Court Opinion

ID: 3014086
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Date Created: 2015-10-13 22:00:22.119026+00
Date Added: 2024-06-11T11:25:52.486255
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Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

6-10-2004

IPSCO Steel v. Blaine Constr Corp
Precedential or Non-Precedential: Precedential

Docket No. 03-2929

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Recommended Citation
"IPSCO Steel v. Blaine Constr Corp" (2004). 2004 Decisions. Paper 559.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/559

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                      PRECEDENTIAL             COMPANY, a Massachusetts
                                            Corporation; MARSH USA, INC., a
   UNITED STATES COURT OF                    Delaware Corporation f/k/a J&H
APPEALS FOR THE THIRD CIRCUIT                MARSH & MCLENNAN, INC.;
          __________                          LIBERTY INTERNATIONAL
                                            CANADA, a division of LIBERTY
            No. 03-2929                    MUTUAL INSURANCE COMPANY, a
            __________                          Massachusetts Corporation.

IPSCO STEEL (ALABAMA), INC., an                      Kvaerner U.S. Inc., Appellant
    Alabama Corporation; IPSCO
 CONSTRUCTION, INC., an Alabama              (D.C. Civil Action No. 01-cv-00440)
Corporation; KVAERNER U.S. INC., a
        Delaware Corporation                               _________

                 v.                                   On Appeal from the
                                             United States District Court for the
    BLAINE CONSTRUCTION                       Western District of Pennsylvania
   CORPORATION, a Tennessee                 District Judge: Hon. Arthur J. Schwab
         Corporation.                                    __________

       Kvaerner U.S. Inc., Appellant         Argued on Tuesday, April 20, 2004
                                                      ___________
 (D.C. Civil Action No. 99-cv-02055)

            __________                     Before:       SCIRICA, GARTH, and
                                                         BRIGHT,* Circuit Judges
            No. 03-2966
            __________
                                                (Opinion Filed: June 10, 2004)
    BLAINE CONSTRUCTION
   CORPORATION, a Tennessee
          Corporation

                 v.

 IPSCO CONSTRUCTION, INC., an
 Alabama Corporation; KVAERNER                   *
                                                  Honorable Myron H. Bright,
  U.S. INC., a Delaware Corporation;       United States Court of Appeals for the
 LIBERTY MUTUAL INSURANCE                  Eighth Circuit, sitting by designation.

                                       1
Doty, Robert W.                             Washington, DC 20005
Ejzak, Richard A. (argued)
Roman, Andrew M.                            Attorneys for Appellees IPSCO Steel
Cohen & Grigsby, P.C.                       (Alabama) Inc. and IPSCO Construction
11 Stanwix Street, 15th Floor               Inc.
Pittsburgh, PA 15222
                                            Medved, George M.
Rogers, E. Mabry                            Pepper Hamilton LLP
Bradley, Arant, Rose & White, LLP           500 Grant Street
1819 Fifth Avenue North                     5000 One Mellon Bank Center
Birmingham, AL 35203                        Pittsburgh, PA 15219

Attorneys for Appellant Kvaerner U.S.       Little, J. Ford
Inc.                                        Noell, Robert P.
                                            Walton, Monty L.
Dingess, John R.                            Woolf, McClane, Bright, Allen &
Lund, Kenneth J.                            Carpenter, PLLC
Saulnier, Brian F.                          900 South Gay Street
Kirkpatrick & Lockhart LLP                  Suite 900, Riverview Tower
535 Smithfield Street                       Knoxville, TN 37902
Henry W. Oliver Building
Pittsburgh, PA 15222                        Attorneys for Appellee Blaine
                                            Construction Corporation
Lucas, Kevin P.
Williams, Robert J.                         Long, Kevin M.
Manion, McDonough & Lucas P.C.              Van Vugt, Eric J.
600 Grant Street                            Quarles & Brady LLP
Suite 1414                                  411 East Wisconsin Avenue, #2500
Pittsburgh, PA 15219                        Milwaukee, WI 53202

Harper, Steven J. (argued)                  Attorney for Appellee Marsh USA, Inc.
Kirkland & Ellis LLP
200 East Randolph Drive                     Reed, Jonathan S.
Suite 6500                                  Smith, Sean K.
Chicago, IL 60601                           Traub, Richard K.
                                            Traub, Eglin, Lieberman & Straus
Landau, Christopher                         100 Metroplex Drive
Kirkland & Ellis LLP                        Metroplex Corporate Center I, Suite 203
655 15th Street, N.W.                       Edison, NJ 08817
Suite 1200

                                        2
Sherman, C. Leon                                 suppliers. The PMA also specified that
C. Leon Sherman & Associates                     Kvaerner was “IPSCO’s agent for the
20 Stanwix Street                                purpose of administering Supplier
5th Floor                                        Contracts and managing and
Pittsburgh, PA 15222                             coordinating Suppliers’ Work” and that,
                                                 in connection with liens and disputes,
Attorneys for Appellee Liberty Mutual            Kvaerner was “to protect IPSCO’s
Insurance Company                                interests at all times.”

              __________                                 The PMA prescribed certain
                                                 penalties and incentives. Kvaerner
               OPINION                           expressly warranted that the “Aggregate
              __________                         Cost” of the project would not exceed a
                                                 “Guaranteed Maximum Price” of $182
                                                 million and that it would reimburse
Garth, Circuit Judge:                            IPSCO for any costs in excess of $182
                                                 million. If, however, the Aggregate Cost
        The question which we must               came in below the Guaranteed Maximum
answer on this appeal is whether the             Price, IPSCO promised to share 50% of
District Court properly approved two             the savings with Kvaerner.
settlement agreements among the
litigants over the objection of one of the               The PMA anticipated that certain
parties, Kvaerner U.S. Inc. (“Kvaerner”).        disputes would arise with the suppliers
Because we hold that the District Court          and it authorized Kvaerner to serve as
did not err, we affirm.                          IPSCO’s litigation manager. The
                                                 relevant provision, which is Section
                    I.                           4.04(x) in the PMA, reads:

              A. Kvaerner                              The Project Manager
                                                       [Kvaerner] shall be
       This litigation arose from a $550               primarily responsible for
million project involving the                          the management and
construction of a steel plant in Alabama.              resolution, either with its
The project owner, IPSCO Steel, Inc.                   own resources or through
(“IPSCO”) hired Kvaerner as its Project                legal counsel or other
Manager. Under the Project                             consultants, of claims and
Management Agreement (“PMA”),                          disputes between Suppliers
Kvaerner was responsible for                           and with Suppliers within
recommending the contracts that IPSCO                  the Guaranteed Portion of
awarded to various subcontractors and                  the Project . . . provided

                                             3
       that [Kvaerner] shall                     Corporation (“Blaine”). Less than one
       promptly inform and keep                  year into the project, Blaine discovered
       IPSCO fully informed of                   design errors in its work and abandoned
       such claims and disputes                  the project, which caused significant
       and any negotiations or                   disruptions and delays.
       legal proceedings with
       such Suppliers . . . [and]                        In response to Blaine’s
       that any final resolution or              unexpected abandonment, IPSCO and
       settlement of such dispute                Kvaerner entered into a written
       shall be subject to IPSCO’s               agreement reinforcing their (IPSCO’s
       approval . . . [and]                      and Kvaerner’s) agency relationship and
       IPSCO’s interests are                     amending certain aspects of the PMA.
       otherwise at all times                    The “Amending Agreement,” which
       protected . . . .                         estimated the losses resulting from
                                                 Blaine’s abandonment to be in the range
(Appendix at 220.)                               of $14 million to $18 million, provided
                                                 that any proceeds ultimately recovered
       The PMA also included an                  from Blaine or its insurers, if any, would
insurance component. Specifically, the           be paid solely to IPSCO, but that such
PMA required IPSCO to procure at least           recovered funds would be applied as a
$20 million of professional liability            credit against the “Aggregate Cost”
insurance covering Kvaerner, the sub-            under the PMA.
consultants, and the design
professionals. To satisfy this obligation,               Under the terms of the Amending
IPSCO hired Marsh USA, Inc.                      Agreement, IPSCO and Kvaerner agreed
(“Marsh”), an insurance broker, who in           Kvaerner would pursue recovery from
turn procured a $20 million policy from          Blaine, Liberty Mutual and Marsh for
Liberty Mutual Insurance Company                 damages resulting from Blaine’s
(“Liberty Mutual”). The policy was a             conduct. More important, IPSCO and
so-called “wasting policy,” whereby              Kvaerner agreed their respective roles in
costs of defending legal actions would           that dispute would be governed by
be deducted from the total amount of             Section 4.04(x) of the PMA. See
available coverage.                              Amending Agreement ¶ 5.01 (“The
                                                 rights and responsibilities of [Kvaerner]
                B. Blaine                        and IPSCO in respect of the Blaine
                                                 Action will be governed by section
       On Kvaerner’s recommendation,             4.04(x) [of the PM A].”) (App. 278.).
IPSCO awarded the contract to complete
the design and construction of the                  C. Construction Action; Coverage
primary buildings to Blaine Construction                         Action

                                             4
       At about the same time, IPSCO               stipulated judgment against Blaine in
and Kvaerner filed suit against Blaine in          favor of IPSCO. Blaine, however, had
the District Court for the Western                 “empty pockets,” so IPSCO and
District of Pennsylvania, where                    Kvaerner further agreed that they would
Kvaerner has its principal place of                satisfy the $26 million judgment, if any,
business. The complaint sought to                  by looking solely to Blaine’s insurers.
recover the damages caused by Blaine’s
abandonment and design errors. For                        To that end, the Construction
ease of reference, we will refer to this           Action Settlement required Blaine to
lawsuit as the “Construction Action.”              continue prosecuting the Coverage
                                                   Action against Liberty Mutual and
       Blaine then turned to Liberty               against Marsh. Blaine was prohibited
Mutual and demanded both defense and               from settling any of its claims without
coverage under the $20 million wasting             prior written approval from IPSCO and
policy that Liberty Mutual had issued.             Kvaerner. Upon learning of the
When Liberty Mutual denied coverage                Construction Action Settlement, the
on the ground that it had allegedly never          District Court stayed both the
received proper notice that Blaine was an          Construction Action and Coverage
insured under the policy, Blaine filed             Action, presumably because a finding of
suit against Liberty Mutual in the                 “no liability” in the arbitration
Western District of Pennsylvania seeking           proceeding would put an end to both
a declaration from the court that it was           lawsuits.
covered under the policy. Blaine also
asserted claims against Marsh, the                  D. Alabama Action Against Kvaerner
insurance broker, because Marsh had
issued an “advice of insurance” three                      Meanwhile, IPSCO filed a lawsuit
years earlier assuring Blaine that it was          against Kvaerner in federal court in
covered by the Liberty Mutual policy.              Alabama seeking more than $60 million
We refer to this lawsuit as the “Coverage          in various cost overruns on the project.
Action.”                                           These cost overruns included damages
                                                   resulting from Blaine’s abandonment of
        The following year, IPSCO and              construction. Because Kvaerner is
Kvaerner entered into a confidential               insured under the $20 million policy
settlement agreement with Blaine (the              issued by Liberty Mutual, almost all of
“Construction Action Settlement”).                 the defense costs that it incurred in the
Under that agreement, the parties agreed           Alabama lawsuit have been paid by
to submit the issue of Blaine’s liability to       Liberty Mutual. Accordingly, each
an arbitration panel and, in the event the         dollar spent on Kvaerner’s defense
arbitration panel found Blaine liable, the         reduced Liberty Mutual’s coverage
parties agreed to enter a $26 million              under its wasting policy. It was

                                               5
estimated at oral argument that $5                      litigation against Liberty
million had been expended to that time.                 and Marsh U.S.A., Inc.
                                                        (“Marsh”).
     E. Liberty Mutual Settlement
                                                        Blaine, IPSCO, and
       While the arbitration proceeding                 Liberty have now
was pending, IPSCO, Blaine, and                         concluded a settlement
Liberty Mutual commenced settlement                     agreement to resolve the
discussions. Apparently, Kvaerner was                   Pennsylvania proceedings
invited to participate in these                         as to all parties except
discussions, but declined to do so. In                  Marsh. A copy of the
May 2003, IPSCO, Blaine, and Liberty                    Settlement Agreement is
Mutual reached a settlement that                        enclosed.
resolved all of the outstanding claims in
the Construction and Coverage Actions                   Pursuant to the PMA,
except those claims involving Marsh (the                IPSCO hereby directs
“Liberty Mutual Settlement”). Under the                 Kvaerner, as its agent, to
Liberty Mutual Settlement, (i) IPSCO                    confirm in the space
and Kvaerner agreed to release all claims               provided below that
that they had asserted in the Construction              Kvaerner consents to the
Action against Blaine, and (ii) Blaine                  enclosed Settlement
agreed to release all claims that it had                Agreement insofar as any
asserted in the Coverage Action against                 such consent might be
Liberty, IPSCO and Kvaerner. In return,                 required from Kvaerner.
Liberty Mutual agreed to pay $6 million                 Please return a
to IPSCO.                                               countersigned copy of this
                                                        letter.
      Immediately after the Liberty
Mutual Settlement was reached, IPSCO             (App. at 334.)
mailed a letter to Kvaerner which read:
                                                         Kvaerner refused to consent to the
       As you know, pursuant to                  Liberty Mutual Settlement because it felt
       Section 4.04(x) of the                    that the $6 million settlement was
       PMA, Kvaerner has been                    insufficient in light of the negotiated
       acting as agent and                       judgment of $26 million. When
       litigation manager for                    Kvaerner made it known that it would
       IPSCO in the Pennsylvania                 not consent to the Liberty Mutual
       legal proceedings against                 Settlement of $6 million, IPSCO filed a
       Blaine and related                        motion in the District Court asking the
       insurance coverage                        District Court Judge to: (i) reopen the

                                             6
Construction and Coverage Actions; (ii)           motions in their entirety, thereby
approve the Liberty Mutual Settlement             approving the Liberty Mutual and Marsh
of $6 million; and (iii) dismiss all of the       Settlement Agreements and dismissing
claims in the Construction and Coverage           both actions. The District Court
Actions except those involving Marsh.             concluded that Kvaerner could not
Kvaerner opposed the motions, arguing             unilaterally veto or affect the Settlement
that IPSCO had no right to force it to            Agreements because, under the PMA, it
accept a settlement agreement to which it         was required to “protect IPSCO’s
did not agree.1                                   interests” in any litigation with project
                                                  suppliers. The District Court held that:
             F. Marsh Settlement                  (i) Kvaerner had a fiduciary duty as
                                                  IPSCO’s agent to act for IPSCO’s
       Shortly before the District Court          benefit; (ii) IPSCO had the right to
was scheduled to hear oral argument on            control the resolution of disputes and
IPSCO’s motions, IPSCO reached a                  litigation; and (iii) Kvaerner was
settlement with Marsh on the remaining            contractually obligated to follow any
claims (the “Marsh Settlement”). In               instructions by IPSCO. In short, the
exchange for a release of all claims in           District Court found that the agency
the Coverage Action, Marsh agreed to              relationship prohibited Kvaerner from
pay IPSCO $500,000. Two days before               placing its own financial interests ahead
oral argument, IPSCO filed a motion to            of IPSCO’s interests. The District Court
approve the Marsh Settlement in the               therefore approved the Liberty Mutual
District Court.                                   and Marsh Settlements and dismissed the
                                                  Construction and Coverage Actions.
           G. District Court Ruling
                                                         Kvaerner thereafter filed these
       Following oral argument, the               appeals. We have jurisdiction to hear the
District Court granted both of IPSCO’s            appeals pursuant to 28 U.S.C. § 1291.
                                                  The District Court’s factual findings will
                                                  not be reversed unless the record
       1
         Lexington Insurance Company              demonstrates that they are clearly
(“Lexington”), which had issued a                 erroneous. See Fed. R. Civ. P. 52(a).
professional liability policy to Kvaerner,        Conclusions drawn with respect to the
also opposed the proposed settlement,             legal effect of any agreement are,
although it was not a party to either             however, questions of law and therefore
action. Lexington has filed a separate            subject to plenary review. See Linder v.
appeal, which we also decide today. See           Inhalation Therapy Servs., Inc., 834 F.2d
IPSCO Steel (Alabama) Inc. v. Blaine              306, 310 (3d Cir. 1987).
Constr. Corp., at Docket Nos. 03-
3109/3110, -- F.3d -- (3d Cir. 2004).                                II.

                                              7
       The crux of the issues on appeal                    The District Court’s finding is
is whether the District Court erred when           supported by the PMA. The PMA gives
it approved the two Settlement                     Kvaerner “primary responsibility” for
Agreements, notwithstanding Kvaerner’s             disputes between IPSCO and its
objection. The answer turns primarily              Suppliers, but requires Kvaerner to
on the question of whether Kvaerner was            protect IPSCO’s interests “at all times”
IPSCO’s agent for purposes of the                  and reserves final settlement approval to
lawsuits and whether Kvaerner                      IPSCO.3 Thus, IPSCO assigned certain
contracted to protect IPSCO’s interests.           authority to Kvaerner, but it retained the
                                                   right to control the manner in which
        Under Alabama law, “[a]gency is            Kvaerner managed disputes and it
generally a question of fact to be                 [IPSCO] retained the right to control
determined by the trier of fact.”2 Thrash          settlements of disputes.
v. Credit Acceptance Corp., 821 So. 2d
968, 972 (Ala. 2001). The existence of a                  Kvaerner contends that it is not
principal-agent relationship normally              the agent of IPSCO for purposes of the
turns on whether the alleged principal             contested settlements. First, Kvaerner
reserved a right of control over the               argues that, “[t]he fact that IPSCO (and
manner of the alleged agent’s                      Blaine and Liberty Mutual) conditioned
performance. Id. “The right-of-control             the effectiveness of the [Liberty Mutual
test requires that the right be reserved,          Settlement] on Kvaerner’s consent
not that the right be actually exercised.”         demonstrates that those parties
Id. “How the parties characterize the              themselves view the rights subject to
relationship is of no consequence; it is           dismissal as belonging, at least in part, to
the facts of the relationship that control.”       Kvaerner in its own right.” Under
Id.                                                Alabama law, however, the right-of-
                                                   control need only be reserved, not
        The District Court found that              exercised. See Thrash, 821 So. 2d at
Kvaerner was contractually obligated to            972.
act as IPSCO’s agent and litigation
manager for purposes of disputes arising
between IPSCO and IPSCO’s suppliers
and subcontractors on the project.                        3
                                                             Kvaerner reaffirmed its duty to
                                                   protect IPSCO’s interests when it
                                                   entered into the Amending Agreement
       2
         The PMA has a choice-of-law               with IPSCO, which provided that IPSCO
clause stating that the “Agreement shall           and Kvaerner’s respective roles in the
be interpreted and construed in                    litigation against Blaine, Liberty Mutual,
accordance with the laws of the State of           and Marsh would be governed by
Alabama.” (App. at 207.)                           Section 4.04(x) of the PMA.

                                               8
       Thus, it is of no consequence that        duty of loyalty, good faith, and fair
IPSCO instructed Kvaerner to give its            dealing.”). That duty of loyalty required
consent to the settlements. Kvaerner, as         Kvaerner to protect IPSCO’s best
IPSCO’s agent and pursuant to its                interests. Once IPSCO made it known
agreement to protect IPSCO’s interests,          that it had reached a settlement with
was required to do IPSCO’s bidding,              Liberty Mutual and Marsh, Kvaerner
which included Kvaerner’s consenting to          was under a duty to effectuate IPSCO’s
the two settlements. Moreover, it was            wishes and consent to the settlements.
understood that IPSCO conditioned the            See Am. Armed Servs. Underwriters, Inc.
effectiveness of the settlements on              v. Atlas Ins. Co., 108 So. 2d 687, 694-95
obtaining Kvaerner’s consent because             (Ala. 1958) (“An agent sustains a
Kvaerner was a named party in the                position of trust toward his principal and
Construction and Coverage Actions.               in all transactions affecting the subject of
                                                 his agency, the law dictates that he must
       Second, Kvaerner contends that            act in the utmost good faith . . . .”).
the District Court grossly exaggerated
Kvaerner’s agency role because the                      Kvaerner’s duty of loyalty
PMA assigned to Kvaerner “the primary            surmounted what could be considered as
responsibility for the management and            a conflict of interest. The “conflict”
resolution of claims and disputes                arose because Liberty Mutual had issued
between Suppliers and with Suppliers.”           a wasting policy. At the time that
Yet that statement serves only to confirm        IPSCO entered into the proposed
Kvaerner’s agency status in the                  settlements with Marsh and Liberty
Construction and Coverage Actions                Mutual, Liberty Mutual had already paid
because Blaine clearly falls within the          out approximately $5 million under the
definition of Supplier.4                         policy to Kvaerner to reimburse it for
                                                 defense costs that Kvaerner had incurred
       As IPSCO’s agent, Kvaerner                in the Alabama litigation. Because the
owed IPSCO a duty of loyalty. See                Alabama litigation had not yet ended,
Miller v. Jackson Hosp. & Clinic, 776            Kvaerner had a self-interest in ensuring
So. 2d 122, 124 (Ala. 2000) (“The                that funds remained available under the
principal-agency relationship is fiduciary       policy to continue paying for Kvaerner’s
in nature and imposes upon the agent a           future defense costs. Because it was a
                                                 “wasting” policy, however, each dollar
                                                 spent on Kvaerner’s defense costs
       4
         The PMA defines “Suppliers”             reduced the $20 million policy dollar-
as persons, firms or corporations                for-dollar. At the same time, IPSCO was
performing, providing or delivering              fully aware that the amount available
services, supplies, or labor on the              under the policy to pay for any judgment
project. (App. at 206.)                          that might be rendered in the Coverage

                                             9
Action was decreasing on a daily basis.            Kvaerner is permitted to place its own
Indeed, as we have noted, Liberty                  interests ahead of IPSCO’s interests,
Mutual’s policy was already depleted by            even if Kvaerner believed that IPSCO
$5 million and only $15 million                    was settling for too little.5
remained. Thus, it was in IPSCO’s
interests to reach a settlement with                      Courts have, in somewhat
Liberty Mutual sooner rather than later.           analogous situations, approved
Even though such a settlement was                  settlements over the objections of named
adverse to Kvaerner’s interests,                   parties. Of course, motions to approve
Kvaerner was required, as the protector            settlements most often arise in the class
of IPSCO’s interests, to resolve any such
conflicts in IPSCO’s favor.
                                                          5
                                                             Kvaerner believes that IPSCO
        Kvaerner contends, however, that,          settled with Liberty Mutual for an
even apart from the defense costs, it had          inadequate amount ($6 million) because
an independent financial interest in the           the Construction Action Settlement had
outcome of the Construction and                    provided that IPSCO and Kvaerner
Coverage Actions and therefore could               could enter a $26 million judgment
not be forced to consent to the                    against Blaine if the arbitration panel
settlements. Kvaerner emphasizes that              ruled that Blaine was liable. Blaine was
any funds recovered by IPSCO in a                  judgment proof and therefore any funds
settlement or a court judgment would be            to pay for the $26 million judgment
applied, under the Construction Action             would have to come from Blaine’s
Settlement, as a credit against the                insurers (i.e., Liberty Mutual).
“Aggregate Cost.” Because the
Aggregate Cost of the project will                         At the time of the settlements, the
ultimately determine whether Kvaerner              maximum possible recovery against
must pay IPSCO a penalty for exceeding             Liberty Mutual was already limited to
the $182 million Guaranteed Maximum                $15 million ($20 million policy limit
Price, Kvaerner contends that the size of          minus $5 million spent on Kvaerner’s
the settlement with Liberty Mutual and             defense costs). But in order for IPSCO
Marsh will ultimately have a financial             to recover from Liberty Mutual, two
effect on Kvaerner: it will either                 things had to happen. First, the
decrease the penalty Kvaerner must pay             arbitration panel had to find that Blaine
to IPSCO or it will increase the bonus             was liable and, second, Blaine had to
IPSCO must pay to Kvaerner.                        succeed in its lawsuit against Liberty
                                                   Mutual. Given the risks inherent in
        We acknowledge that the size of            those two events and the $15 million
the settlement will have an indirect effect        cap, a $6 million settlement does not
on Kvaerner, but it does not follow that           strike us as unreasonably small.

                                              10
action context, but they occasionally                      Kvaerner contends that the
come up in “ordinary” lawsuits as well.            Liberate decision is “readily
For example, in Liberate Technologies              distinguishable” on the ground that,
LLC v. Worldgate Communications, Inc.,             unlike the original patent holder in
133 F. Supp. 2d 357 (D. Del. 2001), a              Liberate, Kvaerner “never relinquished
company by the name of SMI Holdings,               its claims against Blaine.” We cannot
Inc. filed a patent infringement suit              agree. First, not only had Kvaerner
against Worldgate Communications, Inc.             agreed in the PMA that it would place
in the District of Delaware. Id. at 358.           IPSCO’s interests ahead of its own with
While the lawsuit was pending, SMI                 respect to managing litigation with
Holdings sold the patents to Liberate              suppliers, but it had unequivocally
Technologies LLC and asked the District            agreed that it would protect IPSCO’s
Court to substitute Liberate                       interests as it concerned liens and
Technologies as the plaintiff. Id. at 359.         disputes. Second, both the Amending
SMI Holdings remained a party to the               Agreement and the Construction Action
action, however, because of certain                Settlement specifically state that any
counterclaims that had been filed against          funds recovered against Blaine or its
it by Worldgate Communications. Id. at             insurers would be paid directly and only
358 n.1.                                           to IPSCO.

        Some time later, Worldgate                         Thus, notwithstanding Kvaerner’s
Communications and Liberate                        inclusion in the caption of the
Technologies settled the patent                    Construction Action Complaint as a co-
infringement claims, but SMI Holdings              plaintiff, the real, and indeed the only,
refused to allow the lawsuit to be                 party-in-interest in the Construction and
dismissed because it objected to the               Coverage Actions was IPSCO and
settlement agreement. Even though it no            Kvaerner could not veto or affect the
longer held title to the patents, SMI              Settlement Agreements.
Holdings argued, among other things,
that it was not adequately represented in                            III.
the settlement negotiations. The District
Court found this argument unpersuasive,                   Kvaerner complains that the
noting that there was “strong evidence”            District Court approved IPSCO’s motion
that SMI Holdings had given Liberate               to approve the Marsh Settlement without
the sole right “‘to not only try and settle        giving Kvaerner a reasonable
out the patent claims but to settle out the        opportunity to respond. As we
counterclaims that were brought.’” Id. at          previously mentioned, IPSCO filed the
359. Consequently, the district court              motion to approve the Marsh Settlement
granted the motion to approve the                  two days before oral argument was to be
settlement. Id. at 360.                            held on IPSCO’s previously-filed motion

                                              11
to approve the Liberty Mutual                     Marsh Settlement should not be
Settlement.                                       approved. As a consequence, the
                                                  District Court’s failure to give Kvaerner
        District courts must give a party         more time to respond to IPSCO’s motion
notice and an opportunity to respond              to approve the Marsh [Coverage]
before disposing of a case. See                   Settlement constitutes harmless error.
Neiderhiser v. Borough of Berwick, 840
F.2d 213, 216 n.6 (3d Cir. 1988)                                    IV.
(criticizing district court for not giving
parties opportunity to respond before                    For the foregoing reasons, we will
dismissing lawsuit for lack of subject            affirm the District Court’s two orders
matter jurisdiction); Anthuis v. Colt             dated June 6, 2003, which approved the
Industries Operating Corp., 789 F.2d              Liberty Mutual [Construction and
207, 211 (3d Cir. 1986) (criticizing              Coverage] Settlement and Marsh
district court for granting summary               [Coverage] Settlement and which
judgment without giving certain parties           dismissed the Construction and
opportunity to respond).                          Coverage Actions.

       In this case, we believe the
District Court should have given
Kvaerner an opportunity to file a brief in
response to IPSCO’s motion to approve
the Marsh Settlement. It does not
necessarily follow, however, that the
District Court’s chosen course of action
constitutes reversible error. Kvaerner
had an opportunity to respond to the
Marsh motion, albeit a limited one, at the
previously scheduled oral argument on
the Liberty Mutual Settlement.
Moreover, IPSCO’s motion to approve
the Marsh [Coverage] Settlement raised
essentially all the same issues that were
raised by IPSCO’s motion to approve the
Liberty Mutual [Construction and
Coverage] Settlement. Hence, by
presenting arguments as to why the
Liberty Mutual Settlement should not be
approved, Kvaerner’s attorney was also
presenting arguments as to why the

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