Divane, William v. Curry, John J.Divane, William v. Curry, John J.
Kanne, Circuit Judge. After a tortuous three-year road to trial, which cost plaintiffs over $40,000 in attorneys’ fees and costs (with only $14,000 originally in dispute), the plaintiffs, collectively known as Electric Insurance Trustees (“Trustees“), won a judgment at bench trial for $54,001.07. During post-judgment proceedings (based on pre-trial conduct), the district court imposed Rule 11 sanctions on John J. Curry, Jr., counsel to defendant Krull Electric Co. Curry appeals both the imposition of sanctions and the determination of the nature and amount of these sanctions, claiming that the court did not comply with Rule 11 of the Federal Rules of Civil Procedure and that the record does not contain evidence of sanctionable conduct. We find that the procedure employed by the district court effectively complied with the requirements of
I. History
A. No. 95 C 2075 (Judge Kocoras Case)
In April 1995, Trustees filed suit against Krull Electric to collect about $14,000 in delinquent fringe-benefit contributions. This delinquency arose in 1992 and 1993 and was discovered by a 1994 audit. Krull Electric filed a counterclaim alleging that Trustees had breached their fiduciary duties and violated various anti-discrimination laws.
Trustees claimed that Krull Electric had been under-reporting hours worked each week by Tan Lee, an employee and the husband of Krull Electric President Pamela Lee, to minimize the amount they were required to contribute for Tan Lee to remain eligible for health benefits available to members of Local 134 of the International Brotherhood of Electrical Workers. Krull Electric was liable to Local 134‘s employee-benefit plan for reimbursement of Lee‘s health benefits under the “Owner-in-Fact” clause of a collective-bargaining agreement (“CBA“) signed by Krull Electric and Local 134.
On September 13, 1995, District Court Judge Charles Kocoras dismissed Krull Electric‘s counterclaim because Krull Electric lacked standing to sue Trustees. Eight months later, on May 15, 1996, Krull Electric presented a motion to amend its answer and counterclaim and to remove certain admissions related to Pamela Lee‘s knowledge of the “Owner-in-Fact” clause and Krull Electric‘s status as a signatory to the CBA. The court denied these motions. In October 1995, Trustees filed a motion for summary judgment, and in November 1995, despite the fact that its counterclaim had been dismissed, Krull Electric filed a motion for summary judgment on its counterclaim. In support of its motion for summary judgment, Krull Electric claimed, inter alia, that it never received notice of the “Owner-in-Fact” clause and that it was not a party to the CBA. In all of the proceedings that followed, Krull Electric never again raised lack of notice again as a defense to Trustees’ claims. In April 1997, based on two evidentiary hearings, Magistrate Judge Joan Lefkow concluded that Krull Electric received notice of the “Owner-in-Fact” clause in 1992. Overruling Krull Electric‘s objections, Judge Kocoras entered summary judgment for Trustees, which Krull Electric has appealed separately in Divane v. Krull Electric Co., No. 98-1276 (7th Cir. 1999).
B. No. 95 C 6108 (Judge Lindberg Case)
The answer to Trustees’ claim refused to admit several statements that Krull Electric admitted in the companion litigation, including those statements which Judge Kocoras denied Krull Electric the opportunity to amend in 1996. The counterclaim was predicated on the contention that in October 1994, Local 134 determined that Krull Electric was no longer a signatory to the CBA, which Curry claims was supported by an affidavit he prepared for Pamela Lee. This answer and counterclaim were the first papers Curry submitted to the court (Krull Electric was initially represented by other counsel in the litigation before Judge Kocoras), and these filings constitute the basis for the sanctions eventually imposed by Judge George Lindberg. On May 24, 1996, Trustees deposed Pamela Lee, but Curry objected to all questions regarding the factual basis for Krull Electric‘s counterclaim. Pamela Lee claimed she did not know what Local 134 might have decided in 1994 and, counterintuitively, that this information was privileged. After these events, Trustees’ counsel first orally warned Curry and Krull Electric that they would seek sanctions if Krull Electric‘s counterclaim was factually unsupported.
In July 1996, after an inquiry into Krull Electric‘s finances revealed that Krull Electric had a net worth of just $5,000, Judge Lindberg instructed the parties to engage in settlement discussions since judgment could not possibly be collected. Trustees refused Krull Electric‘s settlement offer, and Krull Electric‘s counterclaim prevented Trustees from voluntarily dismissing their complaint. To force Krull Electric to dismiss its counterclaim, on September 13, 1996, Trustees’ counsel sent a motion to Curry requesting that he withdraw the counterclaim or correct its answer by October 4, 1996, pursuant to
On November 13, 1996, both parties seemingly agreed voluntarily to dismiss their claims with prejudice and a stipulation of dismissal. When asked about the nature of his party‘s counterclaim at the hearing, Curry confused Krull Electric‘s counterclaim with the counterclaim filed in the other litigation and, when corrected, responded, “Well, I don‘t know what you are talking about.” The parties ultimately could not agree to the language of a joint stipulation, so the case moved towards trial. On multiple occasions prior to trial, Curry summarized Krull Electric‘s counterclaim as including allegations of sex discrimination and equitable estoppel despite the fact that the counterclaim did not contain such allegations.
A bench trial commenced on November 12, 1997, and concluded on December 15, 1997. At trial, Curry did not support the factual claims in Krull Electric‘s counterclaim with any evidence and claimed that the October 1994 determination by Local 134 was no longer legally relevant. On December 23, 1997, the court entered a judgment for Trustees in the amount of $54,001.37. At that time, Judge Lindberg granted Trustees leave to file a petition for attorneys’ fees and sanctions.
On January 9, 1998, Trustees filed a motion for Rule 11 sanctions against Curry along with a petition for statutory attorneys’ fees. This motion was served on Krull Electric and Curry on the day it was filed. Curry and Krull Electric filed a motion to strike the motion for Rule 11 sanctions on the grounds that Trustees had not provided Krull Electric with the
On March 24, 1998, the court entered an order imposing sanctions against Curry requiring that Curry pay attorneys’ fees of $40,171.07 to Trustees and $5,000 to the court, or, if Krull Electric satisfied the entire judgment against it, only to pay the $5,000 fee to the court. The order was issued pursuant to
On April 3, 1998, Curry filed a motion under
II. Analysis
On appeal, Curry raises three issues: (1) whether the trial court abused its discretion by imposing sanctions in the manner that it did; (2) whether the trial court erred in holding that Curry violated Rule 11 in filing Krull Electric‘s counterclaim; (3) whether the trial court abused its discretion in calculating the nature and amount of Rule 11 sanctions.
We review a trial court‘s decision to grant Rule 11 sanctions with deference. See Retired Chicago Police Ass‘n v. Firemen‘s Annuity & Benefit Fund, 145 F.3d 929, 933 (7th Cir. 1998). As we have stated, “because the trial court alone has an intimate familiarity with the relevant proceedings, its decision whether counsel has conducted the kind of inquiry required by Rule 11 and taken a position reasonable in light of the facts and governing law is reversible only when there has been an abuse of discretion.” R.K. Harp Inv. Corp. v. McQuade, 825 F.2d 1101, 1103 (7th Cir. 1987).
A. Violations of Rule 11(c)
Curry‘s primary argument is that, in its orders to impose sanctions, the trial court failed to follow the procedures required by
When sanctions are requested by a party‘s motion,
Appellant claims that the district court abused its discretion by failing to abide by the terms of
Curry initially contends that, since the purpose of
Curry asks us to adopt the approach of other circuits, which have held that a district court has abused its discretion by granting a motion for sanctions first submitted to it after the court granted a motion for summary judgment. In Barber v. Miller, 146 F.3d 707, 710-11 (9th Cir. 1998), the Ninth Circuit found it “abundantly clear” that repeated notice was given of a party‘s violation of Rule 11(b). Id. at 710. Despite this notice, the appellee never served a motion on the appellant, and the Ninth Circuit found that this procedural defect was sufficient to cause the reversal of the imposition of sanctions. The Ninth Circuit noted that “[i]t would therefore wrench both the language and purpose of the amendment to [Rule 11(c)(1)(A)] to permit an informal warning to substitute for service of a motion.” Id. Similarly, in Ridder v. City of Springfield, 109 F.3d 288, 295 (6th Cir. 1997), the Sixth Circuit reversed the district court‘s imposition of sanctions where the motion for sanctions was not filed until the conclusion of the case by summary judgment. The district court imposed sanctions initiated by a party‘s motion after the court granted that party‘s motion for summary judgment without requiring the twenty-one day safe harbor, which the district court considered an “empty formality.” The Sixth Circuit disagreed, finding that “sanctions under Rule 11 are unavailable unless the motion for sanctions is served on the opposing party for the full twenty-one day ‘safe harbor’ period before it is filed with or presented to the court; this service and filing must occur prior to final judgment or judicial rejection of the offending contention.” Id. at 297. We agree with both the Sixth and the Ninth Circuits that the twenty-one
The district court found that the twenty-one day safe harbor was a mere formality, and in addition, that Trustees had provided Curry with proper warning. Rather than accept the district court‘s contention that the twenty-one day safe harbor is unnecessary on post-judgment motions for sanctions, we look to the record before us and take notice of the September 1996, service on Curry by Trustees. We are not bound by the district court‘s reasoning and may affirm a grant of sanctions on any basis supported by the record and the law. See In re Volpert, 110 F.3d 494, 500 (7th Cir. 1997).
On September 19, 1996, Trustees served Curry with a written motion to strike the counterclaim, and Trustees in a separate written motion informed Curry that they would move for Rule 11 sanctions on the counterclaim. On October 17, 1996, at the motion hearing, Trustees informed Curry that they would additionally move for sanctions based on Curry‘s answer to Trustees’ complaint. At the same hearing, the district court addressed Trustees’ motion for Rule 11 sanctions. The district court felt that such a motion was premature, because the counterclaim raised questions of fact that still had adequate time to be discovered. By so ruling, Judge Lindberg effectively extended the safe harbor for Krull Electric and Curry until trial, by which time the factual basis for the answer and counterclaim would have been determined.
As the district court noted,
Appellant also asserts that he was served with Trustees’ motion for sanctions on January 9, 1998. If the only effective notice of the motion‘s pendency was given in 1996, Curry contends that we should estop action on the motion because it was not filed in a timely fashion. As we stated in Kaplan v. Zenner, 956 F.2d 149, 151 (7th Cir. 1992), motions for Rule 11 sanctions should be filed, “as soon as practicable after discovery of a Rule 11 violation.” Curry uses our admonition to suggest that, if Trustees determined he violated Rule 11(b) in September 1996, they should have filed an independent motion for sanctions soon thereafter. By waiting one-and-one-half years to file, their motion should have been granted only in the exercise of the court‘s equitable powers. Since Trustees raised no equitable considerations to explain such a delay, the motion should have been denied. Even though Kaplan addressed the imposition of Rule 11 sanctions before the 1993 amendments, in that case we addressed arguments that correspond to those made here.
In Kaplan, the appellant had been named as a defendant in a civil RICO action in 1987. In 1988, he filed a motion to dismiss for failure to state a claim. This motion was granted, and the appellant played no further role in the litigation. Two years later, when the parties appeared in court to settle, the appellant moved for Rule 11 sanctions against the original plaintiff. The district court denied the appellant‘s motion, finding that the motion for
Here, no specific facts or circumstances indicate that Trustees wrongly delayed seeking Rule 11 sanctions. Immediately after Pamela Lee‘s testimony, when it became apparent to Trustees’ counsel that the counterclaim lacked a factual basis, Trustees informed Krull Electric and Curry that they would file for sanctions if factual information to substantiate this claim did not emerge. Instead of waiting until trial, Trustees moved ahead with a motion for sanctions, serving Krull Electric in September 1996, and moving for sanctions before the court on October 17, 1996. As noted earlier, the court dismissed the motion then because sanctions would be premature before Krull Electric had an opportunity to prove the counterclaim. For this reason, Trustees waited until after trial to move again for sanctions.
Curry‘s timeliness argument against a motion for Rule 11 sanctions mirrors the common law doctrine of laches. To make a claim of laches, Curry must prove that Trustees’ delay unreasonably prejudiced Curry and Krull Electric. Having been granted additional time to amend or withdraw the pleadings, neither Curry nor Krull Electric was unreasonably prejudiced by the delay in filing the motion. Moreover, weighing the competing equities with regard to such a timeliness claim lies within the sound discretion of the trial court. We do not overrule such judgments lightly. Therefore, we find that the court did not abuse its discretion here in denying Curry‘s equitable argument against the motion for sanctions.
B. Findings of Fact
Curry also argues that the district court erred in applying Rule 11 to Krull Electric‘s counterclaim and answer. The application of Rule 11 to the facts and circumstances of a particular case is an exercise of the trial court‘s discretion, which will be reviewed for abuse of discretion. See Johnson, 74 F.3d at 151. None of the findings of fact which underlie the imposition of sanctions will be set aside unless clearly erroneous. See Finance Investment Co. v. Geberit AG, 165 F.3d 526, 530 (7th Cir. 1998).
To measure the reasonableness of a party‘s inquiry into the factual bases of its claims, we look to a number of factors including: “whether the signer of the documents had sufficient time for investigation; the extent to which the attorney had to rely on his or her client for the factual foundation underlying the pleading, motion or other paper; whether the case was accepted from another attorney; the complexity of the facts and the attorney‘s ability to do a sufficient pre-filing investigation; and whether discovery would have been beneficial to the development of the underlying facts.” Brown v. Federation of State Medical Bds. of the United States, 830 F.2d 1429, 1435 (7th Cir. 1987).
The district court found that Curry violated
Curry contends that the appropriate time to measure reasonableness of the inquiry is at the time of filing the pleading. He argues that, at the time pleadings were filed, many extenuating circumstances impeded his inquiry. Curry also argues that his abandonment of certain factual contentions in his counterclaim allow him to avoid Rule 11 sanctions, even though he failed to amend or correct the initial pleadings. For these reasons, Curry believes that the district court failed to apply the proper legal standards to his conduct and abused its discretion by imposing
By focusing on the time of filing, Curry misunderstands what conduct constitutes the gravamen of the sanctions. Curry filed a counterclaim based upon facts that were supported only by an affidavit that he prepared for Pamela Lee. Lee later disavowed any knowledge of the October 1994 decision made by Local 134, which the court found was the factual basis for Krull Electric‘s counterclaim. As the counterclaim‘s lack of factual foundation became apparent to all parties involved, Trustees asked that the counterclaim be withdrawn so that their claim could be dismissed. By this time, Curry admits that he had abandoned the original factual basis of the counterclaim, the October 1994 termination of CBA signatory status, in favor of other arguments against Trustees. However, Curry and Krull Electric refused to withdraw or amend the counterclaim, imposing an additional year of meaningless proceedings on the court and Trustees.
At the conclusion of these proceedings, Judge Lindberg found as a matter of fact that the factual contentions upon which the counterclaim (never amended or withdrawn) was based were unsupported and meritless. The court found that Curry had failed to perform a reasonable inquiry at any point throughout the proceedings to determine whether these pleadings should have been corrected or withdrawn. Failure to withdraw or amend a counterclaim that Curry knew lacked any factual basis demonstrates that Curry never performed a reasonable inquiry into Krull Electric‘s counterclaim before presenting it to the court at trial. Curry‘s abandonment of the facts that supported his counterclaim does not alleviate the need to sanction him; it compounds that need. We find no error in the district court‘s findings of fact.
The district court also found that Curry‘s initial answer to Trustees’ claim violated
C. Application of Sanctions
Curry contends that Rule 11 was not intended to allow fee-shifting, so the district court‘s sanction of all Trustees’ attorneys’ fees constituted an abuse of discretion. He also contends that the amount of sanctions awarded violates the
Curry also claims that, because Krull Electric The district court found that Curry‘s sanctionable conduct “infected” the entire proceeding. Accordingly, the court sanctioned Curry by imposing on him the cost of all attorneys’ fees claimed by Trustees. We cannot accept the court‘s suggestion that all Trustees’ legal expenses were costs directly resulting from Curry‘s sanctionable activities. Trustees were the plaintiffs in the suit against Krull Electric and incurred legal expenses before Curry played any part in this litigation. Neither Curry nor Krull Electric could have engaged in sanctionable conduct before they were served with Trustees’ complaint in the matter before Judge Lindberg. Because the award of all attorneys’ fees wrongly includes fees even from the period before a complaint was filed against Krull Electric, the award necessarily includes attorneys’ fees that do not result directly from Curry‘s sanctionable conduct. For this reason, the sanction imposed on Curry violates Although we affirm the district court‘s decision to impose sanctions, we reject the blanket award of attorneys’ fees. See Johnson, 18 F.3d at 1366 (finding that awarding attorneys’ fees may be a normal method to calculate sanctions, but “the deterrent purpose of the rule should be served by impos[ing] a sanction that fits the inappropriate conduct“). In 1993, The district court is in the best position to determine which of a party‘s legal costs are the direct result of sanctionable conduct, so a remand to the district court is necessary. We add a cautionary note, however, on remand. In using attorneys’ fees to determine the amount of sanctions, that amount must be limited to fees incurred as a direct result of the response and counterclaim filed by Curry. See On appeal, Curry never convincingly argues that his conduct was not sanctionable. Instead, he focuses on the procedure that the district court used to impose sanctions and on the amount of sanctions imposed on him personally. Because we find that the record presents sufficient evidence for the imposition of Rule 11 sanctions and the district court effectively followed the notice procedures required by III. Conclusion