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General Refractories Company v. Fireman's Fund Insurance Company

July 24, 2003

GENERAL REFRACTORIES COMPANY; GREFCO, INC.
v.
FIREMAN'S FUND INSURANCE COMPANY; GILBERG & KIERNAN; ANDREW BUTZ GENERAL REFRACTORIES COMPANY, APPELLANT



Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 01-cv-05810) District Judge: Honorable John R. Padova

Before: Rendell, Ambro and MAGILL,*fn1 Circuit Judges.

The opinion of the court was delivered by: Rendell, Circuit Judge

PRECEDENTIAL

Argued March 10, 2003

OPINION OF THE COURT

General Refractories Company (GRC) appeals the dismissal with prejudice of its claims of abuse of process and civil conspiracy against the law firm of Gilberg & Kiernan and one of its attorneys, Andrew Butz, Esq. We agree with the District Court that the Complaint failed to state a claim, under Pennsylvania law, for abuse of process, but conclude that it abused its discretion in denying GRC leave to amend the Complaint as to that claim. We further disagree with the District Court that the judicial privilege necessarily would insulate the attorney appellees from liability for abuse of process. Finally, we agree with the District Court that the "intracorporate conspiracy doctrine" immunized the attorney appellees from liability for civil conspiracy. We therefore will affirm in part and reverse in part, and remand to the District Court for further proceedings.

I. Background

GRC once manufactured heat-resistant material, used in the construction of high temperature facilities, that contained asbestos. Since that time, it has been the target of a number of asbestos-related personal injury suits. Fireman's Fund Insurance Company ("Fireman's Fund" or FFIC) is an insurance company that issued an excess insurance policy to GRC for a three-year period covering October 1971 to October 1974, with a one-month extension for November 1974.

The operative facts of this case stem from litigation initiated in April, 1998 by GRC against Fireman's Fund, in the Court of Common Pleas of Pennsylvania, Philadelphia County (hereinafter referred to as the "State Court Litigation" or, by the District Court, as the "Insurance Coverage Action"), wherein GRC alleged that Fireman's Fund refused to comply with the three-year excess blanket liability insurance policy. Fireman's Fund asserted that the policy had a total coverage limit of $5,000,000, while GRC asserted that the policy had three annual coverage limits of $5,000,000 per year. GRC claimed breach of contract, breach of fiduciary duty, and bad faith, and sought a declaratory judgment and monetary relief. Appellees — Gilberg & Kiernan and one of its lawyers, Andrew Butz (hereinafter referred to as "attorney appellees") — initially represented Fireman's Fund in the notably contentious State Court Litigation. See generally General Refractories Co. v. Fireman's Fund Insur. Co., 45 Pa. D. & C. 4th 159, 164 (Pa. Com. Pl. Phila. Co. 2000), aff 'd in (pertinent) part, 806 A.2d 469 (Pa. Super. Ct.) (table).

The case before us arises from allegedly tortious acts, committed by Fireman's Fund and the attorney appellees, that were the subject of a motion for sanctions filed by GRC against Fireman's Fund in the State Court Litigation. In the motion, GRC alleged that Fireman's Fund, Gilberg & Kiernan, and Butz committed an array of discovery and other litigation abuses. After receiving testimony and argument for four days, the court agreed with GRC that Fireman's Fund and the attorney appellees' "conduct... was intentional, inexcusable, and warrant[ed] severe sanctions." General Refractories Co., 45 Pa. D. & C. 4th at 164. The Court's view regarding the defendant's actions is summarized in the following finding:

The sad history of defendant's discovery responses in this case reveals a clear pattern of delay, stonewalling, deception, obfuscation and pretense. Defendant intentionally withheld critical documents, ignored court orders, permitted false testimony at depositions and misrepresented facts to opposing counsel and the court. The defendant, through its employees, its house counsel and its engaged litigation counsel participated in an intentional campaign to hide critical facts and documents. At every stage of discovery, reasonable and relevant requests have been met by incomplete responses, unreasonable objections, unfounded claims of privilege and intentionally incomplete "privilege" logs. Whenever plaintiff sought court intervention additional documents were "found," "voluntarily produced" and the privilege log expanded.... Amidst hundreds of such insignificant, nonsensical or unintelligible pages, are material and significant submissions that demonstrate that the defendant engaged in an intentional effort to obstruct legitimate discovery by using the claim of privilege. Defendant has attempted to hide discoverable documents, in an attorney's file, and have [sic] used an overly broad, clearly untenable, theory of "privilege" to conceal the knowledge, activity and intent which form the very basis of this bad faith lawsuit. The purportedly privileged material demonstrates a strategy antagonistic to their insured including discussion of bad faith, delaying payment, and admissions of fiduciary obligations.

Id. at 166-67. By order dated April 20, 2000, the Court imposed a number of sanctions, including the revocation of Gilberg & Kiernan and Butz's pro hac vice admission, a fine of $126,897.91 payable to the City of Philadelphia, the payment of GRC's costs and attorney's fees in bringing the motion for sanctions, a 120-day extension of discovery, a blanket waiver of Fireman Fund's right to assert privilege as to a large number of documents, and a directive that Fireman's Fund supplement and correct its prior responses to GRC's discovery requests. Id. at 171-72. The Court noted that it imposed only the "minimum sanction that accomplishes the goal of correcting discovery abuses, restor[ing] the case to proper discovery course, appropriately punishes recalcitrant behavior and deters future obstreperous conduct by the defendant." Id. at 170. On appeal, the Superior Court of Pennsylvania largely upheld all of the sanctions imposed, except for the blanket waiver of privilege. General Refractories Co. v. Fireman's Fund Insur. Co., 806 A.2d 469 (Pa. Super. Ct.) (table).

While the appeal was pending, GRC brought a separate suit in the Common Pleas Court against Fireman's Fund, Gilberg & Kiernan, and Andrew Butz (together referred to as "the defendants"), complaining of the actions of Fireman's Fund and the attorney appellees during the State Court Litigation and seeking recovery of damages. The defendants removed the case to the District Court for the Eastern District of Pennsylvania.

The Complaint's allegations largely replicate the Common Pleas Court's findings in the sanctions proceeding. Nevertheless, because we are asked to analyze the sufficiency of the Complaint, we find it necessary to highlight the exact wording of many of these allegations, specifically that the defendants engaged in the following conduct: "[a] clear pattern of delay, stonewalling, deception, obfuscation and pretense;" "[i]ntentionally withholding critical documents;" "[i]gnoring court orders;" "[t]estifying falsely at depositions, with litigation counsel fully aware of the false testimony;" "[m]isrepresenting facts to the Court and opposing counsel;" "[p]articipating, through FFIC employees, its house counsel and litigation counsel, in an intentional campaign to hide critical facts and documents;" "[p]roviding incomplete responses, unreasonable objections, unfounded claims of privilege and intentionally incomplete privilege logs in response to reasonable and relevant [requests];" "[u]sing an overly broad, clearly untenable theory of privilege to conceal the knowledge, activity and intent which formed the basis of the Insurance Coverage Action;" "[a]ctively hiding highly probative documents while moving for summary judgment on the issues to which the hidden documents related;" "[u]sing hidden documents during a deposition of a representative of GRC;" "[l]instigation counsel falsely suggesting he did not previously know of the hidden documents when their existence was finally disclosed;" "[c]ontinuing to locate hundreds of documents that should have been produced or put on privilege logs, each time claiming that they had just been 'found;' " "[e]ngaging in obdurate conduct, including actions demonstrating an attempt to obstruct the discovery process;" "[f]ailing to timely seek a stay of court orders while an appeal was pending, while at the same time refusing to comply with those orders;" "encouraging witnesses to provide false and misleading testimony;" and "encourag[ing] and convinc[ing] FFIC to change [its] position [toward the insurance policy coverage] and to breach FFIC's contractual duties to GRC." According to the Complaint, the defendants engaged in this conduct for various reasons, including "to further the interests of FFIC," "to obtain an unfair litigation advantage," "to delay FFIC having to pay any money to GRC," to "drain GRC's resources and delay the litigation," "to keep GRC from discovering their agreements and actions," and "to defeat the claims of GRC at any cost." The Complaint also alleges that Fireman's Fund, individually, "used the discovery and litigation processes for purposes of harassment and delay."

Based on these averments, GRC sought recovery under five distinct causes of action. In count I, GRC alleged that Fireman's Fund committed insurance bad faith under title 42, section 8371 of the Pennsylvania Consolidated Statutes. In count II, it alleged that Fireman's Fund breached a fiduciary duty owed to GRC. In count III, it alleged that the defendants violated the Pennsylvania common law's prohibition against abuse of process. In count IV, it alleged that the attorney appellees tortiously interfered with GRC's contract with Fireman's Fund. In count V, it alleged that the defendants engaged in a civil conspiracy to violate the Pennsylvania bad faith statute and to abuse process. Altogether, GRC sought damages totaling $497,588 — the total attorney's fees and costs they allege they have incurred due to the discovery abuses (but not the alreadyreimbursed fees for costs related to bringing the motion for sanctions).

The defendants filed motions to dismiss all counts against them for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The District Court granted Gilberg & Kiernan and Butz's motion in whole and Fireman's Fund's motion in part. See General Refractories Co. v. Fireman's Fund Ins. Co., No. 01-CV-5810, 2002 WL 376923 (E.D. Pa. Feb. 28, 2002). The Court denied Fireman's Fund's motion to dismiss count I, the bad faith claim, and also denied its motion as to count II, the breach of fiduciary duty claim, ruling that that claim would go forward as a claim for breach of the duty of good faith and fair dealing. Id. at *3. The Court granted each Defendant's motion to dismiss count III, the abuse of process claim, and count V, the civil conspiracy claim. Id. at *4, *7. The Court also granted the attorney appellees' motion to dismiss count IV, the tortious interference claim. Id. at *6. GRC moved for reconsideration, leave to amend the abuse of process claim, or, in the alternative, an order under Federal Rule of Civil Procedure 54(b) allowing it to bring an immediate appeal as to the attorney appellees. The Court denied reconsideration and refused to grant leave to amend, but granted the Rule 54(b) motion.

On appeal, GRC challenges the Court's decision to dismiss the abuse of process and civil conspiracy claims, as well as its denial of leave to amend, but has chosen not to appeal the dismissal of the tortious interference claim. In dismissing the abuse of process claim, the District Court held that the Complaint failed to state a cause of action for abuse of process and further found that, in any event, judicial privilege would have insulated the defendants from liability for many of their actions, id. at *4, and that granting leave to amend would be futile. In dismissing the civil conspiracy claim, the Court concluded that the "intracorporate conspiracy doctrine" insulated the attorney appellees from liability. Id. at *6. GRC challenges all of these rulings, while the attorney appellees not only contend that the District Court's rulings were proper, but additionally argue that the abuse of process claim could have been dismissed because it failed to contain any allegations that they used "legal process" as required to recover under the tort.*fn2

We conclude that, although the District Court correctly determined that the Complaint does not contain the necessary allegations to state a cause of action for abuse of process, the District Court interpreted abuse of process in Pennsylvania too narrowly and, therefore, should have granted GRC leave to amend its Complaint. We also reject the attorney appellees' argument that GRC failed to allege properly that they used a "legal process," and we conclude that the District Court too broadly interpreted the application of the judicial privilege in Pennsylvania. Lastly, ...


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