Mariani v. Doctors Assoc.et al ( 1993 )

January 11, 1993
United States Court of Appeals
For the First Circuit
No. 92-1843
GERARDO MARIANI & GEORGINA LOUREIRO, ET AL,
Plaintiffs, Appellants,
v.
DOCTORS ASSOCIATES, INC., ET AL.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jose Antonio Fuste, U.S. District Judge]
Before
Stahl, Circuit Judge,
Campbell, Senior Circuit Judge,
Skinner,* Senior District Judge.
Harry E. Woods with whom Ricardo Skerrett Yordan and Woods &
Woods were on brief for appellants.
Edward Wood Dunham with whom Christopher L. Levesque and Wiggin &
Dana and Jay A. Garcia-Gregory with whom Ricardo F. Casellas and
Fiddler, Gonzalez & Rodriguez were on brief for appellees.
*Of the District of Massachusetts, sitting by designation.
STAHL, Circuit Judge. In this appeal, plaintiffs
challenge the district court's imposition of Rule 11
sanctions for their submission of a motion in a case
dismissed by the district court two years earlier. Finding
error solely in the district court's imposition of sanctions
upon the attorneys' law firm rather than upon the responsible
attorneys, we affirm, except that we impose the sanctions on
the attorneys themselves.
I.
BACKGROUND AND PRIOR PROCEEDINGS
Plaintiffs are twenty-five dissatisfied Puerto Rico
franchisees of the sandwich shop chain known as "Subway."
Defendants consist of Doctor's Associates, Inc., owner and
franchisor of the "Subway" chain, and several of its officers
and directors. On September 14, 1988, plaintiffs, through
the law firm of Woods & Woods, commenced suit against
defendants in United States District Court for the District
of Puerto Rico alleging breach of contract, fraud and other
claims arising out of their franchise agreements.
All of plaintiffs' individual franchise agreements
contain clauses requiring that any claim or controversy
arising out of the contract or an alleged breach thereof be
settled by arbitration in Bridgeport, Connecticut. On the
basis of that arbitration provision, defendants filed a
motion to dismiss. Responding, plaintiffs interposed
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"Plaintiffs' Motion in Opposition of Defendants' Motion to
Dismiss" ("the first motion") dated February 7, 1989 with a
supporting memorandum of law signed by attorney Victor M.
Rodriguez Baez of Woods & Woods. On May 17, 1989, agreeing
with defendants' argument that the arbitration provision
controlled, the district court granted defendants' motion to
dismiss.
Twenty-two months later, on March 26, 1991, having
sought neither reconsideration nor an appeal, and with no
intervening change in the relevant law, plaintiffs submitted
a motion to the district court entitled "Plaintiffs' Second
Request for Change of Venue and First Request for
Consolidation of Arbitration Proceedings" ("the second
motion"). The memorandum of law in support of the second
motion consisted entirely of argumentation from the first
motion except for (1) occasional minor grammatical changes
(e.g., changing "the contract was" to "the contracts were"),
and (2) an appended argument requesting consolidation of
plaintiffs' claims for arbitration proceedings. The second
motion was signed by attorneys Harry E. Woods and Gerardo
Mariani of Woods & Woods.
In response, defendants filed a motion opposing
plaintiffs' second motion and seeking Rule 11 sanctions
against plaintiffs' attorneys. The district court denied
plaintiffs' second motion, and imposed Rule 11 sanctions
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directing that Woods & Woods pay part of defendants' costs
for defending the second motion.1
Plaintiffs now appeal, arguing that (1) the
sanctions should not have been imposed, (2) the sanctioned
amount was excessive, and (3) sanctions may be imposed only
against individual attorneys, not against law firms.
Although we find merit in plaintiffs' final argument, we
affirm the district court in all other respects.
II.
DISCUSSION
Fed. R. Civ. P. 112 requires that an attorney make
1. Defendants submitted a verified time sheet detailing
128.5 hours of legal work with fees of over $14,000 for
defense of the sanctioned motion. Based on this submittal,
the district court imposed sanctions of $7,500.
2. Fed. R. Civ. P. 11 states in relevant part:
Every pleading, motion, and other paper of a party
represented by an attorney shall be signed by at
least one attorney of record in the attorney's
individual name . . . . The signature of an
attorney or party constitutes a certificate by the
signer that the signer has read the pleading,
motion or other paper; that to the best of the
signer's knowledge, information, and belief formed
after reasonable inquiry it is well grounded in
fact and is warranted by existing law or a good
faith argument for the extension, modification, or
reversal of existing law, and that it is not
interposed for any improper purpose, such as to
harass or to cause unnecessary delay or needless
increase in the cost of litigation. . . . If a
pleading, motion, or other paper is signed in
violation of this rule, the court, upon motion or
upon its own initiative, shall impose upon the
person who signed it, a represented party, or both,
an appropriate sanction, which may include an order
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reasonable inquiry to assure that all pleadings, motions and
papers filed with the court are factually well-grounded,
legally tenable and not interposed for any improper purpose.
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 393 (1990).
Counsel is held to standards of due diligence and objective
reasonableness. Maine Audubon Soc'y v. Purslow, 907 F.2d
265, 268 (1st Cir. 1990). See also Lancellotti v. Fay, 909
F.2d 15, 20 (1st Cir. 1990); Cruz v. Savage, 896 F.2d 626,
631 (1st Cir. 1990); Kale v. Combined Ins. Co. of America,
861 F.2d 746, 756-57 (1st Cir. 1988).
District courts have broad discretion in imposing
and fashioning Rule 11 sanctions. Cooter & Gell, 496 U.S. at
400 ("[I]n directing the district court to impose an
`appropriate' sanction, Rule 11 itself indicates that the
district court is empowered to exercise its discretion.");
Lancellotti, 909 F.2d at 20 ("[W]e believe the district court
should determine, in the first instance, whether reasonable
inquiry was made, and if not, the consequences which should
ensue."); Anderson v. Beatrice Foods Co., 900 F.2d 388, 394
(1st Cir.) ("[D]ecisions as to whether sanctions should be
imposed, and if so, what form they should take, often require
intensive inquiry into the circumstances surrounding an
to pay to the other party or parties the amount of
the reasonable expenses incurred because of the
filing of the pleading, motion, or other paper,
including a reasonable attorney's fee.
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alleged violation. The trial judge, steeped in the facts and
sensitive to the interplay amongst the protagonists, is
ideally equipped to review those ramifications and render an
informed judgment."), cert. denied, 111 S. Ct. 233 (1990).
We therefore review all aspects of the district court's Rule
11 determination under an abuse of discretion standard.
Cooter & Gell, 496 U.S. at 400-01; Navarro-Ayala v. Nunez,
968 F.2d 1421, 1425 (1st Cir. 1992). See also Maine Audubon,
907 F.2d at 268 (explaining that a party appealing Rule 11
sanctions "bears a heavy burden of demonstrating that the
trial judge was clearly not justified in entering [the]
order") (quoting Anderson, 900 F.2d at 393).
A. The Propriety of the Sanctions
Plaintiffs argue that the district court used
improper criteria in deciding to impose sanctions, that their
motion did not warrant Rule 11 sanctions, and that the
sanctions order should be overturned as an abuse of
discretion. We disagree.
The district court found that plaintiffs' counsel
failed to make an objectively reasonable inquiry to assure
that the second motion was legally tenable. Several factors
support this finding: the district court had already
dismissed the case in favor of arbitration nearly two years
prior to the second motion; the second motion failed to
suggest any basis for the court's jurisdiction to rule on the
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motion in view of the dismissal; the second motion consisted
of virtually verbatim argumentation from the first motion;
and plaintiffs had failed to appeal or move for timely
reconsideration of the order dismissing the first motion.3
We find, therefore, that the record amply supports
the district court's imposition of Rule 11 sanctions based on
the plaintiffs' filing of its second motion, and we find
plaintiffs' "abuse of discretion" claim without merit.4
3. Plaintiffs also argue that the district court's
scrupulous attention to the second motion and its careful
consideration of the sanction is evidence of the second
motion's merit. Our review of the record shows that the
district court did no more or less than properly detail all
the reasons why the second motion was sanctioned. Moreover,
we are very reluctant to fashion a rule which would
discourage district courts from thoroughly discussing their
reasons for imposing sanctions, and we reject plaintiffs'
suggestion that we adopt such an approach.
4. Plaintiffs offer two additional arguments to support
their appeal of the sanctions. First, they argue that the
district court improperly sanctioned them for conduct
occurring throughout the proceeding, rather than imposing its
Rule 11 sanctions with regard to one particular pleading,
motion or paper. The district court order imposing the
sanctions belies this argument: "What concerns us in the
long history of this case, which has been filled with
numerous delaying tactics by the plaintiffs, is this latest
attempt to delay arbitration." Mariani v. Doctor's
Associates, Inc., No. 88-1630, slip op. at 2 (D.P.R. Feb. 2,
1992) (emphasis supplied). Thus, we find unpersuasive
plaintiffs' assertion that the district court improperly
sanctioned conduct occurring throughout the proceeding.
Second, plaintiffs argue that in deciding to impose the
sanctions, the district court improperly ignored pressures on
the law firm of Woods & Woods which contributed to the filing
of the second motion. Specifically, they argue that attorney
Mariani was in the process of being considered for an
appointment as a federal administrative law judge, and that
attorney Woods had been diagnosed as having a cancerous
lesion. Though they had ample opportunity to do so,
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B. The Amount of the Sanctions
Plaintiffs' next argument is that the sanctions
were excessive. Rule 11 specifically states that appropriate
sanctions "may include an order to pay the other party or
parties the amount of the reasonable expenses incurred
because of the filing of the pleading, motion or other paper,
including a reasonable attorney's fee." Moreover, the
district court has wide discretion in fashioning sanctions.
See, e.g., Cooter & Gell, 496 U.S. at 400; Lancellotti, 909
F.2d at 20; Anderson, 900 F.2d at 394; Unanue-Casal 898 F.2d
at 843; Kale, 861 F.2d at 756-58.
In its order imposing the sanctions, the district
court noted that the total of 128.5 hours that defendants
spent responding to plaintiffs' second motion seemed "a great
deal of work to oppose one motion." It also noted that
because the case had "lain dormant for two years, it is
understandable that costs were high." As a result, the
district court awarded defendants roughly half of the fees
incurred in defending the motion. Reviewing the record
carefully, we find that the sanction of $7,500 was not only
plaintiffs never argued to the district court that these
factors contributed to the filing of the sanctioned papers.
We have repeatedly warned that we will not entertain
arguments made for the first time on appeal. Federal Deposit
Ins. Co. v. World University, Inc., No. 92-1389, slip op. at
5 (1st Cir. Oct. 22, 1992). We do not therefore address
plaintiffs' arguments about the health and professional
status of attorneys Mariani and Woods.
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within the district court's discretion but was also
reasonable.5
C. Imposition of the Sanctions on the Individual Attorneys
Lastly, plaintiffs argue, and defendants do not
dispute, that the district court improperly imposed Rule 11
sanctions upon the law firm of Woods & Woods. Rule 11
sanctions may be imposed only upon individual attorneys who
have signed sanctioned papers. Pavelic & Leflore v. Marvel
Entertainment Group, 110 S. Ct. 456, 458-59 (1989). They may
not be imposed upon a law firm. Id.Elsewhere, we have avoided remanding Rule 11 cases
by discerning the responsible parties and ordering that they
pay the sanctions. Ballard's Serv. Ctr., Inc. v. Transue,
865 F.2d 447, 450 (1st Cir. 1989) (requiring that attorney,
5. Relying on Dubisky v. Owens, 849 F.2d 1034 (7th Cir.
1988), plaintiffs also argue that because their own motion
was so facially meritless, defendants should have been on
notice to mitigate expenditures. According to plaintiffs, a
phone call or some informal contact from defendants would
have been the appropriate response to their second motion.
Dubisky, however, is inapposite. The plaintiffs in Dubisky
were mistaken as to defendant's citizenship, and wrongly
believed that they could invoke diversity jurisdiction.
Plaintiffs were sanctioned under Rule 11. On appeal, the
Seventh Circuit held that the defendant, before embarking on
a costly defense, had a duty to mitigate damages by
contacting the plaintiff to inform him of the jurisdictional
defect. Id. at 1038-39. As a result, it reversed the
sanction awarded by the district court. Id. In the case
before us, however, there was no mistake of fact on the part
of plaintiffs that could be readily corrected by defendants.
Thus, we find no need to reverse the sanction on the grounds
that defendants had a duty to mitigate expenditures.
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rather than party, pay Rule 11 sanctions); Muthig v. Brant
Point Nantucket, Inc., 838 F.2d 600, 607 (1st Cir. 1988)
("[T]he district court did not specify whether [sanctioned
party] or their counsel should pay the counsel fees assessed.
Our reading of the record indicates that the sanction should
be imposed upon counsel."). Cf. Navarro-Ayala, 968 F.2d at
1428 (explaining that "this may properly be classified as one
of the rare cases in which an appellate court ought to take
the bull by the horns and, rather than remanding, simply
select an appropriate [Rule 11] sanction"). We therefore
modify the district court's order and impose the $7,500
sanctions jointly and severally upon attorneys Woods and
Mariani.
III.
CONCLUSION
For the foregoing reasons, the district court's order is
affirmed as modified.
Affirmed as modified. Costs to appellees.
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