Adams v. Trustees of New Jersey Brewery , 29 F.3d 863 ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
7-15-1994
Adams v. Trustees of New Jersey Brewery
Precedential or Non-Precedential:
Docket 93-5480
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 93-5480
___________
GUSTAV A. ADAMS; ANDREW F. DOPKINS;
and ROBERT MALCOLM, DECEASED, BY HIS EXECUTRIX LILLIAN MALCOLM;
v.
TRUSTEES OF THE NEW JERSEY BREWERY EMPLOYEES' PENSION TRUST FUND;
LOCAL UNION 843, INTERNATIONAL BROTHERHOOD OF TEAMSTERS;
FALSTAFF BREWING CORPORATION; and
JOSEPH M. BYRNE CO., A CORPORATION OF THE STATE OF NEW JERSEY
(Newark New Jersey District Civil No. 76-01931)
BRUNO MICHOTA; WALTER LEMKE;
ABRAHAM GELLMAN; LAWRENCE BALBACK; BOLLY BONK;
WILLIAM DUNNE; BERNARD KOSCIEWICZ; SIEGFRIED MILCHRAM;
HOWARD SEARS; STEPHEN GARDZINSKI; HARRY WOLF;
BRUNO DZIEDZIC; WILLIAM RIEDEL; SALVATORE GUARNERI;
SAMUEL MONTO; FERMIN LOMA; VINCENT SADOWSKI;
STANLEY KIESNOWSKI; ANTHONY BELLINA; FRANK PAVOLONIS;
WILLIAM ROESCH; MICHAEL DUDA; EDWARD STRITTMATTER;
FREDERICK HUBNER; PETER RUDY; HAROLD WANTHOUSE;
JOSEPH DUFFY; JOSEPH COYLE;
GRACE GREEN, WIDOW OF HAROLD GREEN, DECEASED
v.
ANHEUSER-BUSCH, INCORPORATED, (BUDWEISER);
P. BALLANTINE & SONS; PABST BREWING COMPANY;
FALSTAFF BREWING CORPORATION;
INVESTORS FUNDING CORPORATION; RHEINGOLD BREWERIES, INC.;
THE NEW JERSEY BREWERY EMPLOYEES' PENSION TRUST FUND;
HENRY T. HAMILTON; HERBERT V. JOHNSON; FRANK A. JACKIEWICZ;
FRANK SULLIVAN; HERBERT HEILMANN, JR.; HENRY TCHORZEWSKI;
BENNO MERKER; and ARTHUR SPINELLO, AS TRUSTEES OF
THE NEW JERSEY BREWERY EMPLOYEES' PENSION TRUST FUND
(Newark New Jersey District Civil No. 77-02543)
Pension Benefit Guaranty
1
Corporation ("PBGC"),
Appellant
_______________________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action Nos. 76-01931 & 77-02543)
___________________
Argued March 1, 1994
Before: STAPLETON and SCIRICA, Circuit Judges
and SMITH, District Judge*
(Filed July 15, 1994)
PATRICIA A. SCOTT-CLAYTON, ESQUIRE (Argued)
BERNARD P. KLEIN, ESQUIRE
Pension Benefit Guaranty Corporation
1200 K Street, N.W.
Washington, D.C. 20005
SUSAN C. CASSELL, ESQUIRE
Office of United States Attorney
970 Broad Street, Room 502
Newark, New Jersey 07102
Attorneys for Appellant,
Pension Benefit Guaranty Corporation
ROSEMARY ALITO, ESQUIRE (Argued)
EDWARD F. RYAN, ESQUIRE
Carpenter, Bennett & Morrissey
100 Mulberry Street
Three Gateway Center
Newark, New Jersey 07102
Attorneys for Appellee,
Anheuser-Busch, Inc. (Budweiser)
2
*The Honorable D. Brooks Smith, United States District Judge for
the Western District of Pennsylvania, sitting by designation.
3
JOHN J. RIZZO, ESQUIRE (Argued)
Stryker, Tams & Dill
Two Penn Plaza East
Newark, New Jersey 07105
Attorney for Appellee,
Pabst Brewing Company
__________________
OPINION OF THE COURT
__________________
SCIRICA, Circuit Judge.
After a four and one-half year hiatus, the Pension
Benefit Guaranty Corporation attempted to reopen its case against
Pabst Brewing Co. and Anheuser-Busch, Inc. for unfunded benefits
in a terminated pension fund. The district court dismissed the
case for lack of prosecution under Federal Rule of Civil
Procedure 41(b) and denied as untimely the PBGC's motion for
reconsideration.
The PBGC appeals contending the district court abused
its discretion in dismissing the case. The PBGC also claims its
motion for reconsideration was timely, and that due process
required notice and a hearing before dismissal.
We hold the district court correctly found the motion
for reconsideration was untimely, and that the PBGC received
adequate notice. Nonetheless, without considering the evidence
the PBGC proffered with its motion for reconsideration,
we find the district court should not have dismissed the case
with prejudice. We agree that the PBGC's behavior was negligent
4
and inexcusable, but think dismissal was too harsh a sanction.
Therefore we will remand for reinstatement of the case and
consideration of lesser sanctions.
I.
In 1956, Pabst, Anheuser-Busch, and other breweries
entered into an agreement with the New Jersey Brewers'
Association, the Brewery Workers Joint Local Executive Board of
New Jersey, and certain of its local unions to establish the "New
Jersey Brewery Workers Trust Fund" (the Fund). Each brewery
negotiated periodic collective bargaining agreements specifying
the amount it would contribute to the Fund, which was to provide
brewery workers' retirement pensions.
As employment in the brewing industry declined in the
late 1960s, the Fund's unfunded liabilities mounted, exceeding
$50 million by 1970. To protect its solvency and reduce the
actuarial deficit, the Fund's trustees adopted a Partial
Termination Clause, limiting benefits for participants whose
employers had withdrawn from the fund.
In 1973, Pabst and Anheuser-Busch (collectively, the
Breweries) withdrew from the Fund and set up separate funds for
their employees. Other breweries also withdrew throughout the
1970's. In 1978 the Fund was terminated and the PBGC was
appointed statutory trustee under Title IV of the Employee
Retirement Income Security Act (ERISA), 29 U.S.C. § 1342(b)&(c)
(1988).
Coinciding with the termination, 29 employees (the
Employees) sued Pabst, Anheuser-Busch, other breweries, the Fund,
5
its trustees, and the PBGC, for benefits under the Labor
Management Relations Act of 1947, 29 U.S.C. §§ 185 & 186 (1988 &
Supp. IV 1992), and ERISA, 29 U.S.C. §§ 1132, 1302, 1303 (1988 &
Supp. IV 1992). In 1979, the PBGC was substituted for the
Trustees, and the Employees added a fifth count solely against
the PBGC, seeking a declaration that the PBGC was required to
guarantee them certain nonforfeitable rights to pension benefits.
A class was certified for this count.
The PBGC filed cross-claims against Pabst, Anheuser-
Busch, and Rheingold (another brewery), seeking employer
indemnification under 29 U.S.C. § 1364 (1988 & Supp. IV 1992) for
benefits the PBGC might be required to pay employees under 29
U.S.C. § 1322.0 The PBGC filed a similar claim against Chock-
Full O'Nuts Corp., parent company of Rheingold.0 The Breweries
filed cross-claims against the PBGC seeking to recover or offset
0
Subject to a number of qualifications, 29 U.S.C. § 1322(a)
(Supp. IV 1992) provides that the PBGC will "guarantee . . . the
payment of all nonforfeitable benefits . . . under a single-
employer plan" in the event of its termination. "Single-employer
plans" include plans such as this one to which a number of
employers contribute, each pursuant to an individual collective
bargaining agreement with its respective employee organization.
See 29 U.S.C. § 1301(a)(3)&(b)(2) (1988).
Section 1364, "Liability of employers on termination of
plan maintained by more than one employer," assigns liability for
unfunded benefits of such single-employer plans to all employers
maintaining it or who made contributions to it in any of the five
years preceding its termination. It also provides that the PBGC
will determine the liability of each employer and gives the
formula for so doing. The formula essentially divides the plan's
unfunded benefits among all employers in proportion to what each
employer should have contributed during the plan's last five
years of operation. Id. § 1364 (1988 & Supp. IV 1992).
0
Claims between the PBGC and Rheingold and Chock-Full O' Nuts
were later dismissed by stipulation.
6
their liability to the PBGC because of payments into both the
Fund and the individual corporate plans.
All parties filed summary judgment motions. On
September 22, 1980, the district court granted summary judgment
to the Employees against the PBGC on the fifth count, holding
that the Partial Termination Clause was invalid; and granted
summary judgment against the Employees on all their other claims.
Michota v. Anheuser-Busch, Inc., 526 F. Supp. 299 (D.N.J. 1980).
Thus, all causes of action by the Employees against the Breweries
were disposed of, but the Employees' claims against the PBGC
continued, as did the cross-claims between the PBGC and the
Breweries.
On appeal, we reversed the district court only on the
summary judgment for the Employees on the fifth count, holding
the Partial Termination Clause was not void. We remanded,
however, for determination of whether the Employees received
proper notification of the clause. Adams v. New Jersey Brewery
Employees' Pension Trust Fund, 670 F.2d 387 (3d Cir. 1982).
After discovery on the notice issue, the PBGC and the
Employees renewed their summary judgment motions, and the
Breweries filed for summary judgment to dismiss the PBGC cross-
claims for statutory employer indemnification. Because ERISA was
not enacted until 1975, the Breweries claimed that statutory
employer liability was not meant to apply to employers who had
withdrawn from the Trust Fund in 1973, and in the alternative,
that such liability would violate the Due Process Clause.
7
On October 7, 1983, after the case was transferred to
another judge, the district court granted the Employees' summary
judgment motion on the fifth count, holding they did not receive
adequate notice of the Partial Termination Clause. The court
denied Pabst and Anheuser-Busch's summary judgment motions,
ruling that liability was appropriate under 29 U.S.C. § 1364 and
the Due Process Clause. The court certified the issues for
interlocutory review.
On a second appeal, we reversed the grant of summary
judgment for the Employees, holding they received adequate
constructive notice of the Partial Termination Clause as a matter
of law. Michota v. Anheuser-Busch, Inc., 755 F.2d 330, 332 (3d
Cir. 1985). We declined to address the certified questions, and
remanded "for a final determination of the employers' liability
on the PBGC's cross-claim for any remaining unfunded portions of
the Brewery Pension Fund." Id. at 336.
On October 1, 1986, the district court granted the
PBGC's motion to dismiss the Breweries' cross-claims against the
PBGC for reduction of their statutory liability based on their
payments to the Employees through their corporate pension plans.
The court also denied the Breweries' motion for reconsideration
of their due process objection to liability under 29 U.S.C.
§1364.
In January, 1987, after the case was transferred to yet
another judge, the Employees again raised their claims for
guaranteed benefits from the PBGC. The court held we had ruled
with finality that the Partial Termination Clause defeated those
8
claims, and granted summary judgment to the PBGC against the
Employees. Michota v. Anheuser-Busch, Inc., C.A. No. 77-2543
(D.N.J.March 17, 1988) (Memorandum Opinion and Order). We
affirmed by judgment order, October 4, 1988. Adams v. Trustees of
the New Jersey Brewery Employees' Pension Trust Fund, No. 88-5305
(3d Cir. Oct. 4, 1988) (judgment order).
Following our affirmance, the only claims remaining
were the PBGC's cross-claims against the Breweries for employer
indemnification. From October, 1988 to March, 1993 there was no
contact among the parties and the court, although the PBGC
engaged in limited, informal discovery with third parties on
these claims. In December, 1992, the PBGC contacted the district
court and was informed by the clerk that the case had been
administratively closed. On March 19, 1993, the PBGC moved to
reopen the case, seeking summary judgment against the Breweries.
Without explaining the four and one-half year break in pursuing
its claims, the PBGC contended the only remaining issue in the
case was the amount of the Breweries' liability and described how
that liability should be calculated. In response, Anheuser-Busch
argued that the case should be dismissed under Federal Rule of
Civil Procedure 41(b), noting that the court could do so sua
sponte and discussing the relevant factors for dismissal. Pabst
included in its letter response a form for an order denying the
PBGC's motion to reopen and dismissing the case with prejudice.
Neither party, however, formally moved for dismissal with
prejudice.
9
In reply, the PBGC argued that the court should regard
the administrative closure of the case as a clerical mistake and
reopen under Rule 60(a). The PBGC responded to some of the
Breweries' assertions -- whether the PBGC was inappropriately
seeking relief under Civil Procedure Rule 60(b) (relief from a
final judgment) and whether the case had in fact already been
dismissed -- but did not explain its delay in prosecution,
contending that a dismissal under Rule 41(b) would be
inappropriate because it had not failed to comply with any
procedural rules or court orders, and that the defendants had not
moved for dismissal.
On June 7, 1993, the district court dismissed the
PBGC's claims under Rule 41(b). Noting that the PBGC had given
no explanation for its dilatory conduct, the court said that for
equitable reasons it would sua sponte treat the defendants'
motions and responses as a 41(b) motion to dismiss for lack of
prosecution. Acknowledging that a dismissal for lack of
prosecution was a harsh sanction because it operates as an
adjudication on the merits, the court evaluated the case in light
of the six factors set forth in Poulis v. State Farm Fire &
Casualty Co., 747 F.2d 863 (3d Cir. 1984), and found all factors
pointed toward dismissal except the factor evaluating the merits
of the PBGC's case.
On June 24, 1993, the PBGC filed a motion under Federal
Rule of Civil Procedure 59(e) for alteration or amendment of the
dismissal order. The PBGC submitted an explanation of the delay
in prosecution, describing how the case was shifted from one
10
overloaded attorney to another, and documented a small amount of
"informal discovery" during the hiatus, consisting of a few
letters between the PBGC and consultants or fund managers. The
court denied the motion as untimely, noting that Rule 59(e)'s
ten-day time limit was jurisdictional. The court also stated
that had the motion been timely, it would have affirmed its prior
holding, having found nothing in the proffered arguments and
documents giving cause for reconsideration.
The PBGC filed a timely notice of appeal.
II.
The district court had jurisdiction of the PBGC's ERISA
employer liability claim against the Breweries under 29 U.S.C.
§1303(e)(3). The court's dismissal of that claim and its denial
of the motion for reconsideration are final orders. We have
jurisdiction under 28 U.S.C. § 1291.
The motion for reconsideration was denied because a
jurisdictional time limit had expired. We exercise "plenary
review of the district court's choice and interpretation of
applicable tolling principles," Sheet Metal Workers Local 19 v.
2300 Group, Inc., 949 F.2d 1274, 1278 (3d Cir. 1991), and of
jurisdictional decisions by the district court, Anthuis v. Colt
Indus. Operating Corp., 971 F.2d 999, 1002 (3d Cir. 1992). The
question of whether due process required formal notice and a
hearing before dismissal is also subject to plenary review.
Gregoire v. Centennial Sch. Dist., 907 F.2d 1366, 1370 (3d Cir.),
cert. denied, 498 U.S. 849 (1990).
11
We review the dismissal for failure to prosecute under
Rule 41(b) for abuse of discretion. "The question, of course, is
not whether [the Supreme] Court, or whether the Court of Appeals,
would as an original matter have dismissed the action; it is
whether the District Court abused its discretion in so doing."
National Hockey League v. Metropolitan Hockey Club, 427 U.S. 639,
642 (1976) (per curiam). While we defer to the discretion of the
district court, we are mindful that dismissal with prejudice is
only appropriate in limited circumstances: "Because [an order of
dismissal] deprives a party of its day in court, our precedent
requires that we carefully review each such case to ascertain
whether the district court abused its discretion in applying such
an extreme sanction," Scarborough v. Eubanks, 747 F.2d 871, 875
(3d Cir. 1984), and in this review "doubts should be resolved in
favor of reaching a decision on the merits," id. at 878.
III.
Rule 59(e) requires a motion for reconsideration
to "be served not later than 10 days after entry of the
judgment." Fed. R. Civ. P. 59(e). Rule 6(a) provides that in
computing any time period under the Rules of Civil Procedure, the
day of the event from which the designated period of time begins
to run shall not be included, nor shall intermediate Saturdays,
Sundays, or legal holidays, if the period is less than eleven
days. Rule 6(b) provides that the time limit of Rule 59(e) may
not be judicially extended; as we have explained, the ten-day
period "is jurisdictional, and cannot be extended in the
12
discretion of the district court." Welch v. Folsom, 925 F.2d
666, 669 (3d Cir. 1991) (internal quotations omitted).
The district court's order denying the PBGC's motion to
reopen the case and dismissing it with prejudice was dated May
25, 1993, and docketed June 7. The PBGC served a "Motion to
Alter or Amend the Judgment" under Rule 59(e), with accompanying
affidavits and documents, on June 24. Not counting weekend days,
ten days after June 7 would be June 21. Therefore, the June 24
service by PBGC was not timely.0
The PBGC argues that Rule 6(e) extended the deadline by
three days, rendering its motion timely. Rule 6(e) provides:
Whenever a party has the right or is required
to do some act or take some proceedings
within a prescribed period after the service
of a notice or other paper upon the party and
the notice or paper is served upon the party
by mail, 3 days shall be added to the
prescribed period.
Fed. R. Civ. P. 6(e) (emphasis added). The PBGC claims that
since they were "served" the judgment of the court by mail, the
rule applies to extend the period.
The Rule 6(e) extension is inapplicable here. Rule
59(e) gives the right to move for reconsideration "not later than
10 days after entry of the judgment." (Emphasis added.) Thus,
the period for bringing the 59(e) motion begins with "entry of
judgment." Rule 6(e) only extends time limits that begin with
0
The district court apparently considered the date the PBGC's
59(e) motion was docketed, June 28, rather than the date of
service, June 24, as the relevant event to end the 59(e) period.
However, the error was harmless since, as shown above, June 24
also falls outside the time limit.
13
"service of a notice or other paper upon the party." See, e.g.,
Fed. R. Civ. P. 12(a)(1)(A) (requiring defendant's service of
answer "within 20 days after being served with the summons and
complaint").
This facial reading is explicitly supported by our
caselaw. In Sonnenblick-Goldman Corp. v. Nowalk, 420 F.2d 858(3d Cir. 1970), a party claimed the time limit for his Rule 59(e)
motion should be extended by three days under Rule 6(e). He
asserted "that since the Clerk notified the parties by mail of
entry of the judgment, he should have had three additional days
within which to serve the motion." Id. at 860. We stated, "it
appears that filing of a motion such as defendant's [59(e)
motion] is not conditioned upon notice of entry of judgment," and
concluded 6(e) did not apply. Id.IV.
The PBGC argues in the alternative that the dismissal
violates due process, or constitutes an abuse of discretion,
because there was no formal notice or hearing. We find the PBGC
had adequate notice of the dismissal, and forewent its
opportunities to respond.
Link v. Wabash R.R., 370 U.S. 626, 632 (1962) gives
guidance on notice and hearings prior to 41(b) dismissals. Link
sued Wabash Railroad in U.S. district court in 1954 after his car
collided with a Wabash train. After three years he prevailed
against Wabash's motion for judgment on the pleadings, and a
trial date was set but then vacated by the court. In 1959, after
three years of little activity, the court initiated a hearing to
14
show cause why it should not dismiss. Deciding to retain the
case, the court set a trial date for July, 1959, which it later
vacated at the defendant's request. More interrogatories were
exchanged, and a pre-trial conference was set for October, 1960.
On the day of the conference, Link's lawyer called and said he
was in another city doing other work, and asked that the
conference be rescheduled. The court declined, and dismissed the
case with prejudice for failure of plaintiff's counsel to appear
and failure to prosecute as an exercise of its inherent power.
Id. at 627-29.
The Supreme Court affirmed, stating that a court could
dismiss sua sponte under Rule 41(b). The Court further held that
"the absence of notice as to the possibility of dismissal or the
failure to hold an adversary hearing" does not "necessarily
render such a dismissal void." Id. at 632. It explained:
It is true, of course, that the fundamental
requirement of due process is an opportunity
to be heard upon such notice and proceedings
as are adequate to safeguard the right for
which the constitutional protection is
invoked. But this does not mean that every
order entered without notice and a
preliminary adversary hearing offends due
process. The adequacy of notice and hearing
respecting proceedings that may affect a
party's rights turns, to a considerable
extent, on the knowledge which the
circumstances show such party may be taken to
have of the consequences of his own conduct.
The circumstances here were such as to
dispense with the necessity for advance
notice and hearing.
Id. (internal quotations and citations omitted). The Court also
stated that the availability of relief from judgment for mistake,
15
excusable neglect, etc., under Rule 60(b), which the plaintiff
had not sought, "renders the lack of prior notice of less
consequence." Id.The circumstances in Link showing the plaintiff should
have known it risked dismissal included three years of
inactivity, a motion from the court to show cause why the case
should not be dismissed after three years of inactivity, the
plaintiff's failure to answer interrogatories, and, on the day of
dismissal, the plaintiff's attorney's missing a pretrial
conference. Id. at 629 n.2, 634-35 n.11. Under these
circumstances, an attorney should be on notice that dismissal may
ensue, so that advance notice is not required, especially where
Rule 60(b) provides an "escape hatch" by allowing the reopening
of cases inadvisedly closed. Id. at 632.
While the harshness of dismissal with prejudice
generally counsels giving formal notice in advance, the PBGC had
adequate opportunity to defend itself against dismissal without
such formal notice. Before dismissal, the PBGC did not engage in
problematic behavior like the Link plaintiff: there had been no
previous hearing to show cause why the court should not dismiss,
the PBGC had met discovery requests, and it did not miss any
court appointments. But other factors clearly warned the PBGC it
risked dismissal: Anheuser-Busch's brief argued for 41(b)
dismissal and went through the 6-factor Poulis analysis, and
Pabst included a draft of a dismissal order in its response to
the motion to reopen. Even if these factors alone did not put
the PBGC on notice, the balance is tipped by the availability of
16
the Rule 59(e) motion. After the court's order of dismissal, the
PBGC had the opportunity to present its explanation of the delay
in a motion to alter or amend the judgment of dismissal under
Rule 59(e). Like the plaintiff in Link, the PBGC did not avail
itself of this escape hatch.0 Having foregone this opportunity,
the PBGC cannot claim it was denied due process or that the court
abused its discretion because of a lack of notice and hearing.
Notwithstanding, the PBGC argues that we should extend
it the right to notice and a hearing before dismissal under
Dunbar v. Triangle Lumber & Supply Co., 816 F.2d 126, 129 (3d
Cir. 1987). We disagree. In Dunbar, observing no evidence
implicating the client in the attorney's dilatory behavior and
bad faith, we expressed concern over the trend of dismissal of
legal actions for dereliction of duty by counsel. To protect
litigants, we held that any motion to dismiss by court or counsel
"based on an apparent default on the part of litigant's counsel"
be pleaded with particularity and with supporting material, and
that "where the papers demonstrate reasonable grounds for
dismissal on that basis the court shall direct the clerk of the
court to mail notice directly to the litigant of the time and
place of a hearing on any such motion." Id. at 129. This is to
"put the client on notice of possible jeopardy to his or her
legal interests by counsel's conduct at a time when the client
0
The motion filed outside of the jurisdictional time limit was as
good as no motion at all. There is irony in a party's seeking to
explain why its delay in prosecuting a case is excusable rather
than dilatory, but missing the deadline for making the
explanation.
17
can take appropriate action and when the Poulis balance has not
been irretrievably struck in favor of the moving party." Id.The PBGC argues that without Dunbar protection, parties
with in-house counsel, such as the government, will unfairly
suffer dismissal without the formal warning given to parties with
outside counsel. However, Dunbar specifically establishes
special procedural protection for parties with outside counsel in
order to benefit the client that had no part in, and no knowledge
of, its attorney's delinquent behavior. Where a client had or
should have had independent knowledge of the delinquency that was
the grounds for dismissal, we have held notice and hearing are
not required. See Comdyne I, Inc. v. Corbin, 908 F.2d 1142,
1147 (3d Cir. 1990) (no Dunbar proceedings required where
plaintiff had been personally sanctioned for misconduct and had
issued certifications contesting dismissal); Curtis T. Bedwell &
Sons, Inc. v. International Fidelity Ins. Co., 843 F.2d 683, 693
(3d Cir. 1988) (no Dunbar proceedings required where plaintiff
present at hearings regarding attorney's misconduct and possible
sanctions). Without formal notice and hearing, a responsible
client might be unaware that its attorney is risking dismissal; a
party with in-house counsel, however, is deemed to be aware of
how its case is proceeding, and of circumstances indicating
dismissal may be imminent. The PBGC, represented by in-house
counsel, is held to have known whatever its agents, including its
attorneys, knew. It merits no further notice than that required
in Link.
18
Because the PBGC has already had (and failed to use)
adequate opportunity to present its excuses on the delay, we will
not consider the affidavits and documents it submitted with its
motion for reconsideration. We do not, however, accept Pabst's
contention that we should also refuse to consider the legal
arguments against dismissal the PBGC now raises on appeal. While
"[w]e can consider the record only as it existed at the time the
court below made the order dismissing the action," Jaconski v.
Avisun Corp., 359 F.2d 931, 936 n.11 (3d Cir. 1966), the party is
not required to test its legal arguments before the district
court in a Rule 59(e) motion before making them on appeal. We
have discretion to hear not only arguments but also claims raised
for the first time on appeal, Singleton v. Wulff, 428 U.S. 106,
121 (1975).
V.
In evaluating whether the district court abused its
discretion in dismissing with prejudice, our review is "guided by
the manner in which the trial court balanced [six] factors . . .
and whether the record supports its findings." Poulis, 747 F.2d
at 868. The six factors are:
(1) the extent of the party's personal
responsibility;
(2) the prejudice to the adversary caused by
the failure to meet scheduling orders and
respond to discovery;0
(3) a history of dilatoriness;
(4) whether the conduct of the party or the
attorney was willful or in bad faith;
0
In evaluating Rule 41(b) dismissals, we look more generally for
"[p]rejudice to the other party." Scarborough, 747 F.2d at 876.
19
(5) the effectiveness of sanctions other
than dismissal, which entails an analysis of
alternative sanctions; and
(6) the meritoriousness or the claim or
defense.
Poulis, 747 F.2d at 868.
The district court thoroughly considered all of the six
Poulis categories, and found all except meritoriousness indicated
dismissal. We likewise will consider each factor in turn.
1. The party's personal responsibility
a.
Although a party may justly suffer dismissal "because
of his counsel's unexcused conduct," Link, 370 U.S. at 633, we
"have increasingly emphasized visiting sanctions directly on the
delinquent lawyer, rather than on a client who is not actually at
fault." Carter v. Albert Einstein Medical Ctr., 804 F.2d 805,
807 (3d Cir. 1986); see also Burns v. MacMeekin, 722 F.2d 32, 35
(3d Cir. 1983) (holding district court must consider alternative
remedy to dismissal, because "[t]he brunt of the order [to
dismiss] falls on plaintiffs, who have been deprived of the
opportunity to litigate their case on the merits, when the only
culpable party may be their attorney."). Thus, in determining
whether dismissal is appropriate, we look to whether the party
bears personal responsibility for the action or inaction which
led to the dismissal.
b.
The district court held the PBGC personally
responsible, explaining, "[t]his is not the sympathetic situation
20
of an innocent client suffering the sanction of dismissal due to
dilatory counsel whom it hired to represent it." Michota v.
Anheuser-Busch, Inc, C.A. No. 77-2543, slip op. at 7 (D.N.J. May
25, 1993). We agree. The PBGC is personally responsible for
delay by its in-house counsel.
We do not accept the PBGC's argument that because it
administers a pension guarantee program in which employers
participate, we should consider the employers' lack of personal
responsibility for the delay. The PBGC contends that because
those employers pay premiums into a common fund that backs
pension funds, they will have to pay higher premiums to cover the
loss if the PBGC cannot prosecute this case. The focus on a
party's personal responsibility, the PBGC argues, is to protect
innocent parties such as these participants in ERISA's Title IV
program, so for their sake dismissal is inappropriate.
While it may be true that the PBGC's loss would
eventually be passed on to parties who were not responsible, the
personal responsibility criterion does not aim to protect all
innocent victims from dismissal of a case. If it did, a vast
range of parties could claim immunity from dismissal to prevent
suffering to third parties. Carter and Dunbar aim to protect
clients who try their best to litigate cases properly, but are
thwarted by their attorneys' delinquent behavior. Where, as
here, a party is personally responsible for failure to prosecute,
the effect of dismissal on third parties cannot be dispositive.
2. Prejudice to adversary
a.
21
Evidence of prejudice to an adversary "would bear
substantial weight in support of a dismissal or default
judgment." Scarborough, 747 F.2d at 876. Examples of prejudice
include "the irretrievable loss of evidence, the inevitable
dimming of witnesses' memories, or the excessive and possibly
irremediable burdens or costs imposed on the opposing party."
Id. Prejudice also includes deprivation of information through
non-cooperation with discovery, and costs expended obtaining
court orders to force compliance with discovery. Bedwell, 843
F.2d at 693. Prejudice need not be "irremediable harm that could
not be alleviated by [the] court's reopening discovery and
postponing trial." Id. (internal quotation marks omitted)
(alteration in original).
b.
The district court held that the defendants would be
prejudiced by the amount of interest they would have to pay on
their liability, which would exceed the liability itself, and by
the difficulty of mounting a defense so long after the events at
issue. We cannot agree.
Interest paid on money owed does not amount to
prejudice, but rather represents the value of possession of the
money by the debtor. It is the amount the Breweries should have
made on their money if they had kept it prudently invested during
these 17 years. If the resolution of this case is that they had
no right to the money in the first place, neither do they have
right to the value they have gained from it while the case was
litigated.
22
The argument that the delay will prejudice the
Breweries' defense, though not meritless, is ultimately
unconvincing. The PBGC claims the determination of the
employer's statutory liability for unfunded portions of the
Brewery Pension Fund involves computing, as of the date of plan
termination, the value of the plan's assets and the participants'
guaranteed benefits, and determining Anheuser-Busch's and Pabst's
proportionate share of liability for the unfunded benefits. See
supra note Error! Bookmark not defined.. The PBGC asserts that
if there are any genuine issues of material fact, the evidence
will be computational or documentary.
The Breweries contend that each side will call expert
witnesses and fact witnesses, including the Fund's actuary, to
testify on the status and investments of the Fund in the 1970s
before and after termination. They would also reargue their
claims regarding the applicability of ERISA to employers who
withdrew from a fund before ERISA's enactment.
We do not see much if any prejudice resulting from the
delay. The Breweries do not challenge the PBGC's
characterization of the computation process, which is a records-
based determination. Expert witnesses would only comment on
evidence; there should be no problem with dimmed memories.
Similarly, fact witnesses would rely primarily on records to
describe the fund's history. The Breweries have claimed neither
that any records have been lost, nor that their discovery is
incomplete. Even if trial had taken place in 1988 after our last
ruling, the case still would have turned on events over a decade
23
old -- the Breweries' withdrawal in 1973 and the Fund's
termination in 1977. Finally, we note that the Breweries'
principal contentions are statutory and constitutional arguments
on whether ERISA properly applies to them, and these could be
made at any time.
It is possible the Breweries may suffer some prejudice
from this delay, in the form of additional costs or lost
information. But there has been no testimony to this effect, and
such prejudice, if it exists, would be minor and appropriately
addressed by more modest sanctions than dismissal.
3. History of dilatoriness
a.
Extensive or repeated delay or delinquency constitutes
a history of dilatoriness, such as consistent non-response to
interrogatories, or consistent tardiness in complying with court
orders. Poulis, 747 F.2d at 868; Comdyne I, 908 F.2d at 1148.
On the other hand, "sloppiness" while an attorney is moving
offices that results in untimely response to two court orders and
a late retention of local counsel does not amount to "a pattern
of deliberate dilatory action," Donnelly v. Johns-Manville Sales
Corp., 677 F.2d 339, 343 (3d Cir. 1982), and "inexcusable"
lateness of one or two weeks in meeting four court deadlines is
not a "default comparable to Poulis," where the plaintiff was
non-responsive and tardy, Scarborough, 747 F.2d at 875.
Furthermore, a party's problematic acts must be
evaluated in light of its behavior over the life of the case. In
Dyotherm Corp. v. Turbo Machine Co., 392 F.2d 146 (3d Cir. 1968),
24
we overturned a dismissal for want of prosecution, despite
Dyotherm's failure to inform the court of its activities as
requested, its late and unprepared appearance at trial without
its key witness, and its failure to produce an adequate excuse
for the witness's absence. While acknowledging the inexcusable
behavior of plaintiff's counsel, we noted, among other mitigating
factors, that there was no indication of dilatory tactics during
the first two and a half years in which the case was litigated.
Id. at 149.
b.
The district court found that "[t]he history of
dilatoriness also favors dismissal," and said it was at a loss to
understand why the PBGC had stopped prosecution so abruptly or
why it began again after so long. Michota, slip op. at 8. We
agree the failure to prosecute for more than four years amounts
to a history of dilatoriness.
Four and one-half years is a significant and
inexcusable delay, and could constitute grounds for dismissal
under Rule 41(b):
"[F]ailure to prosecute" under the Rule 41(b)
does not mean that the plaintiff must have
taken any positive steps to delay the trial
or prevent it from being reached by operation
of the regular machinery of the court. It is
quite sufficient if he does nothing, knowing
that until something is done there will be no
trial.
Bendix Aviation Corp. v. Glass, 32 F.R.D. 375, 377 (E.D. Pa.
1962), aff'd 314 F.2d 944 (3d Cir.) (per curiam), cert. denied,
375 U.S. 817 (1963).
25
This history of dilatoriness weighs toward, but does
not mandate, dismissal. The delay here is not on the scale of
that in Bendix, where the case lay dormant for 11 years, id. at
376, nor was there dilatoriness as in Bedwell, where the
plaintiff repeatedly and strategically delayed and disobeyed
court orders. Bedwell, 843 F.2d 683 (3d Cir. 1988). There has
been no dispute that the PBGC has met all deadlines and court
dates during the course of the litigation. Under Dyotherm the
four and one-half year delay is somewhat mitigated by the PBGC's
ten years of responsible litigation.
26
4. Was the attorney's conduct
willful or in bad faith?
a.
In evaluating a dismissal, this court looks for "the
type of willful or contumacious behavior which was characterized
as `flagrant bad faith,' in National Hockey League, [427 U.S. at
643]." Scarborough, 747 F.2d at 875; see also Poulis, 747 F.2d
at 866. In National Hockey League, the district court dismissed
the case after 17 months in which the plaintiffs failed to answer
crucial interrogatories despite numerous extensions, and broke
promises and commitments to the court. The Supreme Court
approved the dismissal as a proper response to such behavior.
Willfulness involves intentional or self-serving
behavior. In Donnelly, when the plaintiff's case was transferred
from Texas to New Jersey, he was tardy meeting court orders to
obtain New Jersey counsel. We held the plaintiff's difficulties
did not amount to an inability to comply, but rather, "[a]t best
. . . show[ed] a failure to move with the dispatch which the
notice and order to show cause required, and provide[d] no basis
for exculpation of plaintiff's Texas counsel on the grounds of
inability." Donnelly, 677 F.2d at 342. Noting, however, that
the Texas lawyer had timely attempted to locate local counsel, we
also held, "no willfulness is mirrored in the record." Id. at
343 (internal quotation omitted). Thus, tardiness not excused
for inability is not necessarily willful. See also Scarborough,
747 F.2d at 875 (where attorney filed all required papers, albeit
some tardily, behavior was not willful or contumacious); c.f.
27
Bedwell, 843 F.2d at 695 (where plaintiff and attorney did not
comply with court orders and discovery requests without plausible
excuses and delay appeared to be calculated, district court
properly found conduct willful, not merely negligent).
b.
The district court considered that it had received no
explanation from the PBGC regarding the four and one-half year
hiatus, no suggestion that intervening events had prevented the
PBGC from prosecuting the case, and no hint that the PBGC had
done anything except some limited discovery since the Court of
Appeals ruled in 1988. It inferred from this "at least an
absence of a good faith effort to prosecute and a willful failure
to act." Michota, slip op. at 8. The PBGC argues that the court
was improperly presuming willfulness or contumacity.
While there may have been an absence of a good faith
effort to prosecute, this does not necessarily amount to
willfulness or bad faith as this court has defined it. The
behavior here was different from the contumacious behavior in
National Hockey League or Bedwell, where there were repeated and
self-serving instances of flouting court authority and
professional irresponsibility. Rather, there is a resemblance to
Donnelly, as circumstances here also "show a failure to move with
the dispatch" reasonably expected of a party prosecuting a case.
Donnelly, 677 F.2d at 342. We will not call the PBGC's delay
willful as there is no indication it was strategic or self-
serving. Rather, it is a prime example of inexcusable negligent
behavior.
28
5. Alternative sanctions
a.
Before dismissing a case with prejudice, a district
court should consider alternative sanctions. In Titus v.
Mercedes Benz, 695 F.2d 746, 748-49 (3d Cir. 1982), the district
court dismissed the case after the plaintiffs repeatedly failed
to prepare a draft pretrial order. On appeal, we stated,
"district courts should be reluctant to deprive a plaintiff of
the right to have his claim adjudicated on the merits," id. at
749, and held the district court was required to consider
sanctions other than dismissal, id. at 750, and record its
findings, id. at 751. If further findings supported a dismissal
with prejudice, the court could reinstate the dismissal with
prejudice. Id.; id. at 754 (Fullam, J., concurring). In other
cases, we have remanded for consideration of alternative
sanctions with a bar on dismissal. See, e.g., Donnelly, 677 F.2d
at 344; Carter, 804 F.2d at 808.
b.
The district court considered and rejected alternative
sanctions. While it noted it could charge the PBGC for the costs
the Breweries incurred because of the delay, the court reasoned
this would not compensate for the prejudice to the Breweries or
the harm to the efficient administration of justice.
It has not been shown, however, that the Breweries'
case has been seriously compromised. Rather, we have found the
delay caused no significant prejudice to the defendants. Among
other sanctions, favorable treatment for defendants on
29
evidentiary issues affected by the delay, if there are any, and
payment of attorneys' fees and/or costs to the Breweries related
to the delay might be appropriate here. And while we join the
district court's condemnation of the PBGC's irresponsibility
toward the judicial process, we believe lesser sanctions will
chasten effectively without the extreme result of "depriv[ing]
the plaintiff of the right to have [its] claim adjudicated on the
merits." Titus, 695 F.2d at 749.
6. Meritoriousness of the claim
a.
The standard of meritoriousness when reviewing a
dismissal is moderate:
[W]e do not purport to use summary judgment
standards. A claim, or defense, will be
deemed meritorious when the allegations of
the pleadings, if established at trial, would
support recovery by plaintiff or would
constitute a complete defense.
Poulis, 747 F.2d at 869-870. Where a plaintiff makes out a prima
facie case, but the defendant raises a prima facie defense, the
factor may not weigh in favor of the plaintiff. Id. at 870.
b.
The district court found the facial meritoriousness of
the PBGC's claims to be the one Poulis factor weighing against
dismissal. Pabst concedes this facial meritoriousness, although
both Pabst and Anheuser-Busch reiterate their statutory and
constitutional arguments against the applicability of ERISA.
We agree with the district court that the PBGC's claims
are facially meritorious. The district court rejected the
30
Breweries' statutory and constitutional defenses to liability. We
then denied a request for interlocutory review, and denied the
Breweries' motion for reconsideration and granted the PBGC
summary judgment on the Breweries' cross-claims to reduce their
ERISA liability. We remanded the case "for a final determination
of the employers' liability on PBGC's cross-claim for any
remaining unfunded portions of the Brewery Pension Fund." Michota
v. Anheuser-Busch, Inc., 755 F.2d at 336. Although Pabst argues
that the district court can undo its previous decision on
retroactive liability, the Breweries do not cite any new rulings
on the issue.0 Because of the facial strength of the PBGC's
case, the meritoriousness factor weighs heavily against
dismissal.0
0
Rather, they refer to general language from Henglein v. Informal
Plan, 974 F.2d 391 (3d Cir. 1992), and dicta from Concrete Pipe
and Prods., Inc. v. Construction Laborers Pension Trust, 113 S.
Ct. 2264, 2293 (1993) (O'Connor, J., concurring), on retroactive
application of ERISA. Neither authority resolves this issue, or
even applies directly.
0
The parties argue at length over whether, in light of two pre-
Poulis cases, the strength of the PBGC's case controls the
decision regarding dismissal. In Glo Co. v. Murchison & Co., 397
F.2d 928 (3d Cir. 1967) (per curiam), aff'd on rehrg., 397 F.2d
929 (3d Cir. 1968) (per curiam), cert. denied, 393 U.S. 939(1968), an action commenced in 1954 was dismissed after an order
to show cause in 1963. Although we noted that a dismissal
"certainly seems justified by the inaction of counsel in failing
to move for trial after repeated warnings," we reversed because
"there appears to be no dispute that an amount of money is owed
to plaintiff under the contracts in suit." Id. at 929. Glo Co.
was followed in Spering v. Texas Butadiene & Chem. Co., 434 F.2d
677 (3d Cir. 1970), cert. denied, 404 U.S. 854 (1971), where an
attorney sued a former client in 1965 for payment for services
rendered between 1954 and 1964. The defendants denied his claims
except for services rendered after February, 1964. Id. at 678.
After a year of litigation, the plaintiff did virtually nothing
in the case for three years, and the court dismissed in 1969. Id.
at 680. We found there had been no abuse of discretion and
31
VI.
Having considered the evidence before the district
court when it dismissed this action with prejudice, we find the
affirmed the dismissal, but also ruled that, because there was no
dispute over the defendant's debt to plaintiff for services in
1964, the plaintiff should be allowed to pursue that claim. We
then noted, without elaboration, that the "unusual nature of the
circumstances" of Glo Co. was not present in Spering. Id. at
681.
Glo Co. and Spering do not purport to set out a rule,
and at any rate the facts in this case are different in a
critical way. Here, unlike in Glo Co. and Spering, the
defendants have not admitted liability. We also note that those
cases pre-date Poulis, and should not be taken to indicate that a
court need not consider all six Poulis factors. We do, however,
endorse the general principle of Glo Co. and Spering, that where
a party contesting dismissal has a strong case, the
meritoriousness factor weighs more heavily in its favor.
The PBGC makes an additional argument regarding
meritoriousness, that "absent truly extraordinary circumstances,
no meritorious statutory claim of the federal government should
be dismissed without prior warning." Brief for Appellants at 42.
It points to Fed. R. Civ. P. 55(e), which bars default judgments
against the United States "unless the claimant establishes a
claim or right to relief by evidence satisfactory to the court",
and the doctrine that the government is not subject to the
defense of laches, see, e.g., United States v. Gera, 409 F.2d
117, 120 (3d Cir. 1969).
We cannot agree. As Pabst points out, the reference to
Rule 55(e) proves too much. Rule 55 governs default judgments,
and specifically excuses the government from its application
under certain circumstances. By contrast, Rule 41(b) specifies
no exceptions for the government. It is hard to avoid the
implication that there is, then, no such exception to Rule 41(b).
Furthermore, this court and others have found Rule
41(b) applicable to government agencies in the past. For
example, in Livera v First Nat'l State Bank, 879 F.2d 1186, 1193-
94 (3d Cir.), cert. denied, 493 U.S. 937 (1989), we remanded a
41(b) dismissal of a claim by the Small Business Administration
to the district court because the court had not applied the
Poulis factors, and instructed the district court to determine
whether dismissal was appropriate. Id. at 1196; see also, e.g.,
Securities & Exchange Comm'n v. Power Resources Corp., 495 F.2d
297, 298 (10th Cir. 1974) (affirming district court dismissal
under Rule 41(b) of S.E.C. action for failure to prosecute).
32
sum of the six Poulis factors weighs against dismissal with
prejudice, so that dismissal did not constitute the sound
exercise of discretion. In a close case, "doubts should be
resolved in favor of reaching a decision on the merits."
Scarborough, 747 F.2d at 878. While we agree with the able and
experienced district judge that the PBGC bears personal
responsibility for the delay in prosecution, and also that there
was a history of dilatoriness, these are outweighed by the
absence of significant prejudice to the adversary and lack of
willfulness or bad faith on the part of the PBGC, by the
availability of alternative sanctions, and by the meritoriousness
of the PBGC's claim.0 We share the frustration of the district
court at the PBGC's irresponsible conduct, and acknowledge the
court's thoughtful consideration of the many factors relevant to
the issue of dismissal. However, "[d]ismissal must be a sanction
of last, not first, resort," Poulis, 747 F.2d at 869, and in this
case lesser sanctions should be applied.
We will vacate the order of the district court and
remand for reinstatement of the PBGC's claims and for the
imposition of sanctions other than dismissal as appropriate.
0
We have previously overturned a default judgment against a
defendant on the same three grounds. In Gross v. Stereo
Component Sys., Inc., 700 F.2d 120 (3d Cir. 1983), we vacated the
judgment "[b]ecause no prejudice accrued to the plaintiff, a
potentially meritorious defense was available to the defendant,
and defendant's conduct in failing to timely answer was not
willful." Donnelly is also similar to the instant case: after
finding neither willfulness by the attorney, prejudice to the
adversary, nor personal responsibility on the part of the client
with regard to the tardiness in finding local counsel, we ordered
reinstatement of the case and consideration of lesser sanctions.
Donnelly, 677 F.2d at 344.
33
Each side to bear its own costs.
34