                                             NOT PRECEDENTIAL
                 UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT
                           _____________

                               No. 16-4375
                              _____________

   EDSON R. ARNEAULT; GREGORY J. RUBINO; PASSPORT REALTY LLC

                                     v.

 KEVIN F. O'TOOLE; R. DOUGLAS SHERMAN; E. BARRY CREANY; PHILIP J.
RENDIN; THOMAS J. BRLETIC; GARY TALLENT; DAVID SMITH; GREGORY C.
FAJT; RAYMOND S. ANGELI; JEFFREY W. COY; JAMES B. GINTY; KENNETH
 T. MCCABE; GARY A. SOJKA; KENNETH T. TRUJILLO; SANFORD RIVERS;
 ROBERT GRIFFIN; DAVID HUGHES; JAMES V. STANTON; JOHN BITTNER;
  NARCISO A. RODRIGUEZ-CAYRO; VINCENT AZZARELLO; MTR GAMING
GROUP INC; PRESQUE ISLE DOWNS; LEONARD G. AMBROSE, III; NICHOLAS
           C. SCOTT; SCOTTS BAYFRONT DEVELOPMENT INC.

                   Edson R. Arneault and Gregory J. Rubino,
                                                     Appellants
                             _____________

               On Appeal from the United States District Court
                  for the Western District of Pennsylvania
                          (Civil No. 1-11-cv-00095)
                Magistrate Judge: Honorable Susan P. Baxter

                        Submitted: October 12, 2017

        Before: CHAGARES, JORDAN, and FUENTES, Circuit Judges.

                     (Opinion Filed: December 4, 2017)
                                         ____________

                                           OPINION*
                                         ____________

CHAGARES, Circuit Judge.

          This appeal, set against a backdrop of the litigants’ personal and professional

rancor, pertains to two awards of attorneys’ fees and costs to the appellees. Plaintiffs

Edson R. Arneault and Gregory J. Rubino brought several claims against defendants

Leonard G. Ambrose, Nicholas C. Scott, and Scott’s Bayfront Development, Inc.

(collectively, “the defendants”), and others. The District Court dismissed all of the

claims, and the defendants were awarded fees and costs in an unspecified amount. The

parties disputed the correct amount of fees and costs, and they were consequently ordered

to participate in a settlement conference. At the conference, the presiding Magistrate

Judge found that Arneault and Rubino participated in bad faith; therefore, the defendants

were awarded fees and costs for both the underlying litigation and for that conference.

Arneault and Rubino now appeal these awards. For the reasons that follow, we will

affirm.

                                                I.

          As this Opinion is non-precedential and we write mainly for the parties, our

factual recitation is abbreviated. In 2001, Arneault and Rubino entered into an agreement

regarding the development of Presque Isle Downs (“Presque Isle”), a racetrack and


*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

                                                2
casino in Erie, Pennsylvania. Arneault was Chief Executive Officer of MTR Gaming

Group Inc. (“MTR”) — the firm that operated Presque Isle — and Rubino operated

Tecnica Development Corp. (“Tecnica”), a real estate development firm. In return for

Tecnica’s services, MTR contracted, inter alia, to remit 3% of Presque Isle’s earnings to

Tecnica for a twenty-year term.

         In the underlying civil action, Arneault and Rubino alleged that the Pennsylvania

Gaming Control Board (“PGCB”) intentionally defeated the purpose of their arrangement

by imposing unusual licensing requirements and ultimately prohibiting MTR from

conducting business with Tecnica or Rubino. Rubino and Tecnica’s successor-in-interest

petitioned the PGCB for relief from that prohibition in February 2008. The PGCB

decided to hold its decision on that relief in abeyance pending Rubino’s submission of a

new license application, and they required MTR to sponsor the application. The

plaintiffs argue that this sponsorship requirement “intentionally placed Rubino in an

impossible situation” because “the PGCB Commissioners knew that great animosity

existed between Rubino and the management of MTR at that time such that MTR would

never sponsor such an application.” Pl. Br. 7.1 Ultimately, Rubino’s license was

renewed; however, he contends that he suffered business, reputational, and financial harm

in the process. Pl. Br. 6.

         While Rubino grappled with the PGCB, Arneault was engaged in another

disagreement with that entity. In April 2008, he applied “to renew his license as an



1
    References herein to appellants’ brief on appeal are cited to “Pl. Br.”
                                                3
officer, director and principal shareholder of MTR” in accordance with the Pennsylvania

Race Horse Development and Gaming Act. Arneault retired from MTR several months

later. Pl. Br. 8. He argues that, despite his retirement, the PGCB “continued to require

him to renew his license in order for MTR’s own license renewal to proceed.” Pl. Br. 8.

Thereafter, the PGCB conducted an investigation into his renewal application and issued

a report that recommended its denial. Pl. Br. 8. The report specified that Arneault

provided “false and misleading statements to the PGCB.” Pl. Br. 8–9.

         According to Arneault and Rubino, the plot thickened in summer 2006 when

Ambrose — a criminal defense attorney — “met with PGCB agents . . . and falsely

accused Rubino of being a member of the Mafia.” Pl. Br. 9. In short, the substance of

their allegations is that Ambrose misrepresented lawful business activity to the PGCB in

order “to fulfill an earlier threat to ‘get’ Rubino.” Pl. Br. 9.

         In 2007, Ambrose began representing Scott’s Bayfront Development, Inc.

(“Scott’s Bayfront”)2 in a civil action against the Erie County Convention Center

Authority (“ECCCA”). Ambrose argued in that case that Rubino and others “improperly

influenced ECCCA board members to terminate the relationship between the ECCCA

and Scott’s Bayfront so a proposal offered by Rubino could be accepted.” Pl. Br. 10.

         Following additional hearings with the PGCB, Arneault and Rubino filed the

instant action in the United States District Court for the Western District of Pennsylvania,

bringing federal and state claims against several private and government defendants.



2
    Appellee Nicholas C. Scott is the principal of Scott’s Bayfront.
                                               4
Relevant to this appeal are Counts X and XI, which rely upon a theory of liability under

42 U.S.C. § 1983. Count X alleged a conspiracy to violate First Amendment, Due

Process, and Equal Protection rights, based on a theory that Ambrose “was an agent of []

Nicholas C. Scott and Scott’s Bayfront Development, Inc. [(collectively, “the Scott

Defendants”)] . . . and was acting within the scope of authority [they] provided” when he

“conspired with the Government Defendants to deny Mr. Arneault and Mr. Rubino

protections guaranteed under the . . . United States Constitution.” App. Vol. III 141.3

Count XI, which alleged liability for defamation, contended that “Ambrose, for his own

purposes and as an agent of Defendants Scott and Scott’s Bayfront, made arrangements

for the delivery of [] illegally-obtained Tecnica and Rubino proprietary and confidential

information to Government Defendants.” App. Vol. III 145.

         The defendants moved to dismiss the complaint and the District Court granted the

motion. Arneault v. O’Toole, 864 F. Supp. 2d 361, 410 (W.D. Pa. 2012). Thereafter,

Arneault and Rubino appealed, and this Court affirmed the District Court’s dismissal.

Arneault v. O’Toole, 513 F. App’x 195 (3d Cir. 2013).

         The defendants then moved for attorneys’ fees and costs. A Special Master was

appointed to recommend findings on that motion. In his report, the Special Master

recommended that the defendants were entitled to fees and costs in an amount to be

determined at a later proceeding. Magistrate Judge Susan Baxter, to whom the case had

been transferred by consent of the parties, accepted the report and recommendation with



3
    References herein to the appellants’ Appendix are cited as “App. Vol. [#].”
                                              5
modification. She then ordered the parties to participate in a settlement conference

before Magistrate Judge Robert Mitchell. Magistrate Judge Mitchell “found that

[Arneault and Rubino] stymied any legitimate settlement discussions and participated . . .

in bad faith,” concluding that fees and costs for this bad faith participation were

warranted. App. Vol. III 306. On that ground, Magistrate Judge Mitchell awarded

Ambrose $3,946.66 and the Scott Defendants $2,753.37. App. Vol. III 311. The initial

attorneys’ fees petitions then returned to the Special Master, who recommended a

specific award of fees and costs. Magistrate Judge Baxter adopted the recommendation

with modification, awarding Ambrose $79,761.72 and the Scott Defendants $47,179.48.

App. Vol. I 104. Following these awards of attorneys’ fees and costs, Arneault and

Rubino timely filed this appeal.

                                             II.

       The District Court had jurisdiction over the relevant claims pursuant to 28 U.S.C.

§§ 1331, 1343, and 1367. We exercise jurisdiction pursuant to 28 U.S.C. § 1291. We

review the District Court’s award of attorneys’ fees and its imposition of sanctions for

abuse of discretion. Raab v. City of Ocean City, 833 F.3d 286, 292 (3d Cir. 2016);

Tracinda Corp. v. DaimlerChrysler AG, 502 F.3d 212, 237 (3d Cir. 2007).

                                             III.

                                             A.

       We first consider whether the award of attorneys’ fees for the main litigation —

distinct from the sanctioned conduct regarding the settlement conference — constituted



                                              6
an abuse of discretion.4 District courts are entitled to award reasonable attorneys’ fees to

prevailing defendants in § 1983 matters “upon a finding that the plaintiff’s action was

frivolous, unreasonable, or without foundation.” Fox v. Vice, 563 U.S. 826, 833 (2011)

(quotation omitted); 42 U.S.C. § 1988(b). We rely on several factors to determine

whether a § 1983 claim is frivolous, including whether the plaintiff established a prima

facie case, the defendant offered to settle, the trial court dismissed the case prior to trial,

and the issue is one of first impression. See Barnes Found. v. Twp. of Lower Merion,

242 F.3d 151, 158 (3d Cir. 2001). As we noted in Barnes, these factors “are merely

guidelines, not strict rules” and courts should make frivolousness determinations on a

case-by-case basis. Id.

       The core of Arneault and Rubino’s position is threefold: (1) that their claims were

not frivolous; (2) that the District Court applied improper legal standards; and (3) that the

award of fees and costs was based in part on the mistaken finding that the plaintiffs had

not alleged a real threat of injury. We address these arguments in turn.

       First, we conclude that the District Court’s finding on frivolousness is consistent

with the sound exercise of discretion. Arneault and Rubino argue that they “alleged

substantial factual support for recognized legal theories,” Pl. Br. 27, and it is clear that

their amended complaint contained a significant number of factual allegations.

Nevertheless, the presence of many factual allegations does not alone prohibit a finding

of frivolousness. The relevant inquiry is how the alleged facts contribute to the legal


4
 Arneault and Rubino do not appeal the imposition of non-attorneys’ fees costs for the
main litigation.
                                               7
theories underpinning the plaintiffs’ claims. The Special Master’s report, which the

District Court ultimately adopted, carefully considered the Barnes factors and the

plaintiffs’ factual allegations. App. Vol. I 14–23. The report noted, inter alia, that there

was no offer to settle, that the lawsuit was dismissed before trial, that the matter did not

present issues of first impression, and that the plaintiffs failed to present a prima facie

case. The record contains no reason for us to upset these findings in accordance with the

District Court’s discretion recognized in Barnes.

       Second, we conclude that the District Court did not commit reversible error in

applying the relevant legal standards. Arneault and Rubino argue that the District Court

improperly applied the standard for awarding fees applicable to prevailing plaintiffs

rather than defendants. We disagree. The Special Master’s report correctly notes the

applicable standard for prevailing defendants and — as is required under that standard —

considered whether Arneault and Rubino’s claims were frivolous, unreasonable, or

groundless.

       We note, however, that the Special Master’s report also includes the following

quote from a case that applied the standard for prevailing plaintiffs:

       When a statute provides that a court “may” award counsel fees, an exercise
       of judicial discretion is triggered. Judges are not permitted to act arbitrarily.
       It seems likely, therefore, that when an award is authorized, it will not be
       withheld unless there is some valid reason for denial.

App. Vol. I 11 (quoting Ellison v. Shenango Inc. Pension Bd., 956 F.2d 1268, 1279 (3d

Cir. 1992)). The inclusion of the last sentence, which references the standard for

plaintiffs, may have been improvident; however, it did not infect the entire report or


                                               8
otherwise necessitate reversal. The quote is juxtaposed with a paragraph that clearly

establishes the discretionary standard for prevailing defendants. Furthermore, the report

later explains the distinction between the standards and applies the correct one. As a

result, the quoted material does not have the significance that Arneault and Rubino

ascribe to it.

       Third, we are unconvinced that the District Court erred in finding that Arneault

and Rubino failed to allege a real threat of injury. Arneault and Rubino cite the Special

Master’s report in support of this argument, but the passage cited pertains to other

defendants in the underlying action, not those relevant to this appeal. Pl. Br. 36. When

actually referring to Ambrose and the Scott Defendants, the report does reveal some

ambiguity on this factor. The Special Master describes the parties’ arguments and

suggests that “[i]t may be appropriate for Plaintiffs to verify . . . assertions about the

threat of harm and for Defendant Ambrose to have an opportunity to react to the veracity

of such assertions before these matters are factored into a possible determination that fees

and costs should be reimbursed.” App. Vol. I 22–23 (emphasis added). Nevertheless,

relying on other factors, the report still recommended the award of fees and costs and the

District Court adopted the recommendation. Because, as noted above, the Barnes factors

“are merely guidelines,” it is not erroneous to rely on other factors without exhaustive

analysis of this one.




                                               9
         Having carefully considered all of the parties’ arguments,5 we find no abuse of

discretion with respect to the award of attorneys’ fees for the main litigation.

                                               B.

         The remaining issue in this appeal is whether the District Court erred in

sanctioning Arneault and Rubino for their bad faith participation in the settlement

conference. We conclude that there are no grounds for reversal.

         Pursuant to Fed. R. Civ. P. 16(f)(1)(B), district courts “may issue any just orders

. . . if a party or its attorney . . . is substantially unprepared to participate—or does not

participate in good faith—in [a pretrial] conference.” Moreover, courts have “inherent

authority to impose sanctions upon those who would abuse the judicial process.”

Republic of the Philippines v. Westinghouse Elec. Corp., 43 F.3d 65, 73 (3d Cir. 1994)

(citing Chambers v. NASCO, Inc., 501 U.S. 32, 43–44 (1991)).

         Magistrate Judge Mitchell’s conclusion that Arneault and Rubino acted in bad

faith was based on a factual finding that they attended the conference but refused to

participate in negotiations, having failed to communicate adequately and timely that their

position was fixed prior to the conference. Supp. App. 47–48. It would thus seem that

the surprise to the Court and to the opposing parties was the issue — in other words, the

conduct was sanctionable because, at significant expense to the judiciary and to opposing

counsel, a conference was held for no reason. On appeal, Arneault and Rubino argue that

they did in fact communicate their fixed position — that they would not negotiate with



5
    We conclude that the remainder of the plaintiffs’ arguments are plainly without merit.
                                               10
certain defendants — in a timely manner; however, their citation to the record does not

support this proposition. Arneault and Rubino also argue that they would have negotiated

with Ambrose and the Scott Defendants; however, Magistrate Judge Mitchell noted that

this argument contradicts their in-chambers statements and that the plaintiffs never asked

him to resume the settlement discussion with those defendants. In short, the record offers

support for Judge Mitchell’s findings and contains nothing that compels us to find error.

Therefore, we will affirm the imposition of sanctions.

                                             IV.

         For the reasons stated above, we will affirm the awards of attorneys’ fees and

costs.




                                              11
