to act against Miller until the completion of the Internal Investigation, and an analysis of its results. It was also reasonable for Beneficial to offer to continue Miller's employment until such time. Under the circumstances, Beneficial's actions do not prove that it would not have terminated Miller because of her misconduct if it had learned of the misconduct earlier. There is therefore a triable issue as to whether Miller would have been terminated if Beneficial had known of her misconduct earlier during her employment; Beneficial should be afforded the opportunity to prove its case at trial.
Granting Beneficial leave to amend the Answer would not have resulted in prejudice to Miller or caused undue delay. Moreover, Beneficial's Proposed Amendments would not be futile. Therefore, there existed no basis for Judge Cavanaugh to deny Beneficial leave to amend the Answer to include the Proposed Amendments. See Foman, 371 U.S. at 182. Judge Cavanaugh's denial was "clearly erroneous and contrary to law." Gomez, 490 U.S. at 868. Accordingly, the 20 July 1993 Order is reversed to the extent that it denied Beneficial leave to amend the Answer.
C. Miller's Request for Sanctions
Miller's request for sanctions is two-fold: First, Miller requests attorneys' fees and costs incurred in opposing Beneficial's motion to amend the Answer before Judge Cavanaugh (the "First Request for Sanctions");
second, Miller requests attorneys' fees and costs incurred in opposing Beneficial's appeal of the 20 July 1993 Order (the "Second Request for Sanctions"). Opp. Brief at 22-23.
1. Standard for Imposing Sanctions under Rule 11
Rule 11 was amended in 1983 to give courts greater authority to impose sanctions in order to discourage wasteful and abusive tactics.
See Business Guides, Inc. v. Chromatic Communications Enters., Inc., 498 U.S. 533, 542, 112 L. Ed. 2d 1140, 111 S. Ct. 922 (1991); Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393, 110 L. Ed. 2d 359, 110 S. Ct. 2447 (1990); Lieb v. Topstone Indus., Inc., 788 F.2d 151, 157 (3d Cir. 1986). Thus, Rule 11 provides another exception to the traditional American rule requiring each litigant to bear its own costs and attorneys' fees. Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 247, 44 L. Ed. 2d 141, 95 S. Ct. 1612 (1975); Quiroga v. Hasbro, Inc., 934 F.2d 497, 504 (3d Cir. 1991); Doering v. Union County Bd. of Chosen Freeholders, 857 F.2d 191, 193 (3d Cir. 1988); Gaiardo v. Ethyl Corp., 835 F.2d 479, 483 (3d Cir. 1987). The Rule's primary purpose in providing for an award of attorneys' fees, however, is not "wholesale fee shifting but correction of litigation abuse." Gaiardo, 835 F.2d at 483; Quiroga, 934 F.2d at 504.
Consequently, sanctions are appropriate only in exceptional circumstances, such as when the "'claim or motion is patently unmeritorious or frivolous.'" Dura Systems, Inc. v. Rothbury Invest., Ltd., 886 F.2d 551, 556 (3d Cir. 1989) (quoting Doering, 857 F.2d at 194), cert. denied, 493 U.S. 1046, 107 L. Ed. 2d 838, 110 S. Ct. 844 (1990); see also Landon v. Hunt, 938 F.2d 450, No. 90-5856, slip op. at 7 (3d Cir. 19 July 1991); Napier v. Thirty or More Unidentified Fed. Agents, etc., 855 F.2d 1080, 1091 (3d Cir. 1988); Princeton Economics Group, Inc. v. AT&T, 768 F. Supp. 1101, 1116 (D.N.J. 1991). Where an abuse of the judicial system is found, Rule 11 sanctions are appropriate against the signer of the document, be it the attorney or the party. Business Guides, 498 U.S. at 543-46.
In deciding Rule 11 motions, the court must apply an objective standard of reasonableness under the circumstances existing at the time the paper was submitted. Chambers, U.S. at , 111 S. Ct. at 2134; Business Guides, 498 U.S. at 548; Eavenson, Auchmuty & Greenwald v. Holtzman, 775 F.2d 535, 541 (3d Cir. 1985). This is "a more stringent standard than the original good faith formula." Eavenson, 775 F.2d at 540. No proof of subjective bad faith is required to levy sanctions. Napier, 855 F.2d at 1091. Thus, "the Rule requires a reasonable inquiry into both the facts and the law supporting a particular pleading." Schering Corp. v. Vitarine Pharmaceuticals, Inc., 889 F.2d 490, 496 (3d Cir. 1989).
"The court must evaluate the signer's conduct 'by inquiring what was reasonable to believe at the time the pleading, motion, or other paper was submitted,' an evaluation which should depend on a variety of factors, including 'whether the pleading, motion, or other paper was based on a plausible view of the law.'" Dura Systems, 886 F.2d at 556 (quoting Rule 11 advisory committee note). Under this standard, "litigants misuse the Rule when sanctions are sought against a party or counsel whose only sin was being on the unsuccessful side of a ruling or judgment." Gaiardo, 835 F.2d at 483.
Applying these principles to the instant case, Beneficial was not unreasonable in bringing its motion to amend the Answer. Indeed, its motion should have been granted. Sanctions pursuant to Rule 11 were unwarranted.
2. Standard for Imposing Sanctions under 28 U.S.C. § 1927
Section 1927 of Title 28 permits a district court to impose an award of costs, expenses and attorneys' fees reasonably incurred as a result of conduct of an attorney which "multiplies the proceedings in any case unreasonably and vexatiously."
28 U.S.C. § 1927; see also McDonald v. McCarthy, 966 F.2d 112, 116 n.2 (3d Cir. 1992); Alexander v. Primerica Holdings, Inc., 819 F. Supp. 1296, slip op. at 37 (D.N.J. 25 Feb. 1993). To impose attorneys' fees under section 1927, the court must make a finding of bad faith. Hackman v. Valley Fair, 932 F.2d 239, 242 (3d Cir. 1991) (citing Ford v. Temple Hosp., 790 F.2d 342, 347 (3d Cir. 1986)). "Once a finding of bad faith has been made, the appropriateness of sanctions is a matter entrusted to the discretion of the district court." Hackman, 932 F.2d at 242.
In Baker Industries, Inc. v. Cerberus, Ltd., 764 F.2d 204 (3d Cir. 1985), the Circuit addressed the chilling effect of the imposition of sanctions. It stated: "'To justify the imposition of excess costs of litigation upon an attorney his conduct must be of an egregious nature, stamped by bad faith that is violative of recognized standards in the conduct of litigation. The section is directed against attorneys who willfully abuse judicial processes.'" Id. at 208 (quoting Colucci v. New York Times Co., 533 F. Supp. 1011, 1014 (S.D.N.Y. 1982)); accord Hackman, 932 F.2d at 242.
In Chambers, 501 U.S. 32, 111 S. Ct. 2123, 115 L. Ed. 2d 27, the Supreme Court held that a district court has inherent power to impose sanctions against parties for bad faith conduct. Id. at 2133-37. The Court explained that while statutory provisions for sanctions and attorneys' fees "reach only certain individuals or conduct, the inherent power extends to a full range of litigation abuses." Id. at 2134. Indeed, a court may impose sanctions pursuant to its inherent powers even if the conduct could be sanctioned pursuant to other procedural rules. Id. at 2135.
"A court must, of course, exercise caution in invoking its inherent power, and it must comply with the mandates of due process, both in determining that the requisite bad faith exists and in assessing fees." Id. at 2136. "[A] prerequisite for the exercise of the district court's inherent power to sanction is a finding of bad faith conduct." Landon v. Hunt, 938 F.2d 450, 454 (3d Cir. 1991).
There is no evidence to suggest that Beneficial acted in bad faith in moving to amend the Answer. Beneficial sought to add defenses which it reasonably believed to be viable. Compare Primerica Holdings, slip op. at 37 (sanctions imposed where argument in contravention to well-settled law). The court has confirmed Beneficial's belief in this regard. Therefore, sanctions under 28 U.S.C. § 1927 were unwarranted in this case.
As sanctions were not appropriate under either Rule 11 or 28 U.S.C. § 1927, Judge Cavanaugh's denial of Miller's request for attorneys' fees and costs was neither clearly erroneous nor contrary to law. Accordingly, that part of the 20 July 1993 Order which denied Miller's request for sanctions is affirmed; Miller's First Request for Sanctions is denied.
For the same reasons that Judge Cavanaugh's denial of sanctions is affirmed, Miller's Second Request for Sanctions is denied.
For the reasons set forth above, the part of the 20 July 1993 Order which denied Beneficial leave to amend the Answer is reversed; Beneficial is granted leave to amend the Answer to include the Proposed Amendments. Also for the reasons set forth above, the part of the 20 July 1993 Order which denied Miller sanctions is affirmed; Miller's request for sanctions in the instant appeal is denied.
Dated: 20 September 1993