Professional Management Associates, Inc. v. KPMG LLP

345 F.3d 1030

8th Cir.

2003

Check Treatment

Docket

PROFESSIONAL MANAGEMENT ASSOCIATES, INC. Employee’s Profit Sharing Plan, on behalf of itself and all others similarly situated, Appellee, v. KPMG LLP, Appellant.

Nos. 03-1935, 03-1936

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 4, 2003. Filed: Oct. 3, 2003.

Rehearing and Rehearing En Banc Denied: Nov. 20, 2003.

345 F.3d 1030

Before LOKEN, Chief Judge, FAGG and MURPHY, Circuit Judges.

See also 335 F.3d 800.

ly requested sanctions in its responsive memorandum to the pending motion for default, which it filed on December 26, 2000, only eleven days after its initial threat of sanctions to Appellant.

We review a district court’s decision to impose Rule 11 sanctions for an abuse of discretion.

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) (noting that an abuse would be established if the court based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence). Here, the district court based its ruling upon an erroneous view of the procedural requirements under Rule 11.

Unifund failed to comply with Rule 11’s procedural requirements.

MHC Inv. Co. v. Racom Corp., 323 F.3d 620, 623 (8th Cir.2003) (recognizing that party-initiated motions under Rule 11 must comply with the “safe harbor” provisions); (rejecting Rule 11 sanctions when defendants sent only warning letters to the non-movant’s counsel). Unifund’s “request” for sanctions was not made separately from other motions or requests and Unifund did not serve a prepared motion on Appellant prior to making any request to the court. As a result, Appellant was not afforded the benefit of the twenty-one day “safe harbor” provision allowing him the opportunity to withdraw his allegedly frivolous pleading.¹ “To stress the seriousness of a motion for sanctions and to define precisely the conduct claimed to violate the rule, the revision provides that the ‘safe harbor’ period begins to run only upon service of the motion.” Fed.R.Civ.P. 11, Advisory Committee Notes (1993 Amendments).

While we certainly do not wish to condone any dilatory tactics utilized by Appellant in this case, we are unable to overlook Unifund’s procedural deficiencies. The district court’s awarding of sanctions against Appellant in contravention of the explicit procedural requirements of Rule 11 was an abuse of discretion.

III. CONCLUSION

Unifund’s request for sanctions in this case was procedurally deficient. We reverse and vacate the order of the district court, directing that any payment made by Appellant be refunded accordingly.

Thomas B. Hatch, Randall Tietjen, and Douglas R. Boettge, Minneapolis, MN, for appellant/cross-appellee.

Richard A. Lockridge, Gregg M. Fishbein, Vernon J. Vander Weide and Thomas V. Seifert, Minneapolis, MN, for appellee/cross-appellant.

PER CURIAM.

Professional Management Associates, Inc. Employees’ Profit Sharing Plan (PMA), a holder of Green Tree Financial Corporation stock, brought an action (PMA I) against KPMG LLP, an auditing and accounting firm that reviewed Green Tree’s financial statements. The district court concluded the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. §§ 77p(b)-(c), 78bb(f)(1)-(2) (2000), required dismissal of the claims in PMA’s first amended complaint. The district court also denied PMA’s request for leave to file a second amended complaint. After the district court denied leave to amend and entered a final judgment, but before PMA appealed, PMA filed another lawsuit (PMA II) against KPMG using the proposed amended complaint the district court had denied leave to file in PMA I. The district court dismissed the complaint as barred by SLUSA, and summarily denied KPMG’s request for sanctions under Fed.R.Civ.P. 11(b).

The appeal in PMA I later reached us, and we affirmed.

Professional Mgmt. Assocs. v. KPMG, 335 F.3d 800, 804 (8th Cir.2003). We upheld the dismissal of PMA’s claims under SLUSA. at 803-04. We also concluded the district court did not abuse its discretion in denying leave to amend, stating amendment would have been futile because PMA had already filed the proposed second amended complaint in the new action (PMA II) and the same district court had dismissed it under SLUSA. at 804.

In this appeal in the new action (PMA II), KPMG challenges the order denying its motion for sanctions under Rule 11(b) (permitting imposition of sanctions when claims in pleadings are not “warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law”). See also 15 U.S.C. § 78u-4(c)(2) (“court shall impose sanctions” for violations of Rule 11 in actions arising under SLUSA). KPMG contends this lawsuit is frivolous because a reasonable inquiry into the lawsuit’s basis shows res judicata bars the action. We agree.

Under res judicata, a judgment on the merits in an earlier lawsuit bars a second suit involving the same parties based on the same cause of action.

Landscape Props., Inc. v. Whisenhunt, 127 F.3d 678, 682 (8th Cir.1997). PMA admits the complaint in PMA I involved the same claims and the same parties as this action, and “the complaint in this action is the same as the proposed complaint that [PMA] filed in connection with the motion for leave to amend” in PMA I, which the district court denied. KPMG App. at 434 n.1 (PMA’s memorandum in support of motion to remand). Because the same parties and claims are involved in both cases, we need only decide whether the denial of the motion to amend was a judgment on the merits. We conclude that it was.

The denial of a motion to amend a complaint in one action is a final judgment on the merits barring the same complaint in a later action.

Landscape Props., 127 F.3d at 683. “[D]enial of leave to amend constitutes res judicata on the merits of the claims which were the subject of the proposed amended pleading.” . This is so even when denial of leave to amend is based on reasons other than the merits, such as timeliness. ; . Thus, the fact that the district court denied leave to amend because of PMA’s noncompliance with procedural rules is irrelevant. The denial is a judgment on the merits of the claims in the proposed amended pleading. Thus, the denial of leave to amend in PMA I bars the filing of the same pleading in this lawsuit.

As for the Rule 11 issue, we have held a district court abuses its discretion by refusing to sanction a plaintiff and his counsel under Rule 11 for filing and maintaining a frivolous lawsuit when the plaintiff seeks to relitigate claims he had been denied leave to serve against the same defendant in an earlier lawsuit.

King, 958 F.2d at 223; see also (affirming award of Rule 11 sanctions in same circumstances). Given the well-settled law of res judicata under the circumstances in this case, PMA’s counsel should have known PMA II was barred by PMA I. . The district court thus abused its discretion in declining to sanction PMA. Id.

In its cross appeal, PMA challenges dismissal of this action under SLUSA. Having decided the action is barred by res judicata, we conclude dismissal was proper. Even if res judicata did not apply, we agree with the district court that SLUSA requires dismissal. Further, the district court did not abuse its discretion by denying PMA relief under Fed.R.Civ.P. 59(e) (motion to alter or amend judgment). See

COMSAT Corp. v. St. Paul Fire & Marine Ins. Co., 246 F.3d 1101, 1105 (8th Cir.2001). In support of its Rule 59(e) motion, PMA merely reasserted positions the district court had already rejected.

In sum, we reverse on the appeal and remand for imposition of sanctions, but affirm on the cross appeal.

Notes

The district court did not impose sanctions sua sponte. The district court clearly “granted” Unifund’s motion for sanctions in its June 12, 2001, order. Further, the court did not issue an order to show cause why sanctions should not be imposed or give Appellant an opportunity to respond before the imposition of sanctions, as Federal Rule of Civil Procedure 11(c)(1)(B) would require if the court had initiated the sanctions. Fed.R.Civ.P. 11, Advisory Committee Notes (1993 Amendments).