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Carroll v. E One Inc.

United States Court of Appeals, Third Circuit

June 20, 2018

E ONE INC; PIERCE MANUFACTURING INC; SEAGRAVE FIRE APPARATUS LLC; FEDERAL SIGNAL CORPORATION Gerald Carroll; Kenneth Crosswhite; Ray Foster; Charles Hottinger; Lawrence Sheldrake; Richard Sheltra; Kevin Stuart; Christopher Turner; Robert Welch; William Whetzel; Terry Williams; *Bern Cappelli, LLP, Appellants *(Pursuant F.R.A.P. 12(a))

          Argued on March 22, 2018

          On Appeal from the United States District Court for the Eastern District of Pennsylvania (E.D. Pa. No. 2-15-cv-00562) District Judge: Honorable J. Curtis Joyner

          Joseph J. Cappelli [ARGUED] Counsel for Appellants

          Wayne A. Graver, Michael F. McKeon, Lavin O'Neil Cedrone & DiSipio Jan P. Miller [ARGUED] Thompson Coburn Counsel for Appellee

          Before: SMITH, Chief Judge, HARDIMAN, and ROTH, Circuit Judges


          SMITH, Chief Judge.

         Plaintiffs are firefighters who allege that they suffered hearing losses caused by the loud noise emitted by a manufacturer's fire sirens. A perfunctory investigation conducted by the manufacturer during discovery revealed the firefighters' lawsuit to be clearly time-barred, and also revealed that one firefighter had not even suffered hearing loss attributable to noise exposure. Eventually, Plaintiffs requested the District Court to dismiss the case with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(2). In doing so, the District Court awarded attorneys' fees and costs in favor of the manufacturer, making an explicit reference to Plaintiffs' counsel's practice of repeatedly suing the fire siren manufacturer in jurisdictions throughout the country in a virtually identical fashion.

         On appeal, Plaintiffs' counsel argues that awarding attorneys' fees and costs is improper under Rule 41(a)(2). Plaintiffs' counsel further challenges the District Court's consideration of the nationwide scope of counsel's litigation tactics-arguing that, in the Rule 41 context, a district court's consideration of litigation in other jurisdictions constitutes reversible error. Plaintiffs' counsel is wrong on both scores.

         Although attorneys' fees and costs are typically not awarded when a matter is voluntarily dismissed with prejudice, we conclude that such an award may be granted when exceptional circumstances exist. Exceptional circumstances include a litigant's failure to perform a meaningful pre-suit investigation, as well as a repeated practice of bringing meritless claims and then dismissing them with prejudice after both the opposing party and the judicial system have incurred substantial costs. Because such exceptional circumstances are present in this case, the District Court's award will be affirmed.


         Plaintiffs-Appellants brought suit against Defendant-Appellee Federal Signal Corporation, alleging that they suffered occupational hearing loss due to the "omni-directional design" of Federal Signal's sirens which "unnecessarily exposed the firefighters to dangerous levels of sound." Carroll Br. 5. As Plaintiffs' counsel notes in the first sentence of his opening brief's recitation of the facts, "[t]his action is but one of multiple actions, nationwide, involving Plaintiffs' counsel and Federal Signal in which firefighters are seeking compensation for hearing loss caused by Federal Signal's mechanical Q fire engine siren and its electronic counter part, the e-Q2b." Carroll Br. 9. In its opinion awarding attorneys' fees and costs, the District Court similarly took notice of the aggregate nature of counsel's entrepreneurial litigation strategy:

The history of this case essentially mirrors that of many other cases instituted by Plaintiffs' counsel against Federal Signal and several of the other original defendants in this action. As defense counsel testified . . . since sometime in 2011 when current Plaintiffs' counsel became lead counsel, there have been some 1300 cases filed in approximately 23 separate jurisdictions asserting claims for high frequency hearing loss which was allegedly caused by exposure to defectively designed fire sirens. In taking more than 100 plaintiff depositions across the country, defense counsel learned that the plaintiffs receive a notice at their fire departments either on a bulletin board or receive a letter through some web-based repository of their unions informing them that free hearing screening is being offered at the union hall. In many instances, those letters and notices have been prepared by Plaintiffs' counsel's law firm.
Then when the firefighters who decide to accept the free hearing test offer go to the union hall, they go into a room, sometimes two firefighters at a time, where an audiologist puts headphones on them, plays pure tones and they are either directed to raise their hands or push a button when they hear the sounds. Through that testing, an audiometric result is generated. The firefighters are not told the results of their tests and often do not learn the results of their tests until months or sometimes years later, after they have become part of a lawsuit. The firefighters are not referred to a doctor or advised to wear hearing protection.
Typically, a complaint involving 20-50 plaintiffs per case is then filed within two or three years often almost to the day of the hearing screen. Often, the firefighters do not learn that they are plaintiffs in an action until after suit is filed and they receive something in the mail from Plaintiffs' counsel's law firm. In one case, a Pittsburgh firefighter discovered he had been named as a plaintiff when he heard a television news story about the lawsuit. Frequently the first contact a firefighter plaintiff has with someone from Plaintiffs' counsel's law firm occurs at or around the time of their deposition. Although a number of these cases have gone to trial with some resulting in verdicts for the plaintiffs and some resulting in defense verdicts, there have been other instances in which Federal Signal's attorneys have completed discovery in a matter and sometimes even taken a case to trial when Plaintiffs' counsel dismisses the case.

JA 13-14 (District Court opinion). Although counsel objects to this portion of the District Court's opinion as having inappropriately considered extra-jurisdictional litigation, the thrust of the opinion was more concerned with the history of the specific case before the District Court. A summary of that history follows.

         In January of 2015, Plaintiffs brought suit against multiple defendants in the Philadelphia Court of Common Pleas. Although Federal Signal is now the only remaining defendant in this matter, a previous co-defendant removed this civil action to the Eastern District of Pennsylvania in February of 2015.[1] Federal Signal conducted depositions of Plaintiffs from late March to early April of 2015. These depositions revealed two fatal flaws in Plaintiffs' case.

         First, deposition testimony revealed all Plaintiffs' claims to be clearly time-barred. JA 15. As the District Court explained:

[T]his case is somewhat unique in that [Plaintiffs'] Fire Department has, since the 1990's, conducted routine annual audiological screenings of all of its firefighters as part of their required annual physical examinations. As a result, nearly all of the plaintiffs in this suit had been advised many years earlier that they had hearing loss that was very probably caused by the loud noises to which they were exposed on the job and that they should be wearing hearing protection. Consequently, Plaintiffs' claims were obviously time-barred when they filed in or around January 2015.

JA 14-15 (footnote omitted). The second fatal flaw uncovered during discovery was that one of the Plaintiffs, Christopher Turner, did not suffer from hearing loss attributable to noise exposure.[2] JA 15 n.1. As the District Court astutely pointed out, "had Plaintiffs' counsel spoken with the individual plaintiffs or conducted any other type of investigation prior to commencing this litigation, [counsel] would have learned these facts." JA 15.

         After discovery revealed these flaws in Plaintiffs' case, Federal Signal wrote to Plaintiffs' counsel on May 10, 2016, demanding voluntary dismissal with prejudice and informing Plaintiffs' counsel that Federal Signal would be seeking fees and costs attributable to defending against Turner's baseless claims. JA 271-73. Plaintiffs' counsel countered with an offer to voluntarily dismiss all of the claims with prejudice so long as Federal Signal agreed to waive costs for all plaintiffs except for Turner. On May 23, 2016, Federal Signal rejected that offer, countering with a proposal to stipulate to a voluntary dismissal upon repayment of the then still nominal costs attributable to litigating the meritless matter, as well as a payment of fees associated with defending against Turner's allegations.[3] JA 274-75. In its March 23rd letter, Federal Signal explained that it had rejected counsel's offer, choosing instead to counter-offer, because of Plaintiffs' counsel's "failure to conduct any diligence regarding the legal viability of the individual cases or to otherwise properly screen in the first place." JA 274.

         Plaintiffs' counsel ignored Federal Signal's counteroffer, and on May 31, 2016-without seeking leave of the District Court-filed a "Notice of Dismissal, " asking the Clerk of Court to "mark the claims of all Plaintiffs as being dismissed without prejudice to all parties in this action." JA 77 (emphasis added). As we explain in greater detail below, this "Notice of Dismissal" was improper under Rule 41.[4] By that point, discovery had already closed, all of the defendants had answered the complaint, and the parties had not agreed to a stipulation of dismissal.

         One month later, on June 30, 2016, Federal Signal filed a motion seeking fees and costs, and further challenging Plaintiffs' counsel's ability to "voluntarily" dismiss the firefighters' claims without prejudice. JA 79-89. On July 8, Plaintiffs' counsel opposed Federal Signal's request for fees and costs, but was by that point agreeable to dismissing the matter with prejudice. JA 7, 447-50. Curiously, on July 21, the Clerk of Court entered an order dismissing the action "with prejudice, pursuant to agreement of counsel without costs." JA 459. It is unclear who informed the Clerk of Court that the parties had "agreed" to a dismissal without costs, as Federal Signal had repeatedly requested attorneys' fees and costs in writing, and had already filed the instant action to collect those fees and costs. The District Court vacated the Clerk's order, as erroneously entered, on July 27, 2016.

         On September 6, 2016, the District Court issued a memorandum concluding that, because the defendants had already filed answers to the complaint prior to Plaintiffs' counsel's May 31 "Notice of Dismissal, " the firefighters "no longer had the option to voluntarily dismiss" their claims without the District Court's permission. JA 464. The District Court explained that Plaintiffs had therefore "clearly erred in unilaterally filing a notice addressed to the Clerk of Court asking that their claims be marked as being dismissed without prejudice." JA 464. Nonetheless, the District Court explained further that the "facts certainly militate in favor" of granting dismissal under Federal Rule of Civil Procedure 41(a)(2). JA 467. That Rule permits a court to dismiss an action "at the plaintiff's request . . . on terms that the court considers proper." Fed.R.Civ.P. 41(a)(2). In order to develop the proper terms for dismissal, the District Court stayed Federal Signal's motion for fees and costs pending an evidentiary hearing. JA 467-70. Hearings were held on both November 1, 2016 and December 20, 2016. JA 532, 656. A defense attorney for Federal Signal testified; Plaintiffs' counsel chose not to offer any witnesses.

         On April 25, 2017, the District Court granted Federal Signal's Motion for Fees and Costs. JA 5. The memorandum accompanying that order set out the procedural history of the case, including the District Court's determination in its September 6, 2016 decision that Plaintiffs had erred in filing the notice of dismissal without prejudice. The District Court additionally explained that "Federal Signal had adduced sufficient evidence that ...

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