United States District Court, M.D. Pennsylvania
Martin C. Carlson United States Magistrate Judge
This action relates to a multi-party dispute that arose following the structural failure of a silo system in York, Pennsylvania. Barry-Wehmiller Design Group, Inc. (“Barry-Wehmiller”) was retained as a construction manager and consultant by Church & Dwight, a non-party, to erect a new 300-ton capacity limestone silo at Church & Dwight’s facility in York. On or about July 22, 2013, the silo failed, and inspired this litigation.
On June 3, 2014, Barry-Wehmiller filed breach of warranty claims against StorCon Systems, Inc. (“StorCon”), which had been engaged to complete the design, manufacture and installation of the silo. (Doc. 1.) StorCon, in turn, filed a third-party complaint naming Imperial Industries, Inc. (“Imperial”) and Jenicke & Johanson, Inc. (“J&J”) as third-party defendants. (Doc. 7.) StorCon had hired Imperial to complete the actual design, fabrication and installation of the silo. The third-party complaint asserted claims for breach of contract, indemnity and contribution against Imperial, and it asserted a negligent misrepresentation claim against J&J, which had been hired by Church & Dwight – not StorCon or Imperial – to prepare the functional design specifications and material-induced load calculations. StorCon and Imperial allegedly used J&J’s recommendations in connection with the structural design and fabrication of the silo. As will be discussed, StorCon’s third-party complaint against J&J has since been dismissed with prejudice.
Now pending in this action is a motion for sanctions that J&J has filed against StorCon. J&J brings this motion pursuant to Rule 11 of the Federal Rules of Civil Procedure, arguing that StorCon filed its third-party complaint against J&J without any factual basis, and because StorCon’s counsel violated Rule 11 “by falsely certifying to the Court that, to the best of his knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, the factual contentions related to Storcon’s negligent misrepresentation claim (Count III of the Third-Party Complaint) had or potentially could have evidentiary support.” (Doc. 53.) For its part, StorCon flatly disputes J&J’s arguments and legal conclusions, arguing that there was a good-faith factual basis to allege that StorCon detrimentally relied upon J&J’s inspection of the silo system, and its related reports, in the construction of the silo. J&J has filed a reply brief, continuing its attack on opposing counsel’s alleged lack of inquiry into what J&J insists are the facts of this dispute before bringing the third-party claims.
Upon consideration, we find that StorCon has pointed to numerous, arguably legitimate bases for bringing the third-party claims in this case, and despite J&J’s insistence to the contrary we find that this case falls far short of what Rule 11 demands before sanctions may be imposed. Instead, this seems a case where J&J is making good on the threat it made last fall when it insisted that if StorCon did not accede to its demand that it withdraw all claims with prejudice immediately, J&J would pursue Rule 11 sanctions. And J&J insists on bringing this motion, and pursuing sanctions, after the district court initially dismissed StorCon’s negligent misrepresentation claim without prejudice (which is precisely what StorCon agreed to in its brief). StorCon elected not to file an amended complaint within 20 days, which is the time period that the Court allotted. The fact that the case was dismissed with prejudice had nothing to do with the legal theories alleged, or the potential factual support for the claims; instead, it had only to do with the fact that StorCon declined to file an amended complaint within the 20 days that the court prescribed for amendment of pleadings.
Despite the absence of an amended complaint, J&J nevertheless persisted with its threats to StorCon’s counsel, demanding that he withdraw his client’s negligent misrepresentation claim with prejudice or face the specter of sanctions motions. When StorCon’s counsel did not comply with these demands, and maintained that the dismissal should simply remain without prejudice as the district court had ordered (upon StorCon’s lack of opposition), J&J filed its motion to dismiss the third-party complaint with prejudice. StorCon opposed the motion, but only insofar as it concerned the form of the dismissal, with StorCon continuing to argue that the dismissal was appropriately entered without prejudice in case.
The district court observed that it had given StorCon 20 days to amend, and had expressly advised that if StorCon failed to amend its claim within this period of time, that J&J could renew its motion to have the claims dismissed with prejudice. (Doc. 37, at 5.) The district court did not make any findings to indicate that StorCon’s third-party complaint was baseless; it simply dismissed the action with prejudice because that is what it found the circumstances dictated after StorCon declined to file an amended complaint. Moreover, although the district court dismissed the negligent misrepresentation claim with prejudice, the court expressly left the door open to any party rejoining J&J to the action “[i]f warranted by discovery . . . by asserting different claims.” (Doc. 50, at 5.)
J&J argues that the evidence that StorCon had in its possession made clear that the negligent misrepresentation claim was baseless, and the fact that StorCon knew it did not rely on J&J’s specifications in the construction of the silo compel a finding that sanctions are warranted. J&J also faults StorCon for arguing the merits of the action in its opposition to the sanctions motion, but we find no fault with what StorCon has done in its defense, which as we understand it is to detail some of the numerous reasons why its counsel was initially satisfied that bringing a third-party complaint to protect his client’s interests in this litigation was justifiable, and an appropriate step to ensure that StorCon did not forfeit a potential claim in a dispute where liability and respective fault was potentially complex and likely contested. Furthermore, as we will emphasize further, StorCon’s conduct in acceding to dismissal without prejudice – and in arguing that its right to bring claims in the future should be preserved – are not sanctionable under the facts of this case. These reasons persuade us that the motion should be denied.
In late 2012 and into 2013, Barry-Wehmiller contacted StorCon about supplying a silo system that would be operated by Dwight & Church to accommodate bentonite and limestone used in connection with the company’s production of cat litter. StorCon’s role was as a sales representative generating business for Imperial (Doc. 55, Ex. 1), and StorCon issued purchase orders to Imperial for the construction of the silo system.
At or around this same time, Church & Dwight retained J&J to serve as a consultant with respect to the silo project. As part of this work, J&J “generated design recommendations and load calculations for the binsert, cone-in-cone insert, to be constructed as part of the silo system.” (Doc. 55; id., ex. 2, at STOR00032 to 41.) As part of its work on the project, J&J conducted inspection of the silo system and the project site. (Doc. 55, Exs. 3, 4, 19.)
In January 2013, J&J had expressed some concern about the beams supporting the insert, which later failed, but nevertheless authorized the parties to proceed “with the functional design of the 300 ton limestone bin.” (Id., Ex. 5, BW00082 to 83.) On January 8, 2013, J&J circulated a draft design drawing, which was based upon support for a bulk density of 90 pounds per cubic foot (pcf). Under the “Design characteristics, ” the notes specified “Bulk density: 90 pcf (for capacity only).” (Id., Ex. 6, at BW00029.)
On January 23, 2013, J&J issued Report 11291-2, which reaffirmed the 90 pcf density specification. (Doc. 55, Ex. 10, at BW00056 to 64.) According to StorCon, it relied upon this report and issued a final purchase order on January 29, 2013, containing the material characteristic of 90 pcf. (Doc 55, Ex. 11.) The purchase order noted that ...