970 F.3d 924
8th Cir.2020Background:
- Eagle Forum, an Illinois nonprofit, had a 10-member board split into a Majority (6) and Minority (4); Andrew Schlafly was a director in the Minority group.
- January 28, 2017: a special Board meeting (notice prohibited proxy voting) removed Andrew, John, and Sullivan and amended the bylaws (removed incorporation of Robert’s Rules and changed at-large director removal mechanics).
- Andrew filed state and federal TRO motions to enjoin the January meeting and later a second TRO to enjoin a September 15, 2017 meeting; the district court denied relief and found the second TRO a bad-faith attempt to tie up Eagle Forum.
- The district court sanctioned Andrew under its inherent power, awarding Eagle Forum $9,851.25 in attorney’s fees for defending the second TRO; Andrew appealed the sanctions and the dismissal of his original complaint.
- The district court also dismissed claims for failure to state a claim or for procedural defects (service); Andrew amended as a member (not director) and asserted fiduciary-duty claims, some of which were dismissed or resulted in questioning of jurisdiction; on appeal the Eighth Circuit affirmed the sanctions and the dismissal of the proxy-voting claim and held Andrew waived certain bylaw claims.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Illinois law required proxy voting for removal of directors | Schlafly: because members elect an at-large director, §105/108.35(c)(1) (removal by two-thirds either in person or by proxy) applies to all directors, so directors should be removable with proxy voting | Eagle Forum: §108.35(c)(1) applies only to directors elected by members; Andrew and others were director-elected and removable under §108.35(b); directors are prohibited from voting by proxy under §108.05(d) | Affirmed: statute read to apply to member-elected directors only; directors-elected directors removable by director vote and cannot vote by proxy; notice prohibiting proxy voting lawful |
| Whether Andrew’s bylaw-amendment / notice claim survived dismissal | Schlafly: meeting notice failed to disclose bylaw amendments and caused his removal; sought declaratory/injunctive relief | Eagle Forum: complaint lacked factual allegations showing bylaw amendment occurred or caused his injury; procedural deficiency | Waived on appeal: district court dismissed for technical pleading deficiencies and gave leave to amend; Andrew did not replead the original bylaw theory and thus waived that claim |
| Whether district court erred in awarding attorney’s fees as sanctions under inherent power | Schlafly: district court should have relied on Rule 11 rather than inherent power; TRO practice is common and fees punish routine litigation; court erred in procedure and in not requiring fuller proof of fees | Eagle Forum: Rule 11 safe-harbor was impractical for emergency TRO; court properly invoked inherent power, provided notice and chance to respond, reviewed invoices, and reasonably calculated lodestar adjustments | Affirmed (majority): inherent power appropriate where Rule 11 was impractical; court afforded process and reasonably calculated $9,851.25; concurrence would have vacated and remanded on Rule 11 grounds |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (recognizes federal courts' inherent power to sanction bad-faith litigation conduct and sets limits relative to the Rules)
- Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178 (2017) (inherent-authority fee awards require restraint and especial discretion)
- Hensley v. Eckerhart, 461 U.S. 424 (1983) (lodestar method: reasonable hours × reasonable rate for fee awards)
- Lamb Eng’g & Constr. Co. v. Neb. Pub. Power Dist., 103 F.3d 1422 (8th Cir. 1997) (federal courts in diversity may use inherent power to assess fees for bad faith)
- Methode Elec., Inc. v. Adam Tech., Inc., 371 F.3d 923 (7th Cir. 2004) (inherent power may be necessary where Rule 11 procedural timing is impractical for emergency relief)
- Pls.’ Baycol Steering Comm. v. Bayer Corp., 419 F.3d 794 (8th Cir. 2005) (party must receive notice and opportunity to be heard before sanctions imposed)
- Acuity v. Rex, LLC, 929 F.3d 995 (8th Cir. 2019) (amended complaints generally waive prior claims not repleaded; exception for dismissals that strike a vital blow)
- Anderson v. CitiMortgage, Inc., [citation="519 F. App'x 415"] (8th Cir. 2013) (criticizes reliance on unsworn oral fee estimates rather than contemporaneous billing records)