United States v. Bd of Dir Delta Fdn ( 2002 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 01-60507
_______________________
UNITED STATES OF AMERICA ex rel. SIMMIE BROWN,
Plaintiff,
versus
BOARD OF DIRECTORS OF DELTA FOUNDATION, INC., et al.
Defendants-Appellees,
JOHN D. FIKE, ROBIN PAGE WEST, J. STEPHEN SIMMS,
Appellants.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Mississippi, Greenville Division
99-CV-108
_________________________________________________________________
September 4, 2002
Before KING, Chief Judge, JONES and EMILIO M. GARZA, Circuit
Judges.
PER CURIAM:*
Appellants John D. Fike, Robin Page West, and J. Stephen
Simms are the attorneys who represented the relator in this qui
tam action. The district court granted summary judgment for the
defendants and ordered the appellants to pay $38,489.78 in
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
attorneys’ fees and expenses under 28 U.S.C. § 1927 for
unreasonably and vexatiously multiplying proceedings. We VACATE
the sanctions order.
I. BACKGROUND
This appeal arises from a qui tam action filed in May
1999. The relator, Simmie Brown, filed a pro se complaint alleging
that Delta Foundation, Inc., a non-profit community development
corporation, had violated the False Claims Act (FCA), 31 U.S.C. §
3729, et seq., by misusing block grants from the Department of
Health and Human Services (HHS).1
In December 1999, the United States filed a notice
declining to intervene. See 31 U.S.C. § 3730(b)(4)(B). Brown
elected to pursue this action and, through counsel, filed an
amended complaint in March 2000. The amended complaint named as
defendants the Delta Foundation plus a group of individuals
associated with the Foundation. Because of potential conflicts of
interest, one law firm represented the Foundation while another
represented the individual defendants.
In July 2000, before the defendants had filed their
answers, Brown moved to stay the qui tam proceedings until the
1
HHS instituted administrative proceedings against Delta
Foundation and ordered that $1.2 million be repaid. Incidentally,
HHS did not allege or make any findings of fraud. In other court
proceedings, Delta Foundation has challenged the repayment order,
and Brown contended that he was entitled to a share of any recovery
obtained through the administrative proceedings. These questions
are not presently before us.
2
related lawsuit involving the administrative remedy had been
resolved. The district court issued the stay.
A month later, however, the defendants successfully urged
the court to lift the stay and order the parties to file
dispositive motions. After all parties had filed motions for
summary judgment, one of Brown’s attorneys wrote a letter to the
defendants’ attorneys suggesting that the stay be reinstated:
When the court’s stay of July 17, 2000, was in place,
this case was appropriately postured to allow these
issues to be resolved in a logical sequence that made
economics [sic] sense, without the need for any defendant
to incur attorney’s fees unless and until the court
determined whether the government owes Mr. Brown a
relator share [of any money recovered in the
administrative proceedings]. The defendants’ recent
motions are, we believe, premature and, depending on the
resolution of the alternate remedy issue, may never need
to be decided.
The defendants’ attorneys opposed reinstating the stay because, in
their view, the qui tam claims were patently without merit. The
attorney for the individual defendants predicted that the case
would be dismissed and sanctions would be imposed.
On February 7, 2001, the district court granted the
defendants’ motions for summary judgment. Brown did not appeal the
dismissal of the qui tam action.
The defendants’ attorneys then filed motions to recover
their fees and expenses. The attorney for the individual
defendants filed a motion for Rule 11 sanctions and requested
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$15,489.78 in fees and expenses.2 An attorney for the Foundation
filed a motion, citing both Rule 11 and 28 U.S.C. § 1927, and she
sought $23,000 in fees and expenses.
The district court issued a three-and-a-half page opinion
on the question of fees, expenses, and sanctions. The district
court correctly ruled that sanctions under Rule 11 were not
available because the defendants had failed to comply with the
“safe harbor” provisions of the Rule. Because the motion for Rule
11 sanctions was filed after the case had been decided, Brown did
not have a reasonable opportunity to correct the amended complaint
or other challenged filings. See Tompkins v. Cyr, 202 F.3d 770,
788 (5th Cir. 2000).
But the district court did impose sanctions on behalf of
the individual defendants and the Foundation pursuant to 28 U.S.C.
§ 1927, which 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.
As evidence of appellants’ unreasonable and vexatious conduct, the
court emphasized that (1) the allegations of fraud in the complaint
were “vague and conclusory”; (2) Brown had not explained why the
individual defendants were added to the complaint or how they could
be held liable; and (3) the appellants were apparently motivated by
2
The individual defendants did not request sanctions pursuant
to § 1927.
4
the hopes of recovering attorneys’ fees under the FCA. The
district court ruled that the appellants were liable for fees and
expenses incurred after December 6, 1999 -- the date when the
Government filed its notice declining to intervene. The district
court wrote that this notice “should have sent a loud and clear
message to the Plaintiff’s attorneys to stop and think before
proceeding further.” The district court further noted that Brown’s
attorneys should have reevaluated the case during the 10-month
period between the Government’s decision not to intervene and the
filing of Brown’s motion for summary judgment.
The district court entered an order awarding a total of
$38,489.78 in fees and expenses under 28 U.S.C. § 1927. Brown’s
attorneys now appeal this order.
II. DISCUSSION
A
We review an order awarding sanctions under § 1927 for an
abuse of discretion, bearing in mind that § 1927 is punitive in
nature and must be construed narrowly so as not to dampen the
legitimate zeal of attorneys. Procter & Gamble Co. v. Amway Corp.,
280 F.3d 519, 525-26 (5th Cir. 2002). “‘A district court abuses
its discretion if it awards sanctions based on an erroneous view of
the law or on a clearly erroneous assessment of the evidence.’”
Id. (quoting Walker v. City of Bogalusa, 168 F.3d 237, 240 (5th
Cir. 1999)).
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Our recent opinion in Procter & Gamble reiterates in
detail the kind of analysis necessary to support an award under §
1927. We need only summarize the main points here.
First, it is axiomatic that a district court must
identify the sanctionable conduct under § 1927. That is to say,
the district court must explain how the sanctioned attorney
multiplied the proceedings both “unreasonably” and “vexatiously” --
a finding which requires proof of “bad faith, improper motive, or
reckless disregard of the duty owed to the court.” FDIC v.
Calhoun, 34 F.3d 1291, 1297 (5th Cir. 1994); Edwards v. General
Motors Corp., 153 F.3d 242, 246 (5th Cir. 1998). In making this
finding, a district court must take care not to conflate the
reasons for sanctioning an attorney and the reasons for deciding
the case on the merits. Procter & Gamble, 280 F.3d at 526 & n.7.
Second, the district court must demonstrate a connection
between the sanctionable conduct and the size of the sanctions
award. Id. at 526 & n.8. Specifically, a sanction under § 1927
should reflect only the costs or fees incurred in responding to
unreasonable or vexatious litigation tactics. Browning v. Kramer,
931 F.2d 340, 344-45 (5th Cir. 1991). To shift the entire cost of
the defense -- which is essentially what happened in this case --
the claimant must prove, by clear and convincing evidence, that
“[1] every facet of the litigation was patently meritless, and [2]
counsel must have lacked a reason to file the suit and must
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wrongfully have persisted in its prosecution” until the end of the
proceedings. Procter & Gamble, 280 F.3d at 526 (citations
omitted).
Third, the district court must differentiate between
sanctions awarded under § 1927 and those under some other statute
or rule, such as Rule 11. Id.; see also Lapidus v. Vann, 112 F.3d
91, 96-97 (2d Cir. 1997)(noting the substantive and procedural
differences between § 1927 and Rule 11).
A district court “need not provide specific factual
findings in every sanction order.” Topalian v. Ehrman, 3 F.3d 931,
936 (5th Cir. 1993). The level of detail will depend, of course,
upon the complexity of the particular case. Nevertheless, the
order must be specific enough to allow effective appellate review.
Procter & Gamble, 280 F.3d at 526.
B
We turn now to the facts of this case. As noted above,
the district court emphasized that Brown’s allegations of fraud in
the complaint were vague and that he had not shown why the
individual defendants were liable. The imprecision of Brown’s
allegations of fraud doomed his FCA case on the merits, but this
fact, standing alone, does not evince the kind of bad faith or
improper motive required to uphold a sanctions award under § 1927.
Moreover, assuming that Brown had no arguable basis for naming the
individuals as defendants, the district court did not explain how
7
that sanctionable conduct could be used to support an award for the
Foundation itself.
The most problematic aspect of the district court’s
opinion is its reliance on the Government’s decision not to
intervene in the action. The district court twice pointed out, in
a very brief opinion, that the Government’s decision not to
intervene should have caused Brown’s attorneys to reevaluate the
merits of the case. The most plausible reading of the district
court’s opinion is that the appellant’s decision to proceed with
the case indicates bad faith or an improper motive because, after
the Government had diligently investigated the claim and decided
not to intervene, the appellants subjectively must have known that
Brown’s claims lacked merit.
But the Government’s decision not to intervene in a FCA
qui tam claim does not suggest that the action is without merit.3
The language of the Act makes clear that the Government is not
required or expected to intervene in every meritorious action under
the FCA. The Fourth Circuit correctly described the Government’s
decision as essentially a cost-benefit analysis, taking into
account the potential size of the recovery, the expense of
3
The United States filed an amicus curiae brief in this
appeal. While taking no position on the merits of the appeal, the
United States contends that the courts, when evaluating a request
for fees or sanctions, should assign no weight to the Government’s
decision not to take over a qui tam action.
8
prosecuting the case, the workload of Government attorneys, the
ability of the relator to prosecute the action, and similar
factors. See United States ex rel. Berge v. Board of Trustees of
the Univ. of Alabama, 104 F.3d 1453, 1458 (4th Cir. 1997). In sum,
a district court may not infer an improper motive where a qui
tam relator decides to pursue his claim after the Government has
declined to intervene.
In light of the foregoing discussion, we hold that the
district court abused its discretion in imposing sanctions under 28
U.S.C. § 1927. Specifically, the district court erroneously
assessed the evidence by (1) not distinguishing between its reasons
for dismissing the claim and its evidence of improper conduct and
(2) reading too much into the Government’s decision not to
intervene in the qui tam action. Because none of the defendants’
attorneys made a timely motion under Rule 11, we express no opinion
on whether the appellants’ submission of the amended complaint
could have served as the basis for sanctions under the Rule.
III. CONCLUSION
The district court’s order awarding fees and expenses
under 28 U.S.C. § 1927 is VACATED.
9