Court Opinion

ID: 6330944
Source: CourtListenerOpinion
Date Created: 2022-04-13 17:01:18.814623+00
Date Added: 2024-06-11T09:23:06.953067
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ____________

                                       No. 21-1310
                                         ______

                          IMEG CORP, a Delaware Corporation

                                             v.

                           **SUNIL PATEL, an individual
               **(Dismissed pursuant to Court’s Order dated 07/08/2021)

                     *Richard Frey; *Epstein Becker & Green, P.C.,
                                             Appellants

                        *(Pursuant to Rule 12(a), Fed. R. App. P.)
                                     ____________

                     On Appeal from the United States District Court
                                for the District of Delaware
                             (D.C. Civ. No. 1-20-mc-00111)
                      District Judge: Honorable Colm F. Connolly
                                       ____________

                   Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                   March 25, 2022
                                   ____________

                 Before: BIBAS, MATEY, and PHIPPS, Circuit Judges.

                                  (Filed: April 8, 2022)
                                       ___________

                                       OPINION*
                                      ___________

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
PHIPPS, Circuit Judge.

       The District Court sanctioned an attorney and his law firm for taking self-

contradictory positions about arbitration in different forums. In federal court, the

attorney argued successfully that a dispute had to be arbitrated, but then before the

arbitrator, he argued that the controversy belonged in federal court. In addressing that

conduct, the District Court first issued an order determining that the conduct was

sanctionable under Civil Rule 11(b), and that the attorney and his firm were liable for

reasonable attorneys’ fees and costs. Then, after the parties submitted briefing, the

District Court issued a second order, which fixed the amount of those sanctions at

$89,776.52. The attorney and law firm filed a timely notice of appeal from the first order

before the second order issued, but they did not appeal the second order.

       This case presents a threshold question of final-order appellate jurisdiction under

28 U.S.C. § 1291: does the notice of appeal from the first order confer appellate

jurisdiction to challenge the imposition of sanctions? As explained below, the first order

was not final and appealable, and thus it cannot serve as a basis for final-order appellate

jurisdiction under 28 U.S.C. § 1291. Without another apparent basis for appellate

jurisdiction, we will dismiss this case for lack of jurisdiction.

                                  FACTUAL BACKGROUND

       A.     The Factual Basis for the District Court’s Initial Sanctions Order

       Through his law firm, Epstein Becker & Green, P.C., Richard Frey represented

Sunil Patel in litigation arising out of Patel’s alleged involvement in a ‘rent-a-vet’

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scheme. While he was a shareholder and officer at a predecessor corporation to IMEG,

Patel allegedly used a disabled veteran as a front man to fraudulently obtain government

contracts designated for disabled military veterans. Under the terms of the merger

agreement that formed IMEG, IMEG was liable for any fraud Patel committed while with

that predecessor corporation.

       Accordingly, in initiating a fraud action based on Patel’s purported rent-a-vet

scheme, the United States Department of Justice sued IMEG. After settling with the

Department of Justice, IMEG sought to recover from Patel through a civil suit filed in the

Central District of California. On Patel’s behalf, Frey moved to dismiss IMEG’s

complaint on the grounds that the merger agreement required binding arbitration in

Wilmington, Delaware. The District Court for the Central District of California granted

that motion, ruling that the arbitration clause in the merger agreement encompassed

IMEG’s claims against Patel.

       After that court order, IMEG filed a demand for arbitration against Patel with the

American Arbitration Association in Wilmington, Delaware. In that forum, Patel,

through Frey, argued that IMEG’s claims were not covered by the arbitration clause in

the merger agreement. The arbitrator was persuaded by that argument and refused to

proceed with arbitration.

       Twice foiled by Frey and Patel’s contradictory positions on the arbitration clause,

IMEG then petitioned to compel arbitration in the District of Delaware under the Federal

Arbitration Act. See 9 U.S.C. § 4; 28 U.S.C. § 1332(a)(1). On Patel’s behalf, Frey

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moved to dismiss IMEG’s petition, arguing that IMEG’s claims were not subject to the

arbitration clause in the merger agreement. That filing prompted IMEG to move for

sanctions under Rule 11 against Patel, Frey, and Epstein Becker & Green, P.C.

       B.     The District Court’s Rulings

       In resolving the petition to compel arbitration and the sanctions motion, the

District Court issued two orders.

       After an evidentiary hearing, the District Court issued an order granting IMEG’s

petition to compel arbitration. As a sanction, that same order required Patel to pay IMEG

“reasonable attorneys’ fees and costs incurred in filing and briefing [IMEG’s] Petition”

within thirty days. D. Del. Order ¶ 3 (Jan. 19, 2021) (App. 3–4). As a further sanction,

and, in essence a double recovery for IMEG, the order also required Frey and his law

firm to pay the same amount to IMEG within thirty days. After issuing that order, the

District Court marked the case closed on its docket.

       Patel, Frey, and Epstein Becker & Green, P.C. later disputed IMEG’s proposal on

the amount of sanctions due under the first order. In response, the District Court issued a

second order setting the amount of attorneys’ fees and costs at $89,776.52.

       C.     The Notice of Appeal

       After the District Court’s first order – but before its second order – Patel, Frey and

Epstein, Baker & Green, P.C. filed a joint notice of appeal. None of those parties filed

another notice of appeal after the second order was issued. During the pendency of the

appeal, Patel settled with IMEG, and this Court dismissed Patel as a party.

                                              4
                                       DISCUSSION

       This Circuit has developed a general rule for the finality of sanctions orders: they

are appealable as final orders under 28 U.S.C. § 1291 only after the sanctions amount has

been set. See Napier v. Thirty or More Unidentified Fed. Agents, Emps., or Officers,

855 F.2d 1080, 1089 (3d Cir. 1988) (“As a general rule, when a district court determines

liability before determining the damages amount, the liability determination is not

appealable until judgment has been entered on the amount.” (citing In re Jeannette Corp.,

832 F.2d 43, 45 (3d Cir. 1987))).1 Thus, a sanctions order is not final simply because a

district court has found conduct sanctionable. See Becton Dickinson & Co., 799 F.2d at

61–62; see also United States v. Sleight, 808 F.2d 1012, 1015 (3d Cir. 1987) (holding, in

the context of an award of restitution, that “[c]onsideration of the propriety of the amount

awarded . . . necessarily encompasses the possible ruling that zero dollars should have

been awarded”).

       Under that general rule, Frey and his law firm’s joint notice of appeal – which was

filed before the amount of sanctions had been set – was premature. And without a

subsequent notice of appeal for the second order, this Court lacks appellate jurisdiction

over the imposition of sanctions. See 28 U.S.C. § 1291.

1
 See also Jeannette Corp., 832 F.2d at 46 (“If the sanctions are to be an assessment of
counsel fees or expenses, they must be fixed before the order is final and appealable.”);
Becton Dickinson & Co. v. Dist. 65, United Auto., Aerospace & Agric. Implement
Workers of Am., 799 F.2d 57, 61 (3d Cir. 1986) (holding that an award of “reasonable
attorneys’ fees” is “not final within the meaning of 28 U.S.C. § 1291” if it has “not yet
been reduced to a definite amount”).

                                             5
       To avoid that outcome, Frey and his law firm argue that this appeal falls outside of

the general rule for three reasons. None of them succeed.

       First, they invoke the Grider exception, which may apply when the amount of

unquantified sanctions has been otherwise determined. See Grider v. Keystone Health

Plan Cent., Inc., 580 F.3d 119, 130–33 (3d Cir. 2009). In Grider, following an initial

unquantified order for sanctions, the parties settled the underlying litigation and agreed

on the amount of attorneys’ fees to be paid. See id. at 130, 133. But here, at the time of

the notice of appeal, the amount of the sanctions had not otherwise been set. Rather, it

remained for the District Court to determine, and thus the Grider exception does not

apply. See Becton Dickinson & Co., 799 F.2d at 61 (“Until the amount of attorneys’ fees

has been set, there remains to be made a decision by the district court.”).

       Second, Frey and his firm contend that the order imposing sanctions is final and

appealable because it was combined with a final order – the order granting IMEG’s

petition to compel arbitration. While orders predating a final judgment may be appealed

through a notice of appeal of the final judgment, a notice of appeal does not extend to

orders postdating the final judgment. See In re Westinghouse Sec. Litig., 90 F.3d 696,

706 (3d Cir. 1996). Thus, even if the first order compelling arbitration were final and

appealable, the notice of appeal of that order would not cover the later order setting the

amount of sanctions.

       Third, Frey and his firm assert that their notice of appeal of the first order

imposing sanctions relates forward to the second order quantifying them. By rule, in

                                              6
some instances a premature notice of appeal can “relate forward to the date that the

judgment or order is ultimately entered.” See DeJohn v. Temple Univ., 537 F.3d 301,

307 n.3 (3d Cir. 2008) (discussing Fed. R. App. P. 4(a)(2)). But that rule applies only

when the first order “would be appealable if immediately followed by the entry of

judgment.” FirsTier Mortg. Co. v. Invs. Mortg. Ins. Co., 498 U.S. 269, 276 (1991). And,

as the Supreme Court has explained, the relate-forward rule does not apply to “a notice of

appeal from a clearly interlocutory decision – such as [] a sanction order under Rule 11.”

Id.; see also Napier, 855 F.2d at 1089–90; Jeannette Corp., 832 F.2d at 44–46. Thus, the

notice of appeal does not relate forward to the second order imposing sanctions.

                                             ***

       For these reasons, the notice of appeal was premature for purposes of disputing

sanctions liability, and this case will be dismissed for lack of appellate jurisdiction.

                                               7