Lyn-Lea Travel Corp. v. American Airlines, Inc. , 283 F.3d 282 ( 2002 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-11174
LYN-LEA TRAVEL CORP.
d/b/a FIRST CLASS INTERNATIONAL TRAVEL MANAGEMENT,
Plaintiff-Counter-Defendant-Appellant,
v.
AMERICAN AIRLINES, INC.,
Defendant-Counter-Claimant–Appellee,
SABRE GROUP, INC.,
Intervenor Defendant-Counter-Claimant-Appellee.
Appeal from the United States District Court
for the Northern District of Texas
February 13, 2002
Before JONES, SMITH and DeMOSS, Circuit Judges.
EDITH H. JONES, Circuit Judge:
Lyn-Lea Travel, Inc. appeals an adverse judgment on its
claims against American Airlines for reducing the profitability of
a travel agent booking contract. The district court determined
that the Airline Deregulation Act (“ADA”), 49 U.S.C. § 41713(b)(1),
preempted all of Lyn-Lea’s state-law claims as well as Lyn-Lea’s
fraudulent inducement defense to a breach of contract counterclaim.
On this major issue, we conclude that affirmative state law claims
against American are preempted, but that Lyn-Lea’s defenses to its
contract with American’s subsidiary are not. A partial remand is
required. The magistrate judge’s rulings on procedural and
sanctions issues are affirmed.
I. Background
A. Factual Background
Lyn-Lea is a travel agency formerly authorized to sell
airline tickets for American pursuant to the terms of an Airline
Reporting Commission Reporting Agreement (the “ARC Agreement”).
The ARC Agreement required American to pay Lyn-Lea commissions for
booking flights in accordance with American’s published commission
schedule. The ARC Agreement permitted American to modify its
commission schedule at any time.
In 1994, Lyn-Lea purchased a competing travel agency,
Air-O Travel. At the time of this purchase, Air-O Travel was
contractually obliged to use American’s computer reservation system
(the “Sabre CRS”). In order to reduce the booking obligations
assumed in the purchase of Air-O Travel, Lyn-Lea began negotiating
a new CRS agreement with American, through American’s Sabre Travel
Information Network Division (“STIN”). On December 7, 1994, Lyn-
Lea and American executed a new CRS lease agreement (the “Sabre
Agreement”). The Sabre Agreement provided for Lyn-Lea’s lease of
four Sabre CRS terminals from STIN.1 The Sabre Agreement also
1
Sabre CRS terminals are required to book flights on American. The
CRS terminals may also be used to reserve hotel rooms and rental cars.
2
released Lyn-Lea from Air-O Travel’s prior CRS obligations, but
required Lyn-Lea to use the Sabre CRS terminals for at least 1200
transactions per month.
On February 10, 1995, American announced modifications to
its domestic commission schedule that dramatically reduced the
commissions paid to travel agencies. Lyn-Lea’s main contention in
this lawsuit is that American knew, at the time it negotiated the
Sabre CRS Agreement, that it was about to reduce commissions and
should have disclosed the impending changes. Lyn-Lea contends that
the new commission schedule severely damaged Lyn-Lea’s business and
prevented its fulfillment of the Sabre Agreement. Had Lyn-Lea
known of the impending reductions in commissions, it would not have
entered into the Sabre CRS Agreement.
On March 1, 1996, American sent Lyn-Lea an invoice for
amounts due under the terms of the Sabre CRS Agreement. Lyn-Lea
refused to pay. American terminated the agreement with Lyn-Lea,
demanded full payment, and disconnected the CRS terminals leased by
Lyn-Lea. Lyn-Lea allegedly lost several clients because it could
no longer book American flights.
B. Procedural Background
Lyn-Lea promptly filed suit against American seeking
damages for tortious interference with business relationships,
breach of contract, fraud, and violations of the Texas Deceptive
Trade Practices Act. American counterclaimed for Lyn-Lea’s alleged
3
breach of the Sabre CRS Agreement. On March 21, 1997, Lyn-Lea and
American consented to trial before Magistrate Judge Boyle pursuant
to 28 U.S.C. § 636.
American and Sabre2 filed a joint motion for summary
judgment arguing, inter alia, that Lyn-Lea’s claims were preempted
by the ADA. Lyn-Lea objected to Appellees’ preemption argument on
the ground that neither American nor Sabre had pleaded preemption
as an affirmative defense. In response, American requested, and
the magistrate judge approved, an amendment to its answer that
properly pled preemption.
The magistrate judge granted summary judgment on all of
Lyn-Lea’s claims, finding insufficient evidence to support Lyn-
Lea’s breach of contract claim and preemption of its remaining
claims by the ADA. In a later order, Lyn-Lea’s fraudulent
inducement defense to Sabre’s counterclaim was also dismissed on
the basis of ADA preemption. The only claim left for trial was
Sabre’s breach of contract counterclaim.
As the case went on, the court sanctioned Lyn-Lea and its
counsel, Stephen Gardner, for violating protective orders relating
to confidential documents produced during discovery. The court
further penalized Gardner pursuant to 28 U.S.C. § 1927 for
“unreasonably and vexatiously” multiplying court proceedings. Not
2
Sabre Group, Inc. (“Sabre”), “spun-off” by American during the course
of this litigation, was assigned all rights to the Sabre CRS Agreement. Sabre
succeeded American as defendant and counter-plaintiff in this suit.
4
surprisingly, Lyn-Lea moved to rescind its consent to proceeding
before the magistrate judge. Just as predictably, she refused
relief.
The parties then settled Sabre’s counterclaim. On
September 28, 2000, the court entered an agreed Final Judgment
subject to the court’s resolution of Sabre’s motion for attorney’s
fees. Sabre requested more than $280,000 in attorneys’ fees for
prosecution of its breach of contract claim and its defense against
the related claims raised by Lyn-Lea. The magistrate judge awarded
Sabre $123,933.69 in attorneys’ fees plus $30,000 contingent upon
Lyn-Lea’s unsuccessful appeal.
Lyn-Lea now challenges the orders dismissing its claims
and affirmative defense, the contempt and sanctions orders, the
attorneys’ fees award, and the orders granting leave to amend and
denying Lyn-Lea’s request to vacate its consent to trial before a
magistrate.
II. Discussion
A. ADA Preemption
Lyn-Lea challenges the finding of ADA preemption on
procedural and substantive grounds.
1. Leave to Amend
“Whether leave to amend should be granted is entrusted to
the sound discretion of the district court . . . .” Quintanilla v.
5
Texas Television, Inc., 139 F.3d 494, 499 (5th Cir. 1998). Federal
Rule of Civil Procedure 15(a) requires the trial court to grant
leave to amend “freely,” and the language of this rule “evinces a
bias in favor of granting leave to amend.” Chitimacha Tribe of La.
v. Harry L. Laws Co., Inc., 690 F.2d 1157, 1162 (5th Cir. 1983).
The district court must have a “substantial reason” to deny a
request for leave to amend. Jamieson v. Shaw, 772 F.3d 1205, 1208
(5th Cir. 1985). Notwithstanding these authorities, Lyn-Lea
contends that the trial court erred by granting the defendants
leave to amend their pleadings because they did not “establish[]
good cause or any justification for filing amended pleadings long
after the deadline for [pleading amendments] had expired.” Lyn-
Lea’s argument is unpersuasive. Preemption is an issue of law
whose relevant facts were undisputed in this case. Lyn-Lea was not
deprived of discovery. Consequently, the trial court did not abuse
its discretion in granting leave to amend. Quintanilla, 139 F.3d
at 499.
2. ADA Preemption3
The ADA is an economic deregulation statute intended to
encourage maximum reliance on competitive market forces in the
airline industry by freeing airlines from restrictive state
regulation. Hodges, 44 F.3d at 335-36. The statute broadly
prevents states from interfering with this goal:
3
The district court’s summary judgment order is reviewed de novo.
Hodges v. Delta Airlines, Inc., 44 F.3d 334, 335 (5th Cir. 1995) (en banc).
6
Except as provided in this subsection, a State . . . may
not enact or enforce a law, regulation, or other
provision having the force and effect of law related to
a price, route, or service of an air carrier that may
provide air transportation under this subpart.
49 U.S.C. § 41713(b)(1).4
The Supreme Court has twice addressed ADA preemption.
See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 112 S. Ct.
2031 (1992); American Airlines, Inc. v. Wolens, 513 U.S. 219, 115
S. Ct. 817 (1995). In Morales, the Court explained that the scope
of ADA preemption is a question of statutory intent. 504 U.S. at
383, 112 S.Ct. at 2036. Relying on its prior interpretation of
similar preemptive language in the Employee Retirement Income
Security Act of 1974 (“ERISA”), 29 U.S.C. § 1144(a),5 the Court
held that the phrase “relating to rates, routes, or services” in
the ADA was “deliberately expansive” and preempted any “[s]tate
enforcement action having a connection with or reference to airline
‘rates, routes, or services.’” Morales, 504 U.S. at 384, 112 S.Ct.
at 2037 (citations omitted). The Court observed that “some state
actions may affect airline fares in too tenuous, remote, or
peripheral a manner to have preemptive effect.” Id. at 390, 112
S.Ct. at 2040. However, the ADA preempts any state action having
4
This clause was originally codified at 49 U.S.C. § 1305(a). In 1994,
Congress recodified § 1305(a), and the clause is now found at 49 U.S.C. §
41713(b)(1). As part of the recodification, Congress changed the phrase “rates,
routes, or services” to “price, route, or service.” Congress did not intend this
modification to substantively change existing law. See H. Conf. Rep. No. 677,
103rd Cong., 2nd Sess. 83-84 (1994).
5
ERISA preempts state laws “insofar as they . . . relate to any
employee benefit plan.” 29 U.S.C. § 1144(a).
7
a “forbidden significant effect upon [airline] fares.” Id. at 388,
112 S.Ct. at 2039-40.
In Wolens, the Court expanded upon ADA preemption as a
device to protect the deregulation of the airline industry by
preventing “application of restrictive state laws.” 513 U.S. at
228, 115 S.Ct. at 824. Nevertheless, “the ADA’s preemption clause
[does not] shelter airlines from suits alleging no violation of
state-imposed obligations, but seeking recovery solely for the
airline’s alleged breach of its own, self-imposed undertakings.”
Id. The ADA does not preempt “state-law-based court adjudication
of routine breach-of-contract claims” so long as there is “no
enlargement or enhancement [of the contract] based on state laws or
policies external to the agreement.” Id. at 232-33, 115 S.Ct. at
826.
This court has also addressed the scope of ADA
preemption, holding that the ADA does not preempt state tort
actions alleging personal injury resulting from the operation of an
aircraft. Hodges, 44 F.3d at 340.6 Other provisions of the ADA
require airlines to maintain personal injury and property damage
insurance coverage for claims resulting from operation of the
6
In support of its holding, the court relied on the ADA’s legislative
history and cited the following comments made by the Civil Aeronautics Board
regarding the scope of ADA preemption: “preemption extends to all of the economic
factors that go into the provision of the quid pro quo for passenger’s [sic]
fare, including . . . reservation and boarding practices . . . .” Hodges, 44
F.3d at 337 (citing 44 Fed. Reg. 9948, 9951 (Feb. 15, 1979)).
8
aircraft. Consequently, ADA preemption is “concerned solely with
economic deregulation, not with displacing state tort law.” Id. at
337.7
Unlike the personal injury claims in Hodges, which were
unrelated to economic deregulation, Lyn-Lea’s claims for
affirmative relief have a significant relationship to the economic
aspects of the airline industry. Lyn-Lea asserts that (1) American
intentionally interfered with its business relationships with four
customers and an employee, luring the customers away with
discounted fares; and (2) American acted fraudulently and
deceptively while negotiating the Sabre CRS agreement with Lyn-Lea.
The first claim involves American’s dealings with customers, while
the second relates to enforceability of the Lyn-Lea contract. In
other words, by its first claim, Lyn-Lea is seeking the application
of Texas common law in a way that would regulate American’s pricing
policies, commission structure and reservation practices.8
A very narrow reading of Wolens might be said to support
Lyn-Lea’s position, at least as it pertains to claims of fraud
7
See also, Smith v. America West Airlines, Inc., 44 F.3d 344 (5th Cir.
1995) a companion case to Hodges involving a state tort claim brought against an
airline for negligently allowing a hijacker to board a plane).
8
Lyn-Lea also argues, without citing supporting authority, that its
claims against Sabre cannot be preempted because Sabre is not an air carrier.
ADA preemption is not limited to claims brought directly against air carriers.
See Huntleigh Corp. v. La. State Bd. of Private Security Examiners, 906 F. Supp.
357, 362 (M.D. La. 1995); Continental Airlines, Inc. v. American Airlines, Inc.,
824 F. Supp. 689, 696-97 (S.D. Tex. 1993); Marlow v. AMR Services Corp., 870
F. Supp. 295, 297-98 (D. Haw. 1991). Rather, claims are preempted if they “relate
to” the prices, routes or services of an air carrier.
9
regarding the Sabre contract negotiations. (The interference with
business relations claim is plainly preempted because it involves
American’s prices and services to customers.) Wolens specifically
preempted a consumer fraud statute, while Lyn-Lea rests its claim
on state common law and, even more narrowly, on fraud related to
the making of the contract.9 And Wolens concerned programs run by
the airline directly with consumers, whereas the contract dispute
here pits American/Sabre against a travel agency; Lyn-Lea thus
argues that American’s “services” were too peripherally affected by
a travel agent controversy to be preempted.
Although Wolens might be interpreted to permit the
litigation of extra-contractual common law business torts that do
not directly involve airline passengers, we think the better
reading of the decision requires preemption. The majority opinion
repeatedly singles out common law contract actions as not being
preempted, notwithstanding complaints by both dissenters that
contract and fraud-based claims often overlap. See Wolens, 513
U.S. at 236, 247-49, 115 S. Ct. at 827-28, 832-34 (Stevens, J., and
O’Connor, J., separately dissenting). Wolens also expresses the
ADA’s purpose “to leave largely to airlines themselves, and not at
all to States, the selection and design of market mechanisms
appropriate to the furnishing of airline transportation services .
9
Lyn-Lea admits that Wolens’ reading of the ADA preempts its claims
founded on the Texas Deceptive Trade Practices Act.
10
. . .” Id. at 227, 115 S.Ct. at 823 (emphasis added). While some
airline business dealings undoubtedly do not “relate to” prices,
routes and services, the carrier’s relations with travel agents, as
intermediaries between carriers and passengers, plainly fall within
the ADA’s deregulatory concerns. Lyn-Lea’s claims are ADA-
preempted because they have a “connection with” American’s prices
and services.
Even before Wolens, it was held that similar claims are
preempted by the ADA. In Frontier Airlines, Inc. v. United Air
Lines, Inc., 758 F. Supp. 1399 (D. Col. 1989), the court held that
the ADA preempted an action based on Colorado law alleging that
United Airlines interfered with business relationships by requiring
the use of a United-owned CRS system to book flights. The court
determined that the CRS system was central to United’s services
because United required use of the CRS system to book flights.
Similarly, American requires use of the Sabre CRS system to book
flights, and American’s policies relating to the CRS system are
connected with the economic aspects of its services. Frontier, 758
F. Supp. at 1407-09.
The existence of federal regulations regarding airline
CRS services and the legislative history of the ADA provide
additional support for the conclusion that the ADA preempts Lyn-
Lea’s claims. The Department of Transportation, pursuant to
regulatory authority under the ADA, has promulgated regulations
11
applicable to airline CRS systems. See 14 C.F.R. § 255 et seq.10
“[F]ederal efforts to regulate CRS services and uses clearly
demonstrate[] that the preemption statute should be applied to
eliminate the risk that CRS providers could be subject to varying
state standards of unlawful competition.” Frontier, 758 F. Supp. at
1409. The ADA’s legislative history also specifically discusses
federal regulation of airline CRS services, and this provides
“clear and convincing evidence that Congress intended to preempt
state law in the regulation of CRS services . . . .” Id. at 1408-
09 (quoting H.R.Rep. No. 98-793, at 4 (1984), reprinted in 1984
U.S.C.C.A.N. 2857).11
10
14 C.F.R. § 255.1(a) provides:
The purpose of [this section] is to set forth requirements for the
operation by air carriers and their affiliates of computer
reservation systems used by travel agents so as to prevent unfair,
deceptive, predatory, and anticompetitive practices in air
transportation.
11
Lyn-Lea argues that because CRS systems are not “unique” to the
airline industry, they are not airline “services” preempted by the ADA. Hodges
defined “services” preempted by the ADA as follows:
“Services” generally represent a bargained-for or anticipated
provision of labor from one party to another. . . . Elements of the
air carrier service include such items as ticketing, boarding
procedures, provision of food and drink, and baggage handling, in
addition to the transportation itself. These matters are all
appurtenant to and necessarily included with the contract of
carriage between the passenger or shipper and the airline. It is
these contractual features of air transportation that we believe
Congress intended to de-regulate as “services” and broadly protect
from state regulation.
Hodges, 44 F.3d at 336 (citation omitted). There is no requirement of uniqueness
in this definition of services. Rather, “[p]reemption extends to all of the
economic factors that go into the provision of the quid pro quo for passenger’s
[sic] fare, including flight frequency and timing, liability limits, reservation
and boarding practices, insurance, smoking rules, meal service, entertainment,
bonding and corporate financing.” Id. at 337 (citation omitted).
12
Finally, Lyn-Lea’s claims do not seek to enforce
American’s self-assumed contractual obligations. Lyn-Lea’s breach
of contract claim was dismissed by the magistrate judge on other
grounds, and Lyn-Lea has not appealed the ruling. Because Lyn-
Lea’s claims relate to American’s prices and services, the claims
are preempted by the ADA.
3. Preemption of Lyn-Lea’s Affirmative Defense
Lyn-Lea next contends that the trial court erred by
dismissing, as preempted, its fraudulent inducement defense to the
enforcement of the Sabre CRS agreement.12 Noting that Wolens
confined courts “to the parties’ bargain, with no enlargement or
enhancement based on state laws or policies external to the
agreement,” the court determined that Lyn-Lea’s fraudulent
inducement defense would impermissibly enhance Lyn-Lea’s rights
apart from the Sabre CRS agreement under state law. Indeed, Wolens
cautioned, when it decided that enforcement of air carriers’
contracts is not preempted, “‘some state-law principles of contract
law . . . might well be preempted to the extent they seek to
effectuate the State’s public policies, rather than the intent of
12
Lyn-Lea contends that three of its affirmative defenses (fraudulent
inducement, breach of the duty of good faith and fair dealing, and estoppel) were
improperly dismissed on the basis of ADA preemption. The court determined that
the breach of the duty of good faith and fair dealing and estoppel defenses had
been insufficiently pleaded and dismissed both defenses. Lyn-Lea has not
challenged this ruling. Therefore, Lyn-Lea’s fraudulent inducement defense is
the only defense dismissed on the basis of preemption.
13
the parties.’” Wolens, 513 U.S. at 233 n.8, 115 S. Ct. at 826. We
disagree, however, with the magistrate judge’s conclusion that Lyn-
Lea’s fraudulent inducement defense attempts to enhance or enlarge
the Sabre CRS Agreement on the basis of state policies external to
the agreement.
When pleaded as a defense to a contract, fraudulent
inducement is related to the fundamental issue in contract actions:
is there an enforceable agreement? A fraudulently induced party
has not assented to an agreement because the fraudulent conduct
precludes the requisite mutual assent. See RESTATEMENT (SECOND) OF
CONTRACTS § 164 (1979). Fraudulent inducement is an elementary
concept in the law of contracts, and is intended to shield a party
from liability in a contract action only when another party has
procured the alleged contract wrongfully. United States v.
Texarkana Trawlers, 846 F.2d 297, 304 (5th Cir. 1988). The Court
reasoned in Wolens that because contract law is, at its “core,”
uniform and non-diverse, there is little risk of inconsistent state
adjudication of contractual obligations. 513 U.S. at 219 n.8, 115
S. Ct. at 826. Fraudulent inducement is among those core concepts
as it relates to the validity of mutual assent. The defense does
not reflect a state policy seeking to expand or enlarge the
14
parties’ agreement. Therefore, Lyn-Lea’s fraudulent inducement
defense is not preempted by the ADA.13
B. Sanction Orders
1. Sanctions for Violations of Court Orders
Relying on the magistrate judge’s factual findings and
recommendations, the district court sanctioned Lyn-Lea and Stephen
Gardner, Lyn-Lea’s counsel, for violating three protective orders
relating to confidential documents obtained during discovery. The
magistrate judge found that Stephen Sedgewick, President of Lyn-
Lea, had violated the protective orders by revealing the contents
of sealed documents to the press. This finding was based on
Sedgewick’s own testimony.14 The magistrate judge also recommended
a finding of contempt against Gardner for filing a complaint with
the Department of Transportation (“DOT”) that quoted portions of
the sealed documents and thus expressly violated the court’s June
3, 1998 protective order. Gardner acknowledged his inadvertent
violation of this order. The magistrate judge recommended entry of
a sanction of $18,404 against Lyn-Lea and Gardner, jointly and
severally, “which amount is the total of all the costs, attorneys’
13
Sabre urges this court to hold that summary judgment should have been
granted against Lyn-Lea’s fraud claims, whether raised affirmatively or
defensively. The magistrate judge did not address the merits of this issue. It
is prudent to remand for initial consideration in the court most familiar with
this case.
14
Sedgwick admitted that he spoke with 30 or 40 reporters during the
course of this litigation. Sedgwick was quoted in one publication regarding the
contents of sealed documents, and Sedgwick acknowledged making such statements.
15
fees and expenses incurred by Defendants in attempting to obtain
the compliance of Plaintiff and its representatives with the terms
of the protective orders . . . .” Following review of the
magistrate judge’s findings and recommendations and a de novo
hearing, the district court found Lyn-Lea and Gardner in contempt
and adopted the magistrate judge’s recommendations.
Lyn-Lea argues that the district court erred in
characterizing the contempt orders as civil rather than criminal in
nature. Criminal contempt proceedings require heightened notice
and proof, which Lyn-Lea contends were not satisfied in this case.
Even if the contempt proceeding is civil in nature, Lyn-Lea argues
that the contempt order is not supported by sufficient evidence.
Finally, Lyn-Lea contends that it was error to find Gardner jointly
and severally liable for the full amount of the contempt award in
light of his limited role in the contemptuous conduct.
A contempt order is reviewed for abuse of discretion, and
underlying factual findings are reviewed for clear error. FDIC v.
LeGrand, 43 F.3d 163, 165 (5th Cir. 1995). A contempt order is
civil in nature if the purpose of the order is (1) to coerce
compliance with a court order or (2) to compensate a party for
losses sustained as a result of the contemnor’s actions. Crowe v.
Smith, 151 F.3d 217, 227 (5th Cir. 1998) (citing Int’l Union,
United Mine Workers of America v. Bagwell, 512 U.S. 821, 829, 114
S. Ct. 2552 (1994)). The contempt award entered by the district
16
court was intended to compensate Appellees for the costs they
incurred in attempting to obtain Lyn-Lea’s compliance with the
court’s protective orders. Therefore, the challenged order is
civil in nature, and the heightened procedural requirements
attendant to a criminal contempt proceeding are inapplicable.
A party seeking a civil contempt order must demonstrate,
by clear and convincing evidence, “(1) that a court order was in
effect, (2) that the order required certain conduct by the
respondent, and (3) that the respondent failed to comply with the
court’s order.” LeGrand, 43 F.3d at 170 (citing Martin v. Trinity
Indus., Inc., 959 F.2d 45, 47 (5th Cir. 1992)); Whitfield v.
Pennington, 832 F.2d 909, 913 (5th Cir. 1987). Lyn-Lea does not
dispute that the court entered three protective orders relating to
confidential documents that were in effect at the time of
Sedgwick’s and Gardner’s actions. However, Lyn-Lea asserts that
the orders merely prohibited disclosure of the confidential
documents but did not prohibit disclosure of the contents of such
documents. Lyn-Lea argues that there is insufficient evidence
supporting the contempt order because Appellees “declined to
identify a single confidential document disclosed in Lyn-Lea’s
discussions with the press.”
Lyn-Lea’s argument is disingenuous. The magistrate judge
rejected this argument in her contempt findings, correctly
reasoning that Lyn-Lea’s reading of the protective orders would
17
render them a nullity. The court’s protective orders prohibited
the use of the confidential documents for any purpose outside of
the litigation, thereby prohibiting revelation of the documents’
contents as much as their existence. Sedgwick’s and Garner’s
admissions constitute clear and convincing evidence that Lyn-Lea
and Gardner violated the court’s protective orders. The district
court did not abuse its discretion by entry of the contempt order.
2. Section 1927 Sanctions
The order sanctioning Gardner for “unreasonably and
vexatiously” multiplying proceedings pursuant to 28 U.S.C. § 1927
is reviewed for abuse of discretion. Matta v. May, 118 F.3d 410,
413 (5th Cir. 1997).15 All that is required to support § 1927
sanctions is a determination, supported by the record, that an
attorney multiplied proceedings in a case in an unreasonable
manner. Browning v. Kramer, 931 F.2d 340, 344 (5th Cir. 1991).
The magistrate judge determined that Gardner unreasonably
multiplied proceedings by appearing at the scheduled contempt
hearing without Sedgwick, a necessary witness. Gardner contends
that he did not understand the nature of the hearing in question,
and was prepared to proceed without Sedgwick. The magistrate judge
15
Section 1927 provides:
Any attorney or other person admitted to conduct cases in any court
of the United States or any Territory thereof 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.
18
rejected this contention, concluding that Gardner was aware that
the purpose of the hearing was to determine if Sedgwick should be
held in contempt for his statements to the press, and that
Gardner’s attempt to justify the absence of Sedgwick “wholly
lack[ed] credibility.” The absence of Sedgwick made it necessary
to reschedule the hearing at a later date, thus multiplying
proceedings. The magistrate judge did not abuse her discretion in
her § 1927 sanction order.
C. Section 636(c) Consent
Lyn-Lea next contends that the court erred by denying its
motion, filed almost two years after it consented to proceed before
a magistrate judge, seeking to rescind its consent. Lyn-Lea argues
that its consent was expressly conditioned on its right to appeal
to a district judge rather than this court. This court has warned
that it will not countenance any rule allowing a party to “express
conditional consent” to trial before a magistrate. Carter v.
Sealand Services, Inc., 816 F.2d 1018, 1020 (5th Cir. 1987). A
referral may only be vacated upon a showing of “extraordinary
circumstances”. 28 U.S.C. § 636(c)(4). Appellant presented no
evidence of any extraordinary circumstances. Therefore, the
Magistrate did not abuse her discretion by denying Lyn-Lea’s motion
to vacate the 636 referral. Carter, 816 F.2d at 1021.
19
D. Attorneys’ Fees
After the court entered its summary judgment and contempt
orders, the only issue remaining was Sabre’s breach of contract
counterclaim. Sabre and Lyn-Lea agreed to the entry of a $30,000
judgment on this claim, reserving the right to appeal the court’s
prior rulings. Sabre, as the prevailing party on its written
contract, sought an award of $282,030.61 in attorneys’ fees plus an
additional $30,000 in fees contingent on Lyn-Lea’s unsuccessful
appeal. In support of its fee request, Sabre submitted the
affidavits of two of its attorneys summarizing the number of hours
expended on the litigation and the reasonableness of the fees
sought. Redacted billing statements containing only the date and
number of hours worked with no description of the nature of the
work were attached to the affidavits.
In a detailed opinion, the magistrate judge awarded Sabre
$123,933.69 plus $30,000 in contingent appellate fees. Lyn-Lea now
challenges this award, arguing that (1) Sabre offered insufficient
evidence to support the fee award, (2) Sabre failed to segregate
hours expended on prosecution of its counterclaim from hours
expended in defense of Lyn-Lea’s claims, (3) the fee award includes
fees incurred prior to Sabre’s intervention in this suit, (4) the
amount of the award is excessive in light of Sabre’s limited
recovery, (5) the Johnson factors do not support the amount of the
20
award, and (6) the amount of contingent appellate fees is
excessive.
The short answer regarding the fee award is that we have
carefully considered Lyn-Lea’s arguments opposing the amount,
reasonableness, and documentation of the fee award and find no
error of Texas law, clear error of fact or abuse of discretion.
See Northwinds Abatement, Inc. v. Employers Ins. of Wausau, 258
F.3d, 345, 353 (5th Cir. 2001); Tex. Civ. Prac. & Rem. Code §
38.001; Hon. Scott A. Brister, Proof of Attorney’s Fees in Texas,
24 St. Mary’s L.J. 313 (1993). Nevertheless, on the basis of our
ruling regarding Sabre’s contract claim, we must vacate the award
and remand for reconsideration after the magistrate judge
reassesses Sabre’s contract claim in light of Lyn-Lea’s non-
preempted defense.
Conclusion
Lyn-Lea’s affirmative non-contractual claims against
American are preempted by the ADA. However, Lyn-Lea’s fraudulent
inducement defense to enforcement of its contract with Sabre is not
preempted. The judgment on the contract and associated attorneys’
fee award must accordingly be vacated and remanded for further
proceedings. The contempt and sanction orders are affirmed.
Judgment for Sabre on Contract and Attorney’s Fees
VACATED and REMANDED.
Contempt order AFFIRMED.
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Sanction order AFFIRMED.
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