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In re Tutu Wells Contamination Litigation

July 22, 1997










On Appeal From the United States District Court of the Virgin Islands

Division of St. Thomas (D.C. Civ. No. 89-cv-00107)

Before: BECKER, SCIRICA, and ALITO, Circuit Judges.

BECKER, Circuit Judge.

Filed July 22, 1997

Argued: March 11, 1997


This is an appeal from an order of the district court imposing heavy sanctions upon a law firm, several of its partners, and its client for discovery violations in connection with a large environmental lawsuit. The client, Esso, is charged in the underlying complaint with having poisoned "the wells" in the Estate Tutu area in the eastern end of St. Thomas by releasing from the Esso Tutu service station petroleum hydrocarbons and chlorinated hydrocarbons into the Tutu aquifer which supplies drinking water to much of the east end of the island. The discovery abuse primarily involves the alleged suppression by Esso's former counsel in the litigation, the San Juan, Puerto Rico law firm of Goldman, Antonetti, Ferraiuoli & Axtmayer, of a report by Jose Agrelot, a professional engineer, summarizing the results of soil and liquid tests he had performed at the Esso Tutu site in December 1989. The suppression of this report is claimed to have dramatically increased the discovery time and expense for other parties in connection with their prosecution of the case. There are also other alleged, though less aggravated, instances of obdurate discovery-related behavior.

What specially marks this case is the character and magnitude of the sanctions imposed. Eschewing the auspices of Fed. R. Civ. P. 37, which authorizes sanctions for failure to make disclosure or cooperate in discovery, the district court imposed the challenged sanctions under its inherent power. The sanction imposed on the lawyers was suspension from practice in the District Court of the Virgin Islands: Jose Cepeda and Francis Torres for three years, and Eugenio Romero for one year. The sanction imposed upon Esso was the payment of $750,000 to a "Community Service Sanction Account" to be utilized to fund construction of a halfway house on St. Thomas, the training of inmates, and renovation of the St. Thomas Criminal Justice Complex. The sanction imposed upon Goldman Antonetti was the payment of $250,000 to the Community Service Sanction Account (for the same purpose), and the sum of $120,000 as counsel fees and costs ($30,000 incurred by each of four moving parties for time they spent in connection with the sanctions proceedings themselves). Esso was similarly assessed a sanction of $30,000 to be paid to each of four other movants, but Esso has paid that sum and does not challenge it on this appeal.

Goldman Antonetti, its three named partners, and Esso appeal the sanctions imposed against them on a variety of grounds. The parties who were awarded sanctions to compensate them for the time expended in the sanctions hearings have cross-appealed, alleging that they are entitled to sizable additional sanctions for discovery misconduct that caused harm in other phases of the lawsuit, and that the district court abused its discretion in summarily dismissing these other sanctions requests on the grounds that the moving papers were insufficiently specific. Finally, several parties against whom Esso has brought claims for contribution in the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") aspect of the underlying district court proceeding (that is all that remains, since the common law claims have been settled) have cross-appealed from the district court's refusal to dismiss those claims as a sanction against Esso for its discovery misconduct.

We will vacate the suspensions imposed upon Cepeda, Torres, and Romero for procedural reasons. They did not receive notice prior to the sanctions hearing that suspension was being considered as a possible sanction. Concomitantly, they did not have the opportunity to properly defend against such a sanction and introduce mitigating evidence. As a result, the court's imposition of sanctions against Cepeda, Torres, and Romero violated due process requirements.

We will also vacate the provision of the district court's order requiring Esso and Goldman Antonetti to pay a total of $1,000,000 to the Community Service Sanction Account. The court simply had no power to order Esso and Goldman Antonetti to pay money to benefit the St. Thomas penal system.

We do, however, affirm the sanction of $120,000 against Goldman Antonetti. Although Goldman Antonetti has made quite forceful arguments that its discovery misconduct with respect to the Agrelot summary memo could not have caused all of the costs and expenses claimed by the movants, particularly in view of its having disclosed the 800 pages of technical material on which the memo was based, we cannot say, reviewing the record as a whole, that the district court abused its discretion in awarding sanctions of $120,000. We also reject Goldman Antonetti's contention that it is relieved of the obligation to pay this sanction by a release by which several of the parties gave up claims against Esso and its attorneys. The district court did not clearly err in concluding that the language in the release was not broad enough to cover Goldman Antonetti, Esso's former attorneys, and that the context of the release did not suggest otherwise.

We are also satisfied that the district court did not abuse its discretion in refusing to award additional sanctions because of the failure of the movants to provide papers adequate to assess the harm caused by the violation. District courts, which are extremely busy, should not be burdened with re-inventing the wheel in incredibly complex litigation in order to sort out voluminous sanctions claims.

The foregoing threshold summary effectively disposes of all appeals except the cross-appeals seeking dismissal of the claims for contribution. However, we do not have appellate jurisdiction over these cross-appeals. Because our review of that aspect of the district court's order would necessarily involve an analysis of the merits of the underlying dispute and because the district court's order is reviewable only after final judgment, we do not have jurisdiction over this non-final order under the only potentially viable basis therefor -- the collateral order doctrine. See Cohen v. Beneficial Indus. Loan Co., 337 U.S. 541 (1949). We note in this regard that this aspect of the case differs from the appeal of Goldman Antonetti. Under Eavenson, Auchmuty & Greenwald v. Holtzman, 775 F.2d 535 (3d Cir. 1985), we have appellate jurisdiction over an order that finally resolves the imposition of sanctions against attorneys no longer in the underlying case. We also review those aspects of the appeal not brought by, but inextricably intertwined with, the issues raised by Goldman Antonetti, i.e., Esso's contentions pertaining to the Community Service Sanction Account and the claims of other parties pertaining to the level of monetary sanctions awarded them, under the doctrine of pendent appellate jurisdiction. See Kershner v. Mazurkiewicz, 670 F.2d 440 (3d Cir. 1982).

We would prefer to be able to adjudicate the cross-appeals concerning the contribution claims because we have spent a great deal of time both in brief reading and at oral argument in familiarizing ourselves with the case. However, as a court of limited jurisdiction, we do not dispose of matters that are not properly the subject of appellate jurisdiction. We also do not encourage aSection(s) 1292(b) certification because the complexion of the issues involved in these other appeals may change as matters proceed before the district court. The extraordinarily able district judge, who has been adroitly managing this complex and vexatious case for a number of years now, may be able, by subsequent rulings, to put these matters in a sufficiently different light as to render them susceptible to more facile disposition down the road.


A. Background And Overview

In the summer of 1987, a water well owner noticed the smell of gasoline emanating from his well. He contacted local environmental officials who, with the help of the federal government, began an investigation into possible contamination of the Tutu aquifer. Investigators discovered the presence of gasoline and chlorinated organics in the aquifer. Government officials thereafter closed many of the wells.

The discovery of the contamination led to a number of private lawsuits. Detailed explication of the anatomy of the various suits is unnecessary; it is sufficient to note that the private litigation seeks to assign responsibility for the contamination between and among a number of possible contaminators, including but not limited to two automobile service stations, an automobile dealer, a shopping plaza, a dry cleaner, and a former textile plant. That private litigation also includes claims for contribution under CERCLA. The parties in the litigation include both possible contaminators and businesses and landowners allegedly harmed by the contamination. *fn1 The law firm of Goldman, Antonetti, Ferraiuoli & Axtmayer ("Goldman Antonetti") represented Esso for much of the period in question but no longer does so. *fn2

Discovery began in 1989. During this discovery, Esso and Goldman Antonetti employed practices the district court found to be sanctionable. In its three opinions regarding the sanctions, the district court grouped the discovery violations into three categories. First, the court found that Esso and its attorneys engaged in a strategy that kept the various other parties in the litigation from obtaining needed information in a timely fashion. See In re Tutu Wells Contamination Litig., 162 F.R.D. 46, 70-71 (D.V.I. 1995) [hereinafter "Tutu I"]. Without delving into the specifics of individual abuses, the court noted that Esso and Goldman Antonetti met many discovery requests with legal tactics intended to delay, oppress, or harass their opponents. Often, Esso and Goldman Antonetti would refuse to turn over requested documents until forced to do so by court order. According to the court, the level of judicial involvement in the discovery process was consequently unusually high, requiring the court unnecessarily to devote significant resources to resolving ordinary discovery disputes.

Second, the court focused on the handling of the so-called Agrelot memorandum. In December 1989, Soil Tech, a company that specializes in environmental analyses of soil, took samples from the soil at the Esso Tutu Service Station ("ETSS") and from liquid in a holding tank at ETSS. Soil Tech sent those samples to the Environmental Testing and Certification Corp. ("ETC") for analysis. ETC returned the results of the investigation to Soil Tech shortly thereafter. The results revealed some contamination. Jose Agrelot, President of Soil Tech, received the preliminary results and summarized them in a memorandum, which he forwarded to Goldman Antonetti in anticipation of a meeting in January 1990. ETC produced the final results of the testing shortly after the meeting had occurred. Agrelot testified that he discussed the memorandum with attorneys at Goldman Antonetti, including Jose Cepeda and Francis Torres. It is not clear from the record, however, whether Cepeda ever actually saw the Agrelot memorandum at that time. The results were also discussed at a May, 1990 meeting at which Eugenio Romero was present along with Cepeda, Torres, and Agrelot, among others.

Although for the most part the Agrelot memorandum merely summarized the information contained in the ETC findings, the memorandum did include a map pinpointing the locations of the soil borings from which the tested soil was taken. It appears from the record that, without the Agrelot memorandum, someone examining the ETC data could not determine with precision the location of the borings. The record does, however, give some indication that there is enough information in the ETC supporting data that was made available to determine that the ETC analyzed soil from ETSS rather than from some other location above the Tutu aquifer. Esso and its attorneys produced the full ETC report on which the Agrelot memorandum was based. *fn3

However, neither Esso, Goldman Antonetti, nor Soil Tech turned over the Agrelot memorandum during discovery until October 1993. Prior to that time, various parties had specifically requested all reports generated from soil and groundwater testing in the Tutu area, but the responses to such requests, either signed by or reviewed by Esso employees or Goldman Antonetti attorneys, made no mention of the Agrelot memorandum. The reasons for this omission are not clear. Lawyers from Goldman Antonetti testified that the Agrelot memorandum had been indexed incorrectly in their computer database; Agrelot himself testified that the memorandum had been labeled incorrectly and therefore misfiled in his office. The district court found that the failure to produce the Agrelot memorandum was intentional. See Id. at 65-66. At all events, only after Agrelot had searched his files in the fall of 1993 to assist Esso in negotiating a case management order did he find the memorandum and turn it over to Esso, who revealed it to its new counsel Archer & Greiner. It was Archer & Greiner that finally notified the other parties of its existence.

The third category of violations occurred in connection with an attempted inspection underneath the surface of the ETSS site. In particular, the plaintiffs wished to determine whether an underground storage tank was located on the site, and also to trace the pipes leading out of the oil/water separator located on the site. The parties refer to this aspect of the discovery as the "anomaly investigation." In May, 1992, the plaintiffs employed ground penetrating radar ("GPR") to examine the area beneath the ETSS. The GPR turned up an anomalous shadow in the corner of the site, possibly indicating the presence of an underground storage tank. Esso claimed that the GPR produced a false result because of interference from overhead power lines or from a reinforcing bar in a nearby retaining wall. The magistrate judge ultimately ordered an excavation of the site to determine once and for all if such a tank existed. It did not.

Excavation of the site was to occur in accordance with the magistrate judge's order. However, according to the district court, Esso failed to comply with this order. See Id. at 52-53. Instead, Esso began the excavation after a delay of several hours and did not have the necessary tools or machinery ready for the investigation. Further, Esso did not adequately conduct the pipe tracing phase of the investigation. This failure led to months of wrangling among the parties and between Esso and the court until Esso finally conducted the investigation to the satisfaction of the court, nearly 10 months after the investigation was scheduled to be completed.

B. The District Court's Opinions and Orders

In three separate opinions, the district court discussed its findings with respect to these violations and issued orders imposing sanctions for them. In the first of the three opinions, the court began by detailing the anomaly investigation, see id. at 51-54, and the Agrelot memorandum affair, see id. at 54-62. The court went on to describe briefly the sources of law on which it planned to rely in imposing sanctions: its inherent powers; Federal Rules of Civil Procedure 11, 26(g), and 37; and 28 U.S.C. Section(s) 1927. See id. at 62-63. The court next found that the failure to produce the Agrelot memorandum was not inadvertent and that this failure was non-responsive to discovery requests, notwithstanding the fact that the ETC data on which the memorandum relied was actually produced. See id. at 65-71.

Finally, the court examined the possible sanctions. It observed that monetary awards for the fees and costs associated with the attempts to find evidence of the release of contaminants from the ETSS, the investigation costs resulting from the failure to produce the Agrelot memorandum, and the fees and costs incurred as part of the sanctions proceedings were all potentially recoverable. See id. at 72-73. After reviewing the controlling case of Poulis v. State Farm Fire & Cas. Co., 747 F.2d 863 (3d Cir. 1984), the court reasoned that dismissal of Esso's CERCLA contribution claims against the other parties was also possible. See id. at 73-78. It concluded its discussion of possible sanctions by finding that Cepeda, Romero, and Torres could be sanctioned for their role in the discovery violations. See id. at 78-80.

Instead of imposing sanctions at that time, the court ordered that Esso, Goldman Antonetti, Cepeda, Romero, and Torres show cause why the court should not sanction them for their actions. The court also provided the parties with the opportunity to negotiate a mutual resolution of the monetary sanctions prior to the hearing to show cause. See id. at 81.

In its next opinion on the matter, the court disposed of motions from Esso, Goldman Antonetti, Cepeda, Romero, and Torres seeking clarification, reconsideration, and modification of its earlier orders. First, the court disposed of claims that its hearings with respect to sanctions were conducted without due process. The court engaged in a detailed review of the orders, discussions, and hearings leading up to the sanctions proceedings and concluded that, taken together, the process provided ample notice of and opportunity to be heard regarding the sanctions faced by the various parties. See In re Tutu Wells Contamination Litig., 162 F.R.D. 81, 83-88 (D.V.I. 1995) [hereinafter "Tutu II"]. Next, the court held that the moving parties had produced no evidence sufficient to warrant a reexamination of its earlier factual findings. See id. at 88-89. Finally, the court rescribed its earlier holding that the actions of the moving parties prejudiced the other parties. See id. at 90-91. Esso, Goldman Antonetti, Cepeda, Romero, and Torres therefore still were required to show cause why monetary sanctions and dismissal of claims should not be imposed on them. See id. at 91.

In its third and final opinion on the matter, the court decided what sanctions to impose on each of the parties. It began by finding that neither Esso, Goldman Antonetti, Cepeda, Romero, nor Torres had shown sufficient cause for the court not to impose some sanction on each of them. See In re Tutu Wells Contamination Litig., 166 F.R.D. 331, 334-39 (D.V.I. 1996) [hereinafter "Tutu III"]. Instead, the court found that severe sanctions were merited. Because of the need to impose such severe sanctions, the court decided to rely exclusively on its inherent power to sanction. See id. at 337. As for non-monetary sanctions, the court first held that dismissing the CERCLA contribution claims would be inappropriate because doing so would place too great a burden on Esso to clean up the contamination of the aquifer (the court apparently believed that other parties shared responsibility for the contamination). Instead, the court reasoned that monetary sanctions would be adequate to achieve the goals of sanctioning. See id. at 339-40. Next, the court suspended Cepeda, Romero, and Torres from practicing before the District Court of the Virgin Islands. See id. at 339-41. *fn4 Cepeda and Torres received three-year suspensions. Because of contrition expressed to the court, Romero received a suspension of only one year. See id. at 341.

As for monetary sanctions, the court declined to award substantial sanctions in favor of the parties to the lawsuit (who had been unable to settle the monetary sanctions). See id. at 341-45. The parties to whom sanctions might be paid had submitted their requests for fees and costs to the court for review. The court found, however, that the submissions, which were voluminous but quite generalized, failed to make clear the basis for the parties' claims and failed to provide records sufficient to justify the requested awards as sanctions. Instead of examining the submissions line-by-line, which the court did not feel obliged to do given the failure of the parties to be sufficiently specific, the court denied the bulk of the requests. See id. at 342-43. However, the court did believe that some sanction was warranted. It held that the costs associated with the sanctions proceedings themselves would be an appropriate sanction. To determine those costs, the court, expressing admiration for the stewardship of Nancy D'Anna, counsel for L'Henri, used the submissions of L'Henri as a model.

L'Henri sought approximately $30,000 as costs for the sanctions proceedings. The court decided that such an award was reasonable, and awarded all eight parties seeking monetary sanctions $30,000 each. See id. at 344. Because Esso and Goldman Antonetti were equal partners in the discovery violations, the court reasoned, each should bear equally the burden of the sanction. See id. Therefore, the court ordered Esso to pay $30,000 each to Ramsay Motors, L'Henri, PID/Harthman, and Vernon Morgan. See id. Since Esso had already negotiated a settlement with these four parties as to monetary sanctions, and paid them a total of approximately $170,000, the court considered this portion of Esso's sanction to be satisfied. See id. at 344 n.13. The court ordered Goldman Antonetti to pay $30,000 each to the other movants, Four Winds, the Laga Defendants, Western Auto, and Texaco. See id. at 344.

Finally, the court determined that additional sanctions against Esso and Goldman Antonetti were required. See id. at 345-52. Recognizing that it was adopting a novel approach to sanctioning, the court ordered Esso to pay $750,000 and Goldman Antonetti to pay $250,000 to a Community Service Sanction Account that would be used to fund construction of a halfway house on St. Thomas, the training of inmates, and renovation of the St. Thomas Criminal Justice Complex. See id. The court opined that the parties truly harmed by the contamination of the Tutu aquifer and the delay in resolving responsibility over the contamination were the citizens of the Virgin Islands. Therefore, the most appropriate beneficiary of a sanction award, it reasoned, would be the Virgin Islands itself. And, because the Criminal Justice Center was in such great need of additional resources, it would be, the court believed, a suitable project towards which the funds could be directed.

C. Anatomy of the Appeals

These appeals ensued. The following is a capsule summary of those appeals. Esso and Goldman Antonetti appeal the court's decision to use its inherent powers to require that they pay a total of $1,000,000 towards the Criminal Justice Center. Goldman Antonetti also appeals the imposition of the $120,000 monetary sanction payable to the other parties in the case. Cepeda, Romero, and Torres appeal their suspensions from practicing law in the Virgin Islands. Four Winds, L'Henri, Vernon Morgan, PID/Harthman, Ramsay Motors, and Texaco appeal the court's decision to award only $30,000 to each of them as a sanction from either Esso or Goldman Antonetti; all of these parties argue that they are entitled to additional awards. Neither the Laga Defendants nor Western Auto has appealed, though Western Auto argues that should we determine that parties are entitled to additional sanctions, it should be similarly entitled. *fn5 The Department of Justice of the Virgin Islands has submitted an amicus curiae brief urging us to uphold the sanction award directed towards the Criminal Justice Center.

Some aspects of our appellate jurisdiction over this matter are complicated. Because our jurisdiction in this case depends on the particular aspect of the appeal that we are examining, we will discuss ...

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