G. Heileman Brewing Co., Inc. v. Joseph Oat Corporation

848 F.2d 1415, 1988 U.S. App. LEXIS 14053, 1988 WL 58980

• Court: Court of Appeals for the Seventh Circuit
• Decided: July 22, 1988
• Docket: 86-3118
• Status: Published

Opinions

MANION, Circuit Judge.

The district court sanctioned Joseph Oat Corporation (Oat) for failing to send a representative, besides its attorney, to a court-ordered settlement conference. Oat appeals, and we reverse.¹

I.

In early 1980, Oat supplied a waste water pretreatment system for a waste water treatment plant that RME Associates (RME) built for G. Heileman Brewing Co.’s (Heileman) brewery in La Crosse, Wisconsin. N.Y. Céntrale Suicker Maatschappij (Céntrale), a Dutch corporation, had developed the pretreatment system, and had made Oat its exclusive licensee in the United States.

The waste water treatment plant did not work as expected and disputes arose between Oat, Heileman, and RME. In December, 1982, Oat sued Heileman and RME in federal district court in New Jersey. RME counterclaimed. After the case was transferred to the Western District of Wisconsin, RME joined Céntrale as a third-party defendant.

Early in the litigation, Oat and Heileman apparently settled their differences, and the district court dismissed Heileman. Oat also dismissed its claims against RME. After these dismissals, the proceedings consisted of RME’s claims against Oat and Céntrale.

The district court scheduled a January, 1985 trial for RME’s claims. However, RME, Céntrale, and Heileman, which was still involved in a parallel state court suit with RME and Céntrale, had begun to discuss settlement. Oat, having no desire to settle, was not a party to those discussions. The magistrate, whom the district court had designated to hear pretrial matters pursuant to 28 U.S.C. § 636(b)(1)(A), postponed the trial and ordered a settlement conference before him. The magistrate’s order stated:

5. A settlement conference, which shall include the Heileman Brewing Company, shall be held herein on December 14, 1984, at 2:00 p.m.

(c) ... In addition to counsel, each party shall be represented at the conference by a representative having full authority to settle the case....

Attorney John Possi, Oat’s counsel in the pending litigation, appeared for Oat at the December 14 conference. No other Oat representative appeared at the conference. Mr. Joseph McMahon, an independent adjuster, appeared on behalf of National Union Fire Insurance Company, Oat’s liability insurer. Both Possi and McMahon informed the magistrate that they had no authority to pay any money to settle; presumably, though, both had authority to settle if Oat or National did not have to pay.

The magistrate, apparently miffed that neither Possi nor McMahon had what he considered “authority to settle,” excluded Possi and McMahon from the settlement discussions he conducted on December 14. After the settlement discussions ended, the magistrate called all present into the courtroom and continued the conference until December 19. Possi and McMahon, who had remained at the courthouse despite being excluded from any discussions, were present when the magistrate continued the conference. The magistrate ordered each party, including RME’s and Oat’s liability insurers, to send a representative with “full authority to settle the case” to the December 19 conference.

Sometime between December 14 and December 19, Possi spoke by telephone to John Fitzpatrick, Oat’s outside corporate counsel in Philadelphia (across the Delaware River from Oat’s principal place of business in Camden, New Jersey). Possi and Fitzpatrick discussed the magistrate’s oral order. Both Possi and Fitzpatrick appear to have interpreted the magistrate’s order to require that someone other than trial counsel (either Fitzpatrick or one of Oat’s officers) attend the December 19 conference on Oat’s behalf. Fitzpatrick told Possi that National Union had indicated it was not willing to pay any money to settle the case and that it would not send anybody to the December 19 conference. Therefore, Fitzpatrick believed Oat could not pay any money to settle the case at that time. Fitzpatrick asked Possi to contact the magistrate and ask whether it was necessary for anybody from Oat to travel from Philadelphia to Madison, Wisconsin to attend the conference, given that Oat could not pay any money.

Possi called the magistrate’s office and explained Oat’s predicament to either the magistrate’s clerk or secretary. After consulting the magistrate, that person told Possi, “The magistrate stands by his order. He expects someone from Joseph Oat to be at that conference.” Possi relayed the magistrate’s message to Fitzpatrick. Fitzpatrick then discussed the matter with Maurice Holtz, Oat’s vice president. Holtz authorized Fitzpatrick to travel to Madison to attend the conference and inform the court that Oat was not willing at that time to pay any money to settle.

The magistrate did not reduce his order to writing until December 18. The written order stated:

2. In addition to counsel, each party and the insurance carrier of plaintiff Oat and defendant RME, shall be represented at the conference in person by a representative having full authority to settle the case or to make decisions and grant authority to counsel....

3. The attention of the parties and their counsel is directed to Rule 16, Federal Rules of Civil Procedure, and particularly subparagraphs (c) and (f) thereof.

The written order did not arrive at Oat’s attorneys’ offices until the afternoon of December 19; by that time, Possi was already at the courthouse for the conference.

Possi and Fitzpatrick both appeared on Oat’s behalf at the December 19 conference. Neither, however, had authority to offer any payment. Deciding that Oat had violated his December 14 oral order, the magistrate ordered Oat (and National Union, which sent nobody to the conference) to show cause why they should not be subject to sanctions under Fed.R.Civ.P. 16(f). In June, 1985, after a hearing on the order to show cause, the magistrate ordered Oat and National Union, jointly and severally, to pay RME, Centrale, General Accident Company (RME’s insurer), and Heileman the expenses they incurred in attending the December 19 conference, including attorneys’ fees. See G. Heileman Brewing Co. v. Joseph Oat Corp., 107 F.R. D. 275, 277-83 (W.D.Wis.1985) (magistrate’s opinion attached as appendix to the district court’s opinion).

Oat asked the district court to reconsider the magistrate’s order. The district court upheld the sanctions. The court reasoned, as did the magistrate, that Fed.R.Civ.P. 16 authorized the district court to order parties to appear at settlement conferences with full authority to settle. 107 F.R.D. at 277. The district court also held that Oat had waived any objection to the magistrate’s order to appear because Oat “simply [chose] to ignore” the order rather than ask the district court to vacate or modify the order before December 19. Id.2

II.

Céntrale, RME, and Heileman eventually settled. As part of that settlement, RME assigned its claims against Oat to Heile-man. On March 20, 1985, the magistrate substituted Heileman for RME as a party to the action. On July 17, 1985 (after the magistrate ordered Oat to pay sanctions but before the district court affirmed that order) the district court dismissed Céntrale from the case with prejudice pursuant to the settlement.

Oat and Heileman also ultimately settled. On December 5, 1985, the district court entered an order dismissing Heileman’s claims against Oat with prejudice. That order was attached to a document that Oat’s and Heileman’s attorneys had submitted entitled “Stipulation and Order for Dismissal.” The order itself stated that the dismissal was upon the attached stipulation and upon Heileman’s motion. Both the stipulation and order expressly reserved Oat’s right to appeal the sanctions against it.

Although the sanctions judgment against Oat was not final when the district court entered it, G. Heileman Brewing Co. v. Joseph Oat Corp., No. 85-2538 (7th Cir., Oct. 16, 1985) (unpublished order) (dismissing Oat’s appeal for lack of finality), all the parties have now settled and the district court has dismissed the case. The case is over, the sanctions judgment is now final, and we have jurisdiction under 28 U.S.C. § 1291. Oat has not waived its right to appeal the sanctions by settling because Oat expressly reserved its right to appeal the sanctions award. See Dorse v. Armstrong World Industries, Inc., 798 F.2d 1372, 1374-77 (11th Cir.1986); but see Amstar Corp. v. Southern Pacific Transport Co., 607 F.2d 1100 (5th Cir.1979).

In a one-paragraph argument citing no authority, Céntrale argues that Oat has waived its right to appeal as to Céntrale. Céntrale notes that Oat did not object to Centrale’s dismissal or reserve its right to appeal as to Céntrale when the district court dismissed Céntrale. Céntrale failed to note, however, that Oat was not a party to the agreement to dismiss Céntrale. In any event, Céntrale has waived its waiver argument by raising it in a perfunctory manner and by citing no authority. See Fed.R.App.P. 28; Ordower v. Feldman, 826 F.2d 1569, 1576 (7th Cir.1987). Thus, Céntrale is a proper party to this appeal.

Finally, before reaching the merits, we reject the district court’s alternate holding that Oat waived its right to object to the magistrate’s order to appear because Oat “ignored” the order. Since the issue here is the magistrate’s power to order Oat to appear, we believe it is appropriate to reach the merits. Furthermore, Fitzpatrick did attend the conference as Oat’s representative. The inconvenience and expense that Oat and Fitzpatrick incurred also make it inappropriate to hold that Oat waived its right to challenge the magistrate’s order because it “ignored” the order.

III.

On the merits, Oat argues that the magistrate had no authority to order it to send a representative, besides its attorney, to the settlement conference. The first question we face is the source of a district court’s authority regarding pretrial proceedings. This court recently held that district courts do not have the authority to order litigants or their attorneys to participate in summary jury trials. Strandell v. Jackson County, 838 F.2d 884 (7th Cir. 1988). In Strandell, we recognized that district courts possess substantial inherent power to manage their caseloads. Id. at 886; see also Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-67, 100 S.Ct. 2455, 2463-65, 65 L.Ed.2d 488 (1980) (district court has inherent power to assess attorney’s fees against an attorney who violates the court’s orders in bad faith); Link v. Wabash R. Co., 370 U.S. 626, 630, 82 S.Ct. 1386, 1388, 8 L.Ed.2d 734 (1962) (district court has inherent power to dismiss a case for failure to prosecute). We emphasized, however, that a district court’s inherent powers are not unlimited: district courts must exercise those powers “in harmony with the Federal Rules of Civil Procedure.” Strandell, 838 F.2d at 886. The federal rules “are the product of a careful process of study and reflection” involving scholars, practitioners, Congress, and the Supreme Court, that seeks to strike a balance between judicial efficiency and litigants’ rights. See id.; see also Roadway Express, 447 U.S. at 764, 100 S.Ct. at 2463 (“Because inherent powers are shielded from direct democratic controls, they must be exercised with restraint and discretion.”) Thus, where the federal rules specifically address an area, it is inappropriate to rely on inherent power to go beyond the bounds the rules set. See Strandell, 838 F.2d at 886-88; cf. Societe Internationale v. Rogers, 357 U.S. 197, 207, 78 S.Ct. 1087, 2 L.Ed.2d 1255 (1958) (a district court’s authority to dismiss a case for failing to comply with a discovery request comes from Fed.R.Civ.P. 37; relying on another rule or the court’s inherent power “can only obscure analysis of the problem”).

Fed.R.Civ.P. 16 specifically addresses a district court’s authority to conduct pretrial conferences — including settlement conferences — and to manage pending cases. The magistrate and the district judge found authority in Rule 16 to order Oat to send someone other than its counsel to the conference. However, nothing in Rule 16 indicates that it authorizes district courts to order parties represented by counsel, such as Oat, to attend or send a representative other than counsel to settlement conferences. In fact, Rule 16’s plain language leads us to the opposite conclusion.

As originally enacted, Rule 16 allowed district courts to “direct the attorneys for the parties” to appear for pretrial conferences. In 1983, Rule 16 was extensively amended. In those amendments, the drafters expressly provided that the possibility of settlement is an appropriate subject to consider at pretrial conferences. Fed.R. Civ.P. 16(c)(7). But Rule 16(c) states only that “the participants at any conference under this rule” may consider settlement (among numerous other things) (emphasis added); it does not say who those “participants” may be.

Rule 16(a) delineates a district court’s discretion in determining who to order to appear at a pretrial conference. As amended, Rule 16(a) provides that a district court may “direct the attorneys for the parties and any unrepresented parties ” to appear for a pretrial conference. (Emphasis added.) Other parts of Rule 16 echo Rule 16(a)’s language. Rule 16(b) requires district courts to enter scheduling orders after consulting “the attorneys for the parties and any unrepresented parties....” Rule 16(d) requires that “one of the attorneys who will conduct the trial for each of the parties and ... any unrepresented parties” must attend the final pretrial conference. Rule 16 repeatedly distinguishes between represented and unrepresented parties, and nothing in the rule expressly authorizes a district court to order a represented party to appear for a pretrial conference.

One district court has read Rule 16(f) as authorizing district courts to order represented parties to appear for settlement conferences. Lockhart v. Patel, 115 F.R.D. 44, 46 (E.D.Ky.1987). Rule 16(f) provides that a district court may sanction a party or its attorney

[i]f [the] party or party’s attorney fails to obey a scheduling or pretrial order, or if no appearance is made on behalf of [the] party at a scheduling or pretrial conference, or if [the] party or party’s attorney is substantially unprepared to participate in the conference or ... fails to participate in good faith....

We disagree with Lockhart. When placed in context with Rule 16(a), Rule 16(f) does not provide the authority to order represented parties to appear at settlement conferences. Rule 16(f) states that a district court may sanction a party for failing to obey a pretrial order, or sanction a party who does show up at a conference if the party cannot or does not participate in good faith (we assume here that “party” refers to represented and unrepresented parties). But Rule 16(f) does not state that the court may actually order a represented party to appear. Rule 16(a), however, specifically addresses who the district court may order to appear. Rule 16(a) states that those people are attorneys and unrepresented parties. The only language in Rule 16(f) addressing appearance does not authorize sanctions if “a party fails to appear;” instead, sanctions are appropriate if “no appearance is made on behalf of a par-ty_” (Emphasis added.) This language is consistent with Rule 16(a)’s distinction between represented and unrepresented parties. In the normal course, an attorney appears “on behalf of’ his client at a pretrial conference. An unrepresented party has nobody to appear on his behalf except himself.

Rule 16(f)’s reference to “parties” means two things concerning appearance. First, a district court may sanction an attorney or unrepresented party who fails to appear. Second, in an appropriate situation, the district court may sanction a represented party whose attorney fails to appear; thus, Rule 16(f) reiterates the principle that an attorney’s acts normally bind the client and may subject the client to sanctions. See, e.g., Link, 370 U.S. at 633-34, 82 S.Ct. at 1390-91, which rejected an argument that a district court erred by dismissing a plaintiffs case — the ultimate sanction—because of the plaintiff’s attorney’s conduct. If a represented party does choose to appear and participate at a pretrial conference, Rule 16(f) demands that the party be a help and not a hindrance; he must be prepared to participate and participate in good faith. But nothing in Rule 16(f) specifically authorizes a district court to order a represented party to appear at a settlement conference.

Heileman argues that district courts can order represented parties to appear at settlement conferences because Rule 16 does not explicitly state that district courts cannot order represented parties to appear. But Heileman’s argument ignores the drafters’ decision in 1983 to specifically add “unrepresented parties” to the people a district court can order to appear at a pretrial conference under Rule 16. Had the drafters intended to authorize district courts to order represented parties to appear, the drafters could have easily said so. Heileman offers no reason for this omission, and we find none on either Rule 16’s face or in the advisory committee’s notes. We are unwilling to ascribe the omission of represented parties to sloppy draftsmanship. Instead, we read Rule 16(a) to mean what it says: district courts have the discretion to order attorneys and unrepresented parties to appear. This result is consistent with other cases from this circuit indicating that Rule 16’s specific language limits a court’s authority over pretrial proceedings. See Identiseal Corp. of Wisconsin v. Positive Identification Systems, Inc., 560 F.2d 298, 302 (7th Cir.1977); J.F. Edwards Constr. Co. v. Anderson Safeway Guard Rail Corp., 542 F.2d 1318 (7th Cir.1976) (per curiam).

Moreover, although Rules 16(a)(5) and (c)(7) specifically mention settlement as a proper topic for pretrial conferences, Rule 16’s drafters recognized that limits exist to what a district court may do to attempt to lead parties to settle. The advisory committee’s notes to the 1983 amendment to Rule 16 caution that Rule 16 was not meant to “impose settlement negotiations on unwilling litigants....” See Strandell, 838 F.2d at 887. Even though settlement is desirable, the district court is not to pursue it at all costs. In the settlement context, this generally limited approach is consistent with the view that Rule 16’s drafters did not omit represented parties from Rule 16(a) inadvertently, but deliberately, as a limitation on the district courts’ power.

Our holding that Rule 16 did not authorize the district court to order Oat to appear also dooms Heileman’s alternative argument that Fed.R.Civ.P. 83 authorized the magistrate to order Oat to appear. Rule 83 states that “[i]n all cases not provided for by rule, the district judges and magistrates may regulate their practice in any manner not inconsistent with [the federal rules or any local rules].” (Emphasis added.) But since Rule 16 allows district courts to order only attorneys and unrepresented parties to appear, ordering a represented party to appear at á settlement conference is inconsistent with Rule 16. Cf. J.F. Edwards, 542 F.2d at 1322 (standing order that arguably mandated counsel to stipulate facts was inconsistent with federal rules because no federal rule authorized a district court to order counsel to stipulate facts).

The district court reasoned that it needed the ability to conduct productive settlement conferences to manage its case load effectively. The court further reasoned that settlement conferences without the parties present are not productive. We understand the district court’s concern about its case load but we disagree with the court’s reasoning. The inability to order represented parties to appear at settlement conferences does not leave district courts powerless to manage their caseloads. District courts may still urge parties to resolve their disputes outside the courtroom. See Strandell, 838 F.2d at 887. District courts may also conduct settlement conferences with the parties present and participating, if the parties desire. District courts may also sanction parties and attorneys who litigate frivolously or vexatiously, see e.g., Fed.R.Civ.P. 11; 28 U.S.C. § 1927; Ordower, 826 F.2d at 1573-74, and may dismiss cases for failure to prosecute, Fed.R.Civ.P. 41(b). And district courts may make schedules and set time limits, Fed.R.Civ.P. 16(b), and sanction attorneys and parties who disregard those limits, Fed.R.Civ.P. 16(f). Those sanctions run the gamut from assessing costs and attorney’s fees, id., to dismissing an action or entering a default judgment against a party, see Fed.R.Civ.P. 37(b)(2)(C) (expressly incorporated in Rule 16(f)). A district court need not tolerate undue delay; the court may push a case to an early trial date, which in itself could help lead parties to settle. 6 C. Wright and A. Miller, supra § 1522, at 572 (1971).

Moreover, although the district court may prefer to address the parties directly, the parties need not be present for a productive settlement conference to take place. A litigant hires an attorney to take advantage of the attorney’s training and skill in conducting litigation. Part of that expertise includes evaluating the case and advising the litigant whether to settle or proceed to trial. The attorneys can relay to their clients any relevant information they glean from a settlement conference. Heileman protests that the attorney will “filter” information but part of an attorney’s job is to separate wheat from chaff. And because no attorney wants to lose clients or be sued for malpractice, an attorney has a strong self-interest, as well as a duty, to realistically convey to the client a case’s strengths and weaknesses and any other relevant information necessary for the client to make an informed settlement decision. The distinction Rule 16 makes between represented and unrepresented parties (who choose to act as their own attorneys and therefore handle those details an attorney would otherwise handle) recognizes the attorney’s role in litigation.

We are aware that in In re LaMarre, 494 F.2d 753, 756 (6th Cir.1974), the Sixth Circuit upheld a district court’s power to order an insurance company claims manager to appear before it to discuss a settlement. In LaMarre, counsel for plaintiffs and defendants indicated to the district court on the morning of trial that they had agreed to a settlement. However, the claims manager for the defendant’s insurer would not accept the settlement. Therefore, the trial judge ordered the claims manager to appear in court to discuss the matter. Id. at 755.

LaMarre is distinguishable. Unlike this case, LaMarre presented an extraordinary situation (a settlement apparently reached, and inexplicably rejected, on the morning of trial). Moreover, the court in LaMarre treated the insurance company as a party (and the claims manager as a party’s representative). Arguably, because of the conflict between the defendant, who the attorney represented, and the insurance company, which hired the attorney, the insurance company could be considered an unrepresented party. Even treating the insurance company as a represented party, LaMarre does not control our case. We are construing Rule 16 as amended in 1983; the Sixth Circuit decided LaMarre before the 1983 amendments to Rule 16. Thus, the Sixth Circuit could not consider the drafters’ decision to specifically add unrepresented parties, but not represented parties, to the people a district court may order to appear at a pretrial conference. To the extent that LaMarre may stand for the proposition that a district court has inherent power or power under Rule 16 to order a represented party to appear for a settlement conference under any circumstances, Strandell and Rule 16’s language compel us to reject it.

Rule 16 provides that district courts may order attorneys and unrepresented parties, but not represented parties, to appear for settlement conferences. Our job is to interpret Rule 16 as written. Since Rule 16 did not authorize the magistrate to order Oat to send a representative other than its attorney to the December 19 settlement conference, the sanctions against Oat cannot stand.³

Reversed.

1 . The district court also sanctioned National Union Fire Insurance Company, Oat’s liability insurer. However, the notice of appeal in the record names only Oat as an appealing party. Although ‘“notices of appeal are entitled to a liberal construction where the intent of the appellant is apparent and the adverse party is not prejudiced,’ ’’ Akins v. Board of Governors, 840 F.2d 1371, 1371-72 n. 1 (7th Cir.1988), nothing on the face of the notice of appeal here gives any indication that both Oat and National Union are appealing. Therefore, National Union is not a party to this appeal, and we do not consider whether the district court erred in sanctioning National Union. See Fed.R.App.P. 3(c); 9 J. Moore & B. Ward, Moore’s Federal Practice ¶ 203.17, at 3-71 to 3-72 (1987); 16 C. Wright, A. Miller, E. Cooper & E. Gressman, Federal Practice and Procedure § 3949, at 356 (1977).

2 . Oat appeals the district court’s decision affirming the magistrate’s order that Oat pay sanctions to RME, Céntrale, General Accident Company, and Heileman. Of the appellees, only Heileman and Céntrale have submitted briefs on appeal. Since Heileman is the named party in the caption, for simplicity we refer to all arguments for affirming as Heileman’s arguments.

3 . The dissent argues that Oat’s counsel had to “participate in the settlement conference in good faith,” and that Oat’s counsel’s authority to settle only if Oat had to pay no money "suggests a unilateral refusal to elaborate upon its position,” thus making sanctions appropriate. At oral argument, Oat’s appellate attorney represented that at the December 14 conference the magistrate excluded Oat’s counsel from any further discussions. The record is not clear but it appears that the same thing happened at the December 19 conference (the conference that ultimately led to the sanctions against Oat). The magistrate’s findings of fact do not indicate otherwise. See 107 F.R.D. at 278-80. Counsel thus had no opportunity to "elaborate” on his no-payment position. Stating a position at the beginning of a settlement conference does not necessarily mean that a party’s counsel is unwilling to elaborate or listen to others.

There is a more general problem with the dissent’s argument. While Rule 16 was meant to facilitate settlement by providing a neutral forum for settlement discussions, "it is not the purpose of Rule 16(b)(7) to impose settlement negotiations on unwilling litigants....” Fed.R. Civ.P. 16 advisory committee's note to 1983 amendments; see also Strandeil, 838 F.2d at 884. It is thus inconsistent with Rule 16 to sanction a party for “bad faith" simply because the party's attorney announces at the beginning of a settlement conference that his client will not pay any money to settle, and that it wants its day in court.