NOT PRECEDENTIAL

U N IT E D STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

No. 04-4071

*Gwendolyn Dashner, John Hirko, Sr., Kristin Fodi,

and Tuan Hoang, by, through, and with their

Attorney of Record, **John P. Karoly,

Appellants

v. JOSEPH EDWARD RIEDY, Individually,

a n d the CITY OF BETHLEHEM

S L O V IT E R , Circuit Judge.

T h is case highlights the delays, disruptions and squandering of judicial resources th a t can be the byproduct of opposing counsels' failure to maintain a courteous re la tio n s h ip throughout a litigation. Plaintiffs (here, inclusive of counsel Karoly) appeal a n order of sanctions imposed under 28U.S.C. § 1927 for costs and fees incurred due to d e la ys in finalizing a settlement of a wrongful death suit against the city of Bethlehem, P e n n s ylv a n ia , and several of its officials and police officers. Plaintiffs argue, inter alia, that the District Court erred in denying their motion for reconsideration because they were n e v e r served with the motion for sanctions, and therefore, their failure to respond to that m o tio n was excusable neglect. They argue that the imposition of sanctions violated their d u e process rights because they were never afforded a hearing or an opportunity to r e sp o n d to the defendants' motion for sanctions.

T h is court has jurisdiction under 18U.S.C. § 1291. See Zuk v. E. Pa. Psychiatric I n s t., 103 F.3d 294, 296 n.1 (3d Cir. 1996). Because we write primarily for the parties, th e ir counsel, and the District Court, who are familiar with the facts, we set forth only th o s e facts relevant to our disposition.

I.

T h e lawsuit underlying this dispute arose from the execution of a search warrant b y the "Emergency Response Unit"of the Bethlehem Police Department on April 23, 1 9 9 7 , at the rented house in Bethlehem in which John Hirko and his girlfriend Kristen F o d i lived. We do not reprise the conduct of the police in the course of the raid as it is n o t an issue before us. It is sufficient to note that when the police entered the premises th e y fired sixteen rounds, killing Hirko, who was unarmed, and the grenade they used ig n ite d a fire that destroyed the residence. Fodi, who was also inside the house during the ra id , was forced to jump from a second story window in order to save herself.

Fodi, Hirko's parents, and the owner of the house sued the City of Bethlehem, the p o lic e officers involved in the raid, and various other officials, for damages incurred due to the wrongful death of Hirko and the destruction of the residence. The plaintiffs were re p re se n te d by John P. Karoly. The District Court bifurcated the trial into liability and d a m a g e s phases. The liability portion of the trial resulted in a jury verdict for the p l a in t if f s in March of 2004. The parties subsequently settled for $7,890,000 in damages, in c lu s iv e of attorneys' fees and costs.

The District Court approved the settlement on March 22, 2004 after a hearing. The p a rtie s stipulated that the District Court was to retain jurisdiction over the matter until the s e ttle m e n t conditions had been fully performed. One of those conditions was that the p la in tif f s would sign a release of liability and provide it to the defendants.

Of the total settlement of $7,890,000, $7,490,000 was payable by the City of B e th leh e m , and the remaining $500,000 by its insurance carrier, Western World In su ra n c e Company. The City paid its portion on May 26, 2004, via check delivered to p la in tif f s' attorney, and plaintiffs provided the City attorney with a signed and notarized re le a se for the full amount of the judgment. It is unclear when the District Court was inf o rm ed that a release had been provided to the City attorney, but its subsequent orders re f le c t understanding of that fact. The difficulty counsel for both sides had negotiating th e exchange of the remaining $500,000 owed by Western World gave rise to the motion f o r sanctions.

Defendants demanded that Western World be provided with a copy of the release, w h ich plaintiffs' counsel had forbidden the City Attorney to share, as plaintiffs were a w a itin g receipt of the $500,000. Plaintiffs' counsel stated that no release would be p ro v id e d unless personal property of Hirko still in the possession of the City of B e th le h e m were returned to Hirko's parents, although that does not appear to have been a c o n d itio n of the settlement. He also demanded that the $500,000 be paid in certified f u n d s or by wire transfer and that Western World pay interest from the date of judgment.

Although defense counsel informed plaintiffs that the "legal staff within the City is m a k in g arrangements to return [Hirko's] personal property," defense counsel specifically o b je c te d to the addition of any terms to the settlement. App. at 201.

A fte r unsuccessfully trying to pay the remaining $500,000 with Western World's n o n -c e rtif ie d check, defendants filed a motion to enforce the settlement on June 3, 2004.

This motion appears on the docket as "Defendants' Motion to Enforce Settlement A g re e m e n t Filed By Bethlehem Police Dept., City of Bethlehem, Memorandum, C e rtif ic a te of Service. (ac,) (Entered: 06/03/2004)." App. at 139. In their motion, d e f en d a n ts asked the District Court to require plaintiffs to provide them a copy of the e x e c u te d release, and to order that no interest was owed on the remaining $500,000.

Defendants also asked the District Court to require plaintiffs to pay fees and costs a ss o c ia te d with the delay. After a telephone conference between the Court and the p a rtie s, the District Court by order dated June 9, 2004, granted the motion in part and d e n ie d it in part.

The June 9th order directed the plaintiffs to serve upon defense counsel "a release in accordance with the settlement agreement" no later than June 10, 2004, and directed d e f e n s e counsel to serve upon plaintiff's counsel a check for $500,000 within two b u s in e ss days of receiving the release. App. at 216. The Court noted that "the settlement a g re e m e n t approved and adopted by the court on March 22, 2004 contains no requirement th a t payments made in satisfaction of judgment be made by certified check." App. at 216 n .2 . The District Court denied the remainder of the defendants' motion, including the re q u e st for sanctions. The Court noted that the defendants could seek sanctions by sep ara te motion and that the plaintiffs could raise the question of whether they were e n title d to interest in a separate motion.

This order did not resolve the dispute. When defense counsel informed Karoly th a t Western World would be unable to provide certified funds, plaintiffs refused to f u rn is h a copy of the release. Instead, plaintiffs faxed a release specifically conditioned o n the receipt of certified funds. In response, defendants filed a second motion on June 2 8 , 2004, captioned "Defendants' Motion to Enforce the Settlement Agreement." This m o tio n was entered on the docket sheet as "Defendants' Motion to Enforce Settlement A g re e m e n t Filed by Bethlehem Police Dept. et al., City of Bethlehem, Western World In s u ra n c e Company, Inc.,Memorandum, Certificate of Service. (ac, )(Entered: 0 6 /2 9 /2 0 0 4 )." App. at 139. The docket entry does not mention sanctions and is nearly id e n tic a l to the entry for the defendants' prior motion, although the motion itself states th a t Defendants "hereby file the instant Motion for Sanctions." The memorandum a tta c h e d to the motion was entitled a Memorandum of Law in Support of Defendants' M o tio n for Sanctions which referred to sanctions under 28U.S.C. § 1927. This m e m o ra n d u m was not separately entered on the docket sheet.

T h e defendants argued that sanctions were warranted because plaintiffs had ig n o re d the Court's June 9th order, and engaged in "bad faith and intentional actions" that h a d "increased the costs of the proceedings (finalizing settlement) with regards to the d e f e n d a n t s." App. at 227. Plaintiffs failed to respond to the motion within fourteen days, a s required by local rules. E.D. Pa. Local R. Civ. P. 7.1©. Accordingly, the District C o u rt granted the motion as unopposed on July 16, 2004. E.D. Pa. Local R. Civ. P. 7.1©.

The July 16th order directed plaintiffs' counsel Karoly "as previously directed" by the J u n e 9th order to provide defense counsel with a signed and notarized copy of the release w ith in one day, ordered defense counsel to provide plaintiffs' counsel a check for $ 5 0 0 ,0 0 0 in non-certified funds, and ordered plaintiffs and plaintiffs' counsel to pay "all re a so n a b le costs and fees incurred by Defendants and their Insurer . . . in attempting to f in a liz e the instant settlement." App. at 5. Defendants were ordered to provide the D is tric t Court with an accounting of the fees and costs within ten days.

On appeal, Karoly contends that he did not receive a copy of the July 16th order u n til July 19, 2004, when he received faxed copies from the District Court and the d e f en s e . Karoly sent a letter to the District Court by facsimile that day, July 19, 2004, s ta tin g that he had not been aware of the defense's motion for sanctions until he received th e order and that he would like the opportunity to respond. He also stated that he would f ile a Motion for Reconsideration. On July 21, 2004, defendants submitted their a c c o u n tin g to the District Court, requesting $13,606.44 in costs and fees incurred in f in a liz in g the settlement. On July 23, 2004, the District Court ordered "plaintiffs and p la in tif f s' counsel, jointly and severally," to pay defense counsel $13,606.64 in costs and f e es . App. at 9.1 O n July 26, 2004, Karoly filed a motion for reconsideration, asking the District C o u rt to vacate the order imposing sanctions and to allow him an opportunity to file an a n sw e r. The District Court denied the motion for reconsideration by order dated S e p tem b e r 30, 2004. In a Memorandum Opinion filed in response to the notice of appeal, th e District Court stated that sanctions were appropriate under 28U.S.C. § 1927 because The 20 cent discrepancy between the accounting su b m itted by the defendants, and the amount the District Court o rd e re d plaintiffs to pay appears to have been inadvertent. p la in tif f s' counsel had multiplied proceedings "unreasonably and vexatiously" by insisting o n payment by certified funds, and by attempting to attach conditions to the settlement.

App. at 25. The Court concluded that "sanctions were appropriate on the merits, [and] n o t merely because of Mr. Karoly's failure to respond to defendant's motion for s a n c tio n s ." App. at 27.

II.

T h e issue before us is whether the District Court abused its discretion in denying K a ro ly's motion for reconsideration of the court's order of sanctions. Hackman v. Valley F air, 932 F.2d 239, 242 (3d Cir. 1991). Karoly also asks us to review the District Court's im p o s itio n of sanctions. When the procedure employed by the district court in imposing s a n c tio n s raises due process concerns, our review is plenary. Figueroa v. Buccaneer H o te l, Inc., 188 F.3d 172, 175­76 (3d Cir. 1999).

In this case we are hampered in our review of both issues because the District C o u rt failed to hold a hearing on the motion for sanctions and to make findings of fact.

Our cases have made clear that imposition of sanctions violates due process if the order w a s made without particularized notice and an opportunity to be heard. Martin v. Brown, 6 3 F.3d 1252, 1262­63 (3d Cir. 1995); Eash v. Riggins Trucking, Inc., 757 F.2d 557, 5 7 0 ­ 7 1 (3d Cir. 1985). Karoly contends that he had neither the required notice nor the o p p o rtu n ity to be heard.

It appears from the District Court's Memorandum Opinion that the Court based its o rd e r granting sanctions at least in part on the fact that plaintiffs did not file a response to d e f en d a n ts ' motion for sanctions. Karoly contends that he was not apprised of the motion u n til the time to respond had elapsed and the District Court had entered its order imposing s a n c tio n s on June 16, 2004. Defendants contend that the motion was served on Karoly by r e g u la r mail. Karoly states that every other defense motion filed in this case over the last f iv e years had been faxed or sent by Federal Express and suggests that defendants in te n tio n a lly used a less expeditious service method and titled the motion deceptively.

According to the record available to us, the defense did send its previous motion to e n f o rc e the settlement by Federal Express, not regular mail. Karoly also contends that the d e f en d a n ts ' own certificate of service indicates that he was not served with the m e m o ra n d u m attached to the motion which was addressed to sanctions.

The District Court concluded that plaintiffs had received adequate notice of the d e f e n d a n ts ' motion. The Court noted that the "motion to enforce settlement agreement," w h ic h was accompanied by a memorandum requesting sanctions, was filed June 28, 2004.

App. at 19. The District Court also stated that its electronic file notification system had p ro v id e d plaintiffs's counsel email notification of the motion and of the court's order at tw o different email addresses. Karoly responds that the motion that was the subject of the e m a il notification was titled "motion to enforce settlement," like the earlier motion, and g a v e no notice that it was a motion for sanctions rather than simply a repeat of the prior m o tio n . As noted above, our examination of the docket, a public record, bears out K a ro ly's contention as the docket lists the second motion almost identically to the first.

See supra l. 104­106, 129-134. It does not mention a request for sanctions. If this was th e form of the email notification that was sent to Karoly, he may not have received prior n o tic e sufficient to comply with the requirements of due process. See Eash, 757 F.2d at 570.

O th e r evidence in the record is consistent with Karoly's contention that he never re c eiv e d the motion. Karoly states that as soon as he received the order he sent a letter d a te d June 19, 2004 indicating his desire to be heard regarding defense counsel's motion.

Karoly filed a motion for reconsideration on July 26, 2004, in which he argued that he f a ile d to respond to the defendants' motion because he had never been served with the m o tio n . Attached to Karoly's motion for reconsideration was an affidavit from the a tto rn e y at Karoly's firm who was responsible for "receiving, opening, reading, logging, a n d distributing" all of the mail arriving at Karoly's law offices. App. at 243. The a tto rn e y attested that the motion had not been received by U.S. mail, and that he was on " h e ig h te n e d vigilance" for any items from defendants' law firm because of the ongoing d isp u te between the parties. App. at 243. Because the facts were not adequately d e v e lo p e d in the District Court, whether Karoly received adequate notice and an o p p o rtu n ity to be heard can only be resolved after a hearing at which both parties have the o p p o rtu n ity to set forth their positions before the district judge as a neutral fact finder.

T h e same can be said of Karoly's motion for reconsideration, which is based on th e same disputed facts. In that motion, Karoly requested that the Court vacate the order o f July 23, 2004, stating that failure to receive service satisfied Rule 60(b)'s mandate for " m ista k e , inadvertence, surprise, or excusable neglect," and asked the Court to grant him le a v e to file an answer to the motion for sanctions. App. at 241. Defendants responded th a t plaintiffs had not met the requirements for relief under Rule 60(b) because they had n o t demonstrated excusable neglect or any other basis for relief.

T h e District Court denied the motion on September 30, 2004, without a hearing, f in d in g that plaintiffs did not merit relief from the judgment because "it is clear that p la in tif f s ' counsel was apprised of the pending motion" either electronically or by mail.

App. at 24. The District Court concluded: "We do not find any exceptional circumstances w a rr a n tin g relief under Rule 60(b)." App. at 24.

We respectfully disagree. If the facts are as Karoly contends they would constitute e x c e p tio n a l circumstances and would have warranted at the least an order under Rule 6 0 (b ). See, e.g., Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd., 507 U.S. 380, 388 (1 9 9 3 ) (noting that omissions due to carelessness are encompassed within the concept of e x c u sa b le neglect); In re O'Brien Envtl. Energy, Inc. v. NRG Energy, Inc., 188 F.3d 116, 1 2 9 (3d Cir. 1999) (holding that neglect caused in part by opposing party's failure to alert a p p e llan t that application encompassed objections to which appellant was required to re sp o n d was excusable). This court reviews the District Court's denial of a motion under R u le 60(b) for abuse of discretion. Coltec Indus., Inc. v. Hobgood, 280 F.3d 262, 269 (3d C ir. 2002).

N o th in g on the record demonstrates that the District Court applied the four-prong te st for excusable neglect: the danger of prejudice, the length of the delay in response and its potential impact on judicial proceedings, the reason for the delay, including whether it w a s within the reasonable control of the moving party, and whether the moving party a c te d in good faith. Pioneer, 507 U.S. at 395; In re O'Brien, 188 F.3d at 126 (applying P io n e e r's four-part test for excusable neglect to a Rule 60(b) motion).

Although the ultimate determination is for the District Court, it is not clear from th e record that Karoly's failure to respond to the motion did not constitute excusable n e g le c t. Delay was minimal, as Karoly filed his motion for reconsideration on July 26, 2 0 0 4 , just days after the District Court entered its order requiring Karoly to pay over $ 1 3 ,0 0 0 in costs and fees, and less than a month after the defense filed its motion to im p o s e sanctions on June 28, 2004. The impact of this delay was negligible, as the u n d e rlyin g disputes could have been presumably resolved after a short hearing.

The nearly $8 million judgment dwarfs the amount of sanctions imposed, but $ 1 3 ,6 0 6 .6 4 is not an insignificant amount of money for an individual attorney. While th e r e may be facts on the record to support the District Court's decision to impose s a n c tio n s , they also indicate that Karoly may have been acting out of an excess of zeal for h is clients' rights, however wrongheaded, including a belief that he would forfeit the right to pursue interest on the judgment and retrieve personal property belonging to the d e c ea se d by providing defense counsel with a release. It is at least questionable whether K a ro ly was acting out of bad faith, which is a requirement for sanctions under 28U.S.C.

§ 1927. Hackman, 932 F.2d at 242. Karoly's professional reputation is at stake. The D is tric t Court took note in its order imposing sanctions of a different case in which a n o th e r judge of the same district had characterized Karoly's behavior as an "inexcusable f o rm of neglect-gross negligence." Joseph v. Gap, Inc., 1999 WL 106899, at *3 (E.D. Pa.

M a rc h 1, 1999). App. at 24. Karoly argues that the court in the Joseph litigation stated th a t there was some confusion over his role in the litigation and that it cannot fairly be u s e d as precedent for characterizing him as acting in "willful bad faith" in this case. We e x p re ss no opinion on the reference to counsel's conduct in other litigation, but we have h e ld that sanctions under § 1927 must only impose costs and expenses that result from the p a rtic u la r misconduct in the litigation at issue. Martin, 63 F.3d at 1263-64.

We also note that the District Court erred as a matter of law in imposing sanctions u p o n Karoly's client under 28U.S.C. § 1927. That statute only authorizes the imposition o f sanctions on counsel not on parties.

W e feel impelled to include a comment about what we regard as the unfortunate a n im o s ity between the counsel. Both practice law in Allentown where the legal c o m m u n ity is relatively small in comparison to that in larger cities, such as Philadelphia.

Counsel are bound to run into each other in numerous situations in the future and we hope th a t there is some mechanism (perhaps through the bar association) by which the fever arising from this case can be tempered.

W e recognize that the District Court may have been obliged throughout the litig a tio n to deal with counsel snapping at each other and possibly even at the court.

Nonetheless, because it is disputed whether Karoly received adequate notice of the m o tio n for sanctions and was given an opportunity to respond, we must vacate the order o f the District Court imposing sanctions and the order denying reconsideration and re m a n d for further proceedings in accordance with this opinion.

* A m e n d e d November 9, 2004 **{Pursuant to Rule 12(a), F.R.A.P.} On Appeal from the United States District Court f o r the Eastern District of Pennsylvania (D .C . No. 99-cv-02124) D is tric t Judge: Honorable James K. Gardner Submitted Under Third Circuit LAR 34.1(a) J u ly 10, 2006 B e f o re : SLOVITER, McKEE and RENDELL, Circuit Judges (F ile d July 19, 2006) OPINION