Simple Mutual Releases of Parties Do Not Release Sanctions Liability of Counsel — Ethics Implications of Negotiating a Release of Sanctions Exposure

Ferguson v. Valero Energy Corp., 2011 U.S. App. LEXIS 24167 (3d Cir. Dec. 6, 2011):

John Ferguson died tragically from nitrogen asphyxiation while working as a boilermaker at an oil refinery. A wrongful death and survival action ensued against Valero Energy Corporation and Premcor Refining Group, Inc. The District Court made several evidentiary rulings in limine, and the case proceeded to trial.

During his opening statement, attorney Schaible repeatedly violated the Court's orders, which prompted Defendants to move for a mistrial. That motion was withdrawn, however, after a conference with the judge, a curative instruction to the jury, and a promise from Schaible that "his conduct would not be repeated." Unfortunately, the direct examination of Schaible's first witness provoked a flurry of objections, nearly all of which the Court sustained. This pattern continued during Schaible's second direct examination. The Court found Schaible's conduct "very disturbing," and counsel for Defendants contemplated a second motion for a mistrial. The following morning, defense counsel so moved and the motion was unopposed by Schaible's partner and co-counsel, Brian A. Wall, Jr.

Soon after the mistrial was granted, Defendants moved for sanctions pursuant to 28 U.S.C. § 1927 and the District Court's inherent power. The Court granted the motion and set a briefing schedule to help it determine the amount of sanctions. In the meantime, the parties prepared for a second trial. On the third day of jury selection, the case settled and the parties executed a routine settlement agreement. After additional proceedings, the District Court ordered Schaible and the Firm to pay Defendants $100,436.25 in sanctions. Schaible and the Firm filed this timely appeal. ***

Schaible and the Firm argue that sanctions were unwarranted ...[ because] the broad release language in the parties' settlement agreement — which resolved "any and all differences and claims" — applies to Defendants' "claim" for sanctions. This argument fails for the simple and obvious reason that Schaible and the Firm were not parties to the settlement agreement. That contract bound Plaintiffs and Defendants, and "legal representatives" are mentioned only in a paragraph in which Plaintiffs and their legal representatives agree to release Defendants from "any and all claims." ... Thus, the settlement agreement does not in any way purport to release Plaintiffs' counsel.

Footnote 2. We also note that had Schaible and the Firm negotiated their own release from sanctions during the settlement talks with respect to their clients' suit, they could have been subject to disciplinary action under the conflict-of-interest provisions of the Pennsylvania Rules of Professional Conduct. See Pa. R. Prof'l Conduct 1.7 ("[A] lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if . . . there is a significant risk that the representation of one or more clients will be materially limited . . . by a personal interest of the lawyer.").

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