the basis for his order until after Defendants petitioned Judge Gardner for reconsideration of the order, and the latter "remanded this matter to . . . Magistrate Judge Arnold C. Rapoport to permit him the opportunity to file a Memorandum stating his reasons in support of his July 20, 2005 Order admonishing defendants." App. at 27.
Accordingly, in an order dated March 27, 2006, Magistrate Judge Rapoport noted that Plaintiffs had moved for an injunction against Defendants to prevent them from continuing to file highly confidential documents in the public record without placing them under seal. Defendants argued that the issue was moot because they "took prompt and appropriate remedial action in isolated instances when inadvertent disclosure of a protected document was made." App. at 1937-38.
Magistrate Judge Rapoport ruled "that Plaintiffs did not meet the standard required for injunctive relief" and that "sanctioning Defendants' counsel was not an appropriate remedy for failure to comply with the . . . Protective Order, particularly because counsel had already remedied any failure to comply with [that order]." App. at 1938 (footnote omitted). Instead, "the appropriate remedy was simply to admonish, or caution, Defendants' counsel, and also to warn all counsel that the terms of the Stipulated Protective Order should be followed. This Court [i.e., the Magistrate Judge] did not consider the admonition to be a sanction." App. at 1938-1939 (emphasis in original) (footnote omitted). In so concluding, Magistrate Judge Rapoport observed that Black's Law Dictionary defines a "sanction" as a "'[p]enalty or other mechanism of enforcement used to provide incentives for obedience with the law'" and defines "admonish" as "'[t]o caution or advise. To counsel against wrong practices, or to warn against danger of an offense.'" App. at 1938 nn.2-3 (quoting Black's Law Dictionary 1341, 48 (6th ed. 1990)).
In light of Magistrate Judge Rapoport's explanation, Judge Gardner then denied Defendants' joint petition for reconsideration, affirming Magistrate Judge Rapoport's order on March 30, 2006 (the "March 30, 2006 Order"). In his Memorandum, Judge Gardner found that Magistrate Judge Rapoport's ruling was neither clearly erroneous nor contrary to law,*fn7 but expressly "disagree[d] with Judge Rapoport's conclusion that an admonishment is not a sanction." App. at 39. The March 30, 2006 Order is one of the three orders appealed.*fn8
C. The September 28, 2007 Sanctions Order
The day before Judge Gardner ruled on two of the sanctions motions filed by Plaintiffs in March and December 2006, Special Discovery Master Blume imposed sanctions for violations of Federal Rules of Civil Procedure 26(g)(3) and 37 on Capital, Keystone, and Crowel & Moring (the law firm that took over representation of Keystone from Hangley) and its partners Michael Martinez and Daniel Campbell. Grider v. Keystone Health Plan Cent., Inc., No. 2001-CV-05641, 2007 WL 2874423 (E.D. Pa. Sept. 27, 2007). She concluded:
Respondents have violated numerous provisions of Rules 37 and 26(g) . . . by repeatedly interposing general, boilerplate objections to plaintiffs' document requests and ignoring numerous Orders of the Court, including those of Judge Gardner and Judge Rapoport and the directives of the Master, and by repeating those objections in their [later responses]. Defendants' failure to comply with the discovery process should not be viewed in isolation but within the larger context of their other obstructionist tactics which manifest a similar contempt of the discovery obligations by these same parties.
Id. at *10. Special Discovery Master Blume's sanctions order is not before this court.
The following day, by order dated September 28, 2007, Judge Gardner issued the principal order before us (the "September 28, 2007 Sanctions Order"). That order followed nine days of hearings on the sanctions motions, at which Plaintiffs presented ten witnesses and 161 exhibits, and Defendants and their counsel (combined) presented six witnesses and 145 exhibits. See App. at 55-56. After the hearing, Judge Gardner's clerk requested that Plaintiffs submit certain "timeline charts . . .[,] which, due to time constraints, plaintiffs were unable to use during closing argument" at the sanctions hearing. App. at 23222. Plaintiffs submitted the charts and underlying documents to the court, with copies to counsel for all Appellants. Thereafter, the District Court allowed Plaintiffs and Defendants to file post-hearing findings of fact.
In support of the September 28, 2007 Sanctions Order, Judge Gardner issued a 77-page opinion, including 93 numbered paragraphs containing findings of facts. Grider v. Keystone Health Plan Cent., Inc., No. 2001-CV-05641, 2007 WL 2874408 (E.D. Pa Sept. 28, 2007). Because many of the findings of fact are discussed in depth hereafter, we only briefly summarize Judge Gardner's conclusions here:
(1) All Appellants violated Rules 26(g)(2)(A) and (B) of the Federal Rules of Civil Procedure.
(2) All Appellants violated Rule 37(c)(1).*fn9
(3) The law firm defendants and the individual attorneys violated 28 U.S.C. § 1927 and Local Rule 83.6.1 of the Rules of Civil Procedure of the United States District Court for the Eastern District of Pennsylvania.
However, Judge Gardner found there was not a proper basis to impose any sanctions (1) for violations of court orders;*fn10 (2) pursuant to other sections of Rule 37 of the Rules of Federal Civil Procedure or; (3) pursuant to the Court's inherent power to sanction.
Judge Gardner ordered Appellants to pay the Grider plaintiffs (1) for their "reasonable attorneys' fees" and costs related to the two motions for sanctions, (2) "for all sums paid by plaintiffs as fees to [the] Special Discovery Master," and (3) for their "reasonable attorneys' fees and costs" relating to proceedings before the Special Discovery Master. App. at 46. The Court ordered the plaintiffs to file a petition for the attorneys' fees and costs incurred and, in the meantime, determined that the sanctioned parties and counsel "shall each pay the following percentages:"
3. John S. Summers, and "the law firm of Hangley," jointly and severally - 25%
However, the order imposed sanctions under Rule 37(c)(1) against all Appellants, and in the body of the opinion Judge Gardner concluded "that all defendants . . ., together with their respective counsel, . . . are each ...