Dal Pozzo, Kevin A. v. Richards Brick Co. , 463 F.3d 609 ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-4277
KEVIN A. DAL POZZO,
Plaintiff-Appellee,
v.
BASIC MACHINERY COMPANY, INCORPORATED
and FANUC ROBOTICS AMERICA, INCORPORATED,
Defendants-
Third-Party Plaintiffs-Appellees,
v.
RICHARDS BRICK COMPANY,
Third-Party Defendant-Appellant,
and
APPEAL OF:
GREGORY C. VACALA, Attorney.
____________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 03 C 138—G. Patrick Murphy, Chief Judge.
____________
ARGUED NOVEMBER 8, 2005—DECIDED SEPTEMBER 6, 2006
____________
Before CUDAHY, KANNE, and SYKES, Circuit Judges.
2 No. 04-4277
SYKES, Circuit Judge. This appeal challenges an award
of costs and attorneys’ fees imposed against Attorney
Gregory Vacala as a sanction for his postsettlement obstruc-
tionism that necessitated an otherwise unnecessary motion
to enforce the parties’ settlement agreement. We agree with
the district court that Vacala’s conduct was sanctionable.
Moreover, his appeal is frivolous. We order Vacala to pay
reasonable attorneys’ fees and double costs as a sanction
pursuant to Rule 38 of the Federal Rules of Appellate
Procedure.
I. Background
Plaintiff Kevin Dal Pozzo was injured on the job when
something went wrong with an automated brick conveyor
system he was working on at his place of employment,
Richards Brick Company. Dal Pozzo sought workers’
compensation from Richards Brick and sued Basic Machin-
ery Co., Inc., which built the conveyor system, and Fanuc
Robotics America, Inc., which provided the parts that
malfunctioned. Basic and Fanuc filed a third-party com-
plaint for contribution against Richards Brick.
Richards Brick was represented in this action by two
attorneys: Vacala, whose firm is in Chicago, and Attorney
Farrah Anderson, whose firm is in Carbondale, Illinois.
Vacala took the position that Richards Brick was an insured
under the policies of Basic and Fanuc, and sent a letter
purporting to tender its defense to the insurance companies
for Basic and Fanuc. Basic’s insurer declined the tender;
Fanuc’s insurer never responded.
Eventually the parties reached an oral settlement and
notified the district court that the case was settled. Chief
Judge G. Patrick Murphy entered an order dismissing the
action with prejudice, but preserving the right to reopen if
the settlement was not consummated. The first draft of the
parties’ settlement agreement stated in relevant part:
No. 04-4277 3
DAL POZZO, BASIC, FANUC . . . and RICHARDS
desire to compromise, settle and conclude all the
various disputes, controversies, claims and causes of
action of any kind which DAL POZZO or any person,
firm, corporation or other entity have, may have or claim
to have, directly or indirectly, against BASIC, FANUC,
. . . RICHARDS, and/or their insurers, or which in any
way relate to or derive from, directly or indirectly, the
claims of DAL POZZO against all others, including, but
not limited to, those matters set forth in or in any way
related to the various pleadings filed in the DAL
POZZO litigation, and any and all other potential
causes of action, claims and/or controversies which DAL
POZZO has, may have or could have against BASIC,
FANUC, . . . and/or RICHARDS for injuries which DAL
POZZO allegedly sustained at any time, or for damages
which DAL POZZO may have sustained at any time.
(Emphasis added).
Attorney Anderson represented Richards Brick through-
out the settlement negotiations and approved the draft
language. In the meantime, and contrary to the foregoing
terms of the draft settlement agreement, Vacala continued
to press Fanuc’s insurer about his tender of Richards
Brick’s defense. Basic and Fanuc then inserted the names
of their insurance companies into the written settlement
agreement (among other immaterial modifications to the
agreement).
When Vacala got wind of this modification, he refused
to sign the settlement agreement on behalf of Richards
Brick. He maintained that the new draft required Richards
Brick to release its claims against the insurers, while the
first draft did not. The reason for this position is a mys-
tery—the language of the first draft, quoted above, plainly
referred to Basic’s and Fanuc’s insurers, and the new draft
simply inserted their names. Vacala asserted that Richards
Brick had agreed to settle only liability issues, not any
4 No. 04-4277
insurance coverage claims it had against the defendants’
insurers. The attorneys for Basic and Fanuc believed
Vacala’s claims for coverage under their clients’ policies
were utterly meritless; they pointed out that Vacala had
copies of all the policies involved and none even remotely
gave Richards Brick the status of an insured. Indeed,
Richards Brick did not even have contractual relationships
with either Basic or Fanuc. Basic subcontracted with
Harrop Industries, Richards Brick’s general contractor (not
a party to this appeal), and Fanuc contracted with Basic to
provide parts.
Frustrated by the delay, Dal Pozzo’s counsel e-mailed
Vacala warning him that if he persisted in blocking comple-
tion of the settlement, a motion to enforce the agreement
would become necessary and costs and fees associated with
the motion would be sought. Vacala continued to obstruct
consummation of the settlement, and Dal Pozzo, Basic, and
Fanuc all filed motions to enforce the settlement agree-
ment. Dal Pozzo and Basic also sought an award of costs
and fees.1 Chief Judge Murphy held a hearing on the
motions, which Vacala did not attend; he sent Anderson
instead. Each of the lawyers was sworn in and testified to
the events surrounding the settlement. The lawyers for
Basic and Fanuc also explained that Richards Brick could
1
Although Fanuc did not include a request for costs and fees in
its motion to enforce the settlement (as Dal Pozzo and Basic had),
Fanuc’s lawyer stated at the beginning of the motion hearing that
the parties were seeking costs and fees as a sanction for Vacala’s
conduct in blocking consummation of the settlement. The district
judge apparently construed the lawyer’s statement as an oral
motion for costs and fees. This was appropriate under the
circumstances; Attorney Anderson, Richards Brick’s counsel, was
in court and had proper notice and opportunity to respond, which
is all that is required. Larsen v. City of Beloit, 130 F.3d 1278, 1286
(7th Cir. 1997).
No. 04-4277 5
not possibly be covered by their clients’ insurance policies
in this case. Anderson, for Richards Brick, did not dispute
that contention, nor did she dispute that she had approved
the language of the draft settlement agreement. There was
no disagreement among the attorneys that the reason the
settlement had not been concluded was that Vacala insisted
on pursuing baseless coverage claims against Basic’s and
Fanuc’s insurers.
Chief Judge Murphy ordered the settlement enforced.
Clearly displeased that Vacala had not even bothered to
appear at a hearing occasioned by his dilatory behavior, the
chief judge also granted Basic’s and Fanuc’s motions for
costs and fees associated with the motion and hear-
ing—about $2000 each. The judge held it was “clear” that
“this case was resolved” and Vacala had “not articulated
any possible way that there would be any possible coverage
issues that would entitle him to any type of indemnity.” The
judge observed that “we’ve . . . got a rule around here. If you
start the fight you have to come to the fight.” Vacala was
the “prime mover” behind the stalled settlement, the judge
noted, yet he failed to show up at the hearing to defend his
position. The sanctions were imposed against Vacala, not
Richards Brick.
Vacala moved to alter or amend the judgment pursuant
to Rule 59 of the Federal Rules of Civil Procedure. He
argued that the other parties had changed the terms of
the settlement and that Rule 11 of the Federal Rules of
Civil Procedure did not justify the sanctions against him.
Chief Judge Murphy held another hearing, this time by
telephone. He reiterated that the parties—including
Richards Brick, through Attorney Anderson—had agreed to
settle all claims and it was Vacala who later sought to
change the terms of the settlement. The chief judge also
stuck to his decision that sanctions were justified because
Vacala’s behavior had unnecessarily prolonged the litiga-
tion. Vacala had forced opposing counsel to travel to East
6 No. 04-4277
St. Louis from Chicago for a hearing Vacala did not even
attend, a hearing occasioned by an indefensible (and
undefended) reading of the initial settlement. Vacala had
his chance to explain why his position on insurance cover-
age was meritorious and he failed to do so.
II. Analysis
Vacala’s opening brief on appeal challenged both the
sanctions imposed against him and the district court’s
enforcement of the settlement agreement. In his reply brief,
however, he swore off the second issue no fewer than three
times. Then, at oral argument, he purported to reassert his
challenge to the enforcement of the settlement agreement.
(We can see why opposing counsel and the district court
became frustrated with Vacala’s litigation conduct.) Vacala
has conceded the settlement issue; we will not address it.
Vacala contends the district court improperly sanc-
tioned him under Rule 11. Some of the particulars of his
argument are frivolous (for instance, his contention that
Chief Judge Murphy did not explain the sanctionable
conduct), but as a general matter, it is true that Rule 11
procedures were not followed here. That is because Vacala
was not sanctioned under Rule 11.
Rule 11, of course, covers a particular type of attorney
misconduct associated with the signing of pleadings,
written motions, and other papers filed with the court, none
of which were the vehicle of Vacala’s misbehavior. FED. R.
CIV. P. 11; see also Christian v. Mattell, 286 F.3d 1118, 1131
(9th Cir. 2002); Milltex Indus. Corp. v. Jacquard Lace Co.,
55 F.3d 34, 37 n.5 (2d Cir. 1995). No one ever mentioned
Rule 11 until Vacala, in his Rule 59 motion to alter or
amend the judgment, said he assumed the sanctions were
imposed under Rule 11.
It is unfortunate that none of the parties specified the
statute or rule under which they were pursuing sanctions,
No. 04-4277 7
and also that the district court neglected to cite the specific
basis for the award of attorneys’ fees in this case. Chief
Judge Murphy commented, during the hearing on Vacala’s
Rule 59 motion, that the sanctions were the result of a
motion under Rule 11. We think he simply misspoke. He
was responding to Vacala’s argument that the sanctions
were improperly imposed sua sponte rather than pursuant
to motion. The parties had in fact moved for their costs and
fees, and the chief judge mistakenly characterized these as
Rule 11 motions. That detail was incorrect, but the gist of
the chief judge’s observation was not: Vacala had ample
notice that his opponents were seeking sanctions and he
was given an opportunity to respond, which is all that was
required in this situation. See, e.g., Jolly Group, Ltd. v.
Medline Indus., Inc., 435 F.3d 717, 720 (7th Cir. 2006);
Johnson v. Cherry, 422 F.3d 540, 549 (7th Cir. 2005);
Larsen v. City of Beloit, 130 F.3d 1278, 1286 (7th Cir. 1997);
Kapco Mfg. Co. v. C&O Enters., Inc., 886 F.2d 1485, 1494-95
(7th Cir. 1989). At any rate, the chief judge did not mention
Rule 11 until Vacala sent the discussion down that wrong
path after he was sanctioned, during the Rule 59 motion.
The chief judge’s slip does not change the nature of the
sanctions imposed.
It would have been better had the parties and the district
court explained the legal basis for the sanctions from the
beginning. An advocate’s job is to make it easy for the court
to rule in his client’s favor; at a minimum, this means
stating the legal grounds for a motion. When applying for
sanctions for litigation misconduct, a party should identify
the authority being invoked for the award; the district court
should explain the authority under which the sanctions are
imposed. District courts will make clearer records if the
attorneys do their jobs as advocates.
Despite this oversight by the court and counsel, the
district court’s power to impose the sanctions in this case is
8 No. 04-4277
not in doubt. Two sources of authority fit this situation:
either 28 U.S.C. § 1927 or the inherent power of the court.
Since the inherent power of the court “is a residual author-
ity, to be exercised sparingly” and only when other rules do
not provide sufficient basis for sanctions, Zapata Hermanos
Sucesores, S.A. v. Hearthside Baking Co., 313 F.3d 385, 390-
91 (7th Cir. 2002), we will presume these sanctions to have
been the product of § 1927. Either way, we review an award
of sanctions for an abuse of discretion, Chambers v.
NASCO, Inc., 501 U.S. 32, 55 (1991); Kapco Mfg., 886 F.2d
at 1491, and we see none here.
Section 1927 provides that “[a]ny 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.” Some of our
cases say either subjective or objective bad faith is a
prerequisite for awarding sanctions pursuant to § 1927, see,
e.g., Moriarty v. Svec, 429 F.3d 710, 722 (7th Cir. 2005),
while others seem to suggest otherwise, see, e.g., Hill v.
Norfolk & W. Ry. Co., 814 F.2d 1192, 1202 (7th Cir. 1987);
Westinghouse Elec. Corp. v. NLRB, 809 F.2d 419, 425 (7th
Cir. 1987). We read the cases as drawing a distinction
between subjective and objective bad faith. Subjective bad
faith, the more difficult type of bad faith to prove, is not
always necessary. Hill, 814 F.2d at 1202; Westinghouse, 809
F.2d at 425. Subjective bad faith must be shown only if the
conduct under consideration had an objectively colorable
basis. In re TCI Ltd., 769 F.2d 441, 445 (7th Cir. 1985). The
standard for objective bad faith does not require a finding
of malice or ill will; reckless indifference to the law will
qualify. Id. “If a lawyer pursues a path that a reasonably
careful attorney would have known, after appropriate
inquiry, to be unsound, the conduct is objectively unreason-
able and vexatious.” Riddle & Assocs. P.C. v. Kelly, 414 F.3d
No. 04-4277 9
832, 835 (7th Cir. 2005) (quoting Kapco Mfg., 886 F.2d at
1491); see also In re TCI, 769 F.2d at 445.
Vacala’s conduct unquestionably satisfies the standard for
objective bad faith. He had nothing to do with the settle-
ment negotiations, which were handled by his cocounsel,
Attorney Anderson. The draft settlement agreement,
approved by Anderson, eliminated any claims Richards
Brick thought it had against the insurers for Basic and
Fanuc. The parties agreed to:
conclude all the various disputes, controversies, claims
and causes of action of any kind which DAL POZZO or
any person, firm, corporation or other entity have, may
have or claim to have, directly or indirectly, against
BASIC, FANUC, . . . RICHARDS, and/or their insurers,
or which in any way relate to or derive from, directly or
indirectly, the claims of DAL POZZO against all others,
. . . . (Emphasis added.)
This language is comprehensive. Richards Brick and every
other party to the litigation released all disputes, claims,
and causes of action by any firm or corporation against
Basic or Fanuc and their insurers. When given an opportu-
nity to tell the court why he thought this settlement
language did not abandon Richards Brick’s insurance
coverage “claims,” Vacala skipped the hearing. Any reason-
ably careful attorney would know not to pursue
this obviously unsound path. The district court’s conclusion
that Vacala’s conduct was sanctionable was not an abuse of
discretion.
By the time Vacala tried to defend his position at the
hearing on his Rule 59 motion, it was too late. Motions to
alter or amend judgments are no place to start giving
evidence that could have been presented earlier. Frietsch v.
Refco, Inc., 56 F.3d 825, 828 (7th Cir. 1995); see also
Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th
Cir. 2000); Vasapolli v. Rostoff, 39 F.3d 27, 36 (1st Cir.
10 No. 04-4277
1994) (“Unlike the Emperor Nero, litigants cannot fiddle as
Rome burns.”). Litigation must sometime come to an end,
and the limit on Rule 59 motions advances that goal.
Beyond that basic point, Vacala had no reason whatsoever
to challenge his sanctions on Rule 11 grounds; it is inappli-
cable to these circumstances.
Vacala’s appeal is likewise frivolous. Vacala has raised
only procedural shortcomings under Rule 11; he has not
argued that his behavior was defensible. The Rule 11
argument, we have pointed out, has no objective legal basis.
Besides his baseless appeal of the sanctions, Vacala wasted
the time of opposing counsel and this court by purporting to
appeal the enforcement of the settlement, only to abandon
the issue emphatically in his reply brief. The appeal of
sanctions alone is frivolous, but the pursuit and abandon-
ment of an appeal on the settlement issue is problematic
too. Vacala’s opponents would not have pressed their
position if they had known this appeal concerned only a
meager $4000 in sanctions; they told us so at oral argument
and filed motions for frivolous appeal sanctions under Rule
38. Vacala’s opposing counsel spent time on this appeal
because the settlement—not the sanctions—was valuable to
their clients. Vacala continues to needlessly and frivolously
multiply the proceedings in this case. Accordingly, pursuant
to Rule 38, we direct Vacala to pay his opponents’ reason-
able fees and double costs on this appeal. See Hill, 814 F.2d
at 1202 (Rule 38 may be invoked where counsel makes
“objectively groundless legal arguments for which a mone-
tary sanction is proper in order to protect this court’s ability
to serve litigants with meritorious cases and in order to
make lawyers give thoughtful consideration to whether
there are grounds for an appeal before filing an appeal.”).
AFFIRMED WITH SANCTIONS.
No. 04-4277 11
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-6-06