Kornfeld v. Kornfeld , 393 F. App'x 575 ( 2010 )

FILED
United States Court of Appeals
Tenth Circuit
August 31, 2010
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT
MEREDITH KORNFELD; NANCY
KORNFELD, a/k/a Nan Kornfeld,
Plaintiffs-Counter-
Claim-Defendants-
Appellees,
v. No. 10-6013
(D.C. No. 5:07-CV-00438-L)
JULIAN KORNFELD; PATSY D. (W.D. Okla.)
PERMENTER, individually and as
co-trustees of Julian P. Kornfeld
Revocable Trust,
Defendants-Counter-
Claimants-Appellants.
ORDER AND JUDGMENT *
Before TACHA, HOLLOWAY, and ANDERSON, Circuit Judges.
Defendants Julian Kornfeld and Patsy D. Permenter appeal the district
court’s order awarding attorneys’ fees to plaintiffs Meredith Kornfeld and
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is
therefore ordered submitted without oral argument. This order and judgment is
not binding precedent, except under the doctrines of law of the case, res judicata,
and collateral estoppel. It may be cited, however, for its persuasive value
consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Nancy Kornfeld based on defendants’ litigation conduct. Exercising jurisdiction
under 28 U.S.C. § 1291, we reverse and remand for further proceedings in accord
with this order and judgment and our prior instructions in Kornfeld v. Kornfeld,
341 F. App’x 394, 400 (10th Cir. 2009) (Kornfeld II).
I.
The ongoing dispute between sisters Meredith and Nancy Kornfeld and
their father, Julian Kornfeld, and his assistant, Patsy D. Permenter, is before this
court for the third time. In the underlying case, the sisters sought a declaratory
judgment concerning stock-ownership rights in Mernan Royalty Corporation,
a closely held company originally formed by Mr. Kornfeld. In its first merits
ruling, the district court (1) concluded the parties’ agreement should not be
reformed; (2) decided the percentage of voting stock owned by the Employee
Stock Ownership Plan (ESOP); and (3) ordered supplementation of the record,
further briefing, and argument on the percentage of ESOP shares owned by each
party. After further litigation, the district court determined that each plaintiff and
Mr. Kornfeld were entitled to $33,786 from the sale of the company, plus interest.
Ms. Permenter was to receive nothing. This court affirmed. See Kornfeld v.
Kornfeld, 321 F. App’x 745, 754 (10th Cir. 2009) (Kornfeld I).
Plaintiffs then moved for $56,215 in attorneys’ fees and costs, reflecting
their expenditures throughout the lawsuit. The district court granted the request
under 28 U.S.C. § 2202, which provides that “[f]urther necessary or proper relief
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based on a declaratory judgment or decree may be granted, after reasonable notice
and hearing, against any adverse party whose rights have been determined by such
judgment.” The district court reasoned that defendants’ conduct had forced
plaintiffs to expend more than they recovered. It observed that “‘failure to
reimburse plaintiffs for their fees would, in effect, reward defendants for their
obdurate behavior.’” Kornfeld II, 341 F. App’x at 396 (quoting district court’s
ruling). Defendants appealed the fee award.
On appeal, we declined to “determine the outer scope of a court’s
authority” to award attorneys’ fees under 28 U.S.C. § 2202. Kornfeld II,
341 F. App’x at 400. We concluded, however, that the award could be brought
within the “bad-faith” exception to the traditional American Rule of disallowing
attorneys’ fee awards. Id. But this “exception is drawn very narrowly, and may
be resorted to only in exceptional cases and for dominating reasons of justice.”
Id. (quotation marks and alteration omitted). The “stringent” standard “generally
requires a finding by the trial judge of subjective bad faith.” Id. (quotation marks
and alteration omitted). We noted the necessity of “a finding of bad intent or
improper motive by the guilty party before awarding attorneys fees” under this
exception. Id. (quotation marks omitted). Without setting forth a different
standard, we also mentioned that the court could make findings on
whether defendants acted “vexatiously, wantonly, or for oppressive reasons.”
Id. at 400, n.2.
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Reviewing the record, we determined that any conduct falling within the
bad-faith exception had to have occurred after the district court’s first merits
order, which addressed defendants’ arguments raising at least “one legal point” of
“considerable difficulty.” Id. at 399. And “the district court’s explanation [was]
not sufficient for us to determine whether defendants’ position . . . exhibited
subjective bad faith or was advanced with bad intent or for an improper motive.”
Id. at 400. We therefore remanded the matter to the district court “to make more
specific findings on whether defendants’ conduct after the first merits order
exhibited bad intent or improper motive.” Id.II.
The district court’s fee award on remand is the sole subject of this appeal. 1
1
We note plaintiffs’ contention that we “should vacate” our previous Order
and Judgment “to the extent it circumscribed the Trial Court’s discretion to
award” the full amount of their requested fees. Ap’lee Br. at 19.
[I]t is almost axiomatic that one panel of this court cannot overrule
another panel. We depart from the law of the case doctrine, in
exceptionally narrow circumstances: (1) when the evidence in a
subsequent trial is substantially different; (2) when controlling
authority has subsequently made a contrary decision of the law
applicable to such issues; or (3) when the decision was clearly
erroneous and would work a manifest injustice.
United States v. Parada, 577 F.3d 1275, 1280 (10th Cir. 2009) (citation and
quotation marks omitted), cert. denied, 130 S. Ct. 3321 (2010). We categorically
reject plaintiffs’ belated challenges to our earlier resolution of the case.
Additionally, plaintiffs’ brief takes issue with the district court’s denial of
(continued...)
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“‘While we generally review a denial of attorneys’ fees for an abuse of discretion,
we review de novo any statutory interpretation or other legal analysis underlying
the district court’s decision concerning attorneys’ fees.’” Id. at 396 (quoting
Aerotech, Inc. v. Estes, 110 F.3d 1523, 1527 (10th Cir. 1997)).
For instructive purposes, we repeat the circumstances in which a court may
award attorneys’ fees to a prevailing party. A “basic point of reference . . . is the
bedrock principle known as the ‘American Rule’: Each litigant pays his own
attorney’s fees, win or lose, unless a statute or contract provides otherwise.”
Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149, 2156-57 (2010)
(quotation marks omitted). This rule is “deeply rooted in our history and in
congressional policy,” Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S.
240, 271 (1975), and founded on the belief that requiring an unsuccessful litigant
to pay the litigation expenses of the prevailing party would unduly deter parties
from seeking to “vindicate their rights” in a judicial forum, Fleischmann
Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967).
1
(...continued)
fees incurred in connection with their pursuit of a fee award. In light of the need
for a remand, this argument is moot. We remind plaintiffs, however, that
appellees may not seek to enlarge their relief on appeal without filing a
cross-appeal. See generally El Paso Natural Gas Co. v. Neztsosie, 526 U.S. 473,
479-82 (1999).
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There are, of course, exceptions to the general rule against fee-shifting. 2
Here, the district court was directed to consider the exception that permits
assessment of fees “when a party has ‘acted in bad faith, vexatiously, wantonly,
or for oppressive reasons.’” Chambers v. NASCO, Inc., 501 U.S. 32, 45-46
(1991) (quoting Alyeska Pipeline Serv. Co., 421 U.S. at 258-59). This
“‘bad-faith’” exception to the American Rule “reaches a court’s inherent power to
police itself” and serves “the dual purpose of vindicating judicial authority
without resort to the more drastic sanctions available for contempt of court and
making the prevailing party whole for expenses caused by his opponent’s
obstinacy.” Id. at 46 & n.10 (quoting Hutto v. Finney, 437 U.S. 678, 689 n.14
(1978)). Such an award is “punitive” in nature. Hall v. Cole, 412 U.S. 1, 5
2
Congress, “while fully recognizing and accepting the general rule,” has
made “specific and explicit provisions for the allowance of attorneys’ fees under
selected statutes granting or protecting various federal rights.” Alyeska Pipeline
Serv. Co., 421 U.S. at 260. Courts have also recognized an exception “where a
plaintiff traced or created a common fund for the benefit of others as well as
himself.” Fleischman, 386 U.S. at 719.
In addition, certain statutes and procedural rules allow for awards of
attorneys’ fees as sanctions for wrongdoing committed in the course of litigation.
See, e.g., 28 U.S.C. § 1927 (providing for monetary sanctions, including
attorneys’ fees, against attorney who unreasonably multiplies proceedings);
Fed. R. Civ. P. 11(c) (providing for sanctions against attorney, law firm, or party
presenting a filing for any improper purpose, making unwarranted legal
contentions, or stating factual contentions without evidentiary support);
Fed. R. Civ. P. 37(a)(5) (providing for payment of attorneys’ fees in connection
with an order compelling discovery).
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(1973). “[T]he essential element in triggering the award of fees is . . . the
existence of ‘bad faith’ on the part of the unsuccessful litigant.” Id.The district court, albeit “reluctantly,” properly confined its analysis to
defendants’ “conduct that occurred after the court issued its first merits order,”
Aplt. App. at 145. But it did not comply with our instruction to determine
whether any objectionable conduct “exhibited bad intent or improper motive.”
Kornfeld II, 341 F. App’x at 400. Referencing this court’s observation that the
district court’s previous decision had not decided whether defendants had acted
“vexatiously, wantonly, or for oppressive reasons,” id. at 400, n.2 (quotation
omitted), it refashioned the issue to whether defendants’ conduct was vexatious.
On the issue of vexatiousness, the district court departed from the remand
order with the statement “[a] finding that defendants acted with subjective bad
faith is not necessary to find their conduct vexatious and subject to sanctions.”
Aplt. App. at 146. It then measured defendants’ actions under “an objective
standard, whether the conduct, viewed objectively, manifests either intentional or
reckless disregard of the parties’ duties to the court.” Id. And it concluded that
defendants had “acted vexatiously in a number of respects,” such as filing a
“warrantless motion to reconsider” within hours after it set a hearing on the
distribution issue, thus “forcing plaintiffs to respond to the motion at the same
time they were preparing for an evidentiary hearing.” Id. at 146-47. The court
also restated its earlier observation that “defendants continued to advance the
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same arguments [it] had rejected and continued to do so without evidentiary
support” and “failed to provide relevant, requested documents regarding the
ESOP. Id. at 147. Further, it found that defendants misrepresented the record
and defendant Julian Kornfeld gave untruthful testimony. Id. at 147-48.
The district court’s order summarizes some errant conduct on the part of
defendants. However, it lacks a finding of “subjective wrongdoing . . . required
to support a fee award” under the federal courts’ inherent power. Mountain W.
Mines, Inc. v. Cleveland-Cliffs Iron Co., 470 F.3d 947, 954 (10th Cir. 2006). The
cases relied upon by the district court for an objective standard have no relevance
to this type of fee award because they do not concern bad-faith exception to the
American Rule. Instead, they involve the application of 28 U.S.C. § 1927,
which provides that an attorney who “multiplies the proceedings in any case
unreasonably and vexatiously may be required by the court to satisfy personally
the excess costs, expenses, and attorneys’ fees reasonably incurred because of
such conduct.” Under the objective standard applicable to § 1927, we have
affirmed fee awards against attorneys who manifested “intentional or reckless
disregard of [their] duties to the court.” Hamilton v. Boise Cascade Express,
519 F.3d 1197, 1202 (10th Cir. 2008) (quotation omitted). See also Dominion
Video Satellite, Inc. v. Echostar Satellite L.L.C., 430 F.3d 1269, 1278 (10th Cir.
2005); Braley v. Campbell, 832 F.2d 1504, 1512 (10th Cir. 1987). The Supreme
Court itself, however, has distinguished the bad-faith exception from the
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“many . . . other [statutory and procedural] mechanisms permit[ting] a court to
impose attorney’s fees as a sanction for conduct which merely fails to meet a
reasonableness standard.” Chambers, 501 U.S. at 47.
To repeat, “the narrow exceptions to the American Rule effectively limit a
court’s inherent power to impose attorney’s fees as a sanction to cases in which a
litigant has engaged in bad-faith conduct or willful disobedience of a court’s
orders.” Id. Our cases are scrupulous in following the Supreme Court’s dictates.
We have stated that for “the exceedingly narrow bad faith exception” to the
American Rule to apply, “there must be clear evidence that the challenged claim
is entirely without color and has been asserted wantonly, for purposes of
harassment or delay, or for other improper reasons.” F.T.C. v. Kuykendall,
466 F.3d 1149, 1152 (10th Cir. 2006) (quotation marks omitted). “Whether the
bad faith exception applies turns on the party’s subjective bad faith,” based on a
district court’s factual findings. Id.We must again REVERSE and REMAND this matter to the district court
for “specific findings on whether defendants’ conduct after the first merits order
exhibited bad intent or improper motive.” Kornfeld II, 341 F. App’x at 400.
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And “[i]f the court finds it did, the court can determine the amount of fees and
costs attributable to that conduct, if any.” Id.Entered for the Court
William J. Holloway, Jr.
Circuit Judge
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