D. Bruce McMAHAN, Nemesis Veritas, f.k.a. McMahan & Company, Plaintiffs-Appellants, Cross-Appellees, v. William A. Toto, Defendant-Appellee, Cross-Appellant.
Nos. 00-10323, 00-14728.
United States Court of Appeals, Eleventh Circuit.
July 10, 2001.
256 F.3d 1120
IV. CONCLUSION
We hold that the district court erred in granting summary judgment to the County on Bass’ Title VII,
REVERSED and REMANDED.
D. Bruce McMAHAN, Nemesis Veritas, f.k.a. McMahan & Company, Plaintiffs-Appellants, v. William A. TOTO, Defendant-Appellee.
Nos. 00-10323, 00-14728.
United States Court of Appeals, Eleventh Circuit.
July 10, 2001.
Hendrik G. Milne, Aballi, Milne, Kalil & Garrigo, P.A., Miami, FL, for Toto.
Before CARNES and MARCUS, Circuit Judges, and HAND*, District Judge.
CARNES, Circuit Judge:
Along with several other limited partners in McMahan, Brafman, Morgan & Company (“MBM“), William A. Toto filed
Before summary judgment was granted in the state court action, McMahan and MBM filed this diversity jurisdiction lawsuit in the Southern District of Florida against Toto for tortious interference with contractual relations, based on his actions in instituting the RICO action and encouraging the limited partners who were later dismissed to participate in that lawsuit. The district court granted summary judgment to Toto and entered various orders relating to fees, costs, and sanctions. McMahan and MBM then appealed, and Toto cross-appealed.1
In order to dispose of this appeal, an issue we must decide is whether the state court‘s decision collaterally estops McMahan and MBM from establishing that the dismissed limited partners breached their agreements, which is an essential element of the tortious interference claim. If it does, then a second and third issue are presented. The second issue is whether the district court abused it discretion by not imposing sanctions against MBM and McMahan or their counsel pursuant to
As we will soon explain in full, we decide that collateral estoppel does bar the tortious interference claim, and that the district court did not abuse its discretion in declining to award sanctions. However, we decide that the district court erred in awarding attorney‘s fees pursuant to the offer of judgment statute.
I. BACKGROUND
A. FACTS
In September of 1980, MBM2 was formed for the purpose, among other things, of trading government securities and commodities. From 1980 through 1982, between 300 and 400 investors purchased limited partnership interests in MBM, lured by the promise of significant tax benefits. Toto bought in for $200,000 and received one partnership unit in MBM in return.
However, the promised tax benefits were, like many things in life, too good to be true, and the IRS subsequently disallowed many of the deductions claimed by the limited partners relating to MBM and imposed draconian penalties. The IRS notified Toto in late 1987 of its audit of MBM, and Toto eventually paid approxi-
Eventually, McMahan offered to buy back the interests of all of the MBM limited partners. As part of the sale of their interest to McMahan, each tendering limited partner executed a contract of sale and security agreement providing for the assignment to McMahan of all rights to any cause of action the limited partner may have in connection with (1) the original sale of the partnership interest to the limited partner, and (2) the conduct of MBM‘s business prior to the sale of the limited partner‘s interest. Each contract also provided that each tendering limited partner released MBM and its general partners from all claims arising from disallowance by the IRS of any tax benefits stemming from MBM.3 Each contract provided that it would be governed by New York law. On December 31, 1984, McMahan bought back the interests of more than 80% of the limited partners of MBM. Toto, however, did not sell his limited partnership interest to McMahan.
In 1988 or early 1989, Toto contacted the law firm of Biegel & Sandler (“B&S“) about filing a lawsuit against MBM and McMahan. Not prepared to fund the litigation himself, however, Toto contacted other MBM limited partners beginning in 1990 regarding his intention to sue and inquiring as to their interest in joining him. In June of 1991 B&S also contacted the limited partners, stating that it required a minimum $25,000 retainer to pursue the action. B&S proposed that each limited partner contribute an amount equal to 1% of his or her investment in MBM towards the retainer, to be credited against a 1/3 contingency fee for B&S.
Eventually, fifteen limited partners retained B&S and filed suit in June of 1992 against MBM and McMahan (and others), alleging civil violations of the Racketeer Influenced and Corrupt Organizations Act and various state law theories of recovery (“the RICO Action“), claiming damages from the loss of their limited partnership investments, the disallowance of tax deductions, and imposition of penalties. The suit was filed in the United States District Court for the District of New Jersey, but that court determined that venue was inappropriate and the case was transferred to the Southern District of New York in July of 1993.
However, some of the limited partners who had joined in the RICO Action had, as part of the sale of their interests back to McMahan, signed a contract whereby they assigned and released certain rights. MBM and McMahan moved for summary judgment against these limited partners, whom we will call “the Releasors,” arguing
On January 5, 1996, MBM and McMahan filed a complaint against the Releasors in the Supreme Court of New York which asserted, among other things, a cause of action for breach of contract based on the Releasors’ participation in the RICO Action despite the assignment and release provisions contained in the contracts.4 MBM and McMahan sought damages in the amount of $30,000,000 as a result of the breach of their agreements by the Releasors. On May 19, 1998, the Appellate Division of the Supreme Court of New York held that the Releasors were entitled to summary judgment on the breach of contract cause of action, because the assignment and release provisions of the contracts constituted releases, and not covenants not to sue:
The assignment and release clauses contained in the contracts constitute releases, not implied covenants not to sue, because they relate to claims extant at the time the parties entered into the contracts. A release is a provision that intends a present abandonment of a known right or claim. By contrast, a covenant not to sue also applies to future claims and constitutes an agreement to exercise forbearance from asserting any claim which either exists or which may accrue . . . The provisions at issue do not speak to the future, but rather are related to known events that had transpired prior to execution of the contracts, namely the Internal Revenue Service audit and the operation of the MBM partnership. Absent a covenant not to sue, there exists no implicit agreement by defendants to pay the attorneys’ fees, as would result from breach of a covenant not to sue.
McMahan & Co. v. Bass, 250 A.D.2d 460, 673 N.Y.S.2d 19, 21 (N.Y.App.Div.1998). The parties filed a Stipulation of Discontinuance with Prejudice on September 2, 1999, thereby foreclosing any further appeal.
B. PROCEDURAL HISTORY
Not content with merely suing the Releasors, MBM and McMahan filed this lawsuit against Toto on May 6, 1996. Count I of their Second Amended Complaint alleged that Toto committed tortious interference with contractual relations by inducing the Releasors to participate in the RICO Action, even though he knew at the time that they had by the terms of the contracts released MBM and McMahan
On March 29, 1999, the district court granted Toto‘s motion for summary judgment as to Count II, the malicious prosecution claim, and that part of the case is not at issue in this appeal. But at the same time the court denied Toto‘s motion for summary judgment on Count I, the tortious interference claim. On May 11, 1999, acting pursuant to
Defendant, WILLIAM A. TOTO, hereby offers pursuant to
Fla. Stat. § 45.061 to settle this case for the amount of $100.00 (One Hundred Dollars) upon a stipulation for dismissal, or, alternatively, pursuant toFla. Stat. § 768.79 , at Plaintiff‘s election, to allow judgment to be taken against him in the total sum of $100.00 (One Hundred Dollars), in full and final resolution of all claims made in this action.
MBM and McMahan did not accept the offer.
On October 29, 1999, the district court again denied Toto‘s renewed motion for summary judgment as to Count I, the tortious interference claim. But on December 21, 1999, although nothing changed, the district court granted summary judgment to Toto on that claim. The basis of the district court‘s decision was that the New York state court decision in Bass collaterally estopped it from finding that the Releasors had breached their contracts, an essential element of the tortious interference claim against Toto.
Thereafter, Toto filed a motion (1) under
II. DISCUSSION
We begin our discussion with MBM and McMahan‘s appeal from the summary judgment against them on the tortious interference claim, because if they are entitled to reversal of it the costs issues will be moot.
A. COLLATERAL ESTOPPEL
The district court granted summary judgment against MBM and McMahan on their tortious interference claim because it concluded that they were collaterally estopped from pursuing that claim by the
MBM and McMahan do not deny that the district court‘s conclusion logically follows if the five premises we have set out for it are correct, nor do they take issue with the first four of those premises. The only one that MBM and McMahan dispute is the fifth premise—they contend that the Bass decision did not necessarily decide that there was no breach by the Releasors of a contractual obligation not to sue MBM and McMahan. Like the district court, we disagree.
In Bass, the complaint MBM and McMahan filed in New York state court against the Releasors claimed that by participating in the RICO Action in federal court the Releasors had breached agreements in the assignment and release provisions of their contracts with MBM and McMahan resulting in damages in the amount of $30,000,000. The Appellate Division of the Supreme Court of New York held that the agreements the Releasors had signed constituted releases, and not covenants not to sue. Bass, 673 N.Y.S.2d at 21. The result of the Bass litigation was that MBM and McMahan took nothing on their breach of contract claim. They lost on it. MBM and McMahan concede that they pleaded a breach of contract claim against the Releasors in Bass and that they did not prevail on it, but they maintain that somehow their contract claim was not decided; instead, they insist, in some unexplained way the contract claim was converted to one for attorney‘s fees only. How that could have happened is not entirely clear, and we conclude that it did not happen. Because the Bass court had a statutory duty to “dispose of all issues in the proceeding,”
Because we agree with the district court that MBM and McMahan are collaterally estopped from establishing in this lawsuit that the Releasors breached their contractual agreements, Toto is entitled to summary judgment on the tortious interference claim that he wrongfully induced them to do so. Our decision in this respect requires that we decide MBM and McMahan‘s appeal of the grant of costs and attorney‘s fees under
B. 28 U.S.C. § 1927
We review the trial court‘s ruling on an award of sanctions under
Toto, of course, contends that the district court‘s decision not to award him sanctions against counsel for MBM and McMahan under
The plain language of section 1927 sets forth three requirements to justify an imposition of sanctions:
- an attorney must engage in “unreasonable and vexatious” conduct;
- such “unreasonable and vexatious” conduct must “multipl[y] the proceedings;” and
- the amount of the sanction cannot exceed the costs occasioned by the objectionable conduct.
Peterson, 124 F.3d at 1396. The critical question in this case involves the first Peterson factor—whether the filing of this lawsuit was “unreasonable and vexatious” conduct.
On this record, we cannot say that the district court abused its discretion in answering that question in the negative. Counsel for MBM and McMahan argued to the district court that the New York state court decision in Bass never decided the issue of whether the Releasors had breached their contracts by joining the RICO action. MBM and McMahan took the position that Bass had merely held that they were not entitled to attorney‘s fees, which did not necessarily mean there had been no breach of contract by the Releasors.
Given these circumstances, we cannot say that it was a clear error in judgment for the district court not to award
C. FLA. STAT. § 57.105
We turn now to the other part of Toto‘s cross-appeal, which is his contention that the district court erred in failing to award him attorney‘s fees against MBM and McMahan under
Section 57.105, as it read in May of 1996 when MBM and McMahan filed their complaint in this lawsuit, provided, in relevant part:
The court shall award a reasonable attorney‘s fee to be paid to the prevailing party in equal amounts by the losing party and the losing party‘s attorney in any civil action in which the court finds that there was a complete absence of a justiciable issue of either law or fact raised by the complaint or defense of the losing party; provided, however, that the losing party‘s attorney is not personally responsible if he or she has acted in good faith, based on the representations of his or her client.
Section 57.105 was amended, effective October 1, 1999, but that amendment is not relevant to this case, because it was adopted more than three years after this lawsuit was filed. Because the complaint in this case was filed in May of 1996, before the October 1, 1999 effective date of the amendment to
The question of whether
MBM and McMahan filed their complaint in this case charging Toto with malicious prosecution and tortious interference in May of 1996. The New York state court‘s decision in Bass, which held that the Releasors were entitled to summary judgment against MBM and McMahan on their breach of contract cause of action, was not issued until May of 1998. “The point in time to assess whether the granting of fees pursuant to section 57.105 is appropriate is at the lawsuit‘s inception, or in other words, at the time of the filing of the complaint.” Haas v. Roe, 696 So.2d 1254, 1256 (Fla. 2d DCA 1997). Thus, although the decision in Bass has collateral estoppel effect and precludes MBM and McMahan from litigating their tortious interference claim here, it did not have that effect until two years after the complaint in this case was filed. Accordingly, we affirm the district court‘s holding that there was not a “complete absence of a justiciable issue of either law or fact” at the time the complaint was filed.
D. FLA. STAT. § 768.79
We review the district court‘s determinations of state law in a diversity case de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991); Ins. Co. of N. Am. v. Lexow, 937 F.2d 569, 571 (11th Cir.1991).
The question before us is whether the Supreme Court of Florida would apply its offer of judgment statute,
(1) In any civil action for damages filed in the courts of this state, if a defendant files an offer of judgment which is not accepted by the plaintiff within 30 days, the defendant shall be entitled to recover reasonable costs and attorney‘s fees incurred by her or him or on the defendant‘s behalf pursuant to a policy of liability insurance or other contract from the date of filing of the offer if the judgment is one of no liability or the judgment obtained by the plaintiff is at least 25 percent less than such offer, and the court shall set off such costs and attorney‘s fees against the award.
. . .
(2) . . .
An offer must:
(a) Be in writing and state that it is being made pursuant to this section.
(b) Name the party making it and the party to whom it is being made.
(c) State with particularity the amount offered to settle a claim for punitive damages, if any.
(d) State its total amount.
The offer shall be construed as including all damages which may be awarded in a final judgment.
. . .
(7)(a) If a party is entitled to costs and fees pursuant to the provisions of this section, the court may, in its discretion, determine that an offer was not made in good faith. In such case, the court may disallow an award of costs and attorney‘s fees.
(b) When determining the reasonableness of an award of attorney‘s fees pursuant to this section, the court shall consider, along with all other relevant criteria, the following additional factors:
1. The then apparent merit or lack of merit in the claim.
2. The number and nature of offers made by the parties.
3. The closeness of questions of fact and law at issue.
4. Whether the person making the offer had unreasonably refused to furnish information necessary to evaluate the reasonableness of such offer.
5. Whether the suit was in the nature of a test case presenting questions of far-reaching importance affecting nonparties.
6. The amount of the additional delay cost and expense that the person making the offer reasonably would be expected to incur if the litigation should be prolonged.
Somewhat complicating matters, Florida Rule of Civil Procedure 1.442 (Proposals for Settlement), adopted by the Florida Supreme Court, also covers the subject of offers of judgment.7 Rule 1.442 is the procedural vehicle which a litigant can use to enforce the right to attorney‘s fees. The Florida Supreme Court retains final authority to control judicial procedure and, consequently, the provisions of Rule 1.442 supersede any contrary procedures contained in
MBM and McMahan argue that under Florida choice-of-law principles, Virginia law determines whether Toto is entitled to recover the attorney‘s fees he incurred after his offer of judgment, and for that reason the award of attorney‘s fees to Toto pursuant to
Choice of Law: General Principles
Federal jurisdiction in this case is based on diversity of citizenship, and the forum state is Florida. As a federal court exercising diversity jurisdiction, we engage in a two-step inquiry to determine if
a. Is Fla. Stat. § 768.79 Substantive or Procedural for Diversity Purposes?
It is clear that statutes allowing for recovery of attorney‘s fees are substantive for Erie purposes. See All Underwriters v. Weisberg, 222 F.3d 1309, 1311-12 (11th Cir.2000) (holding Florida statute which allowed an insured or named beneficiary under an insurance policy to recover attorney fees upon judgment in insured‘s favor was substantive for Erie purposes); see also MRO Communications, Inc. v. Am. Tel. & Tel. Co., 197 F.3d 1276, 1282 (9th Cir.1999) (“In an action involving state law claims, we apply the law of the forum state to determine whether a party is entitled to attorneys’ fees, unless it conflicts with a valid federal statute or procedural rule.“) (citation omitted); In re King Resources Co., 651 F.2d 1349, 1353 (10th Cir.1981) (“Thus in diversity cases generally, and certainly in this circuit, attorney fees are determined by state law and are substantive for diversity purposes.“). As the Supreme Court has stated:
[I]n an ordinary diversity case where the state law does not run counter to a valid federal statute or rule of court, and usually it will not, state law denying the right to attorney‘s fees or giving a right thereto, which reflects a substantial policy of the state, should be followed.
Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240, 259 n. 31, 95 S.Ct. 1612, 1622 n. 31, 44 L.Ed.2d 141 (1975) (citation and quotation omitted). Accordingly, we turn to Florida‘s choice-of-law rules to determine whether Toto was entitled to attorney‘s fees in this tortious interference action.
b. Florida Choice-of-Law Principles
Several decisions from Florida‘s intermediate appellate courts have, albeit without discussion of the choice-of-law issue, held that the availability of attorney‘s fees should be determined under the state law which also governs the underlying claim. In Montalvo v. Travelers Indem. Co., 643 So.2d 648, 651 (Fla. 5th DCA 1994), Florida‘s Fifth District Court of Appeal, in remanding a case concerning interpretation of two automobile insurance contracts to the trial court, directed that the amount of attorney‘s fees be determined pursuant to North Carolina law, which controlled the interpretation of the insurance contracts. But cf. Weatherby Assocs., Inc. v. Ballack, 783 So.2d 1138, 1143 (Fla. 4th DCA 2001) (affirming trial court‘s award of attorney‘s fees pursuant to
In Andrews v. Continental Ins. Co., 444 So.2d 479 (Fla. 5th DCA 1984), the court held that even though an automobile accident occurred in Florida, Maine had the most significant relationship with the occurrence, and that required application of Maine law about whether to confirm an arbitration award. In remanding to the trial court, the Fifth District Court of Appeal held that whether attorney‘s fees were allowed should also be decided under Maine law. Id. at 483.
In applying Florida‘s choice-of-law rules, procedural matters are governed by Florida law, even where another forum‘s substantive law applies. See Aerovias Nacionales De Colombia, S.A. v. Tellez, 596 So.2d 1193, 1194-95 (Fla. 3d DCA 1992) (although New York law applied to substantive matters in wrongful death action, Florida procedural law applied). We believe the Supreme Court of Florida would hold that
In this regard, we find the Florida Supreme Court‘s discussion of the division of responsibility for enacting substantive and procedural rules informative:
Article V, section 2(a), of the Florida Constitution provides this Court with exclusive authority to adopt rules for practice and procedure in the courts of this State. The Legislature, on the other hand, is entrusted with the task of enacting substantive law . . . The Legislature has modified the American rule, in which each party pays its own attorney‘s fees, and has created a substantive right to attorney‘s fees in section 768.79 on the occurrence of certain specified conditions.
TGI Friday‘s, Inc. v. Dvorak, 663 So.2d 606, 611 (Fla.1995). Thus, the task of enacting procedural rules that apply even where another forum‘s substantive law governs is confined to the Supreme Court of Florida. See In re Amendments to Florida Rules of Civil Procedure, 682 So.2d 105, 105-06 (Fla.1996) (Florida Supreme Court rejected amendments to
Our conclusion that
Peru‘s “loser pays” rule, which presumably always provides an award of attorney‘s fees to the prevailing party in a suit, has a much better claim to being “substantive” [for purposes of Puerto Rico conflict of laws analysis] than a rule awarding attorney‘s fees only as a sanction for frivolous litigation. After all, a “loser pays” rule could be conceived of as adding an award of attorney‘s fees to the recovery provided by the underlying cause of action.
Loser pays attorney‘s fees are those awarded to a party merely for prevailing in their suit. Boyd, 174 F.3d at 1125-26. Bad-faith attorney‘s fees, by contrast, are those awarded “against a losing party who acted in bad faith, vexatiously, wantonly, or for oppressive reasons.” Id. at 1126.
Toto notes, as did the district court, that Florida courts have occasionally described
Under this statute, the legislature did not give judges the discretion to determine whether it is reasonable to entitle qualifying plaintiffs to fees. Rather, it determined for itself that it is reasonable to entitle every offeror who makes a good faith offer (later rejected) . . . to an award of fees. Under subsection (7)(b), the court‘s discretion is directed by the statutory text solely to determining the reasonability [sic] of the amount of fees awarded.
TGI Friday‘s, 663 So.2d at 613.
For all of these reasons, we conclude that Florida choice-of-law principles compel the application of Virginia law on attorney‘s fees. MBM and McMahan allege, and Toto does not disagree, that Virginia law does not allow recovery of attorney‘s fees in this case.
Johnny Howard SMITH, Petitioner-Appellant, v. Ron JONES, Dr., Warden, Attorney General of The State of Alabama, Respondents-Appellees.
No. 00-12314.
United States Court of Appeals, Eleventh Circuit.
July 10, 2001.
III. CONCLUSION
For the foregoing reasons, (1) we AFFIRM the district court‘s grant of summary judgment in favor of Toto on the tortious interference claim, (2) we AFFIRM the district court‘s decision not to award fees and costs under
Notes
13. Assignment and Release of Claims. The Seller hereby assigns to the Purchaser all of his right, title and interest in and to any and all causes of action, suits, claims and demands whatsoever against any party which the Seller ever had, now has, or hereafter can, shall or may have, by reason of or in connection with the sale of the Interest by the Partnership to the Seller and (b) [sic] the conduct of the Partnership‘s business prior to the date of the Seller‘s tender of his Interest, but excluding claims in connection with the solicitation of Interests pursuant to which this Agreement is being executed.
The Seller hereby releases the Partnership and the general partners thereof, and, to the fullest extent applicable, their respective heirs, executors, successors, employees, agents and assigns, from all causes of action, suits, claims and demands whatsoever which the Seller ever had, now has, or hereafter can, shall or may have, by reason of any damages arising from any and all claims which might arise upon disallowance by the Internal Revenue Service of tax benefits previously taken by the Partnership.
AS AND FOR A FIRST CAUSE OF ACTION
(Breach of Contract). . .
21. Notwithstanding their execution of the Contracts of Sale and Sales Agreement, and the releases contained therein, defendants proceeded to breach their agreements by suing plaintiffs and others in the United States District Court, District of New Jersey and the United States District Court, Southern District of New York, for alleged violations of the Racketeer Influenced and Corrupt Organizations Act, fraud, breach of fiduciary duty and negligent misrepresentation in the sale of said limited partnership interests.
. . .
24. By reason of defendants’ breach of the aforementioned agreements, plaintiffs have sustained damages in an amount in excess of $30,000,000 for which defendants are jointly and severally liable.
(footnote omitted).In the choice-of-law context, most matters are treated as substantive. Only in particular instances should a court consider a matter to be procedural. If a case “has foreign contacts and . . . many issues in the case will be decided by reference to the local law of another state,” a state should label an issue “procedural” and thus apply its own law only when to do so would serve the purpose of efficient judicial administration. Restatement § 122 cmt. a. The range of issues relating to efficient judicial administration is narrow and includes such items as “the proper form of action, service of process, pleading, rules of discovery, mode of trial and execution and costs.” Id.; see generally id. ch. 6. These are matters in which it would be especially disruptive or difficult for the forum to apply the local rules of another state, and in which failure to employ another state‘s law will not undermine interstate comity.
(citation omitted).Loser-pays attorney‘s fees are normally not within a court‘s inherent power. Instead, they reflect a conscious policy choice by a legislature to depart from the American rule and codify the English rule. . . . The authority to award bad-faith attorney‘s fees, though frequently codified, is usually within a court‘s inherent powers . . .
With respect to Bass’