Appendix — Brown v. Spectacor Management Group
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APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-1969
SPECTACOR MANAGEMENT GROUP,
V.
MATHEW G. BROWN,
Appellant.
SUR PETITION FOR REHEARING
Present: SLOVITER, CHIEF JUDGE,
STAPLETON, MANSMANN, GREENBERG,
SCIRICA, COWEN, NYGAARD, ALITO, ROTH,
LEWIS, McKEE, and RENDELL
Circuit Judges.
The petition for rehearing filed by appellant in the
above entitled case having been submitted to the judges who
participated in the decision of this court and to all other
available circuit judges of the circuit in regular active service,
and no judge who concurred in the decision having asked for
rehearing, and a majority of the circuit judges of the circuit in
regular active service not having voted for rehearing by the
court in banc, the petition for rehearing is denied.
Al
BY THE COURT,
/s/
Circuit Judge
Hon. Theodore A. McKee
DATED: December 16, 1997
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APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 96-1969
SPECTACOR MANAGEMENT GROUP,
V.
MATTHEW G. BROWN,
Appellant.
Appeal from the United States District Court for the
Eastern District of Pennsylvania (D.C. Civil No. 93-5246)
Present: Greenberg, McKee, Circuit Judges,
and Wellford, Senior Circuit Judge’
JUDGMENT
This cause came on to be heard on the record from the
United States District Court for the Eastern District of
Pennsylvania and was argued by counsel on June 24, 1997.
On consideration whereof, it is now here ordered and
adjudged by this Court that the judgment of the said District
Honorable Harry W. Wellford of the United States
Court of Appeals for the Sixth Circuit, sitting by designation.
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Court entered October 15, 1996, be, and the same is hereby
affirmed. Costs taxed against appellant. All of the above in
accordance with the opinion of this Court.
Page 2
96-1969
ATTEST:
Clerk
Dated: November 24, 1997
Costs Taxed in Favor of Spectacor Management Group as
follows:
TRE vi ccthiivccvcsncens cassesseons $124.00
Certified as a true copy and issued in lieu
of a formal mandate on December 24 1997
/S/
Chief Deputy Clerk,
U.S. Court of Appeals for the Third Circuit.
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APPENDIX C
Filed November 24, 1997
UNITED STATES COURT OF APPEALS FOR
THE THIRD CIRCUIT
No. 96-1969
SPECTACOR MANAGEMENT GROUP
Vv.
MATTHEW G. BROWN,
Appellant.
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 93-5246)
Argued
June 24, 1997
Before: GREENBERG, McKEE, Circuit Judges, and
WELLFORD, “Senior Circuit Judge
(Filed November 24, 1997)
** The Honorable Harry W. Wellford of the United States
Court of Appeals of the Sixth Circuit. Sitting by Designation.
AS5
ae
.
Spectacor Management Group v. Matthew G. Brown
No. 96-1969
GARY GREEN, ESQ. (Argued)
Sidkoff, Pincus & Green
1101 Market Street
Suite 2700
Philadelphia, PA 19107
Attorney for Appellant
IRA B. SILVERSTEIN, ESQ. (Argued)
Fox, Rothschild, O'Brien &
Frankel
2000 Market Street
Philadelphia, PA 19103
Attorney for Appellee
OPINION OF THE COURT
McKEE. Circuit Judge.
Spectacor Management Group {"Spectacor"} initiated
this diversity action as a result of a disagreement with a
former senior level executive over severance pay and benefits.
The defendant counterclaimed, alleging that Spectacor had
breached an oral contract with him and owed him money as
a result. Following a bench trial, the district court entered
Judgment for the defendant but in an amount that was
substantially less than the amount of his counterclaim. The
defendant appeals. We will affirm the Judgment of the district
court without further comment, as it is based upon that court's
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No. 96-1969
assessment of the evidence, and find no clear error.’
However, the jurisdictional issues raised by this appeal
require us to discuss the district court's exercise of subject
matter jurisdiction. Accordingly, we will discuss whether the
amount in controversy requirement of 28 U.S.C.A. § 1332(a)
has been satisfied.
I,
Spectacor, a Pennsylvania joint venture engaged In the
business of managing public assembly facilities, such as
Stadiums, arenas, and convention centers, brought this
diversity action in an attempt to recoup severance benefits
paid to defendant Matthew Brown, a New Jersey citizen,
following his termination as Executive Vice-President of
Spectacor. Spectacor's complaint alleged that it paid Brown
$42.500 in benefits and $4,921.04 for medical insurance. The
resulting total ($47.421.04) was, therefore, less than the
$50,000 minimum required for diversity jurisdiction when the
suit was filed. Spectacor, however, also alleged that it was
entitled to recoup an additional $3,287.21 it had paid in
payroll taxes. This additional sum brought the amount that
Spectacor claimed to $50,708.25 exclusive of costs and
interest.
Brown argues that Spectacor included the amount of
the payroll taxes as a "sham" to manufacture federal
jurisdiction in a preemptive attempt to prevent him from suing
Spectacor in state court. Brown further argues that Spectacor
! See Anderson v. Bessemer City, 470 U.S. 564 (1985).
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conceded that even Spectacor's claim to recover benefits from
Brown was a sham because Spectacor stipulated in the district
court that it owed him $50,000 in benefits plus $15,692 in
vacation pay. See Appellant's Br. at 5. Spectacor maintained
that it retained the money that it owed Brown as a set off
against payments it had made to Brown that he was obligated
to repay. Thus, Brown's response to the suit was twofold. He
claimed that Spectacor manipulated the payroll tax claim as a
contrivance to manufacture the amount in controversy needed
for diversity jurisdiction and that Spectacor owed him more
than he owed it. However, rather than filing a motion to
dismiss Spectacor's complaint for lack of jurisdiction in the
district court under Fed. R. Civ. P. 12(b)(1). Brown filed an
answer in which he denied jurisdiction, and counterclaimed
against Spectacor for the amount Spectacor allegedly owed
him for severance pay ($135.000), sales commissions
($837,000), an earned bonus ($70,720), unused vacation days
and unreimbursed business expenses ($17,550).
Spectacor argues that it included payroll taxes in good
faith and the jurisdictional amount therefore appears on the
face of the complaint. Spectacor maintains that, in any event,
Brown's counterclaim can be considered in calculating the
amount in controversy. That counterclaim easily surpasses the
$50.000 threshold needed for diversity jurisdiction. Brown
counters by arguing that Spectacor's allegation of damages in
the amount of $50.708.25 fails to satisfy the jurisdictional
amount as the claim was not made in good faith and that his
counterclaim cannot be considered in calculating the amount
in controversy.
We hold that where, as here, a defendant elects not to
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No. 96-1969 |
file a motion to dismiss for lack of jurisdiction, but answers
a complaint by asserting a compulsory counterclaim,’ the
amount of that counterclaim may be considered by the court
in determining if the amount in controversy exceeds the
statutory requirement for diversity jurisdiction. Accordingly,
since the amount in controversy easily clears the jurisdictional
hurdle when Brown's counterclaims are included, we need not
reach the novel and interesting issue of whether the payroll
taxes can be considered in calculating the amount in
controversy.
Il.
Federal courts have diversity jurisdiction where there
is complete diversity among the parties, and the amount In
controversy meets the jurisdictional minimum. See 28 U.S.C.
§ 1332(a). At the time this case was filed that amount was
$50,000.’ As a general rule, that amount is determined from
the good faith allegations appearing on the face of the
complaint. See St. Paul Mercury Indemnity Co. v. Red Cab
Co., 303 U.S. 283, 288 (1938). A complaint will be deemed
to satisfy the required amount in controversy unless the
defendant can show to a legal certainty that the plaintiff
cannot recover that amount, Jd. at 289.
In a cause instituted in the federal court the
. We note that this case only presents the question of
whether compulsory counterclaims can be considered. Our holding
does not extend to permissive counterclaims.
3 That amount has since been increased to $75.000.
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No. 96-1969
plaintiff chooses his forum. He knows or
should know whether his claim is within the
statutory requirement as to amount. His good
faith in choosing the federal forum is open to
challenge not only by resort to the face of his
complaint, but by the facts disclosed at trial,
and if from either source it is clear that his
claim never could have amounted to the sum
necessary to give jurisdiction there is no
injustice in dismissing the suit.
Red Cab, 303 U.S. at 290. As noted above, Brown challenged
the district court's jurisdiction by way of an averment in his
answer. At 4 16 of his answer, under the section of the
answer captioned "DEFENSES", Brown states: "[t}he Court
lacks jurisdiction over the subject matter in that the amount in
controversy does not exceed $50,000.00." See app. at 16.
Under Rule 12 of the Federal Rules of Civil Procedure,
Brown could have filed a motion to dismiss for lack of
Jurisdiction and not filed an answer unless that motion was
denied.
Every defense, in law or fact, to a claim for
relief In any pleading . . . shall be asserted In
the responsive pleading thereto if one is
required except that the following defenses
may at the option of the pleader be made by
motion: (1) lack of jurisdiction over the subject
matter..."
Fed. R. Civ. P. 12(b) (emphasis added). Brown elected not to
exercise that option. Instead, he asserted a counterclaim
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No. 96-1969
against Spectacor based upon the same transactions that gave
rise to Spectacor's suit against him.
Federal Rule of Civil Procedure 13 provides in part as
follows:
A pleading shall state as a counterclaim any
claim which at the time of serving the pleading
the pleader has against any opposing party, if
it arises out of the transaction or occurrence
that is the subject matter of the opposing
party's claim and does not require for its
adjudication the presence of third parties of
whom the court cannot acquire jurisdiction ....
Fed. R. Civ. P. 13. Brown's claim against Spectacor is a
compulsory counterclaim within the scope of this Rule. Where
the circumstances surrounding a plaintiff's claim require a
defendant to assert a counterclaim under Rule 13(a),
defendant's claim is part of the controversy set forth in the
plaintiff's complaint. The complaint initiates the legal action,
but it is not the totality of the controversy, it is merely the
portion of the controversy for which plaintiff seeks relief.
However, the substance of the controversy extends to any
compulsory counterclaim brought under Rule 13(a).*
* The same is not true of counterclaims brought under
Rule 13(b) as ‘permissive counterclaims’ are simply ‘any claim
against an Opposing party not arising out of the . . . occurrence that
Is the subject matter of the opposing party's claim," Fed. R. Civ.
P. 13(b). Thus, by definition, permissive counterclaims are not
usually part of the controversy brought into court by plaintiff's
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Spectacor Management Group v. Matthew G. Brown
No. 96-1969
[i]f the jurisdictional amount requirement
serves any salutary function it is to measure
the substantiality of the claim. We believe that
the substantiality of the claim can best be
gauged by reference to what is actually at stake
In the litigation rather than by strict reference
to plaintiff's claim for relief.
IA James Wm. Moore ef al. Moore's Federal Practice.
40.167[8] 2d ed. 1091).
The allegations of the instant suit demonstrate the
wisdom of that approach. Spectacor alleges that it continued
to pay Brown his salary and medical insurance after he was
terminated "as an advance against the overall settlement then
being negotiated." It maintains that such payments were a
‘demonstration of good faith and subject to reimbursement If
agreement was not reached on all Issues' regarding the
termination of his employment. (See app. at 10: Compl. q
10.). Its suit is an attempt to recover those funds pursuant to
the alleged agreement as settlement of the dispute was
apparently never negotiated. Brown, on the other hand,
asserts that Spectacor breached a contract in which it agreed
to pay him certain amounts In the event that his employment
complaint.
However, we do not today decide whether a permissive
counterclaim could ever bear such a nexus to a plaintiff's claim as
to allow a court to consider it in determining if the amount in
controversy exceeded the jurisdictional amount. Resolution of that
question must await a more appropriate case.
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No. 96-1969
was terminated, and that he was entitled to certain other
payments by virtue of his performance while still employed at
Spectacor. He specifically alleges that ‘[Spectacor] has
breached the Employment Contract by not paying Brown
sums [Spectacor] promised to pay upon his termination, " ‘See
app. at 18; Answer 436), and "[Spectacor] has stopped
Brown's medical insurance coverage, and it therefore owes
him a yet to be liquidated sum for its replacement." (See app.
at 19: Answer ¢ 37: see also app. at 19-20; Answer 4438-43).
Other courts have held that a compulsory counterclaim
can satisfy the jurisdictional amount even where the defendant
has not objected to jurisdiction. See Fenton v. Freedmart, 748
F.2d 1358 {9th Cir. 1984} {considered counterclaim where
defendant had not objected to jurisdiction prior to filing
compulsory counterclaims}; Roberts Mining & Milling Co. v.
Schrader, 95 F. 2d 522 {9th Cir. 1938} (considered
counterclaim where defendant did not object to jurisdiction,
but instead filed counterclaim in an amount adequate to
support jurisdiction);° Motorist Mutual Ins. Co. v. Simpson,
e We note that the Roberts Mining court did not
explicitly hold that the counterclaim was compulsory. However. the
initial claim by the plaintiff was to quiet title to six mines while the
counterclaim asserted that the mines were owned by the defendant.
Such a counterclaim would be considered compulsory under the
modern Rule 13{a). The claim was also compulsory under the
procedural rides that prevailed at the time. While the decision was
handed down in 1938, the year that the federal courts of equity and
law were unified into the modern system governed by the Federal
Rules of Civil Procedure, the suit was filed prior to such unification
and thus was one brought "in equity." 95 F.2d at 522. Such actions
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404 F.2d 511 (7th Cir. 1968) (holding that compulsory
counterclaim was not to be considered where defendant
objected to jurisdiction before filing a counterclaim, but
noting that if no objection had been made, consideration of
compulsory counterclaim was permissible).°
Prior to the 1938 unification of the law and equity
courts and the adoption of the Federal Rules of Civil
Procedure, this court held that a counterclaim of sufficient
value could bring a case within the jurisdiction of the court
regardless of the amount of plaintiff's claim. See Home Life
were governed by procedural rules that, unlike the rules governing
actions at law, recognized compulsory counterclaims. See Equity
Rule 30 ("The answer must state in short and simple form any
counterclaim arising out of the transaction which is the subject-
matter of the suit ....") American Mills Co. v. American Surety
Co., 260 U.S. 360, 365 (1922) (noting that, it is imperative to
limit the preclusive effect of counterclaims to those which are
equitable, as opposed to legal in nature): Michael D. Conway.
Narrowing of the Scope of Rule 13(a). 60 U. Chi. L. Rev. 141. 154
(1993) ("Prior to 1938, there was no rule requiring the pleading of
compulsory counterclaims at law.") (citing American Mills, supra).
® — Spectacor also points to National Union Fire Ins. Co.
of Pitisburgh v. Russell 972 F.2d 628 (5th Cir. 1992), which held
that where an insurer challenges an award under the Texas
Worker's Compensation Act in federal court, the defendant's
counterclaim could be considered for purposes of the jurisdictional
amount. However, that case relies specifically on Horton v. Liberty
Mutual. Ins. Co., 367 U.S. 348 (1961). which dealt with the Texas
Worker's Compensation Act and which, as discussed below, we do
not, rely upon here. See n.9 infra.
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Ins. Co. v. Sipp, 11 F.2d 474, 476 (3rd Cir. 1926).
In Home Life, Sipp was the beneficiary of a life
Insurance policy that the defendant insurance company had
Issued on her mother's life. Following her mother's death,
Sipp sued to recover the amount of the policy ($3,000) plus
interest and costs. At the time, a claim had to exceed $3,000
exclusive of interest and costs to satisfy the amount required
for diversity jurisdiction. The insurance company filed a
counterclaim for a loan on the policy that remained
outstanding in the amount of $423. Sipp subsequently
attempted to amend her claim to include premiums that were
paid for the period following her mother's death. However,
the court ruled that the amount of "unearned premiums" could
not be included as "the premium is earned the instant the risk
attaches and is not returnable thereafter." Jd. at 475.
Moreover, even if the premium could be recovered, that
amount would go to the estate of the deceased, and not to the
plaintiff beneficiary. Thus, the amount of the premium could
not count toward the jurisdictional minimum. Moreover, .the
amount of the counterclaim could not be added to the $3,000
claim to satisfy jurisdiction because the counterclaim was in
the nature of a set-off to be subtracted from, not added to, any
recovery. Accordingly, the counterclaim served only to
reduce the amount in controversy. However, in deciding the
case we stated:
when the jurisdictional amount is in question,
the tendering of a counterclaim in an amount
which in itself, or added to the amount claimed
in the petition, makes up a sum equal to the
amount necessary to the jurisdiction of this
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No. 96-1969
court, jurisdiction is established, whatever may
be the state of the plaintiff's complaint.
Brown suggests that Home Life held that a
counterclaim did not suffice to give a court jurisdiction where
the plaintiff's initial claim could not. See Appellant's Sup. Br.
at 6. He points out that we also stated: "[a] party . . . cannot
by filing a counterclaim give jurisdiction to a court when a
statute denies it jurisdiction. In other words, a defendant's
consent to the court's jurisdiction as to amount, signified by
the filing of the counterclaim cannot confer jurisdiction."
Home Life, 11 F.2d at 476. However, that portion of the
opinion merely rejects plaintiff's argument that defendant
should be estopped from challenging jurisdiction once he or
she pleads a counterclaim. It does not address the issue of
whether the amount of the counterclaim is included in the
amount in controversy for jurisdictional purposes.
We concluded that the jurisdictional prerequisites were
not satisfied in Home Life, because the counterclaim reduced
the amount that the "defendant admits it owes " and was not an
independent claim for recovery. Accordingly, we stated [a]t
no time and under no arrangement of the figures [had] the
amount in controversy exceeded $3,000." Id. Although cases
of such ancient vintage do not always guide subsequent
Inquiries with precision {especially in view of the evolving
nature of federal jurisdiction}, we think that our analysis in
Home Life, along with similar holdings from our sister circuit
courts of appeals, counsel us here. Cf. Fenton, 748 F.2d at
1359 {holding that the circuit was bound to follow prior 1938
precedent of Roberts Mining, which was considered a “suit in
equity" and, like Home Life, was decided under procedural
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No. 96-1969
law applicable before the federal system was unified}.
Moreover, the discussion in Home Life remains viable under
today's unified federal court system.
Other courts have noted practical reasons for counting
compulsory counterclaims toward the jurisdictional amount.
In Roberts Mining, the court reasoned that consideration of
the counterclaim was permissible because the counterclaim
was the equivalent of a second, independent suit in which the
defendant of the initial action was the plaintiff, 95 F.2d at
59.4 {citing Merchants’ Heat & Light Co. v. James B. Clow
& Sons, 204 U.S. 286 (1907)}, and that the matter in
controversy was the same in each of these suits, /d.
Therefore, because the court would have jurisdiction over this
second suit, the court saw no impediment to asserting
jurisdiction over the entirety of the initial action, /d. This
reasoning is echoed in more recent cases where courts have
noted that where there is no objection to jurisdiction and
where the counterclaim independently meets the required
amount, one can assume that the defendant would have chosen
the federal forum and there is no reason not to exert
jurisdiction simply because the plaintiff won the race to the
courthouse. See Motorists Mutual Ins., 404 F.2d at 514-15.’
” We realize that Brown is here arguing that he intended
to sue in state court and that Spectacor raced into federal court as
a preemptive strike to avail itself of a more favorable forum, see
Appellant's Br. at 6. and therefore this presumption does not apply
here. In the situation here, if Brown had sued in a Pennsylvania
state court Spectacor, as a Pennsylvania citizen, would not have
been able to remove the case to the district court. See 28 U.S.C. §
1441(b). Nevertheless, these policy implications are still relevant
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Spectacor Management Group v. Matthew G. Brown
No. 96-1969
Of course, we do not mean to suggest that parties can
agree to the jurisdiction of a federal court and thereby confer
jurisdiction that would not otherwise exist. That is clearly not
the case. Federal jurisdiction arises under the constitution. It
is not created by contract or waiver. In Fenton, the court
stated:
feJach of the... compulsory counterclaims
exceeded $10,000. In Roberts Mining &
Milling Co. v. Schrader, we stated that a
counterclaim that exceeded the necessary
amount in controversy was sufficient to bring
the entire case within the jurisdiction of the
district court, regardless of the lack of
jurisdictional averments in the . . . complaint
_... The [defendants here] did not object to the
district court's exercise of jurisdiction prior to
the filing of their compulsory counterclaim
but, rather, raised the issue for the first time
on appeal. :
148 F.2d at 1358 (citations and internal quotation marks
omitted). However, the court could not have intended to
suggest that Jurisdiction can be waived. Rather, we conclude
that the court was simply noting that the defendants there had
done nothing to prevent the amount of their counterclaim from
to our discussion. In noting them, we do not suggest that there is
any merit to the belief of either party here that a federal or state
forum will benefit either side.
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No. 96-1969
becoming part of the controversy that was initiated by the
plaintiff's suit, and that the counterclaim was therefore
properly considered in determining the amount in
controversy. Similarly, Brown did object to jurisdiction, but
he did not do so in a manner that kept his counterclaim from
being before the court. When a defendant elects that option
afforded under Rule 12 and decides not to move to dismiss for
lack of subject matter jurisdiction, but asserts a compulsory
counterclaim against the plaintiff instead, the defendant
thereby places the amount of the counterclaim into
controversy, and the court must consider that amount in
determining if it has jurisdiction under 28 U.S.C.A. §1332(a).
This is true whether or not the defendant also attacks subject
matter jurisdiction in his or her answer or in any other manner
that does not prevent the counterclaim from being before the
court.*
In arguing that we should not consider compulsory
counterclaims, Brown also points to Oliver v. Haas, 777 F.
Supp. 1040 {D.P.R. 1991}; Michael F. Ronca & Sons, Inc.
v. Monarch Water Systems, 1990 WL 140154 (E.D. Pa.
1990): P.S. Group v. Aladdin Engineering and
Manufacturing, Inc., 1990 WL 122938 {E.D. Pa. 19901; and
Cabe v. Pennwalt, 372 F. Supp. 780 (W.D.N.C. 1974). See
Appellant's Sup. Br. at 6. Each of these cases was decided in
. Here in addition to a statement in his answer
challenging Jurisdiction, Brown subsequently moved for sanctions
under Fed. R. Civ. P. 11 when, in response to Brown's summary
judgment motion. Spectacor conceded that it owed Brown more than
he owed it. See Appellant's Br. at 6. However, that does not alter our
analysis.
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No. 96-1969
the context of removal and each holds that counterclaims
cannot be considered when determining whether an action has
been properly removed. Although there is authority to the
contrary, see. e.g., Swallow & Assoc. V. Henry Molded
Products, Inc., 794 F. Supp. 660 {E.D. Mich. 1992) {holding
that in the removal context 'substantiality of claim" should be
gauged by considering the compulsory counterclaim the cases
to which Brown points appear to represent the majority view
that inclusion of counterclaims should not be permitted in the
removal context. Wright. supra, at 124 (collecting cases}.
However. removal is governed by considerations inapplicable
to cases involving the exercise of original jurisdiction. In
Shamrock Oil Corp. v. Sheets. 313 U.S. 100. 107-109
{1941), the Supreme Court noted that the legislative history
and language of the removal statute shows that Congress
intended to limit removal. The Court reasoned that removal
was statutory and not constitutional. and that removal
jurisdiction must therefore, be narrowly construed In favor of
the non-removing party to prevent, inter alia, encroachment
on the right of state courts to decide cases properly before
them. The contrary consideration is present when we consider
a court's exercise of original jurisdiction. Thus, in the
abstention context, the Court has stated:
[T]he federal courts have a virtually
unflagging obligation to exercise their
Jurisdiction except In those extraordinary
circumstances where the order to the parties to
repair to the State court would clearly serve an
important countervailing interest.
Deakins v. Monaghan, 484 U.S. 193. 202 {1988) {internal
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quotation marks omitted). Furthermore. "If compulsory
counterclaims were considered for purposes of jurisdiction.
| federal subject matter jurisdiction would be reliant on state
law distinctions between compulsory and permissive
counterclaims." Meridian Aviation Service v. Sun Jet Int'l 886
F. Supp. 613, 615 (S.D.Tex. 1995). Accordingly, Brown's
reliance upon cases addressing issues surrounding removal
jurisdiction does not assist us.
Here, Brown submitted his compulsory counterclaim
to the district court thereby putting the amount of that
counterclaim in controversy. The amount of his counterclaim
must be considered in determining whether the district court
had subject matter jurisdiction. See also Horton, 367 U.S. 348
(1961).?
* In Horton an insurance company filed suit in federal
court, alleging diversity jurisdiction, to challenge a $1,050 award
given by the Texas Industrial Accident Board pursuant to the Texas
Workman's Compensation Act in its complaint the company also
asserted that the defendant would assert a compulsory counterclaim
that he was entitled to an award of $14,035. In response, the
defendant filed a motion to dismiss for failure to satisfy the amount
in controversy and filed an answer, subject to the motion to
dismiss, containing the $14.035 conditional compulsory
counterclaim just as plaintiff had predicted. Although the amount
of the insurance company's claim clearly did not meet the amount
in controversy minimum that was then an amount in excess of
$10,000 the Supreme Court held that the jurisdictional requirement
was met because of the $14,035 counterclaim.. The Court stated:
The complaint of the respondent company filed in
the District Court, while denying any liability at all
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No. 96-1969
and asking that the award of $1,050 against it be
set aside, also alleges that petitioner Horton has
claimed, now claims and will claim that he has
suffered total and permanent disability and is
entitled to a maximum recovery of $14,035,
which, of course, is in excess of the $10,000
requisite to give a federal court jurisdiction or this
controversy. No denial of these allegations in the
complaint has been made, no attempted disclaimer
or surrender of any part of the original claim has
been made by petitioner, and there has been no
other showing, let alone a showing ‘to a legal
certainty’ of any lack of good faith on the part of
the respondent in alleging that a $14.035 claim is
in controversy. It would contradict the whole
record as well as the allegations of the complaint to
say that this dispute involves only $1,050. The
claim before the [Texas Industrial Accident] Board
was $14,035: the state court suit of petitioner
asked that much: the conditional counterclaim in
the federal court claims the same amount. Texas
law under which this claim was created and has its
being leaves the entire $14,035 claim open for
adjudication in a de novo court trial regardless of
the award. Thus the record before us shows
beyond a doubt that the award is challenged by
both parties and is binding on neither; that
petitioner claims more than $10,000 from the
respondent and the respondent denies it should
have to pay petitioner anything at all no matter
which party brings it into court, the controversy
remains the same; it involves the same amount of
money and is to be adjudicated and determined
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No. 96-1969
under the same rules. Unquestionably, therefore,
the amount in controversy is in excess of
$10,000.367 U.S. at 353-54.
As the dissent noted. Horton can be read as holding that if a
plaintiff asserts in the complaint that a counterclaim will be brought
in an amount above the jurisdictional minimum, then the ainount in
controversy has been satisfied. Yet, that is clearly contrary to the
well-established rule (developed in the context of federal question
Jurisdiction that a plaintiff cannot create federal jurisdiction by
anticipating federal defenses that a defendant may assert. See id. at
358-59 (citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S.
667 11950}: First National Bank of Canton Pa. v. Williams, 252
U.S. 504 11920): Louisville & N.R. Co. v. Mottley. 211 U.S. 149
11908): Taylor v. Anderson, 234 U.S. 74 11914)).
Perhaps because Horton has so troubled commentators and
courts, it has been conspicuously absent from discussions of the
effect of counterclaims upon the amount In controversy. See. e.g..
Fenton, 748 F. 2d 1358: Motorists Mutual. 404 F.2d 51 I. Only
two reported cases outside The Texas Compensation Act context
cite Horton In regard to the counterclaims and the jurisdictional
amount. See Emland Builders. Inc. v. Shes, 359 F.2d 927 {lOth
Cir. 1966): Russell 972 F.2d 628. In Eraland Builders. the court
found Horton to be of dubious Instruction and held that. in any
event, the complaint sufficed Io meet the Jurisdictional
requirement.
Although the holding In Horton supports our analysis, we need
not rely upon it for the decision we reach here. (Horton has been
described as ‘baffling" by respected legal commentators, see
Wright. supra at 111. and we include It only for the sake of the
thoroughness of our discussion).
A23
‘
Spectacor Management Group v. Matthew G. Brown
No. 96-1969
Il.
For the reasons set forth above, we will affirm the
judgment of the district court.
WELLFORD, Senior Circuit Judge, dissenting:
I respectfully dissent from the decision in this case
based on what I believe to be a serious question about lack of
jurisdiction. Spectacor proceeded in the federal court in its
chosen venue, asserting diversity jurisdiction and more than
the required jurisdictional amount, but only barely, on the
face of the complaint. The defendant Brown filed an answer
affirmatively stating "[t}he Court lacks jurisdiction over the
subject matter in that the amount of controversy does not
exceed $50,000." He added, among other things:
Plaintiff has failed to state a valid claim upon which
relief can be granted. 7
Plaintiff was already obligated to provide the sums and
benefits to Defendant.
Plaintiff's Complaint was filed in bad faith to harass
Defendant.
Defendant contemporaneously filed a counterclaim,
seeking a substantially greater amount than was requested in
the original complaint.
The district court found that the action was not filed in
A24
Spectacor Management Group v. Matthew G. Brown
No. 96-1969
bad faith because "[s]ums owed by a plaintiff to the defendant
are not subtracted from the amount of plaintiff's claim when
calculating the jurisdictional amount. Savarese v. Edrick
Transfer & Storage. Inc., 513 F. 2d 140, 142 {9th Cir.
1975).". 'n my view, however, the facts of Savarese are
materially different from those presented by the jurisdictional
issue in this case. In that case, the plaintiff sought $11,901
from the defendant who did not contest the claim.
Additionally, the plaintiff acknowledged that he held some
$2,578 that belonged to the defendant, which he sought to
apply against the debt owed him. The defendant conceded that
the amount sought by Savarese was above the jurisdictional
minimum amount.’ The defendant did not challenge, in a
timely fashion, jurisdiction in its responsive pleading.
In the instant case, even if Brown had not pleaded lack
of jurisdiction, a challenge to subject matter jurisdiction is not
waivable: and when a challenge is made, It must be fully
considered. United States ex rel Coffey v. Austin
Construction. 436 F. Supp. 626 {W.D. Okla. 1977}. Whether
federal jurisdiction exists is determined as of the time the
action is filed, not after the responsive pleading is filed.
Wright, Miller and Cooper. Federal Practice and Procedure.
Vol. 13B §3608. Vol. 14A §3702. The party seeking to
invoke federal jurisdiction, once challenged, "has the burden
, The Savorese court acknowledged that had plaintiff
initially demanded a judgment of $9,323 (the difference after
application of an offset, the district court would have lacked
jurisdiction, citing Kansas City Philharmonic Ass'n v. Greyhound
Lines, 257 F. Supp. 941 (W.D. Mo. 1966): C. Wright Federal
Courts, 116-17 and n.52, 134 2d ed. 1970).
A25
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Spectacor Management Group v. Matthew G. Brown
No. 96-1969
of proving its existence." /d., § 3702.
In a suit for a sum certain that is less than the
jurisdictional amount, adding a claim for punitive damages so
that the jurisdictional amount may be exceeded may be
insufficient to establish jurisdiction. Wiggins v. N.A.
Equitable Life Ins. Co., 644 F.2d 1014 {4th Cir. 1981}.
Furthermore, "the extent to which a counterclaim can be
considered In determining the amount In controversy never
has been determined satisfactorily by the federal courts."
Wright, Miller and Cooper, Federal Practice and Procedure,
Vol. 14, §3706. "Defendant can object to the court's
jurisdiction over the original claim In the answer and plead
the counterclaim in the alternative." Jd., §3706. |
Here, the district court acknowledged that Spectacor
admitted "that it does not ‘own’ the set-off funds." but, rather
than holding that that fact barred the claim, the court held that
Spectacor took a "strategic action" to obtain what it perceives
lo be a more amenable forum.” Brown argued (I think
plausibly) that Spectacor genuinely claimed only $47,421 in
"salary advances and "medical insurance premiums" made for
his benefit. Brown complained, however, about the asserted
"payroll tax liabilities" of $3,287, arguing that this additional
claim was a 'sham' to manufacture federal court jurisdiction. '
The district court never decided whether, in fact. the so-called
-payroll tax liability’ portion of the complaint, which was
necessary to exceed the jurisdictional amount of $50,000 was
something other than a "sham" or a "contrivance" to establish
federal jurisdiction. The district court merely held, without
elaboration, that the suit was filed in good faith and not for
the purpose of harassing the defendant.
A26
Spectacor Management Group v. Matthew G. Brown
No. 96-1969
The majority holds that because defendant did not file
a motion to dismiss for lack of jurisdiction and asserted a
compulsory counterclaim, that it would consider the amount
of the counterclaim in determining the amount in controversy,
citing Fenton v. Freedman, 748 F.2d 358 19th Cir. 1984).
But. as the majority acknowledged, Fenton involved a
situation where defendant had not first objected to
jurisdiction. It is therefore distinguishable from this case, as
is the earlier Ninth Circuit case, Roberts Mining Co. v.
Schrader, 95 F.2d 529. (9th Cir. 1966), for the same reason.
The remaining case cited by the majority for this
jurisdictional holding was Motorists Mutual Ins. Co. v.
Simpson, 404 F. 2d 511 (7th Cir. 1969). That court held
contrary to the majority's interpretation:
When a claim over which there is
otherwise jurisdiction does not embrace an
amount In controversy in excess of that
required by the statute, the ‘"plaintiff-
viewpoint" rule, under which jurisdiction is
determined on the basis of what the plaintiff
claims, requires dismissal of the claim. A
problem arises, however, when although the
plaintiff's claim does not involve the requisite
jurisdictional amount, a compulsory
counterclaim is filed which independently
meets the required amount. There are cases
which hold that In such a situation federal
jurisdiction should be sustained.
But irrespective of the holding in those
A27
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Spectacor Management Group v. Matthew G. Brown
No. 96-1969
cases, we believe that a compulsory
counterclaim should not be held to give rise to
federal jurisdiction where the defendant-
counterclaimant has objected from the
beginning to the federal court's assumption of
jurisdiction over the plaintiff's main action on
the ground that the amount In controversy in
that action is insufficient and additionally, after
his jurisdictional objection is overruled, files a
compulsory counterclaim even though the
amount therein involved exceeds $10,000
exclusive of interest and costs.
Simpson, 404 F.2d at 514 emphasis added) (footnotes
omitted).
The Simpson court, moreover, in the type of situation
existing in this case, observed that "[sJince, however,
defendant did not originally choose the federal forum, the
option should be his whether or not to keep the action in
federal court," citing 1 J. Moore, Federal Practice § 0.98[1),
at 896 (2d ed. 1964). Simpson held that It was without
jurisdiction to proceed unless the original claim exceeded the
jurisdictional amount. I would agree with this assessment, and
I would question the authority of Home Life Ins. Co. v. Sipp.
11 F.2d 474 (3d Cir. 1926), to the extent that it indicates a
contrary rule.’
' I would agree that Sipp correctly held that neither
unearned premiums nor a policy loan could be added to the then
minimum jurisdictional amount requirement ($3.000 plus) involving
A28
Spectacor Management Group v. Matthew G. Brown
No. 96-1969
The majority properly concedes that there is a "well-
established rule" that a plaintiff cannot create federal
jurisdiction by anticipating federal defenses. Like the
majority, I perceive no persuasive basis for considering
Horton v. Liberty Mutual Ins. Co., 367 U.S. 348 (1961), as
authority in this case. The district court made no reference to
any of these authorities except Savarese, which is easily
distinguishable.
In my view, the determinative question as to adequacy
of the jurisdictional amount asserted in the complaint has not
been determined. Spectacor could have filed a declaratory
judgment action to have avoided these problems, but it did
not. It also could have sought removal from state court to
federal court had Brown sued as he indicated he would. I
disagree with the majority view that Brown should lose the
jurisdictional argument because he did not file a motion to
dismiss, when he objected to the court's jurisdiction
affirmatively in his answer. Federal courts are courts of
limited jurisdiction, and I believe we should strictly construe
jurisdictional requirements.
The question of whether "payroll tax liability is a
proper claim against Brown is a novel one and I see no easy
answer. Was this liability actually paid or incurred, or was it ©
a mere bookkeeping entry? Did it constitute a part of the
"advance" to Brown? Was Brown liable to repay that amount
a $3,000 face amount life Insurance policy to establish federal
jurisdiction: and (2) filing of the defendant’s counterclaim could not
confer jurisdiction.
A29
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Spectacor Management Group v. Matthew G. Brown
No. 96-1969
to Spectacor, the IRS, or the State, if Spectacor had later
deemed the salary to have been erroneously paid? In addition.
I would call upon the district court to consider the "good
faith" question in view of the circumstances and give an
explanation for its the district court for a thorough
consideration of the jurisdictional issue for the reasons stated.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
A30
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP
v.
MATTHEW G. BROWN
CIVIL ACTION
NO.93-5246
CIVIL JUDGMENT
Before the Honorable Robert S. Gawthrop, III
AND NOW, this 9th day of October, in accordance
with this Court's Opinion and Order* of September 27,
1996,
IT IS ORDERED that Judgment be and the same is
hereby entered in favor of the defendant, Matthew G. Brown
and against the plaintiff, Spectacor Management Group in the
amount of $15,535.05.
*Copy of Opinion attached
BY THE COURT
/S/
A31
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Deputy Clerk
Civ 1 (8/80), Dated: 10/15/96
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff,
V.
MATTHEW G. BROWN,
Defendant/Counterclaimant.
CIVIL ACTION NO. 93-5246
OPINION
Gawthrop, J. September 27, 1996
Spectacor Management Group ("SMG") commenced
this action to recover funds advanced to and on behalf of its
former employee, Matthew G. Brown ("Brown"). Mr. Brown
has counterclaimed for his 1992 bonus, his accrued vacation,
business expenses, a severance package, and a sales
commission. After a bench trial, and upon the following
reasoning, I shall grant SMG's claim for the recoupment of
funds. I shall grant Mr. Brown's counterclaims for his
undisputed bonus, accrued vacation and business expenses,
but deny his counterclaims for severance, a sales commission,
and greater discretionary bonus.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
FINDINGS OF FACT
1. The plaintiff, SMG, is a Pennsylvania Joint Venture
with its principal place of business in Philadelphia,
Pennsylvania.
2. The defendant/counterclaimant, Mr. Brown, is an
individual who, at the time this action was filed, was a
resident of the State of New Jersey.
3. The amount in controversy exceeds $50,000,
exclusive of interest and costs.
4. The cause of action arose in Philadelphia,
Pennsylvania, within this judicial district.
5. SMG is in the business of managing public
assembly facilities, such as stadiums, arenas, and convention
centers, throughout the world.
6. At all times material to this case, SMG or its
predecessor entities have been either partnerships or a joint
venture, the ownership of which has evolved through the
following sequence. From its inception until 1988, the entity
which is now known as SMG existed as a partnership called
Spectacor Management and was owned and controlled by
several individuals and entities affiliated with Spectacor, Inc.
and/or the Edward Snider family (the "Spectacor Group"). In
1988, Spectacor Management merged with a firm then known
as FMG Associates (the "FMG merger"), owned and
controlled by Pritzker & Pritzker (the "Pritzkers"), the
Chicago-based family partnership that controls Hyatt Hotels,
A33
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Spectacor Management Group v. Matthew Brown
No. 93-5246
to form SMG. In 1991, ARA Leisure Services, Inc., a
subsidiary of The ARA Group, Inc., now known as Aramark
("ARA"), purchased a one-third interest in SMG, which was
reorganized as a joint venture owned equally by the Spectacor
Group, the Pritzkers and ARA.
7. At all times material to this case, SMG has been
managed on a day-to-day basis by a chief executive officer
and various subordinate officers appointed by and responsible
to the board. The chief executive officers relevant to this case
are: Antonio G. Tavares, who held the position of president
from the inception of SMG through early 1992; Richard H.
Vent, a member of the board who held the position of
managing director from the time of Mr. Tavares’ departure
until the Fall of 1992; and Thomas R. Gibson, who held the
position of president from the Fall of 1992 throughout the
remainder of the events at issue.
8. Matthew G. Brown was hired by Spectacor
Management in 1985 as General Manager of the Philadelphia
Civic Center and, thereafter, held a series of increasingly
responsible positions, including Senior Vice President for
Operations, beginning in May, 1989, and Executive Vice
President, beginning in early 1992. Mr. Brown's employment
was terminated in January 1993.
9. At least from the time of his promotion to senior
vice president in May 1989 through the time of his
termination, Brown reported directly to the chief execut. "<
officer, whether Tavares, Vent or Gibson.
10. In or about May 1989, Brown and four colleagues,
A34
Spectacor Management Group v. Matthew Brown
No. 93-5246
Don Webb, Donn Patton, Mich Sauers and Sims Hinds, were
promoted to the positions of Senior Vice President. At or
about the same time, Tavares, then the chief executive officer,
informed the five new senior vice presidents that it was his
- intention to offer them written employment agreements.
Patton was to work with Sanford Lipstein, the Chief Financial
Inc., and a member of the compensation committee of the
SMG board, to develop those agreements.
11. Although at the time of his promotion to senior
vice president Brown may still have been a party to an
original employment agreement signed at the time of his hire
by Spectacor Management, that agreement provided him no
entitlement to severance pay upon termination.
12. At the time of his promotion to senior vice
president, Brown had no entitlement to severance pay upon
termination based upon any other, written or oral, agreement,
policy, or procedure of SMG.
13. At the time Brown and his colleagues were
promoted to senior vice president and the issue of employment
agreements was raised by Tavares, Tavares did not promise
or otherwise make on behalf of SMG any binding commitment
to specific terms.
14. Between the initial discussions between Tavares
and the senior vice presidents and the August 23, 1989 SMG
board meeting, other conversations took place between and
among Tavares, the senior vice presidents and members of the
SMG board concerning the terms of the proposed employment
agreements. During these conversations, a general framework
A35
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Spectacor Management Group v. Matthew Brown
No. 93-5246
for the proposed agreements began to take shape, including
the concept of one year's severance pay, in the event SMG
terminated the employee without cause, in exchange for a one-
year non-competition agreement. Once again, no binding
promises were made, and no agreement was reached.
15. There was also, from the very outset of even the
most general discussion of terms, a dispute between SMG and
the senior vice-presidents over the scope of the proposed non-
compete.
16. On August 23, 1989, the SMG board approved in
principle the essential terms of the proposed senior vice-
president employment agreements, including one-year's
severance (base salary and medical insurance only) if
terminated without cause, a one-year non-compete, and a right
of offset if other employment should be obtained during the
severance period.
17. This board action was an approval in principle of
the essential terms of the proposed agreements and not of the
final versions of such agreements; to the contrary, Lipstein
and Patton were to work with counsel to draft final forms of
agreement, to be returned to the board for final approval.
18. Brown was present at this meeting and therefore
knew or reasonably should have known (i) that the execution
of a one-year non-compete agreement was an essential
element of the consideration for any severance payment by
SMG, (ii) that SMG's severance commitment, if any, would
be limited to base salary and medical insurance, and (iii) that
no binding agreement then existed.
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Spectacor Management Group v. Matthew Brown
No. 93-5246 |
19. This is the only reflection in the minutes of any
SMG board meeting of any action of the board in approving
or otherwise acting upon any aspect of the proposed senior
vice president employment agreements.
20. Between the August 23, 1989, SMG board meeting
and the date of Brown's termination, numerous drafts of the
proposed senior vice-president employment agreements were
drafted, circulated and discussed, but no agreement was ever
reached concerning their essential terms, principally because
of the continuing dispute between SMG and the senior vice-
presidents over the scope of the proposed non-compete and
the elements of compensation to which they would be entitled
during the one-year severance period.
21. In or about April, 1990, there was some discussion
at an SMG board meeting about the possible termination of
Hinds, during which there may have been discussion of
| SMG's obligation, if any, to pay Hinds severance pay if he
were terminated. The board later decided only to demote Mr.
Hinds.
22. In or about February, 1991, and as part of the
transaction in which ARA acquired a one-third interest in
SMG, SMG disclosed to ARA the existence of certain
"commitments" for severance agreements with Brown and the
other senior vice presidents. Mr. Lipstein testified that this
disclosure referred only to the general terms of the proposed
agreements which had been approved in principle by the SMG
board on August 23, 1989, and that neither referred to nor
evidenced any final, binding or consummated agreement. He
testified that these were, to the contrary, specifically referred
A37
Spectacor Management Group v. Matthew Brown
No. 93-5246
to as “Commitments” in order to make clear that they referred
to, at most, agreements in principle intended to be reduced to
writing and not to final agreements intended to be binding in
and of themselves. His testimony, which is consistent with
Tavares's, I found to have been credible.
23. In or about early 1992, Webb left SMG and
negotiated a severance agreement and release, which, among
other things, recited his agreement that there existed no
employment or severance agreement between him and SMG
and that the severance payments being made to him under that
severance agreement were in consideration for his
undertakings.
24. 1 find as an ultimate fact that, at the time of Mr.
Brown's termination, there existed between him and SMG no
contract of employment or other agreement or policy
requiring SMG to pay severance pay in the event of
termination.
25. Gibson terminated Brown's employment with
SMG, effective January 31, 1995.
26. When he informed Mr. Brown of his termination,
Mr. Gibson also informed him that SMG continued to be
willing to provide him with the general severance terms which
had been on the table, so to speak, since 1989, although the
agreement would now be in the context of a severance or
settlement agreement containing a general release, rather than
an employment agreement. Brown did not in that meeting
assert any contractual entitlement to severance pay and agreed
to Gibson's suggestion that their respective counsel "work out
A38
Spectacor Management Group v. Matthew Brown
No. 93-5246
the details". Given the lack of any objection or argument from
Brown and anticipating a prompt resolution of the details,
Gibson told Brown that, rather than interrupt his income
during the anticipated negotiations between counsel, SMG
would continue to pay his base salary and medical benefits.
27. Despite this finding as to Mr. Gibson's intent in
this regard, there is no direct evidence that Gibson and Brown
ever explicitly agreed that the continuation of Brown's base
Salary and medical benefits was to be in the nature of an
advance against the anticipated agreement and subject to
recoupment if no agreement was reached.
28. The parties never reached agreement on the terms
of the severance agreement and, ultimately, SMG ceased
making payments or providing medical insurance benefits in
anticipation of it.
29. The total sums advanced to or on behalf of Brown
in anticipation of a severance agreement were:
(a) Salary $42,500.00
(b) Medical Insurance 4,921.04
(c) Payroll Taxes 3,287.2]
Total $50,708.25.
30. In the early Autumn of 1989, Mr. Brown became
involved in a transaction which resulted sometime later in the
restructuring and extension of SMG's relationship with the
Long Beach Convention Center in Long Beach, California.
A39
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Spectacor Management Group v. Matthew Brown
No. 93-5246
31. There is some testimony to the effect that at the
time Brown became involved in the Long Beach project
Tavares told him that, if he were successful on the project,
Tavares "would take care of him", or words to that effect. In
any event, according to Brown's own testimony, Tavares said
nothing more specific regarding the manner in or extent to
which Brown would "be taken care of."
32. Between the initial conversation in the Fall of 1989
and on or about December 13, 1990, neither Tavares nor
anyone else in authority at SMG said anything to Brown about
what Tavares may have meant about “taking care of him;" nor
did anyone discuss with him any extra compensation on
account of the Long Beach transaction. Therefore, as a matter
of fact, Brown did not continue to perform the Long Beach
assignment in reliance upon any other statement or promise by
Tavares or anyone else during this period.
33. Brown and Tavares agree that the subject of
additional compensation on account of the Long Beach
transaction came up in two conversations between them in
mid- to late-December 1990.
34. The substance of the conversations involved
Brown's proposed bonus for calendar year 1990 under the
SMG Executive Annual Incentive Plan.
35. Although Mr. Brown did inquire of Mr. Tavares
concerning additional compensation on account of the Long
Beach project, the inquiry was in the context of discussing his
regular, annual bonus; the words "sales commission" were
never used: and there was no reference to the SMG Sales
A40
Spectacor Management Group v. Matthew Brown
No. 93-5246
Incentive Plan.
36. Tavares told Brown that he (Tavares) believed that
Brown ought to receive some future, financial recognition for
the job he had done on the Long Beach project and that he
(Tavares) would so recommend to the board, but that, in light
of the Company's year-end financial results, it was his best
judgment that such a recommendation would not be well
received by the board at that time, particularly since the
proposed Long Beach contract was not to take effect until
July, 1991.
37. At no time during these conversations did Tavares
promise Brown any "sales commission” or other specific form
of additional compensation on account of the Long Beach
project; to the contrary, Mr. Tavares promised, at most, to
make some undefined recommendation to the SMG board in
this regard at some unspecified time in the future.
38. On one or more occasions in early 1991, Mr.
Tavares spoke to Mr. Webb and to one David Seldin, an SMG
board member, concerning potential, additional compensation
for Brown on account of the Long Beach project, and on at
least one occasion Webb reported these conversations to
Brown. At no time during any of these conversations did
Tavares or Webb use the words "sales commission" or refer
to the SMG Sales Incentive Plan in connection with potential,
additional compensation to Brown.
39. At no time before Mr. Tavares's departure from
SMG did he recommend to the board, nor, before that
departure, did the board or its compensation committee ever
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Spectacor Management Group v. Matthew Brown
No. 93-5246
approve, any special or additional compensation to Brown on
account of the Long Beach project.
40. In April, 1992, after Tavares's departure, Brown
made a written recommendation to Vent, then SMG's
Managing Director and acting Chief Executive Officer,
concerning the 1991 annual bonuses for himself and others
under the SMG Executive Annual Incentive Plan. In
recommending his own bonus, Brown wrote:
Consideration of an additional bonus for my
efforts involving the 25 year extension in Long
Beach was deferred from last year's bonus
consideration until this year per my
conversation with Tony.
I find this 1991 statement by Mr. Brown to evidence
that, at most, he understood Mr. Tavares to have committed
to consideration, consideration in the sense of something to be
considered, not as a contractual quid pro quo, of an increased
annual bonus payment because of the Long Beach project; it
is undercuttingly inconsistent with Brown's later testimony
that he understood Tavares to have promised him a sales
commission under the SMG Sales Incentive Program. I credit
the earlier, written words.
41. I find as an ultimate fact that Mr. Tavares made no
promise, binding or otherwise, to pay Mr. Brown a sales
commission under the SMG Sales Incentive Plan on account
of the Long Beach project.
42. Mr. Brown further contends that, even if Mr.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Tavares made no promise to pay him a sales commission on
account of the Long Beach project, he is nevertheless
contractually entitled to that commission under the terms of
the Sales Incentive Plan itself, because he "performed the
duties of a salesman" in connection with the Long Beach
project.
43. Brown was neither a commissioned salesperson
nor a sales manager, who would thus have been .entitled to an
override commission within the meaning of the SMG Sales
Incentive Plan, as interpreted and applied.
44. The duties performed by Mr. Brown in connection
with the Long Beach project were part of his ordinary job
responsibilities as Senior Vice President for Operations.
45. I find as an ultimate fact that Mr. Brown is not
entitled to a sales commission under the terms of the SMG
Sales Incentive Plan, as interpreted and applied.
46. Brown was a participant in SMG's 1992 Interim
Executive Annual Incentive Plan.
47. Under the terms of this plan, an executive has a
"target bonus", calculated as a percentage of the executive's
annual salary, which target can further increase or decrease,
within specified limits, depending upon whether SMG's
operating profit for the year falls short of, meets, or exceeds
budget.
48. As Executive Vice President, Brown's “target
bonus" percentage was 35% of his base salary and his 1992
A43
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Spectacor Management Group v. Matthew Brown
No. 93-5246
base salary was $170,000, resulting in a "target bonus" of
$59,500.
49. Under the Executive Annual Incentive Plan, and
subject to a maximum "cap" on the bonus not applicable here,
an executive's "target bonus" increases by three percent of
base salary for every one percent by which SMG's operating
profit exceeds budget.
50. In calendar year 1992, SMG's operating profit
budget was $8.078 million and its actual operating profit was
$8.248 million, or 102% of budget.
51. Because SMG's operating profit exceeded budget
by two percent, Brown's "target bonus" increases from 35%
of base salary to 41% of base salary, or $69,700.
52. Under the terms of the Executive Annual Incentive
Plan, 70% of the "target bonus", known as the "financial
component" or colloquially as the "quantitative Bonus," is
earned by the executive outright. In Mr. Brown's case, this
"financial component" 'totals $48,790 ($69,700 x .70).
53. The Executive Annual Incentive Plan contains two
provisions relevant to the remaining 30% of the "target
bonus", known as the "discretionary" or "merit" component,
or colloquially as the "qualitative bonus."
54. The section of the plan entitled "Determination
of Awards -- Discretionary Portion" provides:
The remaining part of the IEAI provides for
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Spectacor Management Group v. Matthew Brown
No. 93-5246
evaluating the individual performance
objectives upon which this portion of the
executive bonus will be based.
The executive's respective supervisor is
responsible for making a recommendation
regarding his/her individual performance. This
recommendation will be reviewed as part of
the total [EAI award by the Compensation
Committee of the Board.
The bonus awarded will vary proportionally
with performance, from zero to 130% of the
guideline bonus. The same _ threshold
requirement of attainment of 90% of operating
income applies with regard to awarding the
discretionary portion of the bonus.
55. The section of the plan entitled "Payment of
Awards" provides, in relevant part:
An executive whose employment terminates
after the close of the bonus year but before
bonus awards are paid will be eligible to
receive any award attained under the payout
formula of the financial portion of the Plan.
Any bonus awards for personal achievement in
the case of such terminations may be payable
at the discretion of the President.
56. I find these plan provisions to be clear and
unambiguous and to render the fact or amount of the
A45
SIR he A ada besa ay Mt ia Ke eee ae ~
Sei ee RARE
En EN eae ee x eee te
al. Lae SD
ia MOA AI ER LE RP cg stile PLES ee
Spectacor Management Group v. Matthew Brown
No. 93-5246
"discretionary" or "merit" component of the annual bonus
entirely discretionary with: (a) the relevant supervisor and the
compensation committee of the board in the first instance, and
(b) the president, in the event that the employee's employment
terminates after the close of the bonus year, but before bonus
awards are paid.
57. Brown's employment terminated after the close of
the 1992 bonus year, but before bonus payments were made.
58. Gibson was Brown's immediate supervisor at the
time bonus awards for calendar year 1992 were made and
paid, and he recommended and the board approved a total
bonus award reflecting a full "financial component" and a
small "discretionary" component, for a total bonus of
$50,000.
59. Under the terms of the Executive Annual Incentive
Plan, Gibson and the board had the full discretion to make, or
to decline to make, an award of the "discretionary"
component of the "target" bonus, and they in fact exercised
that discretion in arriving at the award they did make.
60. SMG has credited Brown with a $50,000 bonus
award for calendar year 1992.
61. I find as an ultimate fact that Brown has been
credited with the full amount of any bonus component to
which he can claim any contractual entitlement.
62. It is undisputed that Brown is entitled to payment
for accrued but unused vacation in the gross amount of
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Spectacor Management Group v. Matthew Brown
No. 93-5246
$15,692.30. SMG has credited Mr. Brown with that amount.
63. It is undisputed that Brown is entitled to payment
for certain business expenses in the amount of $550.00.
DISCUSSION
In this common-law contract dispute, governed by
Pennsylvania law under Erie R. Co. v. Tompkins, 304 U.S.
64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), plaintiff SMG seeks
to recover funds it paid to the defendant-claimant Brown
following Brown's termination in January, 1993 and in
apparent anticipation of a severance agreement with Brown
that never materialized. Brown denies any legal obligation to
repay the funds and makes four counterclaims against SMG.
First, Brown claims that SMG has failed to pay him for
accrued vacation and certain business expenses. SMG does
not deny its liability to Brown for these sums. Second, Brown
alleges that SMG breached an oral contract for severance
benefits by not paying him one year's salary, automobile
allowance, and health benefits following his termination.
Third, Brown asserts that $MG owes him a bonus for 1992.
SMG admits it owes him a bonus in the amount of $50,000,
but not more. Fourth and finally, Brown demands a sales
commission for a contract the extension of which he
negotiated for SMG in 1990 and 1991.
The court finds for the plaintiff SMG on its claim for
recoupment of funds advanced to Brown following his
termination. The court finds for defendant-counterclaimant
A47
a a ae em
See ws Sic eR OST IEE ae TRE Te a NS TAP Te er ee
Spectacor Management Group v. Matthew Brown
No. 93-5246
Brown on his counterclaims for accrued vacation, sundry
business expenses, and undisputed bonus. The court denies in
full Mr. Brown's counterclaims for severance benefits and a
sales commission and declines to substitute its judgment for
SMG's management's discretion as to any further bonus for
Brown.
I. SMG's Claim for Recoupment of
Funds Advanced to Brown.
Because SMG has proved that the payment of the
funds to Brown following his termination was in anticipation
of an amicable settlement of their post-termination
differences, and because they never, in fact, reached that
settlement, those funds must be returned. Although SMG
terminated Brown effective January 31, 1993, it continued to
pay base salary at a rate of $170,000 per year (Brown's 1992
base pay) and to provide health benefits to him. After three
months of inconclusive negotiations, SMG stopped the cash
payments, and six months later it ended his health coverage.
Brown claims that an oral severance agreement entitles him to
these funds, as well as to additional payments for the
remainder of the year following his termination. As to this, he
has not met his burden of proof. As I will examine below in
denying this counterclaim, he did not show that SMG
communicated an offer to him that he could accept to form a
contract.
Further, Brown argues that the doctrine of promissory
estoppel entitles him to keep these funds. Again, as I will
examine below in denying this counterclaim, he has not
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Spectacor Management Group v. Matthew Brown
No. 93-5246
shown that SMG made a promise on which he could
reasonably and detrimentally rely, nor that he relied on any
promise.
He also asserts it was not until almost three months
after his termination when SMG told him that it considered
these payments mere advances on an eventual settlement. I do
not, however, find the issue to turn on this delay. The parties
were trying to work out their differences, but things went
sour, and they did not. Obviously, had matters ended
amicably, the pending set-offs and advancements would have
been worked out on paper, computed to one final sum. Absent
a settlement, however, that concept no longer is in the
picture, and the money must be returned.
Il. Brown's Claim for One Year's Severance Benefits
A. Brown's Claim that an Oral Agreement
Entitles Him to Severance Benefits
To establish an alleged oral contract's existence,
Brown introduced evidence in various areas: (1) the testimony
of Antonio G. Tavares; (2) the ARA purchase agreement; (3)
the discussions of the possible termination Sims Hinds; and
(4) Mr. Brown's own testimony together with that of Mr. Don
Webb.
(1) The Testimony of Antonio G, Tavares
Former president of SMG Antonio G. Tavares is now
in California and testified by deposition. Although he said he
thought that a severance agreement between SMG and Mr.
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I ha an da eies ‘
Spectacor Management Group v. Matthew Brown
No. 93-5246
Brown had existed, Mr. Tavares also stated that he himself
had never promised Brown any severance. Tavares N.T., pp.
54-55, 15. Moreover, he related that he could not recall if
anyone had ever told Brown, as well as the other senior vice-
presidents, that the senior vice-presidents had one year's
severance benefits in absence of a written agreement Brown
and the partnership never concluded. Tavares N.T., p. 132.
I find that SMG never communicated an oral severance
agreement to Mr. Brown.
Even should a firm have an employee policy, it must
communicate the policy to these employees for the policy to
obligate the firm. See Morosetti v. The Louisiana Land and
Exploration Co,, 552 Pa. 492, 494, 564 A.2d 151, 152
(1989). For, although a pariicular policy may exist in the
minds of managers, “unless they communicate that policy as
part of a definite offer of employment they are free to change
as events may require." Morosetti, 552 Pa. at 496, 564 A.2d
at 153. Consequently, the Tavares testimony provides no
evidence of objective indicia of contract sufficient to bind
SMG. Therefore, the court need not reach the issue of
Tavares's actual or apparent authority to bind SMG to such an
agreement. Even if Tavares had the authority to make an
agreement and the belief that there was an agreement, this is
not enough. It takes two to agree.
(2) The ARA Purchase Agreement
One of the schedules in the ARA purchase agreement
sets forth in its list of potential liabilities a commitment to
Brown and others for severance payments. Brown asserts that
"Severance Agreement between the Partnership and Matt
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Brown (commitment)" proves that a severance agreement
existed or, at the very least, that this circumstantially
evidences the presence of one. ARA Purchase Agreement,
Schedule 3.12, Subsection 1.5.22. The closing binder,
however, served merely as a representation to prospective
investor ARA of all potential liabilities of SMG. Because
SMG had offered its vice presidents severance packages as
part of the proposed employment agreements, these potential
liabilities remained outstanding. But the purchase agreement
between ARA and SMG creates no rights in third parties. Its
purpose, its function, is to put the potential purchaser of a
portion of SMG on notice, not only as to SMG's assets, but
also as to its possible liabilities. To err on the side of
inclusion of all possible negatives is to protect SMG against
possible later accusations for sins of omission. Its purpose,
and its effect, are not to create binding contracts with third
parties, whose inchoate, yet-executory interests happen to
have been mentioned in the agreement, out of an abundance
of inclusionary caution.
(3) T Di . ’ f } ib] T . . f |
Si Hi i |
In addition, Brown points to the April 20, 1990, board
meeting, in which the termination of a senior vice president,
Sims Hinds, was discussed. He says this demonstrates the
existence of an oral contract. The evidence reveals that Mr.
Tavares considered proposing to the board that SMG should
provide Hinds with one year's benefits if it terminated him.
But the very fact that the board had to consider and decide
whether Hinds would get the benefits undermines Brown's
position that they were automatic. If a binding contract
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Spectacor Management Group v. Matthew Brown
No. 93-5246
already existed dictating that Hinds get benefits for an
additional year, then Tavares would not have had to propose
to the board that they consider whether to award him with his
severance agreement benefits for an additional year. The
conclusion is inescapable that there was no binding contract.
(4) Mr. Brown’s Own Testimony together with that
of Mr. Don Webb
Finally, both Brown and Webb testified that they
believed they had oral severance agreements with SMG.
Webb's testimony on this point, however, contradicts the
recitals of his separation agreement with SMG. Nevertheless
the witnesses’ subjective beliefs, without more, do not create
contracts.
B. Brown's Claim that the Doctrine of Promissory
Estoppel Entitles Him to Severance Benefits
Alternatively, Brown argues that SMG made certain
promises to pay one year's severance benefits, upon which he
justifiably and detrimentally relied, and thus, ‘he is entitled to
have those promises enforced. Under Pennsylvania law, a
party must establish three elements in order to succeed on a
claim of promissory estoppel. First, "the promisor must make
a promise that he should reasonably expect to induce action or
forbearance on the part of the promisee." Holewinski v.
Children's Hospital of Pittsburgh, 437 Pa. Super. 174, 178,
649 Ai2d 712, 714 (1994). Second, "the promise must
actually induce such action or forbearance." Holewinski, 437
Pa. Super. at 178, 649 A.2d at 714. Finally, " injustice can be
avoided only by enforcement of the promise. " Holewinski,
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Spectacor Management Group v. Matthew Brown
No. 93-5246
437 Pa. Super. at 178, 649 A.2d at 714. Brown has not
proved that SMG made any promise to him with respect to
severance benefits, nor that he relied thereon. Moreover, he
has not shown that any such "promise" induced him to take
any action or forbear taking any action. Brown introduced
evidence to the effect that he took no employment in violation
of a covenant not to compete, a covenant the existence of
which he expressly denies. Nonetheless, he failed to prove
that he forbore opportunities of competitive employment
because of SMG's "promise."
III. Brown's Claim for his 1992 Bonus, Accrued
Vacation. and Business Expenses
That Brown is entitled to the undisputed $50,000
portion of his 1992 bonus, his accrued vacation, and sundry
business expense reimbursement is not challenged. The only
contested question is whether he is entitled to more bonus than
SMG in its discretion gave him. I conclude not.
SMG had an Interim Executive Annual Incentive Plan
under which the SMG management had the discretion to set
a bonus for Brown anywhere from $48,790 to $69,700. They
gave him $50,000. Brown argues that the court should imply
a constructive condition into the contract and require SMG to
determine the bonus in good faith and that SMG violated this
constructive condition by setting the bonus as close to the
minimum as it did. Pennsylvania law does not so require.
A bonus is defined in Black's Law Dictionary as a
consideration or premium paid in addition to what is strictly
due. Black's Law Dictionary 182 (6th ed. 1990).In Walling
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Spectacor Management Group v. Matthew Brown
No. 93-5246
y. Plymouth Manufacturing Corporation, 139 F.2d 178, 182
(7th Cir. 1943), the court, speaking through Judge Sherman
Minton, distinguished a bonus from the distribution’ of profits
in accordance with the articles of partnership, saying a "bonus
is a gratuity to which the recipient has no right to make a
demand.
Notwithstanding the general definition or meaning of
the term "bonus", Brown argues that this court should order
SMG to pay him more bonus than they in their discretion had
awarded, relying principally upon Widmer v. Widmer, 176
Pa. Super. 264, 106 A.2d 875 (1954). In that case, an
automobile salesman was asked by his employer, who was
preparing to go to California, to take care of the business
while the employer was gone, and that if he performed those
extra duties, the employer would give the employee a "bonus"
at the end of the year. When the employer returned from
California, he again assured plaintiff he would give him a
"bonus" at Christmas, and told him the amount would be
$2,000.00. Christmas came, but the money did not. The
Superior Court held that particular "bonus" was enforceable.
That case, of course, is distinguishable. Although the amount
there in question was termed a bonus, in point of fact it was
bargained-for consideration, for specific additional work that
the employee agreed he would perform for the employer. The
bonus at bar, however, is not an agreement to pay more
money for more work done, but is a true bonus, and I
conclude that it is not subject to something in the nature of
specific performance, but rather, is more in the nature of a
wished-for hope. It is not enforceable.
IV. Brown's Claim for a Long Beach Sales
A5S4
Spectacor Management Group v. Matthew Brown
No. 93-5246
C —
Brown argues that, under a contract between SMG and
him, he was entitled to receive commission moneys,
according to the following formula:
Year Percentage
Ut WN
m— NOW kh WN
_ The column on the left represents the year of the
contract in question, and the column on the right represents
the percentage of SMG's net income from the contract due to
the salesperson. For example, in the third year of the
contract, the salesperson responsible for the contract,
assuming sole responsibility, would receive 3 percent of
SMG's net income from the contract, where the Sales
Incentive Program defined "net income" as "management fees
earned" plus “other revenue" minus overhead and "the
amortized costs of sale." Plaintiff's Ex. 47.
Mr. Brown had been a prime force in renegotiating a
contract between SMG and the city of Long Beach,
California, for managing its Convention Center. The contract
had approximately seven years yet to run on it, but under his
labors, it was extended to run for another twenty-five years,
with what proved to be quite lucrative terms for SMG. He
says the formula computes to his being duly owed $837,000.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
His quest for the sum raises several issues:
(1) Was there such a commissions contract?
(2) If so, did he, because of his position as a senior vice
president within the organizational structure of SMG,
qualify to benefit from it?
(3) | Assuming his job position qualified him to receive the
commissions, did the transaction which took place
with Long Beach qualify as a sale in the context of
which the commissions provision kicked in and he
would be entitled to the money?
(1) The Existence of a Sales Commission contract
Mr. Brown referred repeatedly at trial to Donn
Patron's memorandum to files of October 28, 1990,
concerning the "SALES INCENTIVE PROGRAM," in his
effort to prove the existence of the contract. Plaintiff's Ex.
47. SMG did not seriously contest the point, but did deny that
the contract applied to Mr. Brown, an issue I will examine
below. The sales commission program is something of a
curious concoction. It was hatched by the senior vice
presidents, Messrs. Webb, Patton, Sauers, and Brown. But
once they came up with it, they did not seem to tell anyone
else about it. The sales force, for example, was not apprised
of its existence--something of an odd table of distribution for
a plan the supposed purpose of which was to goad employees
into making more and bigger sales. To those folks, it was
something of a tree falling within the locked boardroom. It
was potentially quite lucrative to those whom it affected. It
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Spectacor Management Group v. Matthew Brown
No. 93-5246
was something that those in the inner circle came up with, and
it seems to have been something that the inner circle pretty
much kept to itself. Curious, indeed. I conclude that a Sales
Incentive Program did exist and that it bound SMG.
(2) ae
ee acca Seek Winisdihienk ee Pedant
There was a wealth of testimony, which I believed,
that the commissions contract only applied to those within the
sales force, or the vice president in charge of that force.
In that regard, counsel for Mr. Brown adduced
testumony as to conversations between Messrs. Webb and
Tarares the two held while flying back from London. Mr.
Webb was urging Mr. Tavares to reward Mr. Brown with
some extra money in consideration for the good work Mr.
Brown had done on the Long Beach project. If the
commission provisions were applicable to him under the Sales
Incentive Program, then they would automatically apply to
Mr. Brown, and there would have been no need to discuss the |
merits of making special arrangements for beneficently |
sweetening his next-impending paycheck. The numbers would |
have been committed to Mr. Brown automatically, according |
to the percentage formula. In my view, this compellingly
rebuts Brown's argument that the Sales Incentive Program
applied to him.
(3) The Qualification of the Long Beach Contract
eid tthe: Sin Seca e
I turn to the third question, that is, whether the
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Spectacor Management Group v. Matthew Brown
No. 93-5246
transaction which was consummated on the Long Beach
contract falls within the ambit of the sales incentive program
and thus calls for his receiving his commission,
euphemistically described in the documents, Plaintiff's Ex.
47, Defendant's Ex. 119, as "Incentive Percentages." On the
one hand, it is true that the document by its terms says that "it
will apply to all contracts sold after May 1, 1990." This Long
Beach contract was entered into after May 1, 1990, and it was
indeed a contract. Thus, it would appear prima facie to be a
qualifying contract. But I must not read the provision in a
vacuum, but rather, within the context of the company and the
context of commerce. The very term "Sales Incentive
Program" seems to suggest something in the nature of a new
sale. That is to say, if one brings in a brand new customer,
and lines him up for a contract, that would be a sale in the
normal sense of the word. In our line of work, this is often
referred to as "making rain". On the other hand, if one has a
longtime customer, who is simply renewing - with some
modifications - a longtime contract, that transaction is less of
a sale than a continuation of existing business. It lacks some
of the true rainmaking aspect of a customer new to the
company.
Again, to analogize to the occupation of the practice of
the law,’ if a young associate brings in a brand-new
' I recognize that there are vast differences between the
stadium-management business and the business of the law, but I
nevertheless deem the analogy to have some relevance. In either
field, one generally does not get credit for abating the economic
drought unless one has actually, successfully seeded the cloud.
Passively waiting for the annual April showers to return does not
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Spectacor Management Group v. Matthew Brown
No. 93-5246
corporation client to the firm, that is a very different situation
from a young associate who is sent to work upon a new piece
of legal business for a corporate client who has been with the
firm ever since William Penn was making treaties with the
Indians.
The Long Beach contract does not go back that far
with SMG, but it is much more a renewal of an existing
relationship than the landing of a new customer. I conclude
that the events which transpired surrounding the Long Beach
contract did not qualify as a sale in the sense that word was
meant.
In any event, it is not entirely clear to me that the
counterclaimant has proved by a preponderance of the
evidence that there even was a sales incentive program. But
it is clear that even if there were one, it did not apply to Mr.
Brown. He held a high position in the company as senior vice-
president, compensated by a significant salary--more than the
compensatory structure of a salesman, who would typically
have a smaller salary significantly augmented by
commissions. His direct duties did not involve sales His job
description was not that of a salesman. I conclude that he fell
outside the purview of the program. So also do I find that the
transaction in Long Beach does not qualify as a sale under the
terms of the so-called Sales Incentive Program. For those
various reasons, I conclude that Mr. Brown is not entitled to
the money he seeks.
qualify one as a rainmaker. Post hoc, sed non propter hoc.
AS9
Spectacor Management Group v. Matthew Brown
No. 93-5246
CONCLUSIONS OF LAW
1. This court has subject-matter jurisdiction under 28
U.S.C. § 1332, as the parties are citizens of different states
and the amount in controversy exceeds $50,000, exclusive of
interest and costs.
2. This court has personal jurisdiction over the
parties.
3. Venue is proper in this judicial district under 28
U.S.C. § 1391(a) as the district in which a substantial part of
the events or omissions giving rise to the claims occurred.
4. SMG has proved by a fair preponderance of the
evidence that the payments it made to or on behalf of Brown
after the date of his termination, in a total amount of
$50,708.25, were advances against an anticipated settlement
and are subject to recoupment.
5. Brown has failed to prove by a fair preponderance
of the evidence that he had a contractual entitlement to
severance pay or benefits from SMG in the event of his
termination.
6. Brown has failed to prove by a fair preponderance
of the evidence that he had a contractual entitlement to a
"sales commission" on account of the Long Beach project.
7. Brown has failed to prove by a fair preponderance
of the evidence that he had a contractual entitlement to any
annual bonus payment for calendar year 1992 beyond that
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Spectacor Management Group v. Matthew Brown
No. 93-5246
which has been credited to him.
8. It is undisputed that Brown is entitled to payment
from SMG for the undisputed portion of his 1992 annual
bonus ($50,000), unused vacation ($15,692.30) and business
expenses ($550). These sums, in total, exceed the sum Brown
owes SMG pursuant to Conclusion of Law No. 4 above.
Aél
sn ggg ee
”
Spectacor Management Group v. Matthew Brown
No. 93-5246
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff
V.
MATTHEW G. BROWN,
Defendant/Counterclaimant
CIVIL ACTION
NO. 93-5246
ORDER
AND NOW, this 27” day of September, 1996, upon
consideration of the testimony and evidence presented at trial
and the parties' proposed findings of fact and conclusions of
law, it is hereby ORDERED that:
1. Plaintiff Spectacor Management Group's claim
for recoupment of funds advanced is GRANTED;
2. Defendant Matthew G. Brown's counterclaims for
his accrued vacation, business expenses, and undisputed 1992
bonus are GRANTED;
3. Defendant's counterclaims for severance benefits,
a sales commission, and a greater 1992 bonus are DENIED:
4. Defendant is awarded damages in the amount of
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Spectacor Management Group v. Matthew Brown
No. 93-5246
$15,535.05.
/s/
Robert S. Gawthrop, III, J.
APPENDIX E
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP
701 Market Street Philadelphia, PA 19106,
Plaintiff,
V.
MATTHEW G. BROWN
7 Wethersfield Drive
Medford, NJ 08055,
Defendant.
CIVIL ACTION NO. 93cv5246
COMPLAINT
Parties
1. Plaintiff, Spectacor Management Group
("SMG"), is a Pennsylvania general partnership with its
principal place of business at 701 Market Street, Philadelphia,
Pennsylvania 19106.
2. Defendant, Matthew G. Brown, is an adult
individual, and a citizen of the state of New Jersey with an
address at 7 Wethersfield Drive, Medford, New Jersey 08055.
jurisdict LV
A6é4
Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
3. The Court has jurisdiction over the subject matter
of this action pursuant to 28 U.S.C. §1332(a)(1) because
Brown is a citizen of New Jersey, the Defendant is a citizen
of Pennsylvania, and the controversy exceeds $50,000,
exclusive of interest and costs.
4. Venue lies in this judicial district pursuant to 28
U.S.C. §1391(a) (2) because a substantial part of the events
Or Omissions giving rise to this claim occurred in the Eastern
District of Pennsylvania.
Background
5. On or about December 9, 1985, Brown began
working for the Plaintiff as an at-will employee in the position
of Facility Manager.
6. On or about February 28, 1992, Brown was
promoted to the position of Executive Vice President of
Operations. Brown remained Executive Vice President until
January 31, 1993.
7. SMG terminated Brown's employment, effective
January 31, 1993.
8. During the month of January, 1993, SMG
commenced negotiations with Brown with respect to a
Settlement Agreement and General Release pertaining to his
termination of employment.
9. One aspect of those negotiations on which the
parties reached agreement subject to agreement on all other
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
issues, was Brown's request that SMG continue to pay his
salary and medical benefits for a period of one year.
10. At Brown's request and as a demonstration of its
good faith and subject to reimbursement if agreement was not
reached on all issues, following the termination, SMG
continued to pay Brown his salary and provide him with
medical insurance benefits as an advance against the overall
settlement then being negotiated.
11. Pursuant to this arrangement, SMG made salary
advances to Brown totaling $42,501.00, paid health insurance
premiums totaling at least $4,921.04, and incurred payroll tax
liabilities on the salary advances totaling at least $3,287.21.
12. Negotiations between SMG and Brown failed to
produce agreement on all issue.
13. SMG has ceased further advances of salary.
14. Brown has failed or refused to refund or return to
SMG the salary advances, insurance premiums, and payroll
tax payments, aforesaid.
COUNT I - BREACH OF CONTRACT
Paragraphs | through 14 are incorporated herein by reference
The conduct of Brown, as set forth above, constitutes
a breach of the contract existing between Brown and SMG.
WHEREFORE, Piaintiff, SMG, demands Judgment against
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
the Defendant for a sum in excess of $50,000.00, for salary
continuation and benefits paid and liabilities incurred as
aforesaid, subsequent to the date of Brown's termination,
reasonable attorneys’ fees, interest, costs and any other relief
the Court may deem just and proper.
/s/
WILLIAM A. WHITESIDE, JR.
JAMES A. MATTHEWS, III
FOX, ROTHSCHILD, O’BRIEN & FRANKEL
2000 Market Street,
10th Floor
Philadelphia, PA 19103-3291
(215) 299-2000
Attorneys for Plaintiff
Spectacor Management Group
Date: October 1, 1993
APPENDIX F
IN THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP
Plaintiff
Vv.
MATTHEW G. BROWN
Defendant and Counterclaimant
CIVIL ACTION
NO. 93-CV-5246
ANSWER, DEFENSES AND COUNTERCLAIM
1. Admitted that Plaintiff holds itself out as a general
partnership. Plaintiff is without knowledge or information
sufficient to form a belief as to the truth of the remainder of
the averment, and it is denied.
2. Admitted.
3. Admitted that Defendant is a citizen of New
Jersey. Plaintiff incorporates by reference number one, above.
Plaintiff denies that the amount in the controversy plead in the
Complaint exceeds $50,000, and Defendant avers that the
items alleged by Plaintiff to reach the $50,000 threshold are
not compensable damages, assuming arguendo that Plaintiff
has stated a valid cause of action.
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5426
4. Admitted only that events mentioned in the
Complaint occurred in this District.
5. Denied. Plaintiff was first employed by a
partnership known as "SMI Partnership" pursuant to a written
contract signed in December of 1985, which guaranteed
Defendant a term of no less than fifteen months employment
and advance notice of ninety. days. Thereafter, in 1988, SMI
Partnership merged with Facility Management Group in 1988,
and Plaintiff was formed and Defendant continued his
employment with Plaintiff. To the extent that it is implied that
Plaintiff did not subsequently enter into additional certain
employment related agreements with Plaintiff which are
relevant hereto, it is denied. Plaintiff incorporates herein by
reference his Counterclaim.
6. Denied as stated. Defendant was the Plaintiff's
Executive Vice President as of February, 1992, and he was
also its Chief Operating Officer; Defendant served also as
Chief Executive Officer of Plaintiff from approximately
March of 1992, until approximately August of 1992.
7. Admitted.
8. Denied as stated. SMG had no direct
communications with Plaintiff concerning any "settlement
Agreement". Plaintiff's Attorney of record in this case and an
attorney representing Defendant did exchange correspondence
and drafts of possible agreements, but there was no meeting
of the minds, and no agreement. It is averred further that
SMG and Defendant already had a long-standing agreement
concerning what Defendant would be paid upon his
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5426
termination, and this was memorialized by the Board of
Directors of Plaintiff and disclosed in public documents as
early as January, 1991; however, SMG's said attorney sought
to alter that agreement. Defendant incorporates herein by
reference, his Counterclaim, as though set forth at length.
9. Denied as stated. There were many aspects of the
agreement that Plaintiff and Defendant had reached prior to
1991, including the amount of Plaintiff's severance pa,! and
medical benefits, among others. That agreement was
supported by its own consideration, including, inter alia,
Defendant's agreement to continue to be employed by SMG,
and to assume new executive responsibilities. The attorney for
SMG offered no new consideration for new resirictions and
obligations he wanted Defendant to assume, or for the
reduction in the previously agreed upon sums and benefits he
wanted Defendant to give up. It is specifically denied that
Defendant made any direct or indirect "request that SMG
continue to pay his salary and medical benefits for a period of
one year". On the contrary, SMG voluntarily commenced
payment of same to Defendant under the said agreement,
without even consulting Defendant, and continued to make the
payments in accordance with the said agreement until it
concluded that Defendant was not willing to give up the terms
of the agreement in exchange for the less favorable terms
Plaintiff's counsel attempted to force on Defendant.
Thereafter, in an effort to use economic coercion against
Defendant, Plaintiff precipitously stopped the agreed upon
payments to Defendant.
10. Denied. The allegation is an unmitigated
falsehood, and a violation of Fed. R.Civ. Pro. 11. At no time
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No. 93-CV-5426
did Plaintiff ever commiunicate that any sum it paid to
Defendant was "subject to reimbursement", nor was there
ever even a suggestion that what was paid to Defendant was
"an advance". Moreover, Plaintiff made no demand, request
or utterance asking for a return of the sums paid to Defendant
until it filed the instant lawsuit.
11. Denied as stated. The sums paid to Defendant
were made pursuant to the agreement entered into prior to
1991, as aforesaid, and not pursuant to the fictional
"arrangement" Plaintiff has fabricated in its Complaint.
Defendant admits to having received salary continuation
payments of $42,501.00. He also received health insurance
benefits, the value of which he lacks sufficient information
about to form a belief as to the truth of the averment. It is
denied that any tax liability is compensable damages to
Plaintiff, and if it is, Defendant lacks sufficient information to
form a belief as to the truth of the averment.
12. Admitted only that no agreement was reached in
negotiations with Plaintiff's counsel. All inferences which are
inconsistent with the answers above are denied. 13. Denied as
stated. It is admitted only that SMG has ceased all payments
to Defendant.
14. Denied as stated. Prior to the institution of this
lawsuit, no demand was made for any "refund or return".
Defendant incorporates by reference his answers to numbers
9-11.
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5426
COUNT I
Defendant incorporates by reference his answers at
numbers 1-14.
It is denied that Defendant's conduct constitutes a
breach of contract, or that any contract, as alleged, ever
existed.
WHEREFORE, Defendant demands judgement against
Plaintiff, as well as costs and expenses as a result of
Plaintiff's false allegations and violation of Rule 11, and
whatever other relief is just and appropriate under the
circumstances.
DEFENSES
15. Defendant incorporates by reference his Answer.
16. The Court lacks jurisdiction over the subject
matter in that the amount in controversy does not exceed
$50,000.
17. Plaintiff has failed to state a valid claim upon
which relief can be granted.
18. Plaintiff as a partnership lacks the capacity to sue;
the real parties in interest are the partners; and after
discovery, Defendant resefves the right, if the facts are so
developed, to assert that due to the citizenship of the partners
in SMG, the court further lacks diversity jurisdiction.
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19. Plaintiff has failed to properly allege the time and
place of the alleged contract it claims was breached, both of
which are material to its case.
20. The alleged contract fails for lack of consideration;
lack of offer and acceptance; lack of mutuality of assent; and
because Plaintiff was already obligated to provide the sums
and benefits to Defendant, as alleged in the Answer and
Counterclaim, both of which are incorporated herein by
reference.
21. Plaintiff's claim is barred or off-set by the
damages it caused to Defendant, as alleged in the
Counterclaim.
22. Plaintiff failed to mitigate its damages.
23. Plaintiff's claim is really one which sounds in
Equity as a claim for restitution, and as such Plaintiff is
barred by its own unclean hands.
24. Plaintiff's claim is barred by the defense of
estoppel.
25. Plaintiff's claim is barred by the defense of
waiver.
26. Plaintiff's claim is barred by the Statute of Frauds.
27. Plaintiff has pleaded improperly settlement
negotiations, and has asked improperly for recovery of
attorney fees with no legal basis; and those portions of the
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No. 93-CV-5426
Complaint should be stricken.
28. The supposed contract plead by Plaintiff is a
falsehood and a recent fabrication with no basis in fact;
Plaintiff's Complaint was filed in bad faith to harass
Defendant after Defendant put Plaintiff on notice that he
intended to sue it for breaching the agreement mentioned in
the Answer and Counterclaim.
WHEREFORE, Defendant demands judgement against
Plaintiff as well as costs and expenses as a result of Plaintiff's
false allegations and violation of Rule 11, and whatever other
relief is just and appropriate under the circumstances.
COUNTERCLAIM
29. Defendant Brown incorporates by reference his
Answer and Defenses.
30. At the time of the termination of Brown's
employment, in January of 1993, he and Plaintiff SMG were
bound by a contract which was first agreed in around April of
1989, and which was implemented and further developed
during the interim, until August 1992. ("Employment
Contract") Brown relied on the said Employment Contract in
continuing his employment with SMG, forgoing other
opportunities that were offered or available to him, and in
accepting more responsibility for SMG's operations.
31. The said Employment Contract was reaffirmed by
SMG repeatedly to certain executives of SMG, including
Brown (who had accepted it originally, and continued to rely
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5426
on it) including in January of 1991 when its effect was
reported in disclosure documents generated in connection with
the acquisition by a new entity (ARA), of a 1/3 interest in
SMG.
32. The Employment Contract was documented and
announced at a SMG Board of Directors meeting held in New
York City in April of 1989, and reference to it was made in
other official documents disseminated to executives by SMG.
Moreover, in his role as CEO, Brown himself reaffirmed and
received confirmation of the Employment Contract.
33. In January of 1993, Brown's annual salary
(exclusive of bonuses, fringe benefits and commissions) was
$170,000, and his annual auto allowance was $7,800.
34. The Employment Contract provided that upon
termination, Brown would be paid his annual auto allowance
for one year and would receive medical insurance benefits for
one year.
35. Under the terms of the Employment Contract,
Brown also was guaranteed and promised no jess than one
year's severance pay in the event that his employment was
terminated by Plaintiff.
36. SMG has breached the Employment Contract by
not paying Brown the sums SMG promised to pay upon his
termination.
37. SMG has stopped Brown's medical insurance
coverage, and it therefore owes him a yet to be liquidated sum
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No. 93-CV-5426
for its replacement.
38. SMG has paid none of Brown's auto allowance,
and has paid him only $42,500 in severance pay; therefore,
pursuant to the said Employment Contract, SMG owes Brown
$7,800 in auto allowance and $127,500 in severance pay.
39. Another aspect of the Employment Contract was
a formal »bonus program offered to certain executives,
including Brown (and accepted by him), pursuant to which
SMG is obligated to pay Brown, $70,720 based on Brown's
and SMG's performance for 1992. SMG has further breached
the said Employment Contract by failing to pay Brown the
said bonus due to him.
40. Another aspect of the Employment Contract is
SMG's promise to pay Brown for unused vacation time and
out-of pocket expenses. SMG owes Brown $17,000 for 24
vacation days and $550 for said expenses, which in breach of
the said Employment Contract, it has refused to pay.
41. During 1990, pursuant to the policies and practices
at SMG, and pursuant to a specific agreement Brown made
with SMG, Brown was to perform the role of "salesperson"
(in addition to his other duties) in connection with a
particularly difficult project known as "Long Beach"; and as
an incentive to Brown, he was promised the sales commission
that would have been paid to a salesperson. Brown was not
obliged under his job description to perform the salesperson's
role, but he did so in anticipation of the commission.
42. As a result of the efforts of Brown, the Long
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5426
Beach project was a financial windfall to SMG, and based on
the said agreement and a salesperson's normal commission
structure, SMG owes Brown $837,095. SMG has breached its
promise to pay Brown the said commission, and it is still due
and owing.
43. As a result of SMG's said breaches of the
Employment Contract and its other agreements with Brown,
Brown has suffered damages in an amount in excess of
$1,060,665.00.
WHEREFORE, Counterclaimant Brown demands
judgement against Spectacor Management Group in an amount
in excess of $1,060,665.00, plus interest, costs, damages and
whatever other relief the Court finds just and appropriate
under the circumstances.
Respectfully submitted,
/s/
GARY GREEN
OF COUNSEL:
SIDKOFF, PINCUS & GREEN, P.C.
530 Walnut Street, 12th Floor
Philadelphia, Pennsylvania 19106
(215) 574-0600
DATED: November 1, 1993
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APPENDIX G
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP
Plaintiff,
Ve
MATTHEW G. BROWN
Defendant.
CIVIL ACTION
NO. 93-5246
PLAINTIFF'S ANSWER TO
DEFENDANT'S COUNTERCLAIM
The Plaintiff, Spectacor Management Group ("SMG"
or the "Company") by its undersigned attorneys, answers the
correspondingly numbered paragraphs of the Defendant's
Counterclaim as follows:
15-28. SMG incorporates the allegations of
paragraphs 1 through 14 of its Complaint as if fully set forth.
Insofar as paragraphs 15 through 28 of Defendant's Answer
allege facts, they are denied. The remaining allegations of
paragraphs 15 through 28 of the Answer state conclusions of
law to which no responsive pleading is required.
29. SMG incorporates the allegations of paragraphs 1
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Spectacor Management Group v. Matthew Brown
No. 93-5246
through 14 of its Complaint as if fully set forth.
30. Denied. By way of further answer, the allegations
in paragraph 30 of the Counterclaim state conclusions of law
to which no responsive pleading is required.
31. Denied. By way of further answer, the allegations
in paragraph 31 of the Counterclaim state conclusions of law
to which no responsive pleading is required.
32. Denied. By way of further answer, the allegations
in paragraph 32 of the Counterclaim state conclusions of law
to which no responsive pleading was required.
33. Admitted in part and Denied in part. It is admitted
only that, at the time his employment was terminated,
Defendant's annual salary (exclusive of bonuses and fringe
benefits) was $170,000 and his annual auto allowance was
$7,800. The remaining allegations of paragraph 33 of the
Complaint are denied.
34. Denied.
35. Denied.
36. Denied. By way of further answer, the allegations
in paragraph 36 of the Counterclaim state conclusions of law
to which no responsive pleading is required.
37. Admitted in part and Denied in part. It is admitted
only that SMG has stopped Defendant's medical insurance
coverage. The remaining factual allegations in paragraph 37
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Spectacor Management Group v. Matthew Brown
No. 93-5246
of the Counterclaim are denied. The remaining allegations in
paragraph 37 of the Counterclaim state a conclusion of law to
which no responsive pleading is required.
38. Admitted in part and Denied in part. It is admitted
only that SMG has not paid Defendant an auto allowance
since his termination and has paid him $42,500 in severance
pay since the date of his termination. The remaining factual
allegations in paragraph 38 of the Counterclaim are denied.
The remaining allegations in paragraph 38 of the
Counterclaim state conclusions of law to which no responsive
pleading is required.
39. Denied. By way of further answer, the
allegations in paragraph 39 of the Counterclaim state
conclusions of law to which no responsive pleading is
required.
40. Denied. By way of further answer, the allegations
in paragraph 40 of the Counterclaim state conclusions of law
to
which no responsive pleading is required.
41. Denied.
42. Denied. By way of further answer, the allegations
in paragraph 42 of the Counterclaim state conclusions of law
to which no responsive pleading is required.
43. Denied. By way of further answer, the allegations
in paragraph 43 of the Counterclaim state conclusions of law
to which no responsive pleading is required.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
WHEREFORE, the Plaintiff, Spectacor Management
Group, respectfully requests that judgment be entered in its
favor and against the Defendant, Matthew G. Brown, that the
Counterclaim be dismissed with prejudice and that SMG be
awarded its costs in defending this Counterclaim, including a
reasonable attorneys’ fee.
Date: November 11, 1993
/s/
WILLIAM A. WHITESIDE, JR., ESQUIRE
JAMES A. MATTHEWS, III, ESQUIRE
FOX, ROTHSCHILD, O'BRIEN & FRANKEL
2000 Market Street, Tenth Floor
Philadelphia, PA 19103-3291
(215) 299-2044
Attorneys for Plaintiff
Spectacor Management Group
Date: November 11, 1993
A8l
APPENDIX H
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff
We
MATTHEW G. BROWN,
Defendant and Counterclaimant
CIVIL ACTION
NO. 93-CV-5246
MOTION OF DEFENDANT-COUNTERCLAIMANT
MATTHEW G. BROWN FOR SUMMARY
JUDGMENT ON ALL CLAIMS
AND SUPPORTING MEMORANDUM OF LAW
GARY GREEN
ROBERT A. DAVITCH
Attorneys for Defendant-
Counterclaimant,
Matthew G. Brown
OF COUNSEL:
SIDKOFF, PINCUS & GREEN, P.C.
530 Walnut Street, 12th Floor
Philadelphia, PA 19106
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
(215) 574-0600
DATED: June 9, 1994
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff
V.
MATTHEW G. BROWN
Defendant and Counterclaimant
CIVIL ACTION
NO. 93-CV-5246
ORDER
AND NOW, this day of ,1994, upon
consideration of the Motion for Summary Judgment of
Defendant-Counterclaimant Matthew G. Brown, and
supporting memorandum of law and exhibits, and the
response thereto of Plaintiff, Spectacor Management Group
("SMG"), and the arguments of counsel, it is hereby
ORDERED and DECREED that the said Motion be and the
same is hereby GRANTED.
It is further ORDERED that:
(1) Summary Judgment is GRANTED in favor of
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No. 93-CV-5246
Brown and against SMG on SMG's claim against Brown for
reimbursement of severance pay, health insurance premium
payments and other expenses, and SMG's Complaint against
Brown is DISMISSED WITH PREJUDICE;
(2) Summary Judgment is GRANTED in favor of
Brown and against SMG in the amounts of $127,500. plus
interest for unpaid severance pay; $7,800. plus interest for
unpaid auto allowance; and $2,068. plus interest for
replacement health insurance costs;
(3) Summary Judgment is GRANTED in favor of
Brown and against SMG in the amounts of $15,692. plus
interest for unused vacation time, and $550. plus interest for
unreimbursed expenses;
(4) Summary Judgment is GRANTED in favor of
Brown and against SMG in the amount of $70,720. plus
interest for Brown's unpaid bonus for 1992; and
(5) Summary Judgment is GRANTED in favor of
Brown and against SMG in the amount of $837,095. plus
interest for Brown's unpaid commission for the Long Beach
project.
BY THE COURT:
/s/
ROBERT GAWTHROP, III, J.
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff
Vv.
MATTHEW G. BROWN,
Defendant and Counterclaimant.
CIVIL ACTION
NO. 93-CV-5246
MOTION OF DEFENDANT-COUNTERCLAIMANT
MATTHEW G. BROWN FOR SUMMARY JUDGMENT
Defendant-counterclaimant, Matthew G. Brown
("Brown"), by his attorneys, Sidkoff, Pincus and Green,
P.C., hereby moves tills Honorable Court for an order
granting summary judgment in his favor and against Plaintiff,
Spectacor Management Group ("SMG"), on the claim asserted
by SMG against Brown in SMG's Complaint. and on all of
the claims asserted by Brown against SMG in Brown's
Counterclaim, In particular, Brown requests that:
(1) Summary Judgment to be granted in favor of
Brown and against SMG on the claim asserted in SMG's
Complaint against Brown for reimbursement of severance
pay, health insurance premium payments and other expenses;
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
(2) Summary Judgment be granted in favor of Brown
and against SMG in the amounts of $127,500. plus interest for
unpaid severance pay; $7,800. plus interest for unpaid auto
allowance; and $2,068. plus interest for replacement health
insurance costs;
(3) Summary Judgment be granted in favor of Brown
and against SMG in the amounts of $15,692. plus interest for
unused vacation time and $550. plus interest for unreimbursed
expenses;
(4) Summary Judgment be granted in favor of Brown
and against SMG in the amount of $70,720. plus interest for
Browr's unpaid bonus for 1992; and
(5) Summary Judgment be granted in favor of Brown
and against SMG in the amount of $837,095. plus interest for
Brown's unpaid commission for the Long Beach project.
In support of this Motion, Brown relies upon the
Memorandum of Law attached hereto and incorporated herein
by reference, and upon the deposition testimony of Brown and
Donald Webb and the other exhibits that are included in the
Appendix to this Motion which is being filed under separate
cover.
Respectfully submitted,
/s/
GARY ROBERT. A. DAVITCH
Attorneys for Defendant-Counterclaimant,
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
Matthew G. Brown
OF COUNSEL
SIDKOFF PINCUS & GREEN, P.C.
530 Walnut Street - 12th Floor
Philadelphia, PA 19106
(215) 574-0600
DATED: June 9, 1994
$42,500, SMG still owes him $127,500. Since SMG had a
contractual obligation to pay Brown $170,000. in severance
pay, its claim against him for reimbursement of the payments
it made to him cannot be sustained as a matter of law. Since
the severance package SMG agreed to pay to its terminated
senior executives also included auto allowance and health
insurance benefits for one year, Brown is also entitled to
summary judgment on his claims for $7,800. in unpaid auto
allowance and $2,068. for replacement health insurance costs
he paid from November 1, 1993 to January 31, 1994. Since
SMG was also contractually obligated to continue Brown's
health insurance coverage for one year following his
termination, Brown is also entitled to summary judgment on
SMG's claim against him for reimbursement of $4,921 in
health insurance premium payments SMG made on his behalf
from January 31, 1993 through October 31, 1993. Based on
the testimony of Brown and Webb, SMG's documents and the
admissions of the parties, there are no genuine issues ‘of
material fact on these issues, and Brown is therefore entitled
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
to judgment as a matter of law.
Cc. Facts Entitling Brown to Summary
Judgment on His Claims Against SMG for
$15,692. in Unpaid Vacation Benefits and
$550 in Unreiml 1E
In his Counterclaim, Brown alleged that SMG
breached its employment agreement with him by failing to pay
him for 24 unused vacation days and $550 in reimbursable
out-of-pocket expenses. Exhibit 2 at para. 40. There are no
genuine issues of material fact on these claims either, thereby
entitling Brown to summary judgment against SMG in the
amounts of $15,692. (for vacation pay) and $550 (for
unreimbursed expenses).
In a letter to Brown's former counsel, James Roscetti,
Esquire, dated February 26, 1993, SMG's counsel, James A.
Matthews, III, Esquire, confirmed "that Mr. Brown will
receive his appropriate vacation pay". Exhibit 9 of Appendix
at p. 3. In the same letter, Matthews stated that Brown would
be reimbursed for his properly documented current expenses,
meaning those incurred within 90-120 days of his termination
date. Exhibit 9 at p. 3. Roscetti wrote back to Matthews on
April 23, 1993, reminding Matthews that "with respect to
vacation pay, ... your prior correspondence has indicated that
same would be paid, it has not, to date, in fact, been paid".
Exhibit 10 at p. 2. Brown's Affidavit and a letter from SMG
to its counsel dated May 6, 1993, confirm that Brown is owed
$15,692. for 24 unused vacation days and $550. in expenses.
Exhibits 8 and 11.
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
At his deposition on January 24, 1994, Brown testified
(in response to questions by Matthews) that he still had not
received the promised vacation pay or reimbursement for his
expenses (Brown depo.. at 337-339). Brown stated,
"[My] outstanding vacation pay .... has not
been paid to me, despite a written document
from you indicating to my counsel that there
was an obligation and you expected SMG to
make payment to me.
Further, the issue of an outstanding $550 for
outstanding reimbursement of expenses owed
to me and confirmed by SMG [has] yet to be
received, which was further evidenced in a
document provided by you to my counsel."
(Brown depo. at 339). In spite of correspondence from SMG's
counsel "which confirmed the obligation of SMG to pay
{Brown these] funds", these amounts are still due and owing
to Brown (Brown depo. at 337-338). There being no genuine
issue of material fact as to whether SMG owes these sums to
Brown, summary judgment should be granted in Brown's
favor in the amount of $15,692. for unused vacation time and
$550 for unreimbursed out-of-pocket expenses. These items
should have been paid by SMG long ago.
D. Facts Entitling Brown to Summary
Judgment on His Claim Against SMG for an
Unpaid 1992 Bonus of $70,720.
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Spectacor Management Group v. Matthew Brown
No. 33-CV-5246
In his Counterclaim, Brown also requested judgment
against SMG in the amount of $70,720, which should have
been his 1992 bonus. Exhibit 2 at para. 39.. Brown alleged
that, in further breach of its employment agreement with him,
SMG failed to pay him this bonus, or any portion thereof.
Exhibit 2 at para. 39. For the following reasons, this is
another claim on which Brown is entitled to summary
judgment.
In 1992, SMG had a formal bonus program for certain
senior executives, including Brown (Brown depo. at 176-179
and Exhibit P-12 of Brown depo.). The bonus program for
1992 (the last full year of Brown's employment with SMG)
worked as follows. Brown's annual base salary of $170,000
was multiplied by 41.6% to compute the maximum bonus for
which Brown was eligible; that amount was $70,720 (Brown
depo. at 179-183 and Exhibit P-12 of Brown depo.). Brown
was automatically entitled to receive 70% of this sum, or
$49,504; this was known as the “quantitative portion" of the
bonus and there was no discretion involved in awarding this
part (Brown depo. at 180-183). Thus, there is no dispute that
SMG was contractually obligated to pay Brown a bonus of at
least $49,504 for 1992 (Brown depo. at 180-183 and Exhibit
P-12 of Brown depo.). The remaining 30% of the amount for
which Brown was eligible, or $21,216, was known as the
"qualitative portion" of the bonus (Brown depo. at 179-183).
This sum, which is computed by multiplying 41.6% of
Brown's annual base salary by .30, was discretionary; in
other words, Brown could have been awarded up to $21,216
as his "qualitative" bonus for 1992 (Brown depo. at 182-183).
Accordingly, the maximum total bonus for which Brown was
eligible was $70,720; SMG was obligated to pay him $49,504
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
as his "quantitative" bonus, and it could have paid him as
much as $21,216 for his "qualitative" bonus (Brown depo. at
176183 and Exhibit P-12 of Brown depo.). The "qualitative"
portion of the bonus was to be based upon the employee's
individual performance (Brown depo. at 188-190). |
Shortly after he was terminated by SMG, Brown was
advised by SMG that he would be receiving a total bonus for
1992 in the amount of $50,000 (Brown depo. at 183). This
amount was $20,720 below the maximum bonus for which he
was eligible. Thus, since SMG was obligated to pay Brown a
"quantitative" bonus of $49,504, it decided to give him a
"qualitative" bonus of only $500 (Brown depo. at 188-190).
However, Brown should have received the maximum
"qualitative" bonus of $21,216 based upon his outstanding
performance in 1992. As he testified:
"{H]javing served in a dual role for seven
months as the chief operating officer for the
company, having successfully concluded a
smooth transition from the dramatic departure
of Mr. Tavares, maintaining the good moral of
the company and while so doing, acquiring
two new accounts during that period of time,
negotiating a renewal in Pittsburgh that
resulted in four times the amount of money we
had previously made the previous year, it
would seem to me that if there was ever a
justification for someone being awarded a full
qualitative bonus, I don't know who else
would have been justified in receiving that if it
wasn't me."
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Spectacor Management Group v. Matthew Brown
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(Brown depo. at 189-190). Accordingly, based upon his and
SMG's performance in 1992, Brown should have been
awarded the maximum bonus of $70,720 ($49.504 for the
quantitative portion and $21,216 for the qualitative portion)
(Brown depo. at 294-296).
However, SMG decided to award Brown a fotal bonus
for 1992 of only $50,000, $49,504 of which it was
contractually obligated to pay him (Brown depo. at 183, 188-
190, 294-296).
Moreover, SMG has not even paid Brown the
"quantitative" portion of his 1992 bonus (just under $50,000),
even though it was required to pay him that amount and
Matthews confirmed in a letter to Roscetti dated April 27,
1993 that "SMG fully intends to pay Mr. Brown...the
‘quantitative’ portion of his 1992 bonus (representing, I think
we agree, approximately 70% of the total package)..." Exhibit
12 at p. 2. Brown stated in his deposition: "1 have yet to
receive that $50,000 bonus, despite the fact that you [Mr.
Matthews) wrote to my counsel indicating that there was an
obligation for SMG to pay that and that they would pay that"
(Brown depo. at 338-339).
Thus, there can be no question whatsoever that SMG
still owes Brown a "quantitative" bonus of $49,504 for 1992.
(For the reasons stated above, Brown is also owed a
"qualitative" bonus of $21,216.) Indeed, SMG even reported
a bonus of $50,000 on a paycheck it issued to Brown for the
period ending March 31, 1993, and taxes were withheld as if
that sum had actually been paid to Brown (Brown depo. at
337-339). Included in the Appendix, as Exhibit 13, is a copy
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Spectacor Management Group v. Matthew Brown
No. 93-CV-5246
of the paycheck Brown received from SMG for that period,
confirming that the $50,000 bonus was reported as income
and that taxes were withheld from that alleged payment.
However, Brown never received this $50,000 payment
(Brown depo. at 337-339). As he explained: "My taxation
from SMG reflected calculations that a $50,000 payment has
been accounted for and in taking out my annual Social
Security tax, yet I haven't received $50,000" (Brown depo. at
338).
Accordingly, there are no genuine issues of material
fact as to whether Plaintiff is entitled to be paid a bonus for
1992. Indeed, SMG has admitted that it owes Plaintiff at least
$50,000 in bonus money for 1992, having reported that
amount on Brown's paycheck and deducted taxes as if that
payment had been made. For the reasons stated above, SMG
owes Brown an additional $20,720 in bonus money for 1992.
Brown is therefore entitled to summary judgment against
SMG in the amount of $70,720 for his unpaid 1992 bonus.°
E. Facts Entitling Brown to Summary
Judgment on His Claim Against SMG for an
Unpaid Commission for the "Long Beach"
Project in the Amount of $837,095 ss
Brown is also claiming that SMG owes him a
commission for the "Long Beach’ project in the amount of
: Alternatively, the Court should grant summary
judgment against SMG in the amount of $50,000 without prejudice
to Brown's right to pursue a claim for an additional $20,720 in
bonus money.
A93
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No. 93-CV-5246
$837,095, and has improperly refused to pay this commission,
or any part thereof. The unrebutted testimony of Brown and
Webb and documents of SMG reveal that there are no genuine
issues Of material fact on this claim either, and that Brown is
therefore entitled to summary judgment.
Beginning in 1989, SMG began to develop a formal
commission program for employees who engaged in sales
functions (Brown depo. at 198, 269). The program was
implemented in 1990 (Brown depo. at 198). As a member of
SMG's executive committee, Brown participated in the
development and implementation of this program. Webb was
also intimately involved in establishing the program. He said
the purpose of the program was "to reward people who
secured additional business, either by way of new contracts,
acquisitions or contract extensions on behalf of the company"
Webb depo. at 57). In
** *
A94
APPENDIX I
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff,
¥e
MATTHEW G. BROWN,
Defendant/Counterclaimant.
CIVIL ACTION
NO. 93-5246
PLAINTIFF'S MEMORANDUM OF LAW IN
OPPOSITION TO DEFENDANT/
COUNTERCLAIMANT'S MOTION FOR SUMMARY
JUDGMENT AND IN SUPPORT OF PLAINTIFF'S
CROSS-MOTION FOR SUMMARY JUDGMENT ON
THE COUNTERCLAIM
Ira B. Silverstein
FOX, ROTHSCHILD, O'BRIEN & FRANKEL
2000 Market Street
10th Floor
Philadelphia, PA 19103-3291
(215) 299-2780
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Attorney for the Plaintiff,
Spectacor Management Group
x *
Vent and others with Mr. Brown's performance (Gibson
Affidavit 44; Vent Affidavit 44).
At the time of his termination, Mr. Gibson told Mr.
Brown that it was the Company's intention to negotiate a
severance package with him based upon the parties’
longstanding discussions concerning a one year severance
period in exchange for a one year non-compete (Gibson
Affidavit 45). Mr. Gibson told Mr. Brown to have his
counsel, Mr. Roscetti, negotiate with the Company's counsel,
Mr. Whiteside, with respect to the specific terms of the
"package", but also agreed with Mr. Brown that, since it was
their mutual expectation that the essential terms of such an
agreement would include one year's base salary (at the then-
applicable rate of $170,000) and medical benefits, SMG
would continue his pay and medical insurance coverage
without interruption while the remaining details ‘vere
negotiated (Gibson Affidavit 45). The conduct of those
negotiations (which, as evidenced by this lawsuit, were
unsuccessful) is detailed below.
ya The SMG Executive Annual Incentive
Plan and Mr. Brown's Claim
Concerning his 1992 Bonus
Mr. Brown participated in SMG's "Executive Annual
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Incentive Plan" (Brown Dep. Tr. at 176-79; Exhibit "Q"),’°
under which he had an overall 1992. bonus “guideline” equal
to 35% of his annual salary (Brown Dep. Tr. at 180-81;
Exhibit "Q"). At his 1992 salary of $170,000, this represents
a "guideline" bonus of $59,500 ($170,000 x .35). The overall
"actual" bonus can range from 25% to 130% of the
"guideline" depending upon the Company's actual
performance relative to its budgeted net operating income
target: The minimum bonus of 25% of "guideline" is payable
if the Company is at 90% of the budgeted income result, the
"guideline" is payable if budget is met and the maximum
bonus of 130% of guideline is payable if the Company
reaches 110% of the net operating income budget (Brown
Dep. Tr. at 181-83; Exhibit "Q"). In other words, for every
one percent by which the Company exceeds its net operating
income budget, the overall "actual" bonus for an Executive
Vice President can increase another three percent of salary to
the stated maximum. In 1992, the Company's budgeted net
operating income was $8.078 million and its result was
$8.248 million, or 102% of budget (Gibson Affidavit 410).
Thus, Mr. Brown's overall bonus "guideline" increases by
another six percent of salary to $69,700 ($170,000 x .41).”°
‘SA true and correct copy of SMG's Executive Annual
Incentive Plan for 1992, identified by Mr. Brown at his deposition
(Brown Dep. Tr. at 179), is contained in the Appendix to this
Memorandum as Exhibit "Q”".
ws As far as SMG can ascertain, the only dispute
between the parties to this point is Mr. Brown's contention that
SMG received an additional $250,000 in revenue in December
1992 which it improperly failed to “book” until January 1993 and
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No. 93-5246
Beyond that, the "overall" bonus is divided into two
parts: “a financial component representing 70% of the overall
[bonus] and a discretionary individual performance component
representing the remaining 30% of the total [bonus]" (Exhibit
"Q"; see Brown Dep. Tr. at 182-83). In Mr. Brown's case for
1992, this means a "financial component" of $48,790 and a
“discretionary individual performance component" of $20,910
($69,700 x .70 and .30, respectively). Once again, the Plan
document itself provides explicitly that the "financial
component" is payable simply upon attainment of the required
financial results, while the "discretionary individual
performance component" is just what it Says it is:
, discretionary" with the Compensation Committee of the
Board, based upon the recommendation of the supervisor
(Exhibit "Q").
Further, the Plan document is equally clear concerning
the treatment of employees, such as Mr. Brown, who leave
employment after the close of a year but before bonuses are
calculated and paid:
"An executive whose employment terminates
after the close of the bonus year but before
awards are paid will be eligible to receive any
award attained under the payout formula of the
that, if this revenue was included, the net Operating income would
increase by that amount and his "overall" bonus figure would
increase to $70,720, a difference of $1,020.00 (Counterclaim 439;
Brown Dep. Tr. at 183-85). It is undisputed that all of the other
eligible executive had their bonuses calculated based upon the same
figures as did Mr. Brown (Gibson Affidavit q10).
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Spectacor Management Group v. Matthew Brown
No. 93-5246
financial portion of the Plan. Any bonus
awards for personal achievement in the case of
“0
— sn of tie Beadhtant *
(Exhibit "Q" at 2) (emphasis added). In fact, since the
institution of the Executive Annual Incentive Program, no
terminated executive has ever received the "discretionary"
component of the previous years' bonus (Gibson Affidavit 4
10; Vent Affidavit ¢ 5).
Following Mr. Brown's termination, Mr. Gibson made
his bonus recommendations to the Compensation Committee
of the Board, proposing a bonus for Mr. Brown of $50,000
(Gibson Affidavit 410; Exhibit "R").'’ This bonus exceeds
both Mr. Brown's entitlement under the "financial
component" of the plan (even under Mr. Brown's calculation)
and the "overall" bonus paid to every other senior officer of
the Company (Gibson Affidavit 410; Exhibit "R"). This bonus
has been credited by the Company to Mr. Brown and,
appropriate payroll taxes have been withheld (Brown Dep. Tr.
at 337-39). SMG has, however, withheld the net proceeds of
the bonus as a set-off against the sums owed it by Mr. Brown
(Gibson Affidavit 410).
The only purported "fact" offered by Mr. Brown in
wf A true and correct copy of a March 4, 1993
Memorandum from Mr. Gibson to the Compensation Committee,
and identified by Mr. Gibson (Gibson Affidavit ¢ 10), is contained
in the Appendix to this Memorandum as Exhibit "R".
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Spectacor Management Group v. Matthew Brown
No. 93-5246
support of his claim of contractual entitlement to the
"discretionary" portion of his bonus is his own, personal
Opinion that
"it would seem to me that if there was ever a
justification for someone being awarded a full
qualitative bonus, I don't know who else
would have been justified in receiving that if it
wasn't me."
(Brown Dep. Tr. at 189-90). The legal materiality of this
unshared opinion is argued below.
3. The "Long Beach Project" and Mr.
Brown's Claim for an $837,095 "Sales
Commission"
There exist a host of facts, some disputed and some
undisputed, concerning the "Long Beach Project" and Mr.
Brown's claim of entitlement to a "sales commission" for his
work on it. Because of the at best facile and at worst
disingenuous
4. Mr. Brown's Claims for Unpaid Vacation
and Unreimbursed Expenses
SMG agrees that, at or about the time of his
termination, Mr. Brown sought reimbursement for $550 in
business expenses which, if properly incurred and
documented and timely submitted, would be eligible for
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Spectacor Management Group v. Matthew Brown
No. 93-5246
reimbursement under SMG policies (Brown Affidavit {5 &
6; Gibson Affidavit { 9(a)).”° The problem is that the bulk of
the expenditures for which reimbursement is sought were
incurred as much as a year prior to the submission of the
request for reimbursement and Mr. Gibson declined to
approve their payment on that basis (Gibson Affidavit { 9 (a))
SMG further agrees that, at the time of his
termination, Mr. Brown had a total of 24 unused vacation
days and that, at his then-applicable rate of pay, those 24 days
represented "gross pay" of $15,692.30 (Brown Affidavit { 2-
4; Gibson Affidavit { 9(b)). Obviously (or, perhaps, subject
to judicial notice), that "gross" amount is subject to payroll
withholding and the "net" due Mr. Brown would be somewhat
less. More to the point, however, is that, as with the case of
the net amount of the "financial component" of the 1992 year-
end bonus, this amount has been withheld by SMG as a set-off
against the amounts owing from Mr. Brown (Gibson Affidavit
{ 9(b)).
Having said this, SMG hastens to assure the Court
that, if these were the only two issues between the parties,
they would ceased being issues long ago.
* * *
” The Supplemental Affidavit of Mr. Brown is
contained in the Appendix to his Memorandum as Exhibit 8.
Al0l
ee
APPENDIX J
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff,
Ve
MATTHEW G. BROWN,
Defendant-Counterclaimant
CIVIL ACTION
NO. 93-5246
DEFENDANT-COUNTERCLAIMANT MATTHEW G.
BROWN'S MOTION FOR SANCTIONS PURSUANT
TO FED. R, CIV, P. 11
GARY GREEN, ESQUIRE
ROBERT A, DAVITCH, ESQUIRE
Attorneys for Defendant-
Counterclaimant, Matthew G. Brown
OF COUNSEL
SIDKOFF, PINCUS & GREEN, P.C.
12th Floor, 530 Walnut Street
Philadelphia, Pennsylvania 19106
(215) 574-0600
A102
Spectacor Management Group v. Matthew Brown
No. 93-5246
DATED: August 26, 1994
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP,
Plaintiff
MATTHEW G. BROWN,
Defendant-Counterclaimant.
CIVIL ACTION
NO. 93-5246
DEFENDANT-COUNTERCLAIMANT MATTHEW G.
BROWN'S MOTION FOR SANCTIONS PURSUANT
TO FED.R.CIV, P, 11
Defendant-Counterclaimant, Matthew G. Brown
("Brown"), by its undersigned attorneys, respectfully moves
this Honorable Court, pursuant to Rule 11 of the Federal
Rules of Civil Procedure, for the imposition of sanctions
against the Plaintiff, Spectacor Management Group ("SMG")
and/or its attorneys, for the reasons set forth in the attached
Memorandum of Law. In particular, Brown respectfully
moves for an Order; (1) striking SMG's Complaint from the
record; (2) directing SMG and/or its attorneys to pay the
reasonable attorneys’ fees and costs incurred by Brown as a
direct result of the Rule 11 violations specified in the attached
Memorandum of Law; and (3) granting whatever other relief
that is appropriate.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
In support of this Motion, Brown relies upon the
attached Memorandum of Law and the exhibits submitted
herewith.
Respectfully submitted,
/s/
GARY GREEN
ROBERT A. DAVITCH
Attorneys for Defendant-
Counterclaimant, Matthew G. Brown
OF COUNSEL
SIDKOFF, PINCUS & GREEN, P.C.
12th Floor, 530 Walnut Street
Philadelphia, Pennsylvania 19106
(215) 574-0600
DATED: August 26, 1994
A104
Spectacor Management Group v. Matthew Brown
No. 93-5246
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
SPECTACOR MANAGEMENT GROUP;
Plaintiff
V.
MATTHEW G. BROWN,
Defendant-Counterclaimant
CIVIL ACTION
NO. 93-5246
DEFENDANT-COUNTERCLAIMANT MATTHEW G.
BROWN'S MEMORANDUM OF LAW IN SUPPORT
OF MOTION FOR SANCTIONS PURSUANT
TO FED. R.CIV. P.11
I. INTRODUCTION
This motion is being filed to remedy an egregious Rule
11 violation stemming from the filing of a Complaint which
the plaintiff and its counsel must have believed was not well
grounded in fact or law, and which was filed to harass the
defendant and increase his litigation costs, and in spite of the
fact that plaintiff and its counsel knew the claim did not come
close to satisfying the amount in controversy requirement for
federal jurisdiction.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Defendant-Counterclaimant, Matthew G. Brown
("Brown"), was employed by Plaintiff. Spectacor
Management Group ("SMG"), until January 31, 1993, when
Brown was discharged by SMG. At the time of his
termination, Brown was SMG's Executive Vice President of
Operations and Chief Operating Officer.
Following his termination from SMG, Brown, through
his former counsel, and SMG, through its counsel, engaged
in negotiations relative to a possible settlement of all claims
between the parties arising from Brown's termination. These
negotiations were conducted from January, 1993 until May,
1993, at which point an impasse was reached. During this
period, SMG kept Brown on its payroll at his regular salary
and paid his health insurance premiums. SMG continued
paying Brown's salary for three months following his
termination (until the end of April, 1993), paying him a total
of $42,500.00. SMG continued to provide Brown with health
insurance benefits until October, 1993; its health insurance
premium payments for Brown following his termination
amounted to $4,921.00.
SMG commenced this action by filing a Complaint
against Brown, based on diversity jurisdiction, on October 1,
1993. The action sought reimbursement from Brown, under
a breach of contract theory, of the salary and health insurance
payments SMG had made following Brown’s termination. The
Complaint alleged that Brown had agreed to reimburse SMG
for all salary payments it made to him and all health insurance
premiums it made on his behalf following his termination, if
the parties could not reach a global settlement The Complaint
specifically averred, at paragraphs 10 agreement. and 11:
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Spectacor Management Group v. Matthew Brown
No. 93-5246
"10. At Brown's request and as a
demonstration of its good faith and subject to
reimbursement if agreement was not reached
on all issues, following the termination, SMG
continued to pay Brown his salary and provide
him with medical insurance benefits as an
advance against the overall settlement then
being negotiated.
11. Pursuant to this arrangement, SMG made
salary advances totaling $42,501.00, paid
health insurance premiums totaling at least
$4,921.04, and incurred payroll tax liabilities
on the salary advances totaling at least
$3,287.21 ."
The suit went on to allege that when negotiations
between SMG and Brown failed to produce an agreement on
all issues, SMG ceased any further “salary advances” and
health insurance premium payments, and Brown had failed to
refund or return to SMG any of the said salary advances,
health insurance premium payments or payroll tax payments.
This failure, SMG pied, constituted a breach of contract
entitling SMG to recover from Brown, an individual of
diverse citizenship from SMG, the sum of $50,710.00. |
In his Answer to the Complaint, Brown denied SMG's
material allegations, alleging that the salary and health
insurance benefits he had received from SMG following his
termination were provided pursuant to a longstanding
agreement between the parties which obligated SMG to
continue his salary and health insurance benefits for one year
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Spectacor Management Group v. Matthew Brown
No. 93-5246
following his termination. Brown alleged also that: (1) SMG
had made these post-termination payments voluntarily,
pursuant to the prior agreement; (2) he had never agreed nor
was he required to reimburse SMG for these payments if a
settlement agreement was not reached; and (3) SMG had
breached a contract with him by wrongfully discontinuing the
severance payments less than one year following his
termination.
Brown also asserted a Counterclaim against SMG in
which he sought to recover, inter alia, the amount of
$127,500.00, representing the difference between the salary
continuation payments SMG had made to him following his
termination ($42,500.00) and his annual base salary at the
time of his termination ($170,000.00). Brown averred that
SMG had improperly cut off his severance payments three
months after his discharge date when these payments should
have been continued for an additional nine months pursuant to
the prior agreement of the parties. The Counterclaim alleged
further that SMG had improperly ceased paying Brown's
health insurance premiums less than one year after his
termination date.
The Counterclaim alleged also that another aspect of
Brown's employment agreement with SMG was a formal
annual bonus program that SMG offered to certain executives.
Brown averred that, pursuant to his agreement with SMG and
the SMG bonus program, he was entitled to be paid a bonus
of $70,720.00 for his and SMG's performance in 1992, but
that SMG had wrongfully failed to pay him this bonus or any
portion of it.
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Spectacor Management Group v. Matthew Brown
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Brown alleged further in his Counterclaim that SMG
had breached its agreement to pay him for all unused vacation
time he had accrued as of his termination date. He averred
that he had accrued 24 days of vacation pay, thereby entitling
him to $15,692.00 in vacation pay.
The Counterclaim went on to allege that pursuant to
the policies and practices of SMG and a specific agreement he
had with the company, Brown had performed the role of
"salesperson" in connection with a particularly difficult and
time-consuming project known as “Long Beach". Brown
averred that as a result of his efforts, this project was a huge
financial windfall for SMG, and that he was promised and
entitled to the same commission that would have been paid to
a salesperson for this project. Brown alleged that pursuant to
SMG's commission structure and a specific agreement he had
with SMG pertaining to the Long Beach project, he should
have been paid a commission of $837,095.00 for this project,
but SMG breached its promise and the contract by refusing to
pay him this commission or any part of it.
The filing by SMG of its Complaint in this Court
placed Brown in the position of having to assert his
Counterclaim in this forum. Brown would not have sued SMG
in Federal Court but for the filing by SMG of its Complaint
against him.
On June 9, 1994, Brown filed a Motion for Summary
Judgment. In his motion and supporting brief, Brown
requested summary judgment on SMG's claim against him for
breach of contract, as well as on all of the claims he had
asserted against SMG in his Counterclaim. The Motion for
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Summary Judgment is presently pending before this Court. In
the motion and brief, Brown argued, jnter alia, that there
were no factual or legal disputes whatsoever that SMG owed
him: (1) a bonus of at least $50,000.00 for 1992: and (2)
vacation pay amounting to $15,692.00. As Brown showed in
his motion, SMG had conceded it owed him these amounts,
but had still not paid him.
On July 22, 1994, SMG filed a brief in opposition to
Brown's Motion for Summary Judgment, as well as a Cross-
Motion for Summary Judgment on the Counterciaim. Based
on certain statements SMG made in this brief and the contents
of an affidavit of Thomas Gibson, SMG's former President
and CEO which was submitted in support of the brief and
cross-motion, SMG and its counsel had to have violated Fed.
R. Civ. P. 11 blatantly by suing Brown. In response to
Brown's request for summary judgment on his claims for the
$50,000.00 bonus and the $15,692.00 in vacation pay, SMG,
and its counsel, stated in this July 22 submission that although
Brown had earned the $50,000.00 bonus and the $15,692.00
in vacation pay, SMG had unilaterally decided to withhold
these sums (net of taxes) from Brown as a Set-off against the
sums SMG contended Brown had owed it. In other words,
SMG stated in its brief and the Gibson affidavit, since Brown
had failed to return or refund the "salary advances" and health
insurance payments totaling approximately $50,000.00 he had
received from SMG following his termination, but SMG owed
Brown the gross sum of $65,692.00 in bonus and vacation
pay, SMG had decided to keep all of Brown's bonus money
and vacation pay “as a set-off against the amounts owing from
Mr. Brown". Even more significantly, SMG admitted in its
brief filed on July 22 and the Gibson affidavit that it had
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Spectacor Management Group v. Matthew Brown
No. 93-5246
decided to withhold the amounts due Brown (as a set-off) long
before the Complaint was filed in this action. Thus, under
their view and theory of this case, at the time this action was
commenced, SMG and its counsel must have believed that
Brown actually owed SMG nothing, or at most, a few
thousand dollars. In either case, any reasonable investigation
prior to the fling and signing of the Complaint would have
revealed that SMG could not come close to satisfying the
$50,000.00 amount in controversy requirement for federal
jurisdiction.’
Rule 11 provides, in substance that an attorney who
signs and files a pleading is certifying that to the best of his
knowledge, information and belief, formed after reasonable
inquiry, the pleading is not being presented for an improper
purpose (such as to harass or cause needless increase in the
' Even if SMG is contending that the sums it withheld
from Brown (after taxes) were less than the $50,000.00 that it
claims Brown owed, the difference could only be several thousand
dollars, which is the most SMG could claim it is owed under its
theory of the case.
To be sure, Brown disputes that SMG was entitled to
a set-off or that he agreed or was required to reimburse $MG
for the sums it paid him following his termination. The point
is, under SMG's view of the case, and based on its recent
admission that it withheld the bonus money and vacation pay
from Brown as a set-off, it had absolutely no right to bring an
action against Brown in Federal Court, and as it will be
shown, Rule 11 was violated flagrantly when the Complaint
was signed and filed.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
cost of litigation), and the factual allegations and legal claims
contained in the pleading are supportable and warranted.
Brown wiil demonstrate in this submission that: (1) Rule 11
was violated when the Complaint was signed and filed since
SMG and its counsel must have believed at that time that
Brown owed SMG virtually nothing, and therefore, they knew
there was no diversity jurisdiction; and (2) the Rule 11
violation was compounded because the Complaint was filed as
a "preemptive strike-suit" to harass Brown and cause him to
incur needless expense, because he had threatened to sue
SMG. To remedy these Rule 11 violations, Brown seeks an
order striking the Complaint and imposing monetary sanctions
against SMG and its counsel. Since Brown has incurred
substantial attorney's fees defending this action, and in
pressing his compulsory Counterclaim, he is specifically
requesting, pursuant to Rule 11(c)(2), that SMG and its
counsel be ordered to pay some or all of his attorney's fees.’
é Brown could not have served this motion before
August of 1994 because he did not learn of the Rule 11 violations
until July 22, 1994, when he was served with SMG's brief and
cross-motion. It was in that submission that SMG stated, for the
first time, that it had kept for itself (as a set off for the salary and
benefits paid to Brown) the $65,000.00 in vacation pay and bonus
it admitted it owed Brown. In a letter dated August 2, 1994,
Brown's counsel informed SMG's counsel of the Rule 11 violation,
and requested that the Complaint be withdrawn, or alternatively,
that SMG pay Brown his $50,000.00 bonus and $15,692.00 in
vacation pay. SMG's counsel wrote back to Brown's counsel on
August 4, 1994, stating that SMG would neither withdraw the
Complaint nor pay Brown any money pending the outcome of this
litigation. This motion is therefore timely.
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Il.
LEGAL STANDARDS
The amended version of Rule 11, which became
effective as of December 1, 1993, states, in relevant part:
"(b) Representations to Court. By presenting to
the court (whether by signing, filing,
submitting, or later advocating) a pleading,
written motion, or other paper, an attorney or
unrepresented party is certifying that to the
best of the person's knowledge, information,
and belief, formed after an inquiry reasonable
under the circumstances, -
(1) it is not being presented for any
improper purpose, such as to harass or to
cause unnecessary delay or needless increase
in the cost of litigation;
(2) the claims, defenses, and other legal
contentions therein are warranted by existing
law or by a nonfrivolous argument for the
extension, modification, or reversal of existing
law or the establishment of new law;
(3) the allegations and other factual
contentions have evidentiary support or, if
specifically so identified, are likely to have
evidentiary support after a reasonable
opportunity for further investigation or
discovery;...
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Spectacor Management Group v. Matthew Brown
No. 93-5246
(c) Sanctions. If, after notice and a
reasonable opportunity to respond, the court
determines that subdivision (b) has been
violated, the court may, subject to the
conditions stated below, impose an appropriate
sanction upon the attorneys, law firms, or
parties that have violated subdivision (b) or are
responsible for the violation."
"(A) By Motion. A motion for sanctions under
this rule shall be made separately from other
motions or requests and shall describe the
specific conduct alleged to violate subdivision
(b). It shall be served as provided in Rule 5,
but shall not be filed with or presented to the
court unless, within 21 days after service of
the motion (or such other period as the court
may prescribe), the challenged paper, claim,
defense, contention, allegation, or denial is not
withdrawn or appropriately corrected."
The Advisory Committee Notes to the
All4
The amended Rule 11 then describes the procedure that must
be followed before a motion for sanctions can be filed:
1993
amendments to Rule 11 state that the amended rule "restate[s]
the provisions requiring attorneys...to conduct a reasonable
inquiry into the law and facts before signing pleadings, .
prescribing sanctions for violation of these obligations". Thus,
the Advisory Notes make clear, the amended Rule 11
"continues to require litigants to 'stop-and-think' before
initially making legal or factual contentions".
.. and
Spectacor Management Group v. Matthew Brown
No. 93-5246
It is well recognized that Rule 11 imposes on a party
who signs a pleading filed with the court an affirmative duty
to conduct a reasonable investigation of the facts and law
prior to filing. Business Guides, Inc. v. Chromatic
Communications Enter., 498 U.S. 533, 543 (1991). The
appearance of an attorney's signature on a pleading is
tantamount to a certification that the attorney has conducted
a reasonable inquiry and has determined that the pleading is
well grounded. Lony v. E.J. DuPont DeNemours & Co,, 935
F.2d 604, 616 (3rd Cir. 1991). Furthermore, the duty
imposed by Rule 11 is subject to an objective analysis. As the
Third Circuit stated in Bradgate Associates v. Fellows, Read
& Associates, 999 F.2d 745, 752 (3d Cir. 1993):
"The objective standard imposed by Rule 11 is
firmly established in this circuit. We have
consistently noted that the Rule 11 test is ‘now
an objective one of reasonableness’ which
seeks to discourage pleadings ‘without factual
foundation, even though the paper was not
filed in subjective bad faith’. Lony 935 F.2d at
616; see also Lieb v. Topstone Indus, 788
F.2d 151,157 (3d Cir. 1986). We have also
said that Rule 11 is designed to ensure that
pleadings are not used for improper purposes
such as harassment, delay or needless increase
in litigation expense. Lony, 935 F.2d at 616;
Lieb. 788 F.2d at 157.
When a district court examines the
sufficiency of the investigation of facts and law
it ‘is expected to avoid the wisdom of
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Spectacor Management Group v. Matthew Brown
No. 93-5246
hindsight and should test the signer's conduct
by [asking] what was reasonable to believe at
the time the pleading, motion, or other paper
was submitted.' CTC Imports and Exports v.
Nigerian Petroleum Corp, 951 F.2d 573, 578
(3d Cir. 1991 ) (citing Notes of Advisory
Committee on Rules, 1983 Amendment, Fed.
m. Cov. F323."
Significantly, in Bradgate, supra, the Third Circuit
ruled that a Rule 11 violation can be found to exist where a
party concealed relevant facts for the purpose of
manufacturing diversity jurisdiction. Id. at 752-53. In the
instant case, SMG and its counsel failed to disclose to Brown
at the time the Complaint was filed, and for a long time
thereafter, that SMG had deducted and kept the $65,000.00 it
admittedly owed Brown as a set-off against the sums Brown
had allegedly owed SMG for the salary and benefits $MG
paid Brown after his termination. It recently became apparent
to Brown that the purpose of SMG's concealment of the fact
that it had taken Brown's $65,000.00 was to "manufacture"
the $50,000.00 amount in controversy requirement for
diversity jurisdiction. The recent admissions of SMG and its
counsel show compellingly that they had to have believed at
the time the Complaint was filed, and for many months prior
thereto, that Brown owed SMG virtually nothing.
Significantly, SMG did not inform Brown of the set-off until
more than one year after the set-off had been taken. Under the
teachings of Bradgate, a Rule 11 violation has undoubtedly
occurred. .
The primary purpose of Rule 11 is to discourage
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Spectacor Management Group v. Matthew Brown
No. 93-5246
pleadings that are without factual basis, even though they are
noi filed in subjective bad faith. Lieb v. Topstone Indus, , 788
F.2d 151,157 (3d. Cir. 1986). However, Rule 11 seeks also
to ensure that pleadings are not filed for an improper purpose,
such as to cause harassment or needless litigation expense.
Lony. supra, 935 F.2d at 616. As the Court observed in Lieb,
at 788 F.2d 157:
"Counsel's certification also warrants that the
pleading is not being used for an improper
purpose, such as to cause harassment, undue
delay, or needless increase in litigation
expense. That test, too, is an objective one.
The pleader may not escape liability because
he did not intend to bring about additional
delay or expense. If reasonable preparatory
steps would have avoided those consequences,
Sanctions are appropriate. ‘There is no room
for a pure heart, empty head defense under
Rule 11 .' Schwarzer, Sanctions Under the
New Federal Rule 1] - A Closer Look, 104
F.R.D. 181, 187 (1985)."
For the purpose of this motion, Rule 11 must be read
in conjunction with 28 U.S.C. Sec. 1332(a) which provides
that "[t}he district courts shall have original jurisdiction of all
civil actions where the matter in controversy exceeds the sum
or value of $50,000, exclusive of interest and costs, and is
between.., citizens of different States; ..." In this case, the
Rule 11 violation stems from the filing of a Complaint against
Brown seeking damages in excess of $50,000.00, when SMG
believed, and a reasonable inquiry would have shown, that
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Spectacor Management Group v. Matthew Brown
No. 93-5246
Brown owed SMG virtually nothing. This leads to the
ineluctable conclusion that the Complaint was filed against
Brown for an improper purpose, i.e, to harass him, and that
the factual and legal contentions alleged in the Complaint,
i.e., that Brown owed SMG more than $50,000.00, were
knowingly without basis or support.
Ill. FACTS SUPPORTING IMPOSITION OF
SANCTIONS UNDER RULE 11.
To review, SMG filed its Complaint on October 1,
1993. The Complaint was signed by William A. Whiteside.
Jr., Esquire, a partner in the law firm of Fox, Rothschild,
O'Brien & Frankel, who are counsel of record for SMG. A
copy of SMG's Complaint is attached hereto, as Exhibit "A".
oe May 25, 1994, Brown filed a Motion to Disqualify
Mr. Whiteside and his associate, James A. Matthews, III, Esquire,
whose name also appeared on the Complaint, from representing
SMG in this proceeding. Brown showed in that motion that Messrs.
Whiteside and Matthews could not act as counsel for SMG since
they were material witnesses in the case, having conducted the
settlement negotiations with Brown's former attorney Which were
the subject of SMG's Complaint. Indeed, Messrs. Whiteside and
Matthews had identified themselves as fact witnesses for SMG in
their self-executing disclosures under Rule 26. Brown filed the
Motion to Disqualify only after Messrs. Whiteside and Matthews
had advised Brown's cou
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