JACKSON v. ROHM HAAS COMPANY

Full title: MARK JACKSON ET AL, PETITIONERS v. ROHM HAAS COMPANY et al

Court: U.S.

Date published: Jun 16, 2010

No. 091556 (U.S. Jun. 16, 2010)

Opinion

PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT.

No. 091556.

Filed June 16, 2010.

RICHARD J. SILVERBERG, Counsel of Record.

Richard J. Silverberg Associates, P. C., Philadelphia, PA. PGPage i

QUESTIONS PRESENTED

Petitioner was directed to consolidate two fraud and racketeering cases which had survived dismissal. Petitioner also filed a motion for preliminary injunction challenging respondents' two corporate mergers because the cases had not been properly disclosed in SEC and other regulatory filings, including proxy solicitation materials. Shortly thereafter, relying on the court's inherent authority, the magistrate judge determined that the consolidated amended complaint constituted so severe a pleadings violation that the drastic sanction of dismissal was recommended. The district court adopted (in substantial part) the magistrate judge's report and recommendation and dismissed 21 of 25 claims. However, petitioner did not receive notice or the opportunity to respond to the threat of dismissal, and there was no de novo review. In confirming the decision, the Third Circuit determined that for purposes of a punitive dismissal of claims, a party's attendance at a non-evidentiary hearing unrelated to dismissal is sufficient to place the party on notice and to confer personal responsibility. The court also dismissed petitioner's motion for injunctive relief as moot since the claims had been dismissed and the transactions had already closed. The questions presented are:

1. Whether a court, relying upon its inherent authority to punitively dismiss claims based upon a pleadings violation, must first provide a party with explicit notice and an opportunity to respond to the threat of dismissal.

2. Pursuant to Rule 72(b), where a party timely objects to a magistrate judge's report and recommendation, whether the district court must review the actual record based upon the party's objections and PGPage iiissue its own findings.

3. Where the district court determines that a particular pleading contains sanctionable elements, whether a sanction of more than $80,000 is contrary to Rule 11's purpose to deter baseless filings.

4. Pursuant to 18 U.S.C. § 1964(a), where the claim has been brought by a private party, whether the district court has the authority to award the full range of equitable remedies, including: a) setting aside a merger where the shareholder vote authorizing the transaction is based upon a false or misleading proxy solicitation or proxy materials; and/or b) disgorgement of ill-gotten gains. PGPage iii

PARTIES TO THE PROCEEDING

MARK JACKSON; RICHARD J. SILVERBERG, Petitioners

ROHM HAAS COMPANY; MORGAN LEWIS BOCKIUS LLP; CONRAD O'BRIEN GELLMAN ROHN, P.C.; LIBERTY LIFE ASSURANCE COMPANY OF BOSTON; ROBERT VOGEL, Esquire; CELIA JOSEPH, Esquire; ROYCE WARRICK, Esquire; MICHAEL McLAUGHLIN, Esquire; JANE GREENETZ; JAMES D. PAGLIARO, Esquire; PAUL J. GRECO, Esquire; P. DAFFODIL TYMINSKI, Esquire; ARETHA DELIGHT DAVIS, Esquire; NANCY J. GELLMAN, Esquire; KELLY G. HULLER, Esquire; LORI HAMLIN; DEANNA MAY; NANCY MAYO; ROHM HAAS COMPANY BENEFITS ADMINISTRATIVE COMMITTEE; HARKINS CUNNINGHAM LLP: RAJ L. GUPTA; ROBERT A. LONERGAN, Esquire; ELLEN FRIEDELL, Esquire; WAYNE DAVIS; MARILYN ORR; WILLIAM O'BRIEN, Esquire; JOHN DOE NOS. 1-25, Respondents PGPage iv

TABLE OF CONTENTS

Circuit Court Decision District Court Order (3/20/09) District Court Opinion Order (3/19/09) Magistrate's Report Recommendation (12/16/08) Magistrate's Report Recommendation (11/17/08) District Court Memorandum/Order (05-/4988) District Court Memorandum/Order (06-3682) Order Denying Rehearing 18 U.S.C. § 1964(a)

QUESTION PRESENTED.....................................................i PARTIES TO THE PROCEEDING............................................iii TABLE OF AUTHORITIES...................................................v OPINIONS BELOW.........................................................1 JURISDICTION...........................................................1 RELEVANT PROVISIONS INVOLVED...........................................1 STATEMENT..............................................................1 REASONS FOR GRANTING THE PETITION......................................5 CONCLUSION............................................................35 APPENDIX ......................................1a ..........................15a ............17a ...24a ...46a ..........58a ...........76a ...................................110a .........................................112a

TABLE OF AUTHORITIES

485 U.S. 224 231 261 F.3D 1075 1123 passim 227 F.3D 62 71 501 U.S. 32 50 passim 763 F.2D 1184 1187 357 U.S. 197 207 496 U.S. 384 393 555 F.3D 798 799 930 F.2D 832 836 86 F.3D 37 40 819 F.2D 1551 1557 795 F.2D 1071 1078 980 F.2D 1001 1007 376 F.3D 96 102 205 F.3D 1015 1018-19 528 U.S. 167 185 87 F.3D 466 470 829 F.2D 1005 1008-09 980 F.2D 927 937 208 F.3D 1180 1184 381 F.3D 267 274-75 979 F.2D 377 379 547 U.S. 220 233-34 16 F.3D 1485 1488 884 F.2D 1367 1370 130 F.3D 1278 1286 565 F.3D 228 248 544 F.3D 474 482 396 U.S. 375 386 488 F.3D 187 194 968 F.2D 1421 1427-28 320 F.3D 920 935 267 F.3D 687 697 537 U.S. 393 595 F.3D 86 92-93 974 F.2D 982 984 328 U.S. 395 ^RD passim 254 F.3D 772 788-89 355 F.3D 345 354-55 543 U.S. 917 447 U.S. 752 767 528 U.S. 549 557 20 F.3D 160 170 445 F.3D 105 117 890 F.2D 1215 1230 747 F.2D 863 250 F.3D 950 952 426 U.S. 438 449 passim 52 F.3D 1173 1181-82 516 U.S. 1122 172 F.3D 695 701 156 F.3D 784 792 17 F.3D 660 665 447 U.S. 667 692 452 U.S. 576 585 501 U.S. 1083 465 F.3D 479 483 103 F.3D 294 301 STATUTES 18 U.S.C. § 1515 18 U.S.C. § 1961 18 U.S.C. § 1964 28 U.S.C. § 1254 29 U.S.C. § 1001 29 U.S.C. § 1105 29 U.S.C. § 1132 29 U.S.C. § 1132 RULES REGULATIONS

CASES Page AMLONG AMLONG, P.A. V. DENNY'S, INC., 457 F.3D 1180, 1190 (11TH CIR. 2006)........................................23 ATSI COMMUNS., INC. V. SHAAR FUND, LTD., 579 F.3D 143, 150 (2ND CIR. 2009)......................................15 BASIC INC. V. LEVINSON, , (1988).................26, 31 BRODY v. STONE WEBSTER, INC., 414 F.SD 187, 209 (1ST CIR. 2005)....................................................30 BYRNE V. NEZHAT, , (11TH CIR. 2001)........................................................ CARPET GROUP INT'L V. ORIENTAL RUG IMPORTERS ASS'N, , (3RD CIR. 2000).............................20 CHAMBERS V. NASCO, INC., , (1991)................ CHEVRON, USA, INC. V. HAND, , (10TH CIR. 1985)...................................................19 COMMERCIALES, S. A. V. ROGERS, , (1958).............................................................14 CONKLING V. TURNER, 18 F.SD 1285, 1296 N.8 (5TH CIR. 1994)......................................................9, 32 COOTER CELL V. HARTMARX CORP., , (1990)...................................................7, 14, 22 DAWSON V. MARSHALL, , (9TH CIR. 2009)..............................................................20 DIAZ v. UNITED STATES, , (11TH CIR. 1991)..............................................................20 DODSON V. RUNYON, , N.4 (2ND CIR. 1996)..............................................................13 DONALDSON V. CLARK, , N.6 (11TH CIR. 1987).........................................................19 DONOHOE CONSTR. CO., , (D.C. CIR. 1986).........................................................13 ELLIOTT V. THE M/V LOIS B, , (5TH CIR. 1993).................................................7, 23 ELM HAVEN CONSTR. LTD. P'SHIP V. NERI CONSTR. LLC, , (2ND CIR. 2004)..............................18 FEC V. SALVI, , (7TH CIR. 2000)..............6, 12 FRIENDS OF THE EARTH, INC. V. LAIDLAW ENVTL. SERVS. (TOC), INC., , (2000).......................32 FTC v. GEM MERCHANDISING CORP., , (11TH CIR. 1996)...............................................34 GEE V. ESTES, , (10TH CIR. 1987)..............................................................20 GENERAL ELECTRIC CO. V. CATHCART, , (3RD ClR. 1992)................................................26 HUNTER V. EARTHGRAINS Co. BAKERY, 281 F.3D 144, 157 (4TH ClR. 2002)...........................................14 HUTCHINSON V. PFEIL, , (10TH ClR. 2000).........................................................13 IN RE ADAMS GOLF, INC. SECS. LITIG., , (3RD CIR. 2004).............................................30 INDEPENDENT FIRE INS. CO. V. LEA, , (5TH CIR. 1992)................................................10 JONES v. FLOWERS, , (2006)........................12 KIRK CAPITAL CORP. V. BAILEY, , (8TH CIR. 1994)................................................11, 22 KIRKLAND v. NATIONAL MORTGAGE NETWORK, INC., , (11TH CIR. 1989).........................21 LARSEN V. CITY OF BELOIT, , (7TH CIR.1997)..........................................................13 LORMAND V. US UNWIRED, INC., , (5TH CIR. 2009)....................................................26 METHODE ELECS., INC. V. ADAM TECHS., INC., 371 F.3D 923, 928 (7TH CIR. 2004)......................................13 MILLOWITZ v. CITIGROUP GLOBAL MARKETS, INC., , (2ND CIR. 2008)..................................30 MILLS V. ELECTRIC AUTO-LITE Co., , (1970)......................................................8, 33 MITCHELL V. ROBERT DEMARIO JEWELRY, INC., 361 U.S. 288, 291-92 (1960)............................................33 NARA V. FRANK, , (3RD CIR. 2007).....................20 NAVARRO-AYALA V. NUNEZ, , (1ST CIR. 1992)....................................................22 No. 84 EMPLOYER-TEAMSTER JOINT COUNCIL PENSION TRUST FUND V. AM. WEST HOLDING CORP., , (9TH Cm. 2003)............................28 NOW, INC. V. SCHEIDLER, , (7TH CIR. 2001), REV'D ON OTHER GROUNDS, (2003).......................................................9, 32 OPERATING LOCAL 649 ANNUITY TRUST FUND V. SMITH BARNEY FUND MGMT. LLC, , (2ND CIR. 2010)..............................................26 POPE V. FEDERAL EXPRESS, , (8TH CIR. 1992).........................................................23 PORTER V. WARNER HOLDING CO., , 398- 399 (1946)..........................................................33 POULIS v. STATE FARM FIRE AND CAS. CO., 747 F.2D 863 (3 CIR. 1984).......................................... PRIMUS AUTO. FIN. SERVS., INC. V. BATARSE, 115 F.3D 644, 650 (9TH CIR. 1997)...................................6, 18 RADCLIFFE v. RAINBOW CONSTR. CO., , (9TH CIR. 2001).............................................17 RESCHINI V. FIRST FED. SAV. LOAN ASS'N, 46 F.3D 246, 250 N.4 (3RD CIR. 1995)..................................83 RICHARD V. HOECHST CELANESE CHEMICAL GROUP, INC., , (5TH CIR. 2003), CERT. DENIED, (2004)..................................34 ROADWAY EXPRESS, INC. V. PIPER, , (1980).............................................................13 ROTELLA V. WOOD, , (2000)....................31, 32, 34 RUBINSTEIN V. COLLINS, , (5TH CIR, 1994)..............................................................28 SEC V. CAVANAGH, , (2ND ClR. 2006)...................34 SEC v. FIRST CITY FINANCIAL CORP., , (D.C. CIR. 1989)..............................................34 SLOAN V. STATE FARM MUT. AUTO. INS. CO., 360 F.3D 1220, 1224 (10TH Cm, 2004)....................................18 STATE FARM FIRE AND CAS. CO., (3RD CIR. 1984)..........................................................5 TOON V. WACKENHUT CORR, CORP., , (5TH CIR. 2001)....................................................18 TRACINDA CORP. V. DAIMLERCHRYSLER AG, 502 F.3D 212, 242 (3RD CIR. 2007)......................................17 TSC INDUS. V. NORTHWAY, , (1976)............... UNITED STATES V. CARSON, , (1995), CERT. DENIED, (1996)......................9, 34 UNITED STATES V. FIRST CITY NAT'L BANK, 386 U.S. 361, 368 (1967)...............................................20 UNITED STATES V. FLORES, , (9TH CIR. 1999).........................................................15 UNITED STATES V. KIRSCHENBAUM, , (7TH Cm. 1998).................................................21 UNITED STATES V. PHILIP MORRIS USA, INC., 566 F.3D 1095, 1148-49 (D.C. CIR. 2009).............................9, 34 UNITED STATES V. PORAT, , (3RD CIR. 1994)..............................................................16 UNITED STATES V. RADDATZ, , (1980)................7, 20 UNITED STATES V. TURKETTE, , (1981).........................................................33, 34 VA. BANKSHARES V. SANDBERG, , 1090- 91 (1991)...........................................................28 ZOCARAS v. CASTRO, , (11TH CIR. 2006)..............................................................23 ZUK v. EASTERN PA. PSYCHIATRIC INST. OF THE MEDICAL COLLEGE, , (3RD CIR. 1996)..............................................................22 18 U.S.C. § 636(b)...............................................19, 20 (a)..................................................30 18 U.S.C. § 1927.....................................................17 ...................................................1, 3 (a)..............................................24, 31 (1)...................................................1 ......................................................2 ......................................................3 (a)(1)(B).............................................3 (a)(3)................................................3 FED.R.CIV.P. 11..................................................13, 16 FEDERAL PRACTICE PROCEDURE § 1336 (2D ED. SUPP. 1996)........................................................22 17 C.F.R. § 240.14a-101..............................................26

OPINIONS BELOW

The opinion of the Third Circuit Court of Appeals is Mark Jackson v. Rohm and Haas Company, et al., No. 09-1872 (3^rd Cir. Feb. 22, 2010)(Fisher, J.). App. at la.¹ The decision is not reported. The decision affirmed the district court's decisions of March 19 and 20, 2009, which are unreported. App.

1 All references to the instant appendix are "App." All references to the appendix below are "COA App."

JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. § 1254(1). The Third Circuit's decision was entered on February 22, 2010. The sur petition for rehearing with suggestion for rehearing en bane was denied on March 18, 2010. App. at 110a.

RELEVANT PROVISIONS INVOLVED

Title 18, United States Code, Section 1964. App. at 112a.

STATEMENT

Petitioner has filed three separate cases against Rohm and Haas Company ("RH"), the Liberty Life Assurance Company of Boston ("Liberty Mutual"), and others pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961, et seq.²/³ The cases have come to be known within the litigation as Jackson I, Jackson II, and Jackson III. In Jackson I (filed September 19, 2003), petitioner challenged the litigation misconduct of RH in a prior state case.⁴/⁵ On June 30, 2005, the district court dismissed the RICO claim on the ground that petitioner lacked RICO standing, and declined to exercise supplemental jurisdiction.⁶ Thereafter, the case was transferred to state court for disposition of the state law claims.

2 Unless otherwise stated, all references to "petitioner" are to Mark Jackson.

3 Not all cases and claims were brought against all defendants. Liberty Life Assurance Company of Boston is a wholly-owned subsidiary of the Liberty Mutual Group.

4 Jackson v. Rohm and Haas Co., No. 03-5299 (E.D. Pa.).

5 In June 1999, petitioner filed suit in Pennsylvania state court alleging invasion of privacy and defamation in connection with an RH internal company investigation. During discovery, RH produced a photocopy of the handwritten notes taken by Royce Warrick (RH in-house counsel and one of the lead investigators), but the notes had been significantly altered. Thereafter, RH produced a counterfeit "original" version of the notes. RH relied upon both versions of the notes throughout discovery, trial and appeal, and Warrick offered perjured testimony concerning authenticity, all in a successful effort to defend RH's investigation and to defeat petitioner's claims. COA App. at 184- 87.

6 Jackson v. Rohm Haas Co., No. 03-5299 (E.D. Pa. June 30, 2005). The Third Circuit affirmed. No. 06-1540 (3^rd Cir. Feb. 26, 2007).

In Jackson II (filed September 19, 2005) and Jackson III (filed August 18, 2006), petitioner filed complaints against the Jackson I defendants, their counsel in Jackson I, Liberty Mutual, certain RH officers and directors (including RH's chairman and general counsel), and others alleging, inter alia, violations of RICO and the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq.⁷ The respondents had continued the pattern of fraud and racketeering activity which included, inter alia, repeated instances of litigation misconduct connected to the fraudulent evidence (including petitioner's efforts to obtain discovery of the challenged documents), and repeated interference with petitioner's employment/benefits in an effort to gain an advantage in the litigation and to harm him. COA App. at 191, 200-01.

7 Jackson v. Rohm and Haas Co., No. 05-4988 (E.D. Pa.)("Jackson II"); No. 06-3682 (E.D. Pa.)("Jackson III").

On September 5 and 13, 2007, the district court issued decisions granting in part and denying in part the respondents' motions to dismiss the Jackson II and Jackson III complaints, which permitted claims pursuant to RICO ( 18 U.S.C. § 1961, et seq.), RICO (conspiracy) ( 18 U.S.C. § 1962(d)), ERISA (breach of fiduciary duty) ( 29 U.S.C. § 1132(a)(3)), ERISA (breach of co-fiduciary duty) ( 29 U.S.C. § 1105), ERISA (denial of benefits) ( 29 U.S.C. § 1132(a)(1)(B)), ERISA retaliation (Section 510) ( 29 U.S.C. § 1140), fraud, and negligent misrepresentation. App. at 58a, 76a.

On May 20, 2008, the magistrate judge consolidated Jackson II and Jackson III and directed petitioner's counsel to file a consolidated amended complaint ("CAC") "alleging all claims for which he has a good faith basis." COA App. at 1229. On June 11, 2008, petitioner filed the CAC as directed. On July 2, 2008, the respondents moved to dismiss.

On December 16, 2008, the magistrate judge filed a report and recommendation ("RR") recommending dismissal on the ground that the CAC constituted so severe a pleadings violation that the drastic sanction of dismissal was warranted. App. at 42a. This was a stunning development since the CAC merely consolidated two cases that had survived dismissal, and updated the pleadings.⁸ Petitioner filed timely and specific objections to the RR. COA App. at 815, 1391.

8 For example, based upon the Summary Plan Description and certain correspondence obtained by petitioner, the CAC alleged that RH and Liberty Mutual officials knowingly misrepresented the disability plan as an ERISA-governed plan even though it was funded from RH's "general assets." COA App. at 246-47. See note 24, infra.

On March 19, 2009, the district adopted (in substantial part) the RR and dismissed 21 of 25 claims. App. at 20a. However, the district court did not perform a de novo review of the record based upon petitioner's objections, nor was petitioner afforded due process or reasonable discovery prior to the punitive dismissal of his claims. App. at 17a.

Motion for Preliminary Injunction

On July 10, 2008, RH and The Dow Chemical Company ("Dow") announced that Dow would acquire all outstanding shares of RH for $78.00 per share, or $18.8 billion. Previously, on April 23, 2008, Liberty Mutual Group ("LMG") and Safeco Insurance Company announced that LMG would acquire all outstanding shares of Safeco for $68.25 per share, or $6.2 billion. The transactions closed on April 1, 2009 and September 22, 2008 respectively.

On September 15, 2008, petitioner filed a motion for preliminary injunction to enjoin the transactions, and to require full and proper disclosures. In particular, the motion alleged that the Jackson cases had not been disclosed (as required) by the companies in relevant SEC/regulatory filings, including the proxy materials connected to the transactions. On November 17, 2008, the magistrate judge issued an RR recommending that the motion be denied. App. at 54a. On March 20, 2009, the district court (without opinion) adopted the RR. App. at 15a.

On March 25, 2009, petitioner filed a Notice of Appeal with the Third Circuit.⁹/¹⁰ On February 22, 2010, the Third Circuit affirmed. App. at la. On March 4, 2010, petitioners filed a petition for rehearing and rehearing en banc. On March 18, 2010, the petition was denied. App. at 110a.

9 On March 24, 2009, petitioner voluntarily dismissed the remaining claims in the CAC.

10 On April 17, 2009, the Notice of Appeal was amended to included petitioner's counsel as an appellant since the appeal challenges, inter alia, Rule 11 sanctions against petitioner's counsel.

REASONS FOR GRANTING THE PETITION

The magistrate judge "consistent with the Court's inherent power to manage cases before it" recommended dismissal of the CAC with prejudice under a Poulis analysis.¹¹ App. at 36a. The district court adopted (in substantial part) the RR, and dismissed 21 of 25 claims. App. at 21a. In confirming the decision, the Third Circuit impermissibly and substantially lowered the established standard for a district court to punitively dismiss claims based upon a pleadings violation.

11 Poulis v. State Farm Fire and Cas. Co., 747 F.2d 863 (3^rd Cir. 1984). In Poulis, the Third Circuit established a six-part test when considering a punitive dismissal.

Where a court dismisses claims as a sanction pursuant to its inherent authority, a party is entitled to explicit notice and an opportunity to respond. Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991) (cite omitted) (court "must comply with the mandates of due process" when exercising inherent power); FEC v. Salvi, 205 F.3d 1015, 1018-19 (7^th Cir. 2000) (requiring explicit warning before dismissal). The Third Circuit determined that petitioner's attendance at a May 20, 2008 hearing concerning the consolidation of Jackson II and III was sufficient to place petitioner on notice, and to assign him personal responsibility for the CAC. App. at lla-12a. However, the CAC (filed June 11, 2008) had not yet been filed and the possibility of a punitive dismissal was not a subject of the hearing. Further, no evidence was taken (and there is nothing in the record) concerning petitioner's possible role. Chambers, 501 U.S. at 70 ("Chambers [was] the `strategist' for the abusive conduct"). This conflicts with the decisions of the Supreme Court and other circuit courts concerning the requirements for notice and personal responsibility before claims may be punitively dismissed.

The Third Circuit also determined (without elaboration) that "Jackson's refusal to abide by Judge Angell's last instructions regarding the CAC indicates that his counsel's conduct was willful or in bad faith[.]" App. at 11a. However, when exercising inherent authority, a court must make "specific findings as to the party's conduct that warrants sanctions." Byrne v. Nezhat, 261 F.3d 1075, 1123 (11^th Cir. 2001) (cite omitted). Further, bad faith must be determined based upon a party's own actions. Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 650 (9th Cir. 1997). Therefore, this aspect of the decision conflicts with the decisions of other circuit courts.

It was improper for the court to rely upon inherent authority in the first instance. Chambers cautions against use of inherent power if appropriate sanctions can be imposed under specific rules. 501 U.S. at 49 n. 14 (cite omitted). In Chambers, the Supreme Court determined it was proper for the district court to rely on inherent power since the challenged conduct exceeded the scope of the rules. Id. at 50. However, the Third Circuit's decision centers on whether the CAC constitutes a sanctionable pleadings violation, which should have been evaluated pursuant to Rule 11. Cooter Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990) ("Rule 11 is to deter baseless filings[.]").

The Third Circuit also determined that, pursuant to Rule 72(b), the standard for de novo review is met based upon the district court's "review of the RR and the parties' responses" thereto. App. at 10a. This conflicts with Supreme Court and other circuit court decisions that, where a party timely objects, the district court must review the actual record and issue its own findings. See e.g. United States v. Raddatz, 447 U.S. 667, 692 (1980)(Stewart, J., dissenting) (" Normally, the judge . . . will consider the record which has been developed before the magistrate and make his own determination on the basis of that record[.]") (emphasis in original).

On March 9, 2006, petitioner's counsel was sanctioned in connection with certain claims in the original Jackson II Complaint, and ultimately required to pay defense counsel two-thirds of their fees (totaling $81,710.99) in connection with their dismissal and Rule 11 motions. COA App. at 114, 132; 102. RH's counsel submitted a petition for 527.9 hours, of which the court allowed more than 380 hours. Thus, the amount actually awarded was not based upon an evaluation of an offense and the requirements for deterrence, but the movants' petitions, which led to a compensatory award. Elliott v. The M/V Lois B, 980 F.2d 1001, 1007 (5^th Cir. 1993) (Rule 11 is not to "compensate wronged parties."). The court also stated that since the $80,000 fine was "unsuccessful," there were "no alternative sanctions" to dismissal. App. at 5a-6a, 8a-9a (cite omitted). However, since dismissal was only the second sanction in the case and the first against petitioner, the Rule 11 sanction was not the "minimum" required to "adequately deter" ( id. at 8), but instead was a "last chance" prior to the punitive dismissal of claims. Accordingly, the Third Circuit's decision conflicts with the decisions of the Supreme Court and other circuit courts concerning the purpose and effect of Rule 11 sanctions.

Finally, petitioner filed a motion for preliminary injunction to enjoin the 2009 merger of RH/Dow and the 2008 acquisition by LMG of Safeco. Petitioner challenged the companies' conduct in failing to disclose the fraud and racketeering cases in SEC and other regulatory filings, including the proxy solicitation and/or proxy materials used to secure shareholder/regulatory approval. See e.g. TSC Indus, v. Northway, 426 U.S. 438, 449 (1976) (the question is whether "the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder."). The Third Circuit dismissed the motion as moot on the grounds that petitioner's claims had been dismissed and the transactions had already closed. App. at 12a. However, the fact of the closings merely altered the form of relief; it did not foreclose petitioner from obtaining a remedy. See e.g. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 386 (1970) ("Possible forms of relief [for violation of the proxy rules] will include setting aside the merger[.]").

Where a private party has brought a claim for equitable relief under § 1964(a), there is a circuit split concerning the authority of the district court. See e.g. NOW, Inc. v. Scheidler, 267 F.3d 687, 697 (7^th Cir. 2001), rev'd on other grounds, 537 U.S. 393 (2003) (private plaintiff may obtain equitable relief under § 1964(a)); Conkling v. Turner, 18 F.3d 1285, 1296 n. 8 (5^th Cir. 1994) (detailing circuit split). The circuit courts have also disagreed concerning the relief available under § 1964(a). See e.g. United States v. Carson, 52 F.3d 1173, 1181-82 (1995), cert denied, 516 U.S. 1122 (1996) (permitting disgorgement under § 1964(a)); United States v. Philip Morris USA, Inc., 566 F.3d 1095, 1148-49 (D.C. Cir. 2009) (cite omitted) (rejecting disgorgement as remedy).

Thus, there is conflict among the circuit courts, and the Supreme Court has not yet determined either the district court's authority, or the relief available, where private parties have brought claims pursuant to § 1964(a). Further, in view of the nature and substance of the challenged transactions, and the substantial interests which are implicated, review should be granted on the basis that this is a matter of exceptional importance.

I. A REPRESENTED PARTY IS NOT PERSONALLY RESPONSIBLE FOR A PLEADINGS VIOLATION UNLESS THE PARTY PARTICIPATED IN, AND RECEIVED NOTICE OF THE SANCTIONABLE CONDUCT

The Third Circuit determined that petitioner's attendance at the May 20, 2008 hearing concerning consolidation was "sufficient to put Jackson personally on notice" of a purported pleadings violation and "made him personally responsible for the CAC." App. at 11a-12a. However, the CAC (filed June 11, 2008) and the respondents' dismissal motions (filed July 2, 2008) had not yet been filed, and the possibility of a punitive dismissal was not a subject of the proceeding.¹² Further, this is not the standard for personal responsibility.

12 The Order scheduling the May 20, 2008 hearing states, "The purpose of this hearing will be to schedule the filing of a proper complaint and response in this case, and to schedule and complete discovery in a prompt fashion." COA App. at 1226.

The Third Circuit's decision conflicts with the decisions of the Supreme Court and other circuit courts concerning the adequacy of notice and the requirement(s) for personal responsibility.

A. PETITIONER WAS NOT PERSONALLY RESPONSIBLE FOR THE CAC

"Typically, sanctions are levied against a client when he misrepresents facts in the pleadings . . . [or] when it is clear that he is the `mastermind' behind the frivolous case." Byrne, 261 F.3d at 1118 (cite omitted). See also Chambers, 501 U.S. at 70 ("Chambers [was] the `strategist' for the abusive conduct"); Independent Fire Ins. Co. v. Lea, 979 F.2d 377, 379 (5^th Cir. 1992) (represented party must be directly involved in the management of the litigation and/or the decisions resulting in the actions which the court sanctions).

The Third Circuit did not find that petitioner was the "mastermind" or "strategist" behind the challenged claims. In fact, there is no evidence concerning petitioner's possible role anywhere in the record. Further, at the May 20, 2008 hearing, the magistrate judge's instructions were directed to counsel, and only counsel could have evaluated and applied them:

THE COURT: So, I am asking plaintiff's counsel to prepare a complaint which encompasses all the claims he believes in good faith he can raise before the Court based on whatever actions he believes the respondents have exerted against his client. . . . Whether it is twenty-two counts or thirty-five, I don't know. That is up to Mr. Silverberg[.]

COA App. at 1235-36, 1244; Byrne, 261 F.3d at 1118 (cite omitted)("such legal matters as the frivolousness of a claim . . . which are `peculiarly within the province of lawyers,' would not, without specific findings implicating knowing participation, support Rule 11 sanctions against a party"); Kirk Capital Corp. v. Bailey, 16 F.3d 1485, 1488 (8^th Cir. 1994) (the lawyer, and not his client, must decide if the claims made are warranted by existing law).

The Third Circuit's decision conflicts with the decisions of the Supreme Court and other circuit courts concerning the question of personal responsibility, and review should be granted to resolve the conflict on this important issue. Courts must afford the fullest procedural protections to innocent parties, particularly where the failure to do so results in the loss of a cause of action. II. WHERE A COURT RELIES UPON ITS INHERENT POWER TO PUNITIVELY DISMISS A PARTY'S CLAIMS, THE COURT MUST FIRST PROVIDE EXPLICIT NOTICE AND AN OPPORTUNITY TO RESPOND A. KNOWLEDGE OF A DELINQUENCY IS NOT EQUIVALENT TO NOTICE

In finding that "the May 20, 2008 hearing was sufficient to put Jackson personally on notice," the Third Circuit stated, "We have held that "[w]here a client had or should have had independent knowledge of the delinquency that was the grounds for dismissal, . . . notice and hearing are not required." App. at 11a-12a (cite omitted). This conflicts with the Supreme Court's standard concerning the adequacy of notice. See Jones v. Flowers, 547 U.S. 220, 233-34 (2006) (internal cites omitted)("An interested party's `knowledge of delinquency in the payment of taxes is not equivalent to notice that a tax sale is pending.'"); id. (an arrestee's knowledge of the right to remain silent does not excuse a police failure to provide Miranda warnings). See Chambers, 501 U.S. at 50 (court "must comply with the mandates of due process" when exercising inherent power); Salvi, 205 F.3d at 1018-19 ("we have repeatedly emphasized the general rule that explicit warning must be given . . . prior to dismissal.").

Petitioner's attendance at the May 20, 2008 hearing was not "equivalent to notice" that his claims might be punitively dismissed, particularly since the CAC had not yet been filed and dismissal was not a subject of the proceeding. The Third Circuit's decision conflicts with the Supreme Court's decision in Jones concerning the adequacy of notice, and review should be granted to resolve the conflict on this important issue.

B. A SHOW CAUSE ORDER SHOULD HAVE BEEN ISSUED

"[The] inherent power to sanction is to be exercised by means of a rule to show cause or similar procedure, rather than by the sudden imposition of sanctions with no opportunity to respond." Larsen v. City of Beloit, 130 F.3d 1278, 1286 (7^th Cir. 1997), citing Chambers, 501 U.S. at 40, 50; Fed.R.Civ.P. 11, 1993 Amendments, Note to Subdivisions (b) and (c) (the court may act on its own initiative, "but with the condition that this be done through a show cause order.");¹³ Methode Elecs., Inc. v. Adam Techs., Inc., 371 F.3d 923, 928 (7^th Cir. 2004) (cite omitted) (under inherent power, court must provide notice of intention to sanction and opportunity to respond); Hutchinson v. Pfeil, 208 F.3d 1180, 1184 (10^th Cir. 2000) (cites omitted)("The courts have held this procedure to be mandatory, with noncompliance constituting abuse of discretion requiring reversal."). Further, any show cause order must "specifically describ[e] the conduct implicating the rule[.]"¹⁴ Hutchinson, 208 F.3d at 1184; Hunter v. Earthgrains Co. Bakery, 281 F.3d 144, 157 (4^th Cir. 2002)(same).

13 See also Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980) (stating that notice and opportunity to be heard are generally required before awarding attorney's fees).

14 Shea v. Donohoe Constr. Co., 795 F.2d'1071, 1078 (D.C. Cir. 1986) (district court "should notify the client, in clear and unequivocal terms, that his case is in danger of dismissal" due to his lawyer's conduct); Dodson v. Runyon, 86 F.3d 37, 40 n. 4 (2^nd Cir. 1996) (district judges should give notice "directly to the client where there is reason to suspect" that attorney's conduct could result in dismissal).

The Third Circuit's decision conflicts with the decisions of the Supreme Court and other circuit courts concerning the requirements of due process. Further, where a court relies upon its inherent power to punitively dismiss claims, the court must first issue a show cause order detailing the alleged offense and offering the party a full and fair opportunity to respond to the threat of dismissal.

C. THE CAC SHOULD HAVE BEEN EVALUATED UNDER RULE 11

1. Petitioner Should Have Been Allowed Reasonable Discovery.

While petitioner's claims were dismissed under a Poulis analysis pursuant to the court's inherent authority, whether a sanctionable pleadings violation had occurred should have been evaluated pursuant to Rule 11. Cooter Gell, 496 U.S. at 393 (the purpose of Rule 11 is to deter baseless filings). Chambers cautions against reliance upon inherent authority if appropriate sanctions can be imposed under specific rules. Chambers, 501 U.S. at 49 n. 14, citing Societe Internationale pour Participations Industrielles et Commercials, S. A. v. Rogers, 357 U.S. 197, 207 (1958) ("because individual rules address specific problems, in many instances it might be improper to invoke one when another directly applies."). In Chambers, the Supreme Court determined it was proper for the district court to rely on inherent power since the challenged conduct exceeded the scope of the rules ( id. at 50), but the Third Circuit's decision centers on whether the CAC constitutes a sanctionable pleadings violation. App. at 11a.

The court's reliance on inherent authority effectively bypassed Rule 11's express provision for discovery. Rule 11 (b)(3)(addressing, inter alia, whether contentions are "likely to have evidentiary support after a reasonable opportunity for further investigation or discovery"); Rule 11(b)(3), Advisory Committee Notes (discussing need for discovery to "confirm the evidentiary basis for the allegation."); ATSI Communs., Inc. v. Shaar Fund, Ltd., 579 F.3d 143, 150 (2^nd Cir. 2009) (discussing permitted discovery). This foreclosed petitioner from the opportunity to demonstrate that the allegations and claims were factually supported. In fact, there already was evidence to support petitioner's claims. . For example, there already had been repeated interference with petitioner's efforts to obtain handwriting exemplars. United States v. Flores, 172 F.3d 695, 701 (9^th Cir. 1999)("There are few better examples of a classic obstruction of justice than a defendant who refuses to give handwriting samples when compelled by a subpoena."). Further, based on handwriting exemplars provided by Royce Warrick and Jane Greenetz, petitioner would have been able to produce an expert report from a forensic document examiner that: a) both Warrick and Greenetz intentionally withheld their true handwriting in an effort to mislead petitioner's expert and others concerning the authenticity of the challenged documents; and b) Greenetz intentionally and repeatedly misspelled her name to match the spelling of her name on a challenged affidavit, which was misspelled "Greentz."¹⁶/¹⁷ Thus, while the Third Circuit determined there had been bad faith, and that "Jackson's ERISA and RICO claims were without merit" (App. at 11a) (discussing fourth and sixth Poulis factors), there already was evidence of repeated instances of obstructive conduct.¹⁸ United States v. Porat, 17 F.3d 660, 665 (3^rd Cir. 1994) (submission of knowingly misleading handwriting exemplar a violation of 18 U.S.C. § 1512(b)(1).

16 Warriek is the purported author of certain handwritten interview notes which petitioner claims are fraudulent, but which RH contends are legitimate and has relied upon in its defense. Greenetz is the RH paralegal who (according to RH) located Warrick's "original" notes after they had been misplaced, and thereafter signed an affidavit to that effect. However, petitioner has contended the affidavit is a fraud since, inter alia, the notes were not misplaced, the affidavit is inconsistent with an Answer Greenetz filed, and the signature on the document was clearly misspelled "Greentz". See COA App. at 455 (Greenetz affidavit); id. at 458 (Greenetz verification).

17 The exemplars were obtained in November 2007, more than 20 months after the Rule 11 decision.

18 Relatedly, the Third Circuit determined that petitioner "bore personal responsibility for the CAC" and had repeatedly "fil[ed] improper complaints with frivolous claims[.]" App. at 11a. (discussing first, second, and third Poulis elements). As discussed supra, there was no evidence concerning petitioner's possible role in the proceedings, and further, the only time the district court determined that frivolous claims had been filed was the court's Rule 11 decision (filed March 9, 2006) in connection with the original Jackson II complaint.

The Third Circuit's decision conflicts with the decisions in Chambers and Societe Internationale, which make clear that inherent power should not be used where individual rules address specific problems. Further, the court's decision undercuts Rule 11's procedural protections, which are specifically tailored to pleadings offenses.¹⁹

19 Fed.R.Civ.P. 11(c)(1)(A) (requiring notice and an opportunity to respond before sanctions may be imposed); Radcliffe v. Rainbow Constr. Co., 254 F.3d 772, 788-89 (9^th Cir. 2001) (Rule 11's "safe harbor" period is mandatory).

III. A PUNITIVE DISMISSAL OF CLAIMS REQUIRES EXPLICIT FACTUAL FINDINGS OF BAD FAITH

The Third Circuit determined (without elaboration) that "Jackson's refusal to abide by Judge Angell's last instructions regarding the CAC indicates that his counsel's conduct was willful or in bad faith." App. at 11a (discussing fourth Poulis factor). This generalized statement; conflicts with the decisions of the Supreme Court, as well as other circuit courts which require explicit factual findings of bad faith.^19a

19a The district court's Rule II decision expressly found no bad faith on the part of petitioner's counsel. COA App. at 131. The district court confirmed its decision when, after petitioner sought reconsideration, the respondents sought sanctions under 18 U.S.C. § 1927. Order (filed 06/28/06) at 2 ("As I stated in my March 9, 2006 opinion, I did not then perceive any willful misconduct by plaintiffs counsel, and I do not perceive any now."). In Jackson III, the district court denied respondents' Rule 11 motions, determining that petitioner's termination claims had not been brought for an improper purpose. Order (filed 09/06/07) at 4-5.

A dismissal pursuant to the court's inherent power requires a finding of bad faith. Chambers, 501 U.S. at 49 ("invocation of the inherent power would require a finding of bad faith."); Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212, 242 (3^rd Cir. 2007), citing Roadway Express, 447 U.S. at 765-766 (finding of bad faith is generally required for a court to impose sanctions pursuant to its inherent authority). However, "a court must do more than conclude that a party acted in bad faith; it should make specific findings as to the party's conduct that warrants sanctions." Byrne, 261 F.3d at 1123; Toon v. Wackenhut Corr. Corp., 250 F.3d 950, 952 (5^th Cir. 2001) (to impose sanctions pursuant to inherent power a "court must make a specific finding of bad faith"). This generally requires a determination of a party's motive or intent. Elm Haven Constr. Ltd. P'ship v. Neri Constr. LLC, 376 F.3d 96, 102 (2^nd Cir. 2004); Sloan v. State Farm Mut. Auto. Ins. Co., 360 F.3d 1220, 1224 (10^th Cir. 2004) (bad faith requires "culpable mental state").²⁰

20 "In fact, the magistrate judge directed her criticism at petitioner's counsel, and not at petitioner. ("[F]rankly, it is my position that your client is being ill served[.]"). COA App. at 880; id. (discussing the court's efforts to "facilitate this litigation on behalf of your client.")."

The Third Circuit's decision conflicts with the decision of other circuit courts which require explicit factual findings of bad faith conduct before sanctions may be imposed pursuant to the court's inherent authority. Accordingly, review should be granted to resolve the conflict on this important question.

A. BAD FAITH MUST BE DETERMINED BASED UPON A PARTY'S OWN ACTIONS

While the conduct of a party or attorney may establish willfulness, the actions of one may not be used to demonstrate the bad faith of the other. Byrne, 261 F.3d at 1123 ("To support its findings of bad faith and otherwise sanctionable conduct, the court impermissibly relied solely on the actions of counsel."); Primus, 115 F.3d at 650 (cite omitted) (sanctions against counsel should be based solely on his "own improper conduct without considering the conduct of the parties or any other attorney"); Donaldson v. Clark, 819 F.2d 1551, 1557 n. 6 (11^th Cir. 1987) (court should not sanction parties for the offenses of their lawyers). In fact, pursuant to Rule 11(b)(2), the district court strictly limited the Rule 11 sanction to petitioner's counsel. COA App. at 130; Chevron, USA, Inc. v. Hand, 763 F.2d 1184, 1187 (10^th Cir. 1985)("Rule 11 directs that the sanction should fall upon the individual responsible for the filing of the offending document."); see also Byrne, 261 F.Sd at 1120 n. 88 (cite omitted)("We agree with the Eighth Circuit that "the principle enunciated by the Supreme Court in Link simply does not apply in a Rule 11 sanction context. Otherwise every award against an attorney under Rule 11 could also be assessed against the client.").

The Third Circuit's decision conflates the possible culpability of a party and counsel, and regardless, there is no showing that either petitioner or counsel acted in bad faith. This conflicts with the decisions of other circuit courts, and review should be granted to resolve the conflict on this important issue.

IV. PURSUANT TO RULE 72(b), THE DISTRICT COURT MUST REVIEW THE ACTUAL RECORD AND ISSUE ITS OWN FINDINGS

The Third Circuit confirmed the dismissal of petitioner's claims even though, pursuant to Rule 72(b) and 18 U.S.C. § 636(b), the district court did not independently review the record as developed based upon petitioner's objections to the RR, and issue its own findings based upon the review. App. at 10a (district court's review of the RR and the parties' responses thereto sufficient). This conflicts with the decisions of the Supreme Court and other circuit courts concerning the standard for de novo review.

"Article III requires de novo review of a magistrate judge's RR where a party timely objects." Nara v. Frank, 488 F.3d 187, 194 (3^rd Cir. 2007) (cite omitted). The term "de novo" means "the court should make an independent determination of the issues." United States v. First City Nat'l Bank, 386 U.S. 361, 368 (1967); United States v. Raddatz, 447 U.S. 667, 692 (1980)(Stewart, J., dissenting)("Normally the judge . . . will consider the record which has been developed before the magistrate and make his own determination on the basis of that record. . . ." (cite omitted) (emphasis in original); Dawson v. Marshall, 555 F.3d 798, 799 (9^th Cir. 2009) (cite and quotes omitted) (construing 18 U.S.C. § 636(b)(1)(C))("De novo review means that the reviewing court do[es] not defer to the lower court's ruling but freely consider[s] the matter anew, as if no decision had been rendered below."); Carpet Group Int'l v. Oriental Rug Importers Ass'n, 227 F.3d 62, 71 (3^rd Cir. 2000) (cite omitted) (district court has "obligation to review de novo the actual evidence on objected-to findings[.]"); Diaz v. United States, 930 F.2d 832, 836 (11^th Cir. 1991)(§ 636(b)(1) requires that the district court make an independent determination of the factual issues based on the record); Gee v. Estes, 829 F.2d 1005, 1008-09 (10^th Cir. 1987) (internal cites omitted) (district court has "nondelegable authority" to review actual record, and not merely magistrate's report and recommendation).

The district court's March 19, 2009 decision reveals that the district court failed to make an independent review of the record based upon petitioner's objections to the RR, and to issue its own findings based on that review. COA App. at 815 (objections); App. at 17a. This undercut Rule 72(b)'s purpose and protections. In fact, respondents' conduct resulted in the allegations contained in the CAC, and further, discovery would have permitted petitioner to advance substantial evidence in support of his RICO, ERISA, and other claims. Importantly, since the record demonstrated a lack of due process, the district court's decision constituted an abuse of discretion and the Third Circuit should have performed a plenary review, but failed to do so. App. at 6a-7a; Kirkland v. National Mortgage Network, Inc., 884 F.2d 1367, 1370 (11^th Cir. 1989), c.f. United States v. Kirschenbaum, 156 F.3d 784, 792 (7^th Cir. 1998) (in general, due process claims are reviewed de novo).

The Third Circuit's decision conflicts with the decisions of the Supreme Court and other circuit courts, as well as other Third Circuit cases, concerning the standard for de novo review. Accordingly, review should be granted to resolve the conflict on this important issue.

V. THE RULE 11 SANCTION WAS NOT FOR PURPOSES OF DETERRENCE, AND WAS IMPROPERLY USED TO TRUMP PETITIONER'S CLAIMS

On March 9, 2006, the district court determined that petitioner's counsel had violated Rule 11 in connection with certain claims in the original Jackson II complaint. As a sanction, petitioner's counsel was ordered to pay defense counsel two-thirds of their fees (and costs) in connection with their dismissal and Rule 11 motions, which totaled $81,710.99. App. at 8a. The Third Circuit's decision confirming the huge sanction conflicts with the decisions of the Supreme Court and other circuit courts concerning the purpose of Rule 11 sanctions.

"[T]he central purpose of Rule 11 is to deter baseless filings[.]" Cooter Gell, 496 U.S. at 393; Zuk v. Eastern Pa. Psychiatric Inst. of the Medical College, 103 F.3d 294, 301 (3^rd Cir. 1996), citing 5A Charles Alan Wright Arthur R. Miller, Federal Practice Procedure § 1336 (2d ed. Supp. 1996)("The 1993 revision . . . makes clear that the main purpose of Rule 11 is to deter, not to compensate."). However, the amount awarded was not based upon an evaluation of petitioner counsel's offense and/or the penalty necessary for deterrence, but the fees/costs associated with defense counsels' motions. For example, RH's counsel submitted a petition for 527.9 hours (totaling $153,754.50) in connection with their motions, ²¹ of which the court allowed more than 380 hours.²² COA App. at 102-05. Thus, the amount actually awarded was based solely on an evaluation of defense counsel's bill, and was grossly disproportionate to petitioner counsel's offense. Navarro-Ayala v. Nunez, 968 F.2d 1421, 1427-28 (1^st Cir. 1992)("overkill" in billing should not increase the respondent's burden); see also Kirk Capital, 16 F.3d at 1491 (the assertion that plaintiffs filed a patently frivolous complaint was inconsistent with the contention that it took 279.10 hours of legal work "to reveal what defendants contend is obvious"); id. (awarding 50 hours for dismissal and 25 hours for Rule 11 motions).²³

21 Based upon the March 9, 2006 order (awarding two-thirds of fees) and a 10% client discount, this was adjusted by RH's counsel to $101,874.49.

22 Liberty Mutual's counsel submitted a separate petition for 69.7 hours, and ultimately was awarded $10,190.38 of the total award.

23 The original Jackson II Complaint (which contained ten counts) subsequently was amended, survived dismissal (including claims for RICO, RICO conspiracy, and ERISA), and formed the basis for the CAC.

The Third Circuit's decision improperly shifts the focus away from deterrence and to an evaluation of the movants' fees. Elliott, 980 F.2d at 1007 (Rule 11 is not to "compensate wronged parties."). Where attorney's fees are considered, deterrence must not be measured based upon a generic percentage of the movant' bill. Amlong Amlong, P.A. v. Denny's, Inc., 457 F.3d 1180, 1190 (11^th Cir. 2006) (in context of § 1927 sanctions, "the dollar amount of the sanction must bear a financial nexus to the excess proceedings"). Otherwise, as here, an incongruous and disproportionate penalty may result, and the deterrent purpose of Rule 11 is lost.

The Third Circuit also determined that `"no alternative sanctions . . . will be effective' in light of the fact that the previous $80,000 fine was unsuccessful[.]" App. at 5a-6a, 8a-9a (cite omitted) (amount of sanction sufficient to satisfy fifth Poulis element). However, the punitive dismissal of claims was only the second sanction in the litigation, and the first against petitioner. Thus, the Rule 11 sanction was not the "minimum" to "adequately deter," (App. at 8a), but instead was a "last chance" prior to the punitive dismissal of claims. Pope v. Federal Express, 974 F.2d 982, 984 (8^th Cir. 1992) (court should award the "least severe sanction that will adequately deter the undesirable conduct"); Zocaras v. Castro, 465 F.3d 479, 483 (11^th Cir. 2006) (internal cite omitted)("[d]ismissal of a case with prejudice is considered a sanction of last resort").

The Third Circuit's decision conflicts with the Supreme Court's decision in Cooter and Gell and other circuit courts concerning the purpose of Rule 11 and any penalties awarded thereunder. Review should be granted to resolve the conflict on this important matter.

VI. THE THIRD CIRCUIT'S DECISION CONCERNING THE MOTION FOR PRELIMINARY INJUNCTION CONFLICTS WITH THE DECISIONS OF THE SUPREME COURT

On July 10, 2008, RH and Dow announced that Dow would acquire all outstanding shares of RH for $78.00 per share, or $18.8 billion. Previously, on April 23, 2008, Liberty Mutual and Safeco announced that Liberty Mutual would acquire all outstanding shares of Safeco for $68.25 per share, or $6.2 billion. The transactions closed on April 1, 2009 and September 22, 2008 respectively.

On September 15, 2008, petitioner filed a motion for preliminary injunction to enjoin the two transactions, and to require full and proper disclosures. Petitioner challenged the companies' conduct in failing to disclose the fraud and racketeering cases in SEC and other regulatory filings, including the proxy solicitation and proxy materials used to secure shareholder/regulatory approval.²⁴ The motion was brought pursuant to RICO's "private attorneys general" standard, and specifically, 18 U.S.C. § 1964(a) to prevent and restrain future violations of the Act. COA App. at 322.

24 The CAC alleged that RH's securities filings were part of, and facilitated, the longstanding pattern of fraud and racketeering activity. COA App. at 257-260.

The Third Circuit dismissed the motion as moot on the grounds that petitioner's claims had been dismissed and the transactions had already closed. App. at 12a. However, the motion was brought pursuant to § 1964(a) to prevent and restrain future violations of the Act., The fact of the closings merely altered the form of relief; it did not foreclose petitioner from obtaining a remedy.

A. THE SHAREHOLDER VOTES WERE BASED UPON FALSE OR MISLEADING PROXY SOLICITATIONS AND PROXY MATERIALS

"An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." TSC Indus. v. Northway, 426 U.S. 438, 449 (1976). As the Supreme Court explained:

It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.

Id.; Basic Inc. v. Levinson, 485 U.S. 224, 231 (1988) (cite omitted) (discussing standard in the proxy-solicitation context); Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 86, 92-93 (2^nd Cir. 2010) (cite omitted) (a fact is material where "there is a substantial likelihood that a reasonable person would consider it important in deciding whether to buy or sell shares [of stock]."); Lormand v. US Unwired, Inc., 565 F.3d 228, 248 (5^th Cir. 2009) ("The omission of a known risk, its probability of materialization, and its anticipated magnitude, are usually material to any disclosure discussing the prospective result from a future course of action."); General Electric Co. v. Cathcart, 980 F.2d 927, 937 (3^rd Cir. 1992) (pending litigation "involv[ing] proxy solicitations concerning mergers or similar transactions" considered material). Importantly, the Jackson litigation involved claims against certain RH officers and directors.²⁵ Schedule 14A, Item 7(b), 17 C.F.R. § 240.14a-101 (proxy materials must disclose pending litigation(s) that are "material to an evaluation of the ability or integrity of any director [up for election]"); General Electric, 980 F.2d at 937 (discussing failure to disclose, and materiality of, pending lawsuits against "director nominees.").

25 In addition to Gupta and Robert Lonergan (RH General Counsel), the RH Benefits Administrative Committee ("BAC") was a named defendant, which was comprised of RH officers/directors.

It is manifest that there is a "substantial likelihood that a reasonable shareholder" would consider fraud and racketeering claims involving a party to a merger, and a related motion for preliminary injunction to enjoin the transaction, "important in deciding how to vote." TSC Indus., 426 U.S. at 449.

1. Respondents Intentionally Omitted Material Information For Purposes of Securing the Shareholder Votes Necessary to Approve the Transactions.

According to the proxy materials, on November 12, 2007, a trustee for the Haas trusts informed RH Chairman Raj L. Gupta that result of their fiduciary obligations, the Haas trustees had reached a consensus that the Haas trusts should diversify their holdings . . . through the sale of Rohm and Haas stock held by them [] in a 12 to 18 month time frame, at a premium to the market price."²⁶ COA App. at 358. The Haas trusts held 64,000,000 shares, or approximately 32%, of RH's outstanding common stock. Id. This led to the auction of RH, and ultimately, the merger with Dow.²⁷ Id. On September 28, 2008, in definitive proxy materials (including a letter signed by Gupta), the RH board of directors unanimously recommended that RH shareholders vote in favor of the merger with Dow.²⁸ Def. Proxy (filed 09/26/08). However, the board had intentionally failed to disclose the pending fraud and racketeering cases, or related motion for preliminary injunction.

26 At that point (and for many years prior thereto), the company's board of directors included two members of the Haas family. COA App. at 358.

27 No further explanation was given for the Haas Family's decision, or for why the stated interest to "diversify" proved to be a divestiture. However, the November 2007 meeting between the representative of the Haas trusts and Gupta occurred shortly after the district court's September 2007 decisions permitting fraud and racketeering claims against RH, and the Company's unsuccessful effort to block the handwriting exemplar of Royce Warrick. Importantly, in September 2007 (as the result of a share repurchase program), there was an undisclosed change in control which placed control of RH in the hands of the Haas Family and two institutional investors. This further undercut the legitimacy of the merger since, although the Haas Family voted in favor of the merger, the undisclosed change in control legally prevented the shares from being voted. COA App. at 359-61, 419-22.

28 RH filed proxy soliciting materials on multiple occasions in connection with the merger in which the company failed to make the required disclosures.

In determining that statements by directors meet the standard for materiality within the meaning of TSC Industries, Inc., the Supreme Court stated:

We think there is no room to deny that a statement of belief by corporate directors about a recommended course of action, or an explanation of their reasons for recommending it, can take on just that importance. . . . [T]he shareowner faced with a proxy request will think it important to know the directors' beliefs about the course they recommend and their specific reasons for urging the stockholders to embrace it.

Va. Bankshares v. Sandberg, 501 U.S. 1083, 1090-91 (1991) (cites omitted); No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. West Holding Corp., 320 F.3d 920, 935 (9^th Cir. 2003) (omission was material where airline painted a rosy picture of financial prospects, while knowing it had undisclosed specific problems); Rubinstein v. Collins, 20 F.3d 160, 170 (5^th Cir. 1994) (optimistic statements that omit known substantial adverse facts are actionable under antifraud provisions).

The RH board of directors unanimously recommended that RH shareholders vote in favor of the merger with Dow, but intentionally failed to disclose the pending fraud and racketeering cases and related motion to enjoin the transaction. This met the standard for materiality within the meaning of Va. Bankshares. ²⁹/³⁰

29 In press reports, Dow's Chairman significantly contributed to the effort to mislead RH shareholders:

An exuberant Dow Chemical chief executive Andrew N. Liveris said he paid a "full price" for Rohm Haas because he considered it "beachfront property" and a "jewel" and because he couldn't pass on the opportunity. "It didn't happen because Rohm Haas was distressed," Liveris said.

COA App. at 494-95 (emphasis supplied).

30 With respect to Liberty/Safeco, in proceedings before the Washington State Insurance Commissioner concerning the motion for preliminary injunction, the following colloquy took place between the Insurance Commissioner, Richard P. Quinlan (Liberty Mutual Sr. V.P. and Deputy General Counsel), petitioner's counsel, and possibly Sean B. McSweeney (Liberty Mutual Sr. V.P. and Deputy General Counsel):

JUDGE PETERSEN: And so you don't believe that [the Jackson] case is material to Liberty?

UNIDENTIFIED MALE: I do not.

MR. SILVERBERG: Under what criteria? That means the proxy statement is bad. . . .

MR. QUINLAN: This transaction was reviewed, in addition to yours, six other jurisdictions, and including Washington, no one has ever concluded, we've been through market conduct exams that you've heard about ad nauseam, we're in a heavily regulated industry, never has anyone suggested that the business practices of Liberty Mutual are of a RICO nature.

JUDGE PETERSEN: Have you disclosed this case to any other, have you disclosed the fact of this litigation to any other states?

UNIDENTIFIED MALE: No.

COA Supp. App. at 39-40; id. at 37 (MR. QUINLAN: This litigation [] is not deemed to be material to Liberty Mutual's operations and its business and going forward.). As James Williams (Safeco's merger counsel) candidly admitted, "[Q]uite frankly Safeco knew nothing about this case at all until we saw these papers this morning. So without knowledge of existence of the litigation I find it hard to believe how Safeco could be held to a duty to disclose." Id. at 36. The Washington State Insurance Commissioner was the lead regulator among the following states: Oregon, California, Texas, Illinois, Indiana, and Missouri. See 18 U.S.C. § 1515(a)("As used in sections 1512 and 1513 [] the term `official proceeding' means . . . a proceeding involving the business of insurance whose activities affect interstate commerce before any insurance regulatory official or agency . . . whose activities affect interstate commerce[.]").

2. Materiality is a Question of Fact.

Whether the proxy solicitation or proxy materials were materially false or misleading is a jury question. Brody v. Stone Webster, Inc., 414 F.3d 187, 209 (1^st Cir. 2005), citing TSC Industries, Inc., 426 U.S. at 450 (the falsity of a statement and the materiality of a false statement are questions for the jury); In re Adams Golf, Inc. Secs. Litig., 381 F.3d 267, 274-75 (3^rd Cir. 2004) (materiality is ordinarily an issue left to the factfinder). See also Millowitz v. Citigroup Global Markets, Inc., 544 F.3d 474, 482 (2^nd Cir. 2008), citing Basic, 485 U.S. at 236 (cite omitted)("`[T]he determination of materiality requires delicate assessments of the inferences a `reasonable shareholder' would draw from a given set of facts and the significance of those facts to [the shareholder].'").

In sum, the Third Circuit's decision rewards companies who successfully rush their illegitimate transactions to closing" before they can be properly challenged.³¹ The Third Circuit's analysis and decision conflicts with the decisions of the Supreme Court in TSC Indu., and Basic, and other circuit courts when evaluating mergers/acquisitions. Further, in view of the nature and substance of the transactions, and the substantial interests which are implicated, review should be granted on the basis that this is a matter of exceptional importance.

31 The announcement of the Liberty/Safeco transaction came one day after the district court denied without prejudice all outstanding motions in Jackson II and III, which confirmed to Liberty that the cases/claims would be proceeding, and led to the May 2008 consolidation order. On September 18, 2008, three days after petitioner's motion for injunctive relief was filed, Liberty and Safeco issued a joint press release announcing that closing would occur September 22, 2008. COA App. at 1402.

B. A PRIVATE PARTY MAY OBTAIN EQUITABLE RELIEF UNDER § 1964(a)

Petitioner's motion has been brought pursuant to RICO's "private attorneys general" standard and, in particular, 18 U.S.C. § 1964(a) to prevent and restrain future violations of the Act. Rotella v. Wood, 528 U.S. 549, 557 (2000) (RICO has the "congressional objective of encouraging civil litigation to supplement Government efforts to deter and penalize the respectively prohibited practices."); id. ("The object of civil RICO is thus not merely to compensate victims but to turn them into prosecutors, `private attorneys general dedicated to eliminating racketeering activity."). Section 1964(a) provides for equitable relief, although there is a conflict concerning the district court's authority where claims are brought by private parties. See e.g. NOW, 267 F.3d at 697 (private plaintiff may obtain equitable relief under 11964(a)); Conkling, 18 F.3d at 1296 n. 8 (detailing circuit split).

The Supreme Court has not yet decided the question, but has addressed standing in the context of a private plaintiffs ability to obtain civil penalties. Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 185 (2000)("[I]t is wrong to maintain that citizen plaintiffs facing ongoing violations never have standing to seek civil penalties. . . . To the extent that they encourage defendants to discontinue current violations and deter them from committing future ones, they afford redress to citizen plaintiffs[.]"). These same principles apply here.

Accordingly, review should be granted to resolve the conflict among the circuit courts. Further, this is a question of exceptional importance since it goes to the district court's authority to fashion appropriate remedies under RICO. C. THE DISTRICT COURT HAS THE AUTHORITY TO AWARD THE FULL RANGE OF EQUITABLE REMEDIES UNDER § 1964(a) 1. The Mergers Should Be Set Aside and Respondents Should Be Disgorged of Ill-gotten Gains.

Since the mergers have closed, the proper remedy for a violation of the proxy rules is to set aside the transactions.³² Mills, 396 U.S. at 386 ("Possible forms of relief [for violation of the proxy rules] will include setting aside the merger or granting other equitable relief[.]"). In addition, those responsible for (and who benefitted from) the false and misleading proxy solicitation materials should be disgorged of their ill-gotten gains.

32 While the Third Circuit denied petitioner's motion as moot, "the vote which utilized the allegedly fraudulent proxy materials continues to have effect." Reschini v. First Fed. Sav. Loan Ass'n, 46 F.3d 246, 250 n. 4 (3^rd Cir. 1995).

One of the principal functions of equitable relief under RICO "is to divest the association of the fruits of its ill-gotten gains." United States v. Turkette, 452 U.S. 576, 585 (1981). See also Porter v. Warner Holding Co., 328 U.S. 395, 398-399 (1946) (traditional equitable remedies include orders to "disgorge profits" resulting from statutory violations); Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 291-92 (1960) (discussing "historic power of equity to provide complete relief). Indeed, the purpose of disgorgement "is not to compensate the victims of fraud, but to deprive the wrongdoer of his ill-gotten gain[.]" FTC v. Gem Merchandising Corp., 87 F.3d 466, 470 (11^th Cir. 1996); SEC v. Cavanagh, 445 F.3d 105, 117 (2^nd Cir. 2006) (disgorgement "has the effect of deterring subsequent fraud."); SEC v. First City Financial Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989) (observing that "disgorgement is an equitable remedy designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws").

Both the Second and Fifth Circuits have determined that disgorgement is a permitted remedy under RICO. Carson, 52 F.3d at 1181-82 (disgorgement is among the equitable powers available to the district court under Section § 1964(a)); Richard v. Hoechst Celanese Chemical Group, Inc., 355 F.3d 345, 354-55 (5^th Cir. 2003), cert. denied, 543 U.S. 917 (2004)(same); but see Philip Morris, 566 F.3d at 1148-49 (cite omitted) (rejecting disgorgement as a remedy under § 1964(a)). Thus, there is a conflict between the circuits concerning the question of disgorgement, and more generally, the scope of relief available under § 1964(a).

Under the text of RICO, the decisions in Mills, Turkette, Carson and Hoechst, and consistent with the Court's prior decisions in Porter and Mitchell, the district court has the equitable power to set aside the mergers and to "divest [each] association of the fruits of its ill-gotten gains." Turkette, 452 U.S. at 585. Here, the illegitimate transactions have enabled respondents to grow their racketeering enterprise(s) and to reap huge financial gains. This cannot be reconciled with RICO's objectives to "deter and penalize the respectively prohibited practices" and "eliminat[e] racketeering activity." Rotella, 528 U.S. at 557.

CONCLUSION

For the foregoing reasons, petitioners respectfully request that their petition be granted.