Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-93-07138/USCOURTS-caDC-93-07138-0/pdf.json

Nature of Suit Code: 360
Nature of Suit: Other Personal Injury
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 3, 1994 Decided March 10, 1995

No. 93-7138 

ANDREW WHELAN, ET AL.,

APPELLANTS

v.

TYLER ABELL, ET AL.,

APPELLEES

and consolidated case No. 93-7139

Appeal from the United States District Court

for the District of Columbia

(87cv01763)

Loren Kieve argued the cause for appellants. With him on the briefs was Lothar A. Kneifel.

Michael E. Jaffe argued the cause for appellee John B. Toomey. With him on the brief were George

R. Kucik and Theodore D. Frank.

William A. Hylton, Jr. argued the cause and filed the brief for appellee Estate of Anthony G. Chase.

Before: WALD, WILLIAMS and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILLIAMS.

WILLIAMS, Circuit Judge: Appellants, who are plaintiffs in this action and were defendants

in related prior litigation, challenge rulingsin which the district court held as a matter oflaw that their

claims ofmalicious prosecution, abuse of process, and tortiousinterference with prospective business

advantage are barred by the Noerr-Pennington doctrine. See Eastern R.R. Presidents Conference

v. Noerr Motor Freight, Inc., 365 U.S. 127, 132 n.6 (1961); United Mine Workers v. Pennington,

381 U.S. 657 (1965). Because we find that neither Noerr-Pennington nor the First Amendment

protectsthe conduct plaintiffs have allegednamely, knowing misrepresentationsto state securities

administrators and a federal courtwe reverse these rulings. Appellants also challenge the district

court's decision on remand to set aside an entry of default against one of the appellees. We affirm

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the district court's decision to set aside the default on most of the claimsfor "good cause shown", but

vacate that decision as to the claim of tortious interference. 

* * *

This case comes to us on appeal for the second time, and a full statement of the background

is provided in the opinion deciding the first appeal. See Whelan v. Abell, 953 F.2d 663 (D.C. Cir.

1992) ("Whelan I"). We confine ourselves here to facts relevant to this appeal.

Plaintiffs, Andrew J. and Edward T. Whelan, were officers and shareholders of the

now-defunct Animated Playhouses Corporation ("APC" or the "company"), a corporation they set

up in 1981 in order to create and hold a nationwide chain of "Captain Andy's River Towne" family

restaurants, featuring shows by three-dimensional animated characters. Two ofthe three defendants,

Tyler Abell and Anthony Chase (since deceased, now represented by the Chase Estate), invested in

the venture in 1982 by buying the company's first restaurant, located in the Putty Hill Plaza in

Baltimore County, Maryland, and entering into agreements relating to the use of APC's animations.

A few monthslater the third defendant,James Toomey, purchased a one-third interest fromAbell and

Chase. Soon after making the investment the defendants lost faith in its prospects. Relations between

them and the Whelans soured.

In 1984 defendants fired the first salvo of an extended legal battle, filing a letter of complaint

with the Maryland Division of Securities ("MDS") and a lawsuit in federal district court (the "Putty

Hill lawsuit"). In both actions, Abell, Chase, and Toomey asserted that various misrepresentations

had been made to them in the course of negotiating the Putty Hill transaction. The letter accused

APC of having violated the Maryland Franchise Disclosure Act, while the lawsuit accused the

Whelans, APC, and others of having committed mail, wire, and securities fraud, racketeering, and

franchise law violations.

The letter of complaint inspired the Maryland Securities Commissioner to issue an order to

show cause against Andrew Whelan. In late 1984, Andrew signed a one-year undertaking with the

Commissioner (vacated in 1985 in accordance with its terms), in which he asserted that he had

complied with the law as he understood it from counsel but agreed to notify the Commissioner in

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advance of any offers of sales of franchises he intended to make, and to make any such offers in

compliance with Maryland law. For a short time, the Putty Hill lawsuit marched on. In due course,

however, the district court dismissed all of the claims with prejudice (including counterclaims by the

Whelans). Thus, by 1986 both of the actions against the Whelans had concluded, and Abell, Chase,

and Toomey had come up empty-handed.

Meanwhile, the Whelans' company, having failed to obtain crucial financing, fell into

bankruptcy; in early 1987 they launched their counter-offensive. Returning to federal district court,

they accused Abell, Chase, and Toomeyof having completelyfabricated the chargesin the 1984 letter

to MDS and the Putty Hill lawsuit and of having then publicized the frivolous charges to APC's

investors, all in a calculated effort to coerce appellants to alter the terms of the original Putty Hill

investment agreement. This effort, they argued, constituted a bad faith use of legal processes and

directly caused harm to the Whelans' investmentsin APC and in other ventures. The Whelans sought

damages under the common law torts of malicious prosecution, abuse of process, wrongful

involvement in litigation, breach offiduciaryduty, and tortiousinterference with prospective business

advantage.

The Chase Estate failed to file any answer to the complaint, and an order of default was

entered against it on all counts.

The litigation continued against Abell and Toomey. The district court granted the two

defendants summary judgment on the abuse of process and malicious prosecution claims, based on

its view ofthe scope ofthose common law torts. Only the claims for tortious interference and breach

of fiduciary duty went to a jury, which found Abell and Toomey liable to Andrew Whelan but not to

Edward. The district court, however, granted the defendants' motion for judgment notwithstanding

the verdict against Andrew, again based on the court's understanding ofthe necessary elements ofthe

torts in question. The Whelans' victory against the Chase Estate, seemingly assured by the earlier

entry of default, also slipped out of their hands: On January 18, 1990, the court vacated the order

of default and dismissed the charges against the Estate in light oftheWhelans'failure to establish their

claims against the other defendants.

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1We note that the 1991 amendments to the rules merged the traditional terms "directed

verdict" and "j.n.o.v." into a single term, "judgment as a matter of law"; thus, a motion for

"directed verdict" is now called a "motion for judgment as a matter of law" and a motion for

j.n.o.v. is now called a "renewal" of the first motion. See Fed. R. Civ. P. 50(a), (b). 

On appeal the Whelanssecured reversal ofmanyofthe trial court's adverse rulings. Although

affirming the j.n.o.v. on breach offiduciary duty, we reversed the summary judgment orders on abuse

of process and malicious prosecution, the j.n.o.v. on tortious interference, and the decision to set

aside the default against the Chase Estate. We then remanded the case, noting that alternative

arguments supporting these decisions had been raised but not addressed below. See Whelan I. On

remand, the district court once again decided in favor of defendants. First it set aside the default

against the Chase Estate. Whelan v. Abell, Nos. 87-0442, 87-1763, 1993 WL 141073 (D.D.C. Apr.

21, 1993). Then it granted judgment as a matter of law in favor of defendants on the tortious

interference claim (thus overturning the verdict in favor of Andrew Whelan) and granted summary

judgment against both plaintiffs on the remaining claims, all on the basis of the Noerr-Pennington

defense. Whelan v. Abell, 827 F. Supp. 801 (D.D.C. 1993).

I. The Noerr-Pennington Defense.

A. Rule 50(b)

Before considering the merits of defendants' Noerr- Pennington defense, we turn to a

purported procedural error in Andrew Whelan's tortious interference trial. We address this first

because it might require us to reverse the court's grant of judgment as a matter of law on this claim

regardless of the defense's merits.

Andrew Whelan maintainsthat defendantsfailed to assert Noerr-Pennington as a ground for

their motion for a directed verdict and that thisfailure constitutes a waiver of that ground asthe basis

for j.n.o.v. Thus, he says, it was error for the district court to rely on that ground to grant the motion

for j.n.o.v.; and it is our duty, regardless of the merits of defendants' Noerr-Pennington theory, to

set aside the court's judgment and reinstate his jury verdict.1 While seeming to acknowledge that he

in turn did not file a timely objection to the defendants' expansion of the grounds of their pre-verdict

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motion, Whelan argues that the rule limiting the judgment n.o.v. is jurisdictional, so that we must

enforce it even in the absence of objection.

To give our bottom line at the outset: We agree with Andrew Whelan that the defendants

failed to raise Noerr-Pennington in their pre-verdict motion. And, as Rule 50(b) limits a post-verdict

motion for judgment as a matter of law to a "renewal" of the pre-verdict motion, we agree that

defendants thereby waived that theory as a basis for judgment as a matter of law. But when

defendants renewed the motion after verdict and added the Noerr-Pennington theory, Andrew

Whelan failed to assert the violation ofRule 50(b) and thus he, in turn, waived that objection. Finally,

Whelan's waiver was valid; the limitation in Rule 50(b) is waivable.

Rule 50(a)(2), which governsthe pre-verdict motion for judgment as a matter oflaw, requires

the motion to "specify the judgment sought and the law and the facts on which the moving party is

entitled to the judgment." Rule 50(b) states that when the judge either denies or does not initially

grant such a motion, the case is deemed submitted to the jury subject to the judge's later

determination of the legal issues raised in the motion. The motion "may be renewed" later, under

Rule 50(b). We have understood this to mean, and it seems indisputable, that "[t]he precise claim

made in the motion for judgment n.o.v. must have been made in the motion for directed verdict."

U.S. Indus., Inc. v. Blake Constr. Co., 671 F.2d 539, 548 (D.C. Cir. 1982); accord Fed. R. Civ. P.

50 advisory committee's note to 1991 Amendment (remarking that new language explicitly requiring

specificity in Rule 50 motions works to "alter[ ] the result" in cases where a court, by allowing less

specificity, effectively circumvented the requirement that the later motion be based on groundsraised

in the earlier motion).

Defendants' motion for directed verdict argued that plaintiffs had failed to prove "an

unprivileged, improper, intentional interference with [a business] expectancy". The only reference

that could conceivably allude to the Noerr-Pennington doctrine is the word "unprivileged".

Defendants suggest that this somehow echoed their arguments in the trial that Noerr-Pennington

created some form of evidentiary privilege, but any such echo is far too faint. While of course

context isimportant, trial courts and opposing counsel cannot be expected to impute to the movants

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every meaning that might be grounded on such a remote foreshadowing. Cf. Perdoni Bros. v.

Concrete Sys., Inc., 35 F.3d 1, 3 (1st Cir. 1994). Thus, had Andrew Whelan opposed the

post-verdict motion by arguing that the earlier one did not specify the Noerr-Pennington defense, it

would have been reversible error for the district court to grant the motion on that defense. See Blake,

671 F.2d at 548.

Andrew Whelan did not, however, object to this procedural defect at that time. Rather, he

raised the issue for the first time in hisJuly 9, 1993 motion to alter or amend the judgment under Fed.

R. Civ. P. 59(e). Defendants now claim that by failing to object to the procedural defect prior to the

entry of judgment, Andrew Whelan waived his right to raise it.

Whelan does not contest the general proposition that issues not raised before judgment in the

district court are usually considered to have been waived on appeal. See Kattan by Thomas v.

District of Columbia, 995 F.2d 274, 276 (D.C. Cir. 1993) (noting that "a losing party may not use

a Rule 59 motion to raise new issues that could have been raised" before the adverse judgment, and

that appellate court will not ordinarily address issues not timely raised below); Seamon v. Vaughan,

921 F.2d 1217, 1220 (11th Cir. 1991) (refusing to entertain on appeal argument not presented to the

district court until after final judgment). He argues, rather, that Rule 50(b)'s limitation of the

post-verdict judgment as a matter of law to renewal of a pre-verdict motion isjurisdictional, because

it is rooted in the Seventh Amendment prohibition against judicial re-examination of facts tried by a

jury. Thus, he contends, it may be raised at any time.

We agree that the limitation arises from historic jury practices and are ready to assume that

it is of constitutional weight. But because the limitation historically served only to protect the right

to trial by jury, we find it as waivable as that right itself.

The contention that the limitation is unwaivable appears to be based on the theory that the

Seventh Amendment's prohibition against courts "re-examin[ing]" factsfound by the jury is designed

to protect the institution of the jury per se as well as(and independently of) the parties' concrete right

to a jury trial. Dicta in some cases may be read as supporting this theory. In Martinez Moll v. Levitt

& Sons of Puerto Rico, Inc., 583 F.2d 565, 569 (1st Cir. 1978), for instance, the court notedin

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addition to the practical point that Rule 50(b)'s requirement enables the opponent of the motion to

plug any holes in his evidencethat the requirement ensured "that the judge may rule on the

adequacy of the evidence without impinging on the jury's fact-finding province."

But a look at the history of the bar on re-examination demonstrates the error of this view.

In Slocum v. New York Life Ins. Co., 228 U.S. 364, 375-400 (1913), the Court found that under the

common law a verdict, once rendered, could not be set aside as unsupported by the evidence even

if a motion for a directed verdict based on the insufficiency of the evidence would have been properly

granted. The trial court (or an appellate court) could order a new trial, but for the court to enter

judgment against the verdict would improperly encroach on the verdict winner's constitutionalright.

Later, in Baltimore & Carolina Line, Inc. v. Redman, 295 U.S. 654 (1935), the Court endorsed the

practice now embodied in Rule 50(b), whereby the submission of the case to the jury is provisional,

and the pre-verdict motion is subject to renewal and grant after verdict. To grant the motion on an

entirely new ground would obviously nullify this restriction of the post-verdict motion. And, since

the Court's acceptance of the post-verdict motion's constitutionality rested on this restriction, such

a grant would impinge on the verdict winner's Seventh Amendment right.

But even in Slocum, the high-water mark of Supreme Court insistence on the niceties of

post-verdict practice, the Court plainly saw the restriction on the post-verdict motion as simply an

aspect of the party's rights, and thus waivable:

[I]t is the province of the jury to hear the evidence and by their verdict to settle the

issues of fact.... [T]he court cannot dispense with a verdict, or disregard one when

given, and itself pass on the issues offact. In other words, the constitutional guaranty

operates to require that the issues be settled by the verdict of a jury, unless the right

thereto be waived.

228 U.S. at 387-88 (emphasis added). Further, in Slocum the Court relied on and quoted copiously

from Hodges v. Easton, 106 U.S. 408 (1882), which bristles with allusions to waiver:

[W]e then have a case at law, which the jury were sworn to try, determined, as to

certain material facts, by the court alone, without a waiver of jury trial as to such

facts. It was the province of the jury to pass upon the issues of fact, and the right of

the defendants to have this done was secured by the Constitution of the United

States. They might have waived that right, but it could not be taken away by the

court.... The court could not, consistently with the constitutional right of trial by jury,

submit a part of the facts to the jury, and, itself, determine the remainder without a

waiver by the defendants of a verdict by the jury.

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106 U.S. at 412 (emphasis added), quoted in Slocum, 228 U.S. at 385.

Thus Rule 50(b)'sinsistence that the post-verdict motion be only a renewal of the earlier one

is simply an aspect of each party's right to jury trial. Just as a party may waive that right on all of the

issues by failing to demand a jury trial at the outset, see Fed. R. Civ. P. 38(d), so it may waive its

right to the procedural refinements of Rule 50(b).

Because the right to a jury trial is fundamental, "every reasonable presumption should be

indulged against its waiver." Hodges v. Easton, 106 U.S. at 412. Indeed, the requirement of a

pre-submission motion setting forth the specific grounds is designed to ensure that a party not

inadvertently waive his right to a jury verdict by failing to submit adequate evidence on the issues in

contention. See Fed. R. Civ. P. 50(a), advisory committee note to 1991 Amendment ("In no event

... should the court enter judgment against a party who has not been apprised of the materiality ofthe

dispositive fact and been afforded an opportunity to present any available evidence bearing on that

fact.").

In this case, however, the presumption against waiver is not adequate to preserve Whelan's

procedural challenge. If Andrew Whelan was, as he claims, caught off guard by defendants'

post-verdict motionon theNoerr-Pennington defense because ofits absence fromthe pre-submission

motion, he had an obvious opportunity to protest: in his papers opposing the post-verdict motion.

By failing to complain at the obvious time, before the court ruled against him, Whelan waived his

procedural objection. See 5A Moore's Federal Practice ¶ 50.04 (2d ed. 1994), ("[I]f judgment as

a matter oflaw is granted, the losing party may not object on appeal to the lack of an articulated basis

for the motion unless the party also raised that objection in the trial court."); Collins v. Illinois, 830

F.2d 692 (7th Cir. 1987) (holding, without discussion of Seventh Amendment, that after judgment

has issued defendant may not raise an argument that plaintiff did not "properly comply with the

procedural prerequisites" of Rule 50(b)).

B. Merits of the Noerr-Pennington Defense

Accordingly, we now reach the merits of the Noerr- Pennington theory. The district court

adopted the theory in its decision upsetting the jury verdict for Andrew Whelan on his claim of

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tortious interference with prospective business advantage. In granting defendants' motion for

judgment as a matter of law on this claim, however, the court also noted, by the way, that its

conclusion also called for summary judgment for the defendants on the malicious prosecution and

abuse of process claims. The Whelansincluding Edward, for he must overcome defendants' NoerrPennington theory ifthe summary judgments against himare to be reversedhave appealed all three

of these rulings, arguing that the court misapplied the Noerr-Pennington doctrine in each case.

The court read the Noerr and Pennington cases to mean that "a person cannot be held liable

as a result of his or her filing a good-faith lawsuit or administrative claim or otherwise seeking

governmental redress." Whelan v. Abell, 827 F. Supp. at 803. It then went on to inquire whether

defendants' filings fit into the "sham exception" to the Noerr-Pennington doctrine, under which

otherwise protected conduct losesits protection ifit both (1) is "objectively baselessin the sense that

no reasonable litigant could realistically expect success on the merits", Professional Real Estate

Investors v. Columbia Pictures, 113 S. Ct. 1920, 1928 (1993) ("PREI"), and (2) fails to satisfy a

subjective test that the PREI Court framed entirely in terms of the antitrust litigation involved in that

case. Whelan v. Abell, 827 F. Supp. at 803-04. The district court then found that the show cause

order of the Maryland Division of Securities, and the resulting consent decree, conclusively

established that the defendants' filings were not "objectively baseless". Id. at 804.

The Whelans contest this holding on two grounds. First, they argue that the NoerrPennington doctrine simply does not apply to state common law torts, which lie far outside of the

federal antitrust context in which the doctrine wasformed. Second, they say that, even if the doctrine

would ordinarily apply in this context, defendants' petitions to the Maryland and federal authorities

are not protected petitioning activitybecause their core consisted of deliberatelyfalse representations,

which are entitled to no protection under Noerr-Pennington.

We resolve the case without attempting to set forth any kind of encyclopedic position on the

relation between the common law torts at issue here and theNoerr-Pennington doctrineor between

themand the First Amendment regardless ofthe idiosyncracies ofNoerr-Pennington. Assuming that

Noerr-Pennington or the First Amendment reachessuch tortsin some sense, we see no constitutional

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problem where plaintiffs, as in the tortiousinterference trial, have shouldered the burden ofshowing

that the defendants' petitions were deliberately false. Moreover, the district court erred in thinking

that the MDS consent decree precluded the Whelans from proving such deliberate falsity.

Plaintiffs' argument that Noerr-Pennington is no more than a method of construing the

ShermanAct hassome support in the cases. The Noerr Court itself claimed that because the outcome

was determined entirely by "the view we take of the proper construction of the Sherman Act," it was

"unnecessary to consider" the defense that the "activities complained of were constitutionally

protected under the First Amendment". Noerr, 365 U.S. at 132 n.6; see also Pennington, 381 U.S.

at 669-70.

Nevertheless, the Noerr Court adopted this method of construction in significant part as a

meansto avoid finding a conflict between the ShermanAct and the First Amendment right to petition.

See Noerr, 365 U.S. at 139 (rejecting construction of Sherman Act "that would disqualify people

from taking a public position on matters in which they are financially interested" because it would

"deprive the people of their right to petition in the very instances in which that right may be of the

most importance to them."). And in Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731 (1983),

where it extended Noerr-Pennington to bar the NLRB's attempt to enjoin prosecution of a suit as an

unfair labor practice, the Court characterized its decision in California Motor Transport Co. v.

Trucking Unlimited, 404 U.S. 508, 510 (1972), as having "recognized that the right of access to the

courts is an aspect of the First Amendment right to petition...." 461 U.S. at 741.

As Noerr-Pennington rests on the conclusion that the filing of claims in court or before

administrative agencies is part of the protected right to petition, it is hard to see any reason why, as

an abstract matter, the common law torts of malicious prosecution and abuse of process might not

in some of their applications be found to violate the First Amendment. We know that a state cannot

constitutionally impose liability based on proof of libel and slander in their unreconstructed forms,

New York Times v. Sullivan, 376 U.S. 254, 268-69 (1963) ("libel can claim no talismanic immunity

from constitutional limitations"), so there is nothing inherently sacrosanct about common law torts.

Cf. NAACP v. Button, 371 U.S. 415, 429 (1963) ("a State cannot foreclose the exercise of

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constitutional rights by mere labels"); Bridges v. California, 314 U.S. 252, 263 (1941) (dismissing

as "dubious" the contention that judicial power of contempt's roots in English common law render

exercise ofthat power immune fromconstitutionalreview). Of course, such constitutional limitations

would apply assuch, without the filter of Noerr-Pennington, which the court has so far used only to

justify narrow constructions of federal law.

In the most concrete context in which the defendants have asserted Noerr-Pennington (the

motion for judgment as a matter of law on the tortious interference claim), however, there does not

appear to be even a potential for collision between the common law tort and the First Amendment.

First, the instructions authorized the jury to find defendants liable to plaintiffs only if it found, in

effect, that the defendants filed deliberate falsehoods in attacking plaintiffs before the MDS and in

court. We see no reason to believe that the right to petition includes a right to file deliberately false

complaints. Second, the court was wrong to treat the Maryland administrative proceeding, or its

culminating consent decree, as precluding plaintiffs from showing such willful falsity.

The jury instructions effectively required a finding of deliberate falsity. The judge stated that

a person could not be found liable for seeking enforcement of rights he "reasonably believe[s] himself

to have, so long as the claims are not known to him to be false or fraudulent or are filed for an

improper purpose."

The reference to "improper purpose" might seem to allow a verdict for plaintiffs based on

some vague jury hostility to the defendants' conduct, but the judge went on to cabin the idea of what

is "improper". He noted that "a lawsuit is not false or fraudulent or filed for an improper purpose

merely because the primary motivation of the person who brings the suit is to induce the other side

to settle a dispute." He also said that to find the defendants' actions improper the jury must find "that

each defendant had no justification for his participation in those actions". And he defined justification

in termsthat closely tracked his earlier point that defendants were free to pursue their claims "so long

asthe claims are not known to him to be false or fraudulent": To find that a defendant was "justified

in instituting those legal proceedings," all the jury needed to decide was that he "honestly and

reasonably believed that misrepresentations had been made [by the Whelans]." Accordingly, the jury

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2Use of the conjunctive in the phrase "honestly and reasonably" conceivably might raise a

question of whether the jury might have found the defendants' behavior dishonest but reasonable,

or unreasonable but honest. Whatever significance such refinements might have for application of

conceivable First Amendment constraints on the claim of tortious interference, defendants have

not raised such issues below or here. 

verdict effectivelyincorporates a finding not onlythat Abell's andToomey's claims about theWhelans'

misrepresentationsat any rate Andrew'swere false, but also that the defendants did not "honestly

and reasonably believe[ ]" that Andrew Whelan had made misrepresentations.2

However broad the First Amendment right to petition may be, it cannot be stretched to cover

petitions based on known falsehoods. "Misrepresentations, condoned in the political arena, are not

immunized when used in the adjudicatory process." California Motor Transport, 404 U.S. at 513;

see also PREI, 113 S. Ct. at 1929 n.6 (quoting the passage). In a decision four years after Noerr and

months after Pennington, the Court said, without discussion of either case, that a firm could not

invoke a patent as a defense to antitrust charges if it "obtained the patent by knowingly and willfully

misrepresenting facts to the Patent Office." Walker Process Equip., Inc. v. Food Mach. & Chem.

Corp., 382 U.S. 172, 177 (1965). And we said in Federal Prescription Serv., Inc. v. American

Pharmaceutical Ass'n, 663 F.2d 253, 263 (D.C. Cir. 1981), "Attempts to influence governmental

action through overtly corrupt conduct, such as bribes(in any context) and misrepresentation (in the

adjudicatory process), are not normal and legitimate exercises of the right to petition, and activities

of this sort have been held beyond the protection of Noerr." Finally, the court in Liberty Lake

Investments, Inc. v. Magnuson, 12 F.3d 155 (9th Cir. 1993), construed the Supreme Court's note 6

in PREI as making PREI's two-part "sham" test inapplicable where there was "proof that a party's

knowing fraud upon, or its intentional misrepresentations to, the court deprive the [prior] litigation

of its legitimacy." Id. at 159.

While the district court may have implicitly recognized that knowing assertion of false claims

is not protected by Noerr-Pennington, it regarded the Maryland Securities Commissioner's order to

show cause against and undertaking with Andrew Whelan as precluding plaintiffsfromshowing such

deliberate falsity:

Given the independent investigation and disposition in the administrative proceeding

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in Maryland, it is clear that Abell's letter to the [Maryland Securities Commissioner]

was not "objectively baseless". By any standard, the MSC letter would be protected

under Noerr- Pennington and cannot provide a basis for Plaintiffs' ... claims.

Whelan v. Abell, 827 F. Supp. at 804. This was error.

Maryland'sissuance of an order to show cause plainly cannot bar plaintiffs from showing the

fraudulent character of the underlying letter by defendants. Collateral estoppel applies only to

preclude litigation ofissues "actuallyand necessarilydetermined" byanearlier adjudication. Montana

v. United States, 440 U.S. 147, 153 (1979); I.A.M. Nat'l Pension Fund v. Industrial Gear Mfg. Co.,

723 F.2d 944, 949 (D.C. Cir. 1983). The Maryland authorities may not have been required to make

any finding of probable cause as a basisfor issuing the order, and thusthe question they resolved may

differ substantially from that involved in thislitigation. See Commissioner v. Sunnen, 333 U.S. 591,

599-600 (1948) (collateral estoppel "must be confined to situations where the matter raised in the

second suit is identical in all respects with that decided in the first proceeding"). Further, even

assuming that the Maryland authorities conducted an "independent investigation" (which is sharply

contested) and found probable cause to issue the order, there is no indication that before its issuance

plaintiffs had any opportunity to contest defendants' contentions, much less a "full and fair

opportunity to argue their version of the facts", United States v. Utah Construction Co., 384 U.S.

394, 422 (1966), which isthe necessary predicate ofissue preclusion. See Nasem v. Brown, 595 F.2d

801, 806 (D.C. Cir. 1979) ("The advantages of finality ... can only be fairly garnered when the party

to be estopped has had an adequate opportunity to litigate his claims. Without such an opportunity,

lack of faith in the reliability of the first proceeding precludes application of the collateral estoppel

doctrine."); cf. Westreich v. McFarland, 429 F.2d 947, 949 (4th Cir. 1970) (noting that while "a

majority of the states hold that an indictment is prima facie or presumptive evidence that probable

cause existed for the prosecution", the plaintiff in a malicious prosecution action has the right "to

bring forth evidence that the defendant obtained the indictment by fraudulently misrepresenting or

withholding material facts.").

Nor doesthe undertaking bar Andrew Whelan fromshowing that defendants' assertions were

deliberate lies. Andrew Whelan did not admit having committed any of the violations the defendants

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3Even if the MDS undertaking had any preclusive effect against Andrew Whelan as to claims

made by defendants in that proceeding, it would have none as to Edward or as to the distinctively

different claims made in the Putty Hill lawsuit. 

alleged, much less agree to have the factual basis of those allegations treated as true in future

litigation. Unless a consent decree "clearly manifests the parties' intent to be bound [by a stipulated

fact] in future actions", "that fact has not been "actually litigated' and thus is not a proper candidate

for issue preclusion." Otherson v. Department of Justice, I.N.S., 711 F.2d 267, 274 & n.6 (D.C. Cir.

1983). Even a fully litigated judgment can be set aside on grounds of fraud, at least by making a

suitable motion in the original forum. See Fed. R. Civ. P. 60(b)(3) (providing for relief from

judgment based on "fraud ..., misrepresentation, or other misconduct of an adverse party"). It defies

comprehension that the defendantsshould be exonerated as a matter oflaw as a result of a settlement

between the Maryland Securities Commissioner and Andrew Whelan in which Whelan conceded no

wrongdoing and suffered no penalty.3 As we recognized in Otherson, preclusion does not apply to

issues not litigated, because a difference in the stakes may explain the party's failure to litigate such

issues in the first action. Otherson, 711 F.2d at 275.

Accordingly we must reverse the judgment as a matter of law entered despite the jury verdict

for Andrew Whelan. Defendants argue that reversal of that judgment requires a new trial, rather than

reinstatement of the jury's verdict. They cite this court's opinion from the previous appeal, Whelan

I, "953 F.2d at 663, 668-69", as well as the district court'sstatement that "Consistent with the Court

of Appeals' decision, if Defendants' motion were to be denied, the jury verdict would not be

reinstated, but a second trial would be required...." Whelan v. Abell, 827 F. Supp. at 802. We have

scoured the cited pages of our prior opinion without discovering a ghost of a hint why reversal of the

judgment should lead to a new trial rather than to reinstatement of the verdict. Nor can we find a

basis for the quoted passage from the district court's decision. Accordingly, we order the court to

enter judgment on the verdict, subject of course to such motions as have not been waived.

There remain the Whelans' claims of malicious prosecution and abuse of process, against

which the district court granted summary judgment, again in reliance on the MDS proceeding. That

judgment plainly must be reversed. As to them, however, there is no verdict to reinstate. Indeed, the

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parties have not even closely briefed the issue of just what a plaintiff must show under either theory,

and the scope of these torts under District law is not altogether clear. Cf. Whelan I, 953 F.2d at 670

(observing that malicious prosecution, but not abuse of process, requires a showing of want of

probable cause).

To the extent that the tortsrequire plaintiffsto establish to a jury'ssatisfaction that defendants'

assertions in the MDS proceeding and the Putty Hill lawsuit were knowingly false (as Andrew

Whelan already has), they would certainly not conflict with the First Amendment or NoerrPennington. Some formulations ofthese torts, nevertheless, could raise such issues. The Restatement

definition of the tort of abuse of process, for example, appears quite sweeping:

§ 682. General Principle

One who uses a legal process, whether criminal or civil, against another primarily to

accomplish a purpose for which it is not designed, is subject to liability to the other

for harm caused by the abuse of process.

Restatement 2d Torts § 682 (1977) (emphasis added). This definition, without further limitation,

could lead to liability based on very loose grounds, as where a jury merely found the defendant driven

by a desire for revenge. Compare, e.g., Powers v. Leno, 509 N.E.2d 46 (Mass. App. 1987) (abuse

of process claimmade out by allegationsthat defendant pursued litigation to deny neighbor a building

permit in order to coerce gratis transfer of land to himself; evidence of defendant's "bad intentions"

may suffice if they show that defendant "was using [legal process] as a form of extortion" to obtain

a "collateral advantage"), with Bown v. Hamilton, 601 A.2d 1074 (D.C. App. 1992) (holding that

abuse of process claim cannot rest solely on allegation that landlord sought tenant's eviction to

achieve ulterior purpose of depriving tenant of right to exercise option for additional space), and

Morowitz v. Marvel, 423 A.2d 196, 198 (D.C. App. 1980) (noting that proof of "ulterior motive"

does not suffice to prove abuse of process under District law, the "critical concern" being "whether

process was used to accomplish an end unintended by law, and whether the suit was instituted to

achieve a result not regularly or legally obtainable."); id. at 197-98 ("In an effort to avoid infringing

upon the right of the public to utilize our courts, we are cautious not to adopt rules which will have

a chilling and inhibitory effect on would-be litigants of justiciable issues.").

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We think it inappropriate for us to address the possible First Amendment conflict before the

district court has determined the essential ingredients of the torts, lest we unnecessarily anticipate a

constitutional issue or resolve it more broadly than necessary. See United States v. Raines, 362 U.S.

17, 21 (1960). We note that the process of ascertaining the scope of these torts under District law

may give the court the special problem of deciding, in the event that District precedent appears to

clash with the First Amendment right underlying Noerr-Pennington, whether to certify to the D.C.

Court of Appeals, pursuant to D.C. Code § 11-723 (1981), the construction of the tort in light of the

potential First Amendment conflict, see Government and Civic Employees Organizing Comm., CIO

v. Windsor, 353 U.S. 364, 366 (1957), or to adjust the tort by adding an element so as to assure

accommodation of the First Amendment, just as the Supreme Court in effect added the element of

actual malice to certain types of defamation in New York Times v. Sullivan. On this issue compare

United States v. Thirty-Seven Photographs, 402 U.S. 363, 369 (1971), explaining that a federal court

cannot save a state statute because it cannot give it an authoritative limiting construction, with

Brockett v. Spokane Arcades, Inc., 472 U.S. 491, 500 (1985), which in fact does precisely that.

Accordingly, we reverse the summary judgment orders on plaintiffs' abuse of process and

malicious prosecutionclaims and remand the case forfurther proceedings consistent withthis opinion.

Before leaving thissubject, we note briefly that plaintiffs have asserted a rather broad reading

of our decision in One-O-One Enterprises, Inc. v. Caruso, 848 F.2d 1283, 1287 (D.C. Cir. 1988).

We there read a contract's integration clause (the agreement "supersede[d] any and all previous

understandings and agreements") to bar certain fraud claims. But two of the three alleged frauds

rested on alleged oral promises as to future behavior, not included in the final, written contract, see

848 F.2d at 1286, and thus appeared clearly barred by the integration clause. The third, alleged

concealment ofsome negotiations, id., provided a thin basisfor any claim of fraud in the inducement,

since the negotiations were at worst in violation of the first two alleged promises, which we held to

have been excluded from the final contract. Accordingly, our conclusion in that case was plainly not

intended to say that an integration clause bars fraud-in-the-inducement claims generally or confines

them to claims of fraud in execution. Cf. id. at 1287 (allusion to signatures obtained by trick or

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artifice). Such a reading would leave swindlers free to extinguish their victims' remedies simply by

sticking in a bit of boilerplate. See Betz Laboratories, Inc. v. Hines, 647 F.2d 402, 407 (3d Cir.

1981); 2 E. Allan Farnsworth, Farnsworth on Contracts § 7.4 (1990) ("To the extent that evidence

of misrepresentation is admissible even if the agreement is completely integrated, it is admissible in

the face of the usual merger clause, since such a clause shows no more than that the contract is

completely integrated."). Thus the integration clause in the parties' agreement here does not, as the

Whelans suggest, establish that all of defendants' claims of fraud in the inducement were false as a

matter of law.

II. Entry of Default

The finalruling the Whelans contest isthe court's decision to vacate the default orders against

the Chase Estate pursuant to Federal Rule of Civil Procedure 55(c), which allows an entry of default

to be set aside upon a showing of "good cause". We review this decision for abuse of discretion,

keeping in mind the federal policy favoring trial over default judgment. See Jackson v. Beech, 636

F.2d 831, 835 (D.C. Cir. 1980) (noting standard of review); Keegel v. Key West & Caribbean

Trading Co., 627 F.2d 372, 373 (D.C. Cir. 1980) ("modern federal procedure favor[s] trials on the

merits"). Despite these constraints, we vacate the court's order and reinstate the entry of default on

the tortious interference claim, finding the decision to set aside the default on this claim an abuse of

discretion. We affirm as to the other counts, though. While we have some doubts about the basis

of the court'sjudgment in setting aside the entry of default on those counts, our doubts there are not

strong enough to overcome the deferential standard of review and the general federal policy against

default judgment.

The Whelans filed their initial complaint on February 20, 1987. The Estate did not file an

answer to the complaint; instead, on March 13 (within the time limit for answers imposed by Rule

12(a)), it sent a letter to plaintiffs' counsel stating its belief that the action was barred by a Florida

statute of limitations. On April 9, the court clerk entered default against the Estate. On May 6,

plaintiffs' counsel wrote to the Estate, notifying it of the entry of default and asking the Estate, in

turn, to notifyrelevant third parties. Not until August 16, 1988eighteen months after the complaint

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was fileddid the Estate make an appearance in court. On that date, the Estate asked the court to

set aside the default. Finding that the motion was "egregiously untimely without explanation", that

the defense profferedthe Florida statute of limitationswas "of doubtful merit", and that a

set-aside of the default would be prejudicial to plaintiffs, the court denied the motion.

Several months later, however, the court set aside the default. The court explained that its

rulingsin favor of the Estate's co-defendantsrequired it to do so, "it appearing fromthe entire record

that the complaints fail to state meritorious claims." When the Whelans appealed, we vacated this

decision as based on an erroneous view of the law. We noted, however, that on remand the district

court would be "free to consider whether to vacate the default orders" pursuant to Federal Rule

55(c)'s provision for setting aside entry of default "[f]or good cause". Whelan I, 953 F.2d at 675.

After reviewing the elementssaid byJackson v. Beech to control the setting aside of a default,

see 636 F.2d at 832 (the court must assess whether the default is willful, whether the defendant has

presented a meritorious defense, and whether the plaintiff would suffer substantial prejudice by a

decision to set aside the default), the district court found "good cause" to set aside the default.

The court first found that the Estate'sfailure to respond substantively to the complaint did not

"rise to the level of wilfulnessrequired ... to deny the Estate's motion to set aside the default", relying

on the Estate's March 13, 1987 letter asserting the statute of limitations defense. It appeared to have

little basis for this conclusion other than the Estate's conclusory assertion that it had acted in good

faiththat is, that it had not intended to disrupt or delay the proceedings. But the Estate has

proffered no excuse for its failure to file an answer, and it has neither clarified whether its letter is to

be treated as an answer for purpose of the waiver provisions of Rule 12(h) nor explained why it

waited 16 months after the default was entered before asking that it be set aside. Absent some

explanation such as monumental incompetence, the record suggests intentional delay.

On the question of a possibly meritorious defense, the court remarked without greater

specificity that the Estate had asserted various defenses. In fact, the Estate just adopted by reference

the defenses of its co-defendants, including the Noerr-Pennington defense we have addressed in this

opinion. The court did not explicitly rule on the plausibility of these defenses; instead, it simply

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stated, "If Plaintiffs believe any defenses asserted are indeed meritless, Plaintiffs can file an

appropriate motion at the appropriate time." We understand this to mean that the court found those

defenses asserted sufficiently plausible to support the motion. We note that the movant is not

required to prove a defense, but only to assert a defense that it may prove at trial. Because the

plaintiffs' claims against the Estate appear to be based on substantially the same facts and law astheir

claims against the Estate's co-defendants, we find no clear error in the district court's decision to

credit the Estate as having asserted meritorious defenses.

Finally, the court addressed the last of the three considerationsthe prejudice to plaintiffs

from setting aside the entry of default. It is on this issue that our judgment differs most substantially

from the district court's. The court found that the Whelans would suffer at most "minimal" prejudice

were the default set aside. The court noted that the litigation had proceeded apace without the Chase

Estate, citing H.F. Livermore Corp. v. Aktiengesellschaft Gebruder L., 432 F.2d 689, 691 (D.C. Cir.

1970) (noting that "the default judgment must normally be viewed as available only when the

adversary process has been halted because of an essentially unresponsive party."), and that the Estate

was requesting no opportunity for discovery, apparently being ready to rely on that of its

co-defendants. This analysis is not unreasonable as to most of the claims. But the court appears to

have ignored the fact that plaintiffs had completed a trial against the two co-defendants on the

tortiousinterference claim. Whether it assumed that the jury verdict in that trial would ultimately be

set aside based on a defense applicable to all three defendants or simply disregarded the burden on

plaintiffs of having to redo the trial in order to establish the tortious interference claim against the

Estate, it clearly erred in finding that setting aside the default would not substantially prejudice

plaintiffs on this claim.

In sum, while there is some possibility that the Estate's defenses will prove adequate, the

Estate's unexplained delay in responding to plaintiffs' complaint renders the balance of the equities

on the issue of default far more precarious than the district court's opinion suggests. If the Estate is

permitted to re-enter the case without limitation, plaintiffs will have to try their tortious interference

claim a second time. This substantial prejudice tips the balance on that claim so far in plaintiffs' favor

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that we are constrained to find an abuse of discretion in the court's decision to set aside the default

on that claim, and we vacate the order to that extent. As to the other claims, we see no abuse of

discretion in the court's finding that plaintiffs would suffer only minimal prejudice from a set-aside

of the default and affirm its set-aside order. 

* * *

Thus, we hold that the district court erred in finding the Whelans' claims of malicious

prosecution, abuse of process, and tortious interference barred as a matter of law under the NoerrPennington doctrine. Plaintiffs have alleged that defendants based their petitions to the MDS and the

federal court on factual statements defendants knew were false. Insofar as such deliberately false

statements are the basis for defendants' liability under the torts alleged, neither the First Amendment

nor the Noerr-Pennington doctrine bars plaintiffs' recovery.

Subject to any objections that defendants have preserved, we remand the case for the court

to enter judgment against Abell and Toomey on Andrew Whelan'stortiousinterference claim and for

a new trial against allthree defendants on the Whelans'remaining claims ofmalicious prosecution and

abuse of process. So long as the reinstated tortious interference verdict is not set aside, the court

should enter judgment on that claim against the Chase Estate in favor of both Andrew and Edward

Whelan. See Whelan I, 953 F.2d at 675 ("Chase's liability in this case is not so intertwined with

Abell's and Toomey's that consistent findings against each of them are necessary.") (citing Carter v.

District of Columbia, 795 F.2d 116, 137-38 (D.C. Cir. 1986)).

So ordered.

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