Salvin v. American National Insurance , 281 F. App'x 222 ( 2008 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-1487
RUBY SALVIN,
Plaintiff - Appellant,
v.
AMERICAN NATIONAL INSURANCE CO.,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Jerome B. Friedman, District
Judge. (2:06-cv-00264-JBF)
Argued: March 19, 2008 Decided: June 10, 2008
Before MICHAEL and GREGORY, Circuit Judges, and Jane R. ROTH,
Senior Circuit Judge of the United States Court of Appeals for the
Third Circuit, sitting by designation.
Affirmed by unpublished per curiam opinion.
Thomas Francis Hennessy, III, LEISER, LEISER & HENNESSY, P.L.L.C.,
Vienna, Virginia, for Appellant. David C. Burton, WILLIAMS MULLEN,
Virginia Beach, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
This appeal involves a collateral issue in a case filed
by Ruby Salvin against her former employer, American National
Insurance Company (ANICO or the company). After Salvin’s
deposition revealed that she had no evidence to support her claims,
ANICO asked Salvin’s counsel, Thomas Hennessy, to voluntarily
dismiss the case. When Hennessy refused, ANICO complied with its
remaining discovery obligations and then filed a motion for summary
judgment, which the district court granted. ANICO thereafter
sought to recover its attorney’s fees against Hennessy under 28
U.S.C. § 1927, arguing that he had “multiplie[d] the proceedings
. . . unreasonably and vexatiously” by continuing to litigate the
case despite his awareness that the claims lacked merit. The
district court found that Salvin’s deposition testimony gave
Hennessy actual notice that Salvin’s claims lacked merit and,
therefore, awarded ANICO the fees it incurred after the deposition.
Because we determine that the district court did not abuse its
discretion in awarding fees under § 1927, we affirm.
I.
For several years Ruby Salvin sold insurance policies on
a commission basis as an independent contractor for ANICO. She
worked pursuant to a written contract, which stated that either
party could terminate the relationship by providing thirty days’
2
written notice. After ANICO terminated Salvin, she sued the
company, alleging breach of contract, tortious interference with
economic relationships, and fraud. The suit was originally filed
in Virginia state court but was removed to federal court on
diversity grounds. On July 25, 2006, the district court granted in
part ANICO’s motion to dismiss Salvin’s claims. The court
dismissed the tortious interference and fraud claims outright and
dismissed the breach of contract claim as it related to Salvin’s
allegation that a company representative had orally agreed to give
her twelve months to reach a particular sales quota but then
terminated her prior to the end of the twelve-month period. The
court denied the motion to dismiss with respect to the breach of
contract claim as it related to allegations that the company had
altered Salvin’s sales records, resulting in a decrease in the
amount of post-termination compensation the company owed her.
Following the partial dismissal the case proceeded to
discovery. On August 28, 2006, ANICO took Salvin’s deposition, and
the answers she gave made clear that her remaining breach of
contract claim lacked merit. Specifically, Salvin testified that
she believed she was receiving the amount of post-termination
commissions she was entitled to under the written agreement, and
she presented no evidence that the company had altered any of her
sales records. While Salvin testified that she believed that ANICO
should have provided her additional compensation based on the “fair
3
value” of her “agency,” she was unable to identify any language in
her written agreement supporting that position. J.A. 110-13.
Shortly after the deposition ANICO’s counsel approached
Salvin’s counsel, Thomas Hennessy, and asked that he voluntarily
dismiss the remaining claim in light of Salvin’s deposition
testimony. Hennessy refused. ANICO then continued litigating the
case by complying with its remaining discovery obligations and
preparing and filing a summary judgment motion based on Salvin’s
deposition testimony. Hennessy filed an opposition to summary
judgment on Salvin’s behalf, but the opposition did not address
ANICO’s contention that Salvin had provided no evidence to support
the altered records theory underlying her remaining breach of
contract claim. Instead, the opposition relied on an alternative
theory, which was based on factual allegations not included in the
complaint. In addition, the opposition included a new affidavit
from Salvin that contained statements contradicted by the testimony
she gave in her deposition. The district court granted summary
judgment to ANICO based on Salvin’s deposition testimony.
ANICO next filed a motion to recover attorney’s fees
against Hennessy (Salvin’s counsel) under 28 U.S.C. § 1927. That
section provides that:
Any attorney . . . who so 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.
4
28 U.S.C. § 1927. The district court granted ANICO’s request for
attorney’s fees in part. The court found that “after the
plaintiff’s deposition revealed that her remaining claim was
fundamentally infirm, Mr. Hennessy should have taken the advice of
the defense attorneys and voluntarily dismissed the action.” J.A.
296. The court further found it was “undisputed that Mr. Hennessy
had actual notice that no basis existed for proceeding on the
plaintiff’s case after her deposition testimony revealed as much.”
Id. Therefore, the court granted ANICO’s motion but limited its
recovery of fees to $26,057, which was the amount incurred after
the plaintiff’s deposition. Hennessy now appeals.
II.
We begin with a brief overview of § 1927. The Supreme
Court has recognized that § 1927 “does not distinguish between
winners and losers, or between plaintiffs and defendants.” Roadway
Express, Inc. v. Piper, 447 U.S. 752, 762 (1980). Moreover, “[t]he
statute is indifferent to the equities of a dispute and to the
values advanced by the substantive law.” Id. Instead, the statute
is “concerned only with limiting the abuse of court processes.”
Id. For this reason, a court considering the propriety of a § 1927
award must focus “on the conduct of the litigation and not on its
merits.” DeBauche v. Trani, 191 F.3d 499, 511 (4th Cir. 1999).
5
When a district court imposes an award against an
attorney under § 1927, we review only for an abuse of discretion.
Chaudhry v. Gallerizzo, 174 F.3d 394, 410 (4th Cir. 1999). This
standard recognizes that, as in the context of sanctions under Rule
11 of the Federal Rules of Civil Procedure, “the district court is
better situated than the court of appeals to marshal the pertinent
facts and apply the fact-dependent legal standard” of § 1927.
Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 402 (1990) (reviewing
Rule 11 sanctions for abuse of discretion). The factual findings
underpinning the district court’s award are reviewed for clear
error. Ohio River Valley Envtl. Coal., Inc. v. Green Valley Coal
Co., 511 F.3d 407, 413 (4th Cir. 2007).
III.
Hennessy first argues that § 1927 requires a finding of
subjective bad faith and that the district court erred by stating
that an objective bad faith standard applied. We need not decide
which standard applies in this case because the district court’s
factual findings support a determination that Hennessy acted in bad
faith, even assuming that the more stringent subjective standard
applies.
The district court found that Hennessy had actual notice
that Salvin’s remaining breach of contract claim was rendered
meritless by the admissions made in Salvin’s deposition testimony.
6
The court noted that the content of the summary judgment opposition
submitted by Hennessy confirmed his “awareness that the plaintiff’s
deposition had indicated that her lawsuit was meritless”; rather
than arguing the sole theory approved by the court’s partial
dismissal order, the opposition advanced a new breach of contract
theory based on facts not pled in the complaint. J.A. 297. The
district court’s finding that Hennessy knew Salvin’s claim lacked
merit is not clearly erroneous and, thus, is sufficient to support
a determination that Hennessy acted in bad faith under either an
objective or a subjective standard.
Hennessy next argues that a § 1927 fee award is not
appropriate because he did not “multipl[y] the proceedings” within
the meaning of the statute. In support he cites DeBauche, where we
concluded “as a matter of law that the filing of a single complaint
cannot be held to have multiplied the proceedings unreasonably and
vexatiously and therefore that § 1927 cannot be employed to impose
sanctions.” 191 F.3d at 511-12. In that case, we held that Rule
11 was the proper mechanism to address the filing of a frivolous
complaint. According to Hennessy, the holding in DeBauche mandates
that an attorney does not multiply proceedings simply by failing to
dismiss a claim, even when it becomes apparent that the claim is
meritless.
Hennessy’s argument misses the mark. His actions are
simply not analogous to the filing of a single faulty complaint
7
that gave rise to our decision in DeBauche. As we stated in
DeBauche, “[§] 1927 focuses on the conduct of the litigation and
not on its merits.” 191 F.3d at 511. The district court’s fee
award in this case was properly based on the manner in which
Hennessy conducted the litigation. By refusing to voluntarily
dismiss the case once its lack of merit became evident, Hennessy
protracted the litigation. ANICO was forced to continue with its
discovery obligations, file a summary judgment motion, and respond
to Hennessy’s opposition to that motion. And, as the district
court noted, “[t]he brief in response to [ANICO’s] motion for
summary judgment is emblematic of the unreasonableness and
vexatiousness employed by Mr. Hennessy” because it failed to
address the altered records theory at issue, raised new theories
based on factual allegations not pled in the complaint, and was
based on a new affidavit by Salvin in which she contradicted her
earlier deposition testimony. J.A. 297. We agree with the
district court that Hennessy’s conduct multiplied the proceedings
unreasonably and vexatiously within the meaning of § 1927.
Hennessy next argues that the district court erred by not
making a sufficient inquiry into his ability to pay. The court’s
consideration of the ability-to-pay issue was limited to this
passage in the order:
As to Mr. Hennessy’s ability to pay, he admitted to the
court at oral argument that, had [ANICO’s] motion for
attorneys’ fees been brought pursuant to Federal Rule of
Civil Procedure 11, his conduct would likely be
8
sanctionable, and he would be agreeable to paying. Such
statement provides the court with sufficient evidence as
to Mr. Hennessy’s ability to pay the fees requested by
[ANICO] in this case.
J.A. 301-02. We have previously stated in the Rule 11 context that
“a monetary sanction imposed without any consideration of ability
to pay would constitute an abuse of discretion.” In re Kunstler,
914 F.2d 505, 524 (4th Cir. 1990). At the same time, we noted that
the “[i]nability to pay . . . should be treated as reasonably akin
to an affirmative defense, with the burden upon the parties being
sanctioned to come forward with evidence of their financial
status.” Id. (quoting White v. General Motors Corp., 908 F.2d 675,
685 (10th Cir. 1990)). Applying these standards to the
circumstances of this case, we conclude that Hennessy’s argument
lacks merit. The court’s discussion of the issue, while brief, is
enough to demonstrate that it at least considered Hennessy’s
ability to pay. Moreover, given that Hennessy did not raise his
inability to pay before the district court (nor does he assert in
his appellate brief that he would in fact be unable to pay), we
cannot conclude that the district court abused its discretion in
determining that Hennessy will be able to pay the amount in
question.
Finally, we consider Hennessy’s contention, raised at
oral argument, that upholding the fee award in this case would have
a chilling effect on the efforts of plaintiffs’ attorneys to
zealously pursue their clients’ cases. We appreciate the concern
9
expressed by Hennessy, but we respectfully disagree with him. We
recognize that Hennessy was put in a tough position because he
filed the case based on his client’s version of events at the time,
only to have the client give a different story -- one that defeated
the case -- when faced with questions, under oath, from opposing
counsel. But Hennessy’s proper course of action was clear: rather
than protract the litigation, he should have voluntarily dismissed
the case when ANICO’s counsel requested that he do so. As we have
said, “litigants and their counsel are not free . . . to disregard
evidence that comes to light in discovery and to continue to press
their case without any reasonable belief” that the case has merit.
Blue v. U.S. Dept. of the Army, 914 F.2d 525, 537 (4th Cir. 1990).
Indeed, there is nothing novel in recognizing that an attorney can
face sanctions “for pursuing a case after it becomes clear that the
case is without merit.” Id. Nothing in these principles or in our
application of § 1927 in this case will prevent any plaintiff’s
attorney from zealously pursuing a meritorious case.
* * *
For the reasons stated above, the judgment of the
district court is
AFFIRMED.
10