Court Opinion

ID: 10666
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:56:10+00
Date Added: 2024-06-11T16:46:25.219971
License: Public Domain

UNITED STATES COURT OF APPEALS
                          For the Fifth Circuit

                              No. 95-11127

                 RICHARD M. SCAIFE, doing business as
                       Scaife Flight Operations;

                                                  Plaintiff - Appellant,

                            H. YALE GUTNICK,

                                                               Appellant,

                                    VERSUS

               ASSOCIATED AIR CENTER INC., a corporation,

                                                   Defendant - Appellee.

           Appeal from the United States District Court
                for the Northern District of Texas
                            November 14, 1996

Before REYNALDO G. GARZA, DeMOSS, and PARKER, Circuit Judges.

DeMOSS, Circuit Judge:

     In this case, we are asked to review the district court’s

decision granting summary judgment in favor of Associated Air

Center   and    against   Richard   M.   Scaife   t/d/b/a   Scaife    Flight

Operations on Scaife’s breach of contract claim.             The district

court also entered an order imposing monetary sanctions against

Scaife and non-monetary sanctions against H. Yale Gutnick, Scaife’s

Pittsburgh counsel. Scaife appeals from the summary judgment order

and Gutnick appeals from the order imposing sanctions.               For the

forthcoming reasons, we hold that no contract was ever made and,
therefore, we AFFIRM the district court’s decision granting summary

judgment.      However, we find that the district court abused its

discretion by ordering sanctions against Gutnick and VACATE the

order of sanctions against Gutnick.

                                  BACKGROUND

     In 1993, Scaife Flight Operations began accepting bids for a

corrosion inspection and customized renovation of the interior of

Richard Scaife’s personal aircraft, a DC9-15.              Scaife hangers and

maintains the aircraft in Latrobe, Pennsylvania.                On March 24,

1994,   Jeff    Bosque,   one     of   Associated    Air    Center’s    (“AAC”)

representatives,     sent    a     letter    and    an     original    proposed

Modification     Agreement   to    perform   a   corrosion    inspection    and

renovate the aircraft to Scaife’s chief pilot, Dan Harbaugh.               AAC,

a Texas corporation with its principal place of business in Dallas,

Texas, repairs and renovates aircraft.             The proposal and bid for

$2,300,000 was executed by AAC’s president, Roy Gilbreath.                 In a

letter attached to the proposal, AAC expressly requested that

Harbaugh execute the agreement and “return one fully executed copy

to [AAC] for our files.”

     Harbaugh sent the agreement to one of Scaife’s attorneys,

Thomas Zwilling of Strassburger McKenna Gutnick & Potter. On March

30, AAC representative Bosque faxed an unexecuted second proposed

Modification Agreement directly to Zwilling. This second agreement

incorporated suggestions from Zwilling which materially changed the

                                        2
first agreement.   Zwilling then faxed the second revised agreement

to Harbaugh.

     The next day, Zwilling sent an unexecuted four-page fax to

Bosque with several changes to the second revised agreement.

Bosque made these revisions and faxed an unexecuted third proposed

Modification Agreement back to Zwilling.    Bosque was supposed to

send a final Modification Agreement with AAC’s authorized signature

to Zwilling by April 4.      In fact, expecting Bosque to send the

signed agreement to Zwilling, Harbaugh had arranged to travel to

Zwilling’s office on April 4 to sign the agreement on behalf of

Scaife Flight Operations.

     Bosque never sent a final agreement to Zwilling or any other

Scaife representative. Harbaugh contacted AAC and asked Bosque why

AAC never sent the final agreement.   Bosque explained that AAC had

concerns about the scope of work to be performed on the aircraft.

Bosque asked Harbaugh whether Scaife would consider changes in the

agreement to reduce certain costs for AAC.      Harbaugh declined.

AAC’s President, Roy Gilbreath, also told Harbaugh that AAC had

underbid the job by $200,000 to $250,000. Gilbreath then attempted

to continue the negotiations with Harbaugh. Harbaugh again refused

to modify the agreement and stated that Scaife expected AAC to

honor the final agreement.

     When AAC failed to begin work on the aircraft, Scaife brought

this breach of contract action in the United States District Court

for the Western District of Pennsylvania.      The case was later

transferred to the Northern District of Texas on the basis of a

                                  3
forum selection clause in the proposed contract.1              After receiving

the case from Pennsylvania, the federal district court in Texas

entered its standard order for the parties to participate in a pre-

trial settlement conference.          Paragraph 9(a) of the order required

that       all   parties   and   counsel    participate   in   person,   not   by

telephone or other remote means. Later, the district court entered

a Mediation Order stating:

                 The named parties shall be present during the
                 entire mediation process and each party which is
                 not a natural person must be represented by an
                 executive officer with authority to negotiate a
                 settlement. Counsel and parties shall proceed in a
                 good faith effort to try to resolve this case.

The instructions from the mediator also required that “party

representatives must have authority to settle and all persons

necessary to the decision to settle shall be present.”

       Before the scheduled mediation, AAC learned that Richard

Scaife was not going to attend and that Scaife planned on sending

Harbaugh in his place.           AAC contacted the district court and told

the court of this development.             Scaife’s local counsel requested a

conference for the purpose of determining whether Richard Scaife

was required to attend the mediation.               At the conference, local

counsel explained to the district court that Mr. Gutnick, Scaife’s

       1
       All of the drafts of the modification agreement relied upon
by Scaife as constituting the alleged contract required that any
disputes arising under the agreement “shall be governed by the law
of the State of Texas.”

                                           4
Pittsburgh lawyer, told Scaife that Harbaugh should attend the

mediation and that his attendance was not required.        As a result,

Scaife had not made plans to attend.

     The district court made it clear during the conference call

that Scaife was expected to attend the mediation.         Local counsel

advised    Gutnick   of   the   district   court’s   position.   Scaife

purportedly told Gutnick that he did not want to appear and

authorized Gutnick to file a motion to voluntarily dismiss the case

without prejudice to avoid violating the court’s order requiring

him to appear at the mediation.     This motion was filed on September

20, 1995.

     The next day, Scaife’s local counsel appeared at the mediation

without Scaife and tendered a check to the mediator.        AAC filed a

motion to dismiss with prejudice under Rule 16(f) and 41(b) as a

sanction for Scaife’s failure to appear.             The district court

scheduled a hearing for both Scaife’s voluntary motion to dismiss

and AAC’s motion to dismiss, which included a motion for sanctions.

After the hearing, the district court denied AAC’s motion to

dismiss and entered a sanction order against Scaife and Gutnick.

The district court ordered Scaife to pay all of AAC’s expenses,

including attorney’s fees, incurred in preparing for and attending

the mediation session and the subsequent hearing on the motions to

dismiss.    The district court sanctioned Gutnick by admonishing him

that his role, as officer of the court, is not to unilaterally

interpret away a court order by advising his client to do something

other than what the court’s order plainly requires.        The district

                                     5
court    ordered   Gutnick   to    (a)     publish     the   district   court’s

memorandum    order   to   all   members    of   his   firm;   (b)   bring   the

memorandum order to the attention of any court to which he may

apply in the future; and (c) file a personally signed certificate

acknowledging that he read the memorandum and agrees to comply with

the stated terms of the sanction order.                 Five days later the

district court entered summary judgment against Scaife on the

breach of contract claims.          Scaife appealed from the district

court’s summary judgment order and Gutnick appealed from the

district court’s order imposing sanctions.

                                  DISCUSSION

     We review the district court’s decision to grant summary

judgment de   novo.   Burditt v. West American Ins. Co., 86 F.3d 475,

476 (5th Cir. 1996).         The district court’s sanction order is

reviewed for abuse of discretion.            Natural Gas Pipeline Co. of

America v. Energy Gathering, Inc., 86 F.3d 464, 467 (5th Cir.

1996).

1. The Contract

     Scaife contends that the district court erred in treating the

formation of a binding contract as a legal issue for the court to

decide. Foreca, S.A. v. GRD Development Co., Inc., 758 S.W.2d 744,

746 (Tex. 1988) (holding that questions concerning the formation

and terms of a particular contract, and the intent of the parties,

were properly considered questions of fact for a jury to decide).

                                      6
Scaife argues that substantial evidence of offer and acceptance

exists in this case to warrant submitting the case to a jury.

Scaife notes that AAC executives, Bosque and Gilbreath, admitted in

deposition    testimony     that   the    terms   and    conditions     of   the

Modification Agreement had been fully and fairly agreed upon by the

parties and    that   AAC   was    willing   to   proceed    until    Gilbreath

unilaterally terminated the contract.

     Scaife also argues that the district court incorrectly framed

the issue as whether the parties intended to make a signed or

unsigned written contract. Scaife contends that the issue turns on

whether the parties intended signatures to be a condition precedent

to an enforceable contract.          As support for this proposition,

Scaife notes that Bosque’s March 24 cover letter to Harbaugh states

“[w]e now have everyones [sic] verbal approval on both the contract

language and payment schedule.        The enclosed contracts are for the

modification and maintenance of [the aircraft].             Please return one

fully executed copy to us for our files.”               Scaife contends that

this letter shows AAC’s intent to have the execution of the

contract considered a mere formality.

     Scaife argues next that the district court ignored the factual

distinctions between the cases it cited and the present case.

Scaife contends that in the case heavily relied upon by the

district court, Simmons and Simmons Constr. Co. v. Rea, 286 S.W.2d
415, 418 (Tex. 1955), the Texas Supreme Court found no evidence

that the parties intended the writing to be a binding contract

absent their signatures.      In contrast, Scaife argues that a wealth

                                      7
of evidence exists to show that signatures were not required to

make a binding contract in this case.       As support, Scaife contends

that it deposited $800,000 into its bank account on April 5 as the

first installment became due and cut a check payable to AAC on the

same    day.    Scaife   also     notes   that   Harbaugh   made   lodging

arrangements near AAC’s facilities for the three months that the

aircraft was scheduled to be worked on and that Harbaugh told two

other bidders that Scaife had chosen AAC for the renovation work.

       Scaife also argues that, in Simmons, the plaintiff sued to

enforce a contract even though the defendant never indicated that

he accepted the contract.       Scaife contends that the district court

erred in relying on this case because the defendant AAC is the

signatory and there is no question that AAC intended to be bound by

this agreement.    Scaife maintains that the district court also

incorrectly cited Simmons for the proposition that “if parties

negotiating a contract intend for the contract to be reduced to

writing and signed, then no contract is formed unless and until the

writing has been executed by both the parties.”             According to

Scaife, Simmons does not stand for this proposition.

       AAC argues that Texas law states that if the parties intend

for the contract to be reduced to writing, no offer and acceptance

exists unless and until the writing is executed by all the parties.

Simmons, 286 S.W.2d at 418. AAC contends that the summary judgment

evidence proves that Scaife and AAC intended the agreement to be

signed by both parties.         For example, AAC notes that (1) the

agreement had signature blocks for the parties to sign; (2) the

                                     8
language in the agreement provided “IN WITNESS WHEREOF, the parties

have caused this agreement to be executed by their duly authorized

representative at Dallas, Texas, on the first date written above;”

(3) one third of the contract price was due “upon the signing of

the contract;” (4) the aircraft was to be delivered to the owner

within 90 days subject to the execution of the contract; and (5) a

clause in the contract stated that no party could alter or amend

the contract except in writing signed by both parties.

     Furthermore, AAC argues that Harbaugh’s deposition testimony

stated that Bosque would have Gilbreath sign the agreement and then

ship it to Scaife Flight Operations for Harbaugh to sign.   Harbaugh

stated that he did not want to make another trip to Zwilling’s

office to sign the agreement unless it would definitely be there.

AAC maintains that this evidence shows that Scaife and AAC intended

for the agreement to be signed before a binding contract was

formed.

     Further, AAC maintains that the district court’s reliance on

Simmons was proper because that case reached the issue of whether

a signature was required on a contract as a condition precedent for

formation of the contract.   As in the present case, the summary

judgment evidence shows that AAC and Scaife intended for the

signatures to be a condition precedent to the formation of the

contract.   AAC contends that regardless of how the issue was

framed, each party’s signature was required for the formation of

this contract.    Scaife’s attempt to distinguish Simmons fails

                                9
because Simmons established that if parties negotiating a contract

intend to require signatures, then a contract is not formed unless

both parties sign the contract.          Simmons, 286 S.W.2d at 419.

       The issue of whether the parties required that the agreement

be   signed    to    be   considered   binding   is   one   of   intent,   and,

therefore, the issue is normally a fact question for the jury to

decide.    Foreca, 758 S.W.2d at 746; Scott v. Ingle Bros. Pacific,

Inc., 489 S.W.2d 554, 556 (Tex. 1972); and Simmons, 286 S.W.2d at

417.   However, the district court decided that Scaife’s assertions

did not raise a genuine issue of material fact concerning whether

the parties intended to make signatures a requirement for the

formation of a binding contract and, on these grounds, the district

court granted summary judgment.             We note that parties may enter

into an oral contract even though they are contemplating a formal

writing.      See Simmons, 286 S.W.2d at 418.         The subsequent writing

then becomes merely a “convenient memorial” of the agreement.

Cothron Aviation, Inc. v. Avco Corp., 843 S.W.2d 260, 263 (Tex. Ct.

App.--Fort Worth 1992, writ denied).             The “convenient memorial”

doctrine usually requires a finder of fact to ascertain whether the

parties intended to be bound by the agreement before the agreement

was formally executed.        Id.

       However, the question presented here is not whether there was

a prior oral contract. The evidence clearly shows that the parties

intended that a written contract would govern their agreed upon

obligations.        Instead, the question presented is whether the third

proposed agreement was accepted and became a binding contract

                                       10
without the signatures of the parties.          When reviewing written

negotiations, the question of whether an offer was accepted and a

contract was formed is primarily a question of law for the court to

decide.   S & A Marinas, Inc. v. Leonard Marine Corp., 875 S.W.2d
766, 769 (Tex. Ct. App.--Austin 1994, writ denied).         If an agree-

ment has been reduced to writing, as it was in this case, an assent

to the writing must be manifested.       Simmons, 286 S.W.2d at 418;

Cothron Aviation, 843 S.W.2d at 264.           Manifestation of assent

“commonly consists of signing and delivery.”       Simmons, 286 S.W.2d

at 418; and see Cothron, 843 S.W.2d at 264.

      The contract in this case was revised at least three times and

expressly contained signature blocks for the parties. All three of

the   proposed   agreements,     entitled      “Aircraft    Modification

Agreement,” included the following clause and signature blocks:

           IN WITNESS WHEREOF, the parties have caused this
           Agreement to be executed by their duly authorized
           representative at Dallas, Texas, on the date first
           above written.

           SCAIFE FLIGHT OPERATIONS
           By:_____________________
           Duly Authorized Representative
           Date:___________________

                            ASSOCIATED AIR CENTER, INC.
                            By:________________________
                                 Roy G. Gilbreath
                                        President
                            Date:_____________________

Harbaugh’s deposition testimony explained that Gilbreath was to

sign the agreement for AAC and send it to Zwilling’s office for

Harbaugh’s signature. The contract was never delivered and neither

party ever   signed   the   agreement.   “If    parties    negotiating   a

                                  11
contract intend that the contract shall be reduced to writing and

signed by the parties, ... then either party may withdraw at any

time before the written agreement is drawn up and signed by both

parties.”      Gasmark, Ltd. v. Kimball Energy Corp., 868 S.W.2d 925,

929 (Tex. Ct. App.--Fort Worth 1994, no writ) (citing Premier Oil

Refining Co. of Texas v. Bates, 367 S.W.2d 904, 907 (Tex. Ct. App.

--Eastland 1963, writ ref’d n.r.e.)).

     In this case the contract was never signed.            Signature blocks

were included on the contract and Scaife took affirmative steps to

ensure that a representative would be able to sign the agreement

once a finalized contract had been prepared and signed by AAC.                We

hold that the parties contemplated the formation of a binding

agreement to include the signatures of both parties.              No evidence

shows   that    AAC   began   work   on   the   aircraft   or   acted   in   any

affirmative manner to assent to the agreement notwithstanding the

lack of delivery and formal execution of the contract.            Foreca, 758
S.W.2d at 746 n.2 (listing criteria which may be helpful in

determining whether a contract has been formed, such as whether a

party takes action in preparation of performance). After carefully

reviewing the summary judgment evidence, we agree with the district

court that the parties intended to manifest their assent to this

agreement through a formal written contract signed by both parties.

We hold that no contract was ever formed and, as a result, summary

judgment was appropriate in this case.

                                      12
2. Sanctions

     Federal    courts    have   inherent    powers     which   include   the

authority to sanction a party or attorney when necessary to achieve

the orderly and expeditious disposition of their dockets. Chambers

v. NASCO, Inc., 501 U.S. 32, 43 (1991); Natural Gas Pipeline Co.,
86 F.3d at 467.    We review sanctions imposed under the district

court’s inherent powers for abuse of discretion.                Natural Gas

Pipeline Co., 86 F.3d at 467.

     “[T]he threshold for the use of inherent power sanctions is

high.”     Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir.

1995). “Such powers may be exercised only if essential to preserve

the authority of the court and the sanction chosen must employ the

least possible    power   adequate    to    the   end   proposed.”    Energy

Gathering, 86 F.3d at 467 (internal quotations omitted).

     At the conference held the day before the mediation, the court

advised Gutnick that Scaife would be required to attend.             Because

Scaife was unable to attend the mediation on such short notice,

Gutnick filed a motion to dismiss without prejudice to avoid

violating the district court’s order.

     The district court then held a hearing on the motions to

dismiss filed by both parties. AAC’s motion also included a motion

for sanctions.    After the hearing, the district court issued an

order imposing sanctions on Scaife, requiring Scaife to pay all

costs associated with the aborted mediation and the motions to

dismiss.    This sanction order was not appealed by Scaife.

                                     13
     The district court also sanctioned Gutnick by admonishing him

not to unilaterally interpret away a court order by advising his

client to do something other than what a district court’s order

requires that client to do.       The district court sanctioned Gutnick

by requiring him to (a) publish the district court’s memorandum

order to all members of his firm; (b) bring the memorandum order to

the attention of any court to which he may apply in the future; and

(c) file a personally signed certificate acknowledging that he read

the memorandum and agrees to comply with the stated terms of the

sanction order.

     Gutnick argues that the district court abused its discretion

because the sanctions order is grossly excessive and the court did

not issue specific findings to show that Gutnick acted in bad

faith.    See Dawson v. United States, 68 F.3d 886, 895 (5th Cir.

1995)    (noting   that   in   order   for   a   district   court   to   impose

sanctions under its inherent power a specific finding of bad faith

must be made).     Gutnick contends that he never advised Scaife to

disobey the court order to appear at the mediation hearing and that

Scaife never wilfully violated the court’s order.             Gutnick argues

that he and Scaife acted on good faith reliance that Harbaugh’s

attendance was sufficient to satisfy the requirements of Rule 16

and the pretrial and mediation orders to send a person with

settlement authority to the mediation.

     Gutnick contends that the sanctions assessed not only harm his

personal reputation, but restrict his ability to practice in other

state and federal courts by requiring him to submit a copy of the

                                       14
sanction order to any bar which Gutnick is not currently a member.

Gutnick argues that the sanction order violates the Tenth Amendment

by invading the exclusive authority of state courts to regulate

admission to their respective bars. Further, Gutnick contends that

the district court’s order violates 28 U.S.C. § 2071 because it

creates new conditions for Gutnick’s admission to practice in other

federal courts.      Finally, Gutnick argues that he was denied due

process because the district court failed to provide him with an

adequate notice and opportunity to be heard on the sanction issue.

      After carefully reviewing the record in this case, we hold

that the district court abused its discretion by failing to employ

the least severe sanction adequate to achieve the desired result.

It is understandable that the district court would believe that

some sanction was required when, after issuing an order and holding

a conference to clarify the order, Scaife and Gutnick ignored such

order.     However, Gutnick explained that he made the decision to

have Harbaugh attend the mediation because he was the only person

involved    with   the   contractual    negotiations     for   Scaife   Flight

Operations. Harbaugh had all the requisite authority to settle the

case.    Scaife was not involved in the contractual negotiations and

had   no   knowledge     of   the   underlying   facts   of    this   dispute.

Therefore, Gutnick decided that Harbaugh would be the best person

to attend the mediation.

      We hold that the sanctions imposed on Gutnick are overbroad

and excessive.     We believe that the sanctions requiring Scaife to

pay all costs associated with the mediation and subsequent motions

                                       15
to dismiss is adequate and sufficient to serve the necessary

purpose of deterrence.   Therefore, we vacate the district court’s

order imposing sanctions on Gutnick.

                            CONCLUSION

     For the foregoing reasons, we AFFIRM the decision of the

district court granting summary judgment in favor of AAC and VACATE

the sanctions assessed by the district court against Gutnick.

                                16