Leslie Smith v. Psychiatric Solutions, Inc. , 750 F.3d 1253 ( 2014 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-12785
________________________
D. C. Docket No. 3:08-cv-00003-MCR-EMT
LESLIE SMITH,
Plaintiff-Appellant,
versus
PSYCHIATRIC SOLUTIONS, INC.,
PREMIER BEHAVIORAL SOLUTIONS, INC.,
GULF COAST TREATMENT CENTER INC.,
Defendants-Appellees,
________________________
Appeal from the United States District Court
for the Northern District of Florida
_________________________
(May 6, 2014)
Before TJOFLAT, COX, and ALARCÓN,* Circuit Judges.
*
Honorable Arthur L. Alarcón, United States Circuit Judge for the Ninth Circuit, sitting
by designation.
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ALARCÓN, Circuit Judge:
This appeal concerns a fee dispute that arose between the parties after the
underlying case was resolved on the merits. Leslie Smith, a former employee of
Gulf Coast Treatment Center, brought a retaliatory-discharge action against Gulf
Coast and its parent companies, alleging violations of both the Sarbanes–Oxley
Act of 2002 and the Florida Whistle-Blower Act. The district court dismissed
Smith’s claims at summary judgment, and this Court affirmed.
Several motions for attorneys’ fees and sanctions followed. When the dust
settled, the district court had awarded the appellees nearly $54,000 in attorneys’
fees under the Florida Whistle-Blower Act and over $5,000 for the costs they
incurred opposing Smith’s unsuccessful motion for sanctions. The district court
also denied Smith leave to seek sanctions under 28 U.S.C § 1927. Smith now
appeals these fee awards and the denial of her motion for leave to seek sanctions.
We affirm.
I
For approximately four months in 2006, Leslie Smith worked as a mental-
health counselor at Gulf Coast Youth Academy, a court-ordered residential-
treatment program for delinquent youths that is owned and operated by Gulf Coast
Treatment Center. Gulf Coast Treatment Center is owned by Premier Behavioral
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Solutions, which, in turn, is a subsidiary of Psychiatric Solutions, Inc., a publicly
traded corporation. All three companies are party to this appeal, and we refer to
them collectively as “Appellees.”
Smith alleges that during her tenure at Gulf Coast Youth Academy, she
uncovered instances of child abuse and evidence of Medicaid fraud, falsification
of medical forms, and several reporting violations. She maintains that she reported
all of this to the facility’s management and was fired as a result.
Smith subsequently brought a retaliatory-discharge action against the
Appellees in state court, alleging that her termination violated the Florida Whistle-
Blower Act (the “FWA”) and the Sarbanes–Oxley Act of 2002 (“Sarbanes
Oxley”). Appellees removed the case to federal court, and an extended and highly
contentious period of discovery ensued. Appellees then moved for summary
judgment, which the district court granted. As is relevant here, the district court
concluded that Smith could not establish a prima facie FWA claim because she
had offered no admissible evidence of the alleged abuses and no evidence that the
remaining conduct she complained of would be covered under the state statute.1
1
The district court’s reasoning in granting summary judgment in Appellees’ favor on
Smith’s Sarbanes–Oxley claim is not relevant to this appeal.
3
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Smith appealed the district court’s summary-judgment order, and this Court
affirmed. Smith v. Psychiatric Solutions, Inc., 358 F. App’x 76 (11th Cir. 2009).
After the district court entered summary judgment, Appellees moved for
attorneys’ fees under the FWA. The district court referred the matter to the
magistrate judge. While Appellees’ motion was pending, Smith filed two motions
of her own: first, she moved for leave to file a § 1927 sanctions motion, and
second, she moved separately for sanctions under Rule 11 of the Federal Rules of
Civil Procedure. The magistrate judge denied Smith’s motion for leave to seek
§ 1927 sanctions because she filed it nearly 21 months after the deadline for fee
motions had passed. The magistrate judge issued a report and recommendation on
the remaining motions. She recommended that Smith’s Rule 11 motion be denied
and that Appellees be awarded attorneys’ fees for the expenses they incurred in
opposing the motion. The magistrate judge also recommended the district court
grant Appellees’ motion for attorneys’ fees under the FWA.
The district court adopted the magistrate judge’s report and
recommendation. It directed Smith to pay Appellees $53,925.98 in attorneys’ fees
under the FWA and ordered Smith’s counsel to pay Appellees $5,338.20 in
attorneys’ fees in connection with Smith’s failed motion for Rule 11 sanctions.
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II
Smith contends the district court erred in awarding Appellees attorneys’ fees
for the costs they incurred in defending against Smith’s FWA claim. She argues
the FWA’s fee provision conflicts with Sarbanes–Oxley’s fee provision and is
therefore preempted. She further contends that fees are improper under the FWA,
regardless of whether the statute is preempted by Sarbanes–Oxley.
A
Both Sarbanes–Oxley and the FWA prevent employers from retaliating
against employees who report allegations of specified corporate wrongdoing. See
18 U.S.C. § 1514A (preventing publicly traded companies from discharging
employees who report an employer’s alleged violation of federal securities law);
Fla. Stat. § 448.102 (prohibiting employers from taking retaliatory action against
employees who have disclosed, threatened to disclosed, or refused to participate in
an employer’s illegal conduct). Not surprisingly, some legal and factual overlap
often exists between claims brought under the two statutes. So it is here: some of
the work performed by Appellees’ counsel was relevant to developing defenses to
both Smith’s Sarbanes–Oxley claim and her FWA claim. The question we must
answer is whether Appellees may recover attorneys’ fees for this work.
Sarbanes–Oxley does not authorize a court to award fees to a prevailing defendant.
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See 18 U.S.C. § 1514A(c)(1). The FWA does. Fla. Stat. § 448.104. Smith argues
that this demonstrates a conflict between the two statutes, such that
Sarbanes–Oxley’s fee regime preempts the FWA’s.
“[I]t has long been settled that state laws that conflict with federal law are
without effect.” Mut. Pharm. Co., Inc. v. Bartlett, 133 S. Ct. 2466, 2473 (2013)
(internal quotation marks omitted). “Such a conflict occurs when compliance with
both federal and state regulations is impossible, or when the state law stands as an
obstacle to the accomplishment and execution of the full purposes and objectives
of Congress.” Hillman v. Maretta, 133 S. Ct. 1943, 1950 (2013) (citations and
internal quotation marks omitted).
Nothing on the face of either statute prevents compliance with the other.
Sarbanes–Oxley’s fee provision states that “[a]n employee prevailing in any action
under [the statute] shall be entitled to all relief necessary to make the employee
whole,” including “reasonable attorney fees.” 18 U.S.C. § 1514A(c)(1)–(2). The
statute is silent as to whether similar relief is available for employers who
successfully defend against an employee’s Sarbanes–Oxley claim. We see no
reason to construe this statutory silence as an implicit prohibition against awarding
attorneys’ fees to employers. Sarbanes–Oxley’s fee provision requires courts to
award fees to prevailing plaintiffs; it does not bar a defendant from recovering
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attorneys’ fees that are authorized elsewhere. See Chang v. Chen, 95 F.3d 27, 28
(9th Cir. 1996) (“[T]his provision [of the Racketeer Influenced and Corrupt
Organizations Act] permits only prevailing plaintiffs to recover attorneys’ fees.
Courts, however, have never construed this provision as precluding a prevailing
defendant from recovering attorneys’ fees when authorized elsewhere.”); O’Ferral
v. Trebol Motors Corp., 45 F.3d 561, 564 (1st Cir.1995) (rejecting the argument
“that because RICO provides for an award of costs to plaintiffs, 18 U.S.C. §
1964(c), it implicitly bars costs for defendants even if elsewhere authorized”).
Accordingly, we are persuaded that when a prevailing defendant–employer
has moved for attorneys’ fees, Sarbanes–Oxley’s fee provision has no application.
It neither authorizes a defendant to recover attorneys’ fees nor prevents a
defendant from recovering fees that are elsewhere authorized. The statute in no
way interferes with a court’s ability to award a prevailing defendant attorneys’
fees under the FWA.
Nor does the FWA’s fee provision present an obstacle to accomplishment of
Sarbanes–Oxley’s purposes and objectives. “To determine whether a state law
conflicts with Congress’ purposes and objectives, we must first ascertain the
nature of the federal interest.” Hillman, 133 S. Ct. at 1950. “If the purpose of the
[federal] act cannot otherwise be accomplished—if its operation within its chosen
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field else must be frustrated and its provisions be refused their natural effect—the
state law must yield to the regulation of Congress within the sphere of its
delegated power.” Crosby v. Nat’l Foreign Trade Council, 530 U.S. 363, 373
(2000) (quoting Savage v. Jones, 225 U.S. 501, 533 (1912)).
Congress enacted Sarbanes–Oxley in 2002 to address the faltering
confidence in the American economy following a number of high-profile
corporate scandals, such as the one at Enron Corporation. See generally S. Rep.
No. 107-146, at 10–11 (2002) (discussing the aftermath of Enron’s collapse and
the resulting call for reform).2 “Of particular concern to Congress was abundant
evidence that Enron had succeeded in perpetuating its massive shareholder fraud
in large part due to a ‘corporate code of silence’; that code, Congress found,
‘discouraged employees from reporting fraudulent behavior not only to the proper
authorities, such as the FBI and the SEC, but even internally.’” Lawson v. FMR
2
Sarbanes–Oxley’s whistleblower provisions, including the fee-shifting provision at issue
in this case, were drafted as part of the Corporate and Criminal Fraud and Accountability Act of
2002, a discrete bill authored by Senators Leahy and Grassley. S. 2010, 107th Cong. (2002). That
bill was incorporated into Sarbanes–Oxley as Title VIII and contained the provision that would
become 18 U.S.C. § 1514A. Accordingly, in considering Congress’s purpose in enacting
Sarbanes–Oxley’s whistleblower provisions, we must look to the legislative history of the
Corporate and Criminal Fraud and Accountability Act of 2002. See 148 Cong. Rec. S7418 (2002)
(daily ed. July 26, 2002) (statement of Sen. Patrick Leahy) (acknowledging the Senate’s
unanimous consent that the analysis of Senate Bill 2010 be included as part of the official
legislative history of Sarbanes–Oxley).
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LLC, 134 S. Ct. 1158, 1162 (2014) (alterations omitted) (quoting S. Rep. No. 107-
146, at 2 (2002)). To address this concern, Congress included in Sarbanes–Oxley
certain whistleblower provisions “to encourage and protect those who report
fraudulent activity that damages investors in publicly traded companies.” 148
Cong. Rec. 2948 (2002) (statement of Sen. Patrick Leahy). These provisions
prohibit publicly traded companies from retaliating against whistleblowing
employees and provide a civil cause of action against employers that do so. 18
U.S.C. § 1514A(b). They also require that employees who prevail in an retaliatory-
discharge action under the statute receive compensatory damages, including
reasonable attorneys’ fees. Id. at § 1514A(c).
The FWA does not interfere with Sarbanes–Oxley’s regulatory scheme.
Like Sarbanes–Oxley, the FWA also protects employees who report their
employers’ illegal conduct. See Fla. Stat. 448.102 (prohibiting retaliatory-
personnel action against whistleblowing employees). In this way, the FWA acts as
a corollary to Sarbanes–Oxley and supports the federal objective by further
incentivizing employees to blow the whistle on corporate wrongdoing. And while
the FWA authorizes courts to award fees to prevailing employers, this alone does
not frustrate the federal objectives underlying Sarbanes–Oxley. Fee awards under
the FWA are discretionary, so judges need not award prevailing defendants fees if
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they determine doing so might deter employees from bringing meritorious
whistleblower actions in the future. Further, aggrieved employees can themselves
eliminate the risk they may be held liable for a prevailing defendant–employer’s
attorneys’ fees by foregoing an FWA claim and alleging only a Sarbanes–Oxley
claim.
In sum, the FWA neither prevents compliance with Sarbanes–Oxley’s fee
provision nor frustrates Congress’s purposes and objectives in enacting
Sarbanes–Oxley. Accordingly, we conclude that Sarbanes–Oxley’s fee provision
does not preempt the FWA’s.
B
We turn next to the question whether Appellees’ fee award was proper
under the FWA. The statute provides a court with the discretion to award
attorneys’ fees to the prevailing party. Fla. Stat. § 448.104. This Court reviews the
district court’s decision only to ensure that it did not abuse its discretion. United
States v. Gilbert, 198 F.3d 1293, 1298 (11th Cir. 1999). A district court abuses its
discretion by applying an incorrect legal standard, following improper procedures,
or basing its award on clearly erroneous factual findings. Id.Neither the FWA nor its legislative history indicates what, if anything,
should guide a court’s discretion in awarding fees. Florida courts have considered
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various criteria but have stopped short of announcing a clear polestar. In Blanco v.
TransAtlantic Bank, No. 07–20303–CIV, 2009 WL 2762361 (S.D. Fla. Aug. 31,
2009), a federal district court surveyed the Florida caselaw on discretionary fee
awards and compiled the various areas of analysis into a five-factor test. Id. at *2
& n.4. These factors include the scope of the litigation, whether the plaintiff’s
claim was meritorious, the possibility that a fee award would frustrate the FWA’s
purpose by deterring worthy claims, any wealth disparity between the parties, and
whether the losing party acted in good or bad faith. Id. at *2. The district court
below adopted this analysis and concluded that the first three of these factors
weighed in Appellees’ favor. It awarded them attorneys’ fees on that basis.
At the outset, we note that it is not our place to determine what standard
should guide trial courts in exercising their discretion to award fees under the
FWA. That standard, should it exist at all, is for Florida’s legislature or appellate
courts to define. Until then, we must entrust lower courts to exercise thoughtfully
the broad discretion conferred upon them by the FWA. Trial courts are in a better
position than appellate courts to assess whether fees are appropriate in a given
case. Cf. Fox v. Vice, 131 S. Ct. 2205, 2216 (2011) (recognizing that appellate
micromanagement of fee awards is ill-advised in light of a district court’s superior
understanding of a litigation). As long as a trial court’s decision to award fees
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reflects a reasoned and thorough analysis based on its superior understanding of
the lawsuit, that decision is entitled to deference.
The district court in this case highlighted several aspects of the litigation
that it believed warranted sanctions. First, the court determined Smith’s FWA
claim lacked merit, noting it was dismissed at summary judgment because Smith
failed to produce any admissible evidence that would establish a prima facie claim.
The district court also observed that Smith’s litigation strategy had at times been
unduly wasteful and that her counsel often had been uncooperative and
intransigent. It recognized that Smith propounded unnecessary and duplicative
discovery requests, heedlessly pursued a number of unsuccessful discovery
motions, and rushed to court to resolve several minor discovery disputes. Under
these circumstances, the district court determined that awarding Appellees fees
would not deter parties from bringing worthy FWA claims.
The record shows that the district court was thoroughly familiar with the
parties, their attorneys, and the history of the litigation. Accordingly, it was in a
better position than we are to evaluate the conduct of all involved in the context of
the litigation as a whole. Its evaluation is supported by the record and free from
legal error. We are persuaded that the district court acted within its discretion in
awarding Appellees attorneys’ fees under the FWA.
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III
Smith next argues that the district court erred in awarding Appellees
attorneys’ fees for the expenses they incurred opposing her Rule 11 motion. When
a party moves for sanctions under Rule 11, the court “may award to the prevailing
party the reasonable expenses, including attorney’s fees, incurred for the motion.”
Fed. R. Civ. P. 11(c)(2). “[A]n appellate court should apply an abuse-of-discretion
standard in reviewing all aspects of a district court’s Rule 11 determination.”
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990).
Rule 11 authorizes a court to sanction a party who submits a pleading for an
improper purpose. Fed. R. Civ. P. 11(b)(1). “[T]he filing of a motion for sanctions
is itself subject to the requirements of the rule and can lead to sanctions.” Fed. R.
Civ. P. 11 advisory committee’s note. Ordinarily, this does not require a cross-
motion for sanctions, since a court is authorized to award fees to a party that
successfully opposes a Rule 11 sanctions motion. Id. Thus, when a party files a
Rule 11 motion for an improper purpose, the court may award fees to the target of
the motion. Such is the case here.
Smith’s counsel filed a Rule 11 motion purportedly to correct four
misrepresentations in a memorandum that Appellees filed in support of their
motion for attorneys’ fees. First, Smith alleged Appellees mischaracterized the
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impact of an administrative ruling from the Department of Labor. Second, she
maintained Appellees cited a California appellate case without indicating the
opinion had been superceded pending review by the state supreme court. Third,
she argued Appellees had misrepresented her Rule 26 disclosures. Fourth, she
contended Appellees had made several frivolous arguments regarding
Sarbanes–Oxley’s fee provision.
The district court considered each alleged misrepresentation in turn. It
determined that Smith’s arguments about the administrative ruling and
Sarbanes–Oxley’s fee provisions lacked merit and should not have been included
in her Rule 11 motion. The district court likewise determined that while Appellees
could have been more careful in citing the California appellate case or
characterizing Smith’s Rule 26 disclosures, these matters were of no real
consequence and did not warrant sanctions. The district court thus concluded that
“[n]one of the four grounds raised by [Smith] in her Rule 11 motion present[s]
significant concerns in the context of this particular case, and none comes close to
warranting the imposition of Rule 11 sanctions.” Based on these findings, the
district court determined Smith’s counsel filed the Rule 11 motion both to harass
Appellees, and to file what was effectively an unauthorized reply brief to
Appellees’ motion for fees. It awarded Appellees attorneys’ fees on that basis.
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The district court acted within its discretion in awarding Appellees
attorneys’ fees. The relevance of the administrative ruling is debatable. That Smith
and Appellees find themselves on different sides of that debate does not mean
Appellees misrepresented the significance of the ruling. We likewise agree with
the district court that none of arguments pertaining to Sarbanes–Oxley’s fee
provision in Appellees’ memorandum were frivolous or warranted sanctions. Each
of these supposed bases for sanctions concerned areas of substantive disagreement
between the parties. After reading Smith’s arguments, the district court could
reasonably have concluded that Smith filed her Rule 11 motion to address the
merits of Appellees’ arguments, not to correct alleged misrepresentations.
Similarly, we conclude that the district court did not err in its determination
that the remaining bases for sanctions concerned trivial matters. Appellees
certainly should have included a complete citation to the California appellate case,
but their mention of that case was brief, and their argument did not rely on it.
Appellees’ error describing Smith’s Rule 26 disclosures was even less
consequential. “Rule 11 motions should not be made or threatened for minor,
inconsequential violations . . . .” Fed. R. Civ. P. 11 advisory committee’s note.
Given the district court’s familiarly with the parties and the litigation, we find no
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error in its determination that Smith’s counsel filed the Rule 11 motion at least in
part as an improper combative tool.
IV
Finally, Smith argues that the district court erred in denying her leave to
pursue fees under 28 U.S.C. § 1927.3 We review the district court’s denial for
abuse of discretion. Peer v. Lewis, 606 F.3d 1306, 1311 (11th Cir. 2010).
The district court set a deadline requiring that all motions for fees be filed
within 30 days after entry of judgment, which worked out to be April 14, 2009.
Smith moved for leave to seek § 1927 sanctions on January 18, 2011—21 months
after the filing deadline had passed. The district court denied the motion,
concluding that Smith had not demonstrated any reason in law or equity why she
should be permitted to file a motion 21 months after the filing deadline.
Smith argues the district court erred for two reasons. First, she contends that
there was no deadline for filing a motion for §1927 sanctions. Rule 54 of the
Federal Rules of Civil Procedure ordinarily requires that motions for fees be filed
within 14 days of the entry of judgment. Fed. R. Civ. P. 54(d)(2). However,
3
“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.” 28 U.S.C. § 1927.
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motions for sanctions under § 1927 are not subject to this 14-day deadline. Id.
Smith argues there was thus no deadline for her to file a § 1927 motion.
Smith’s argument overlooks that the district court issued a scheduling order
requiring any motions for fees to be filed and served within 30 days after the entry
of judgment. That order applied to all motions for sanctions and makes no
exemption for § 1927 motions. District courts have “unquestionable” authority to
control their own dockets. Canada v. Mathews, 449 F.2d 253, 255 (5th Cir.
1971).4 This authority includes “broad discretion in deciding how best to manage
the cases before them.” Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1366
(11th Cir.1997). The district court had authority to set a filing deadline, and that
deadline provides an independent basis for determining that Smith filed her
motion 21 months too late.
Smith also argues that she could not have filed for sanctions by the April 14,
2009 deadline, because most of the conduct for which she intended to seek
sanctions had not yet occurred. That conduct, Smith argues, “lay in hundreds of
hours of labor and stress suffered by Smith’s team in the 18 months of unseemly
and unworthy fee litigation that came after that date.”
4
The Eleventh Circuit adopted as binding precedent all decisions of the former Fifth
Circuit handed down prior to October 1, 1981. Bonner v. City of Prichard, 661 F.2d 1206, 1209
(11th Cir. 1981) (en banc).
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Smith did not raise this argument below. Indeed, Smith informed the district
court that she had a viable claim for sanctions at the time of the filing deadline but
did not pursue that claim because Appellees had suggested they would not seek
sanctions themselves. Smith’s failure to raise her argument to the district court
means she has forfeited it on appeal. See Ramirez v. Sec’y, U.S. Dep’t of Transp.,
686 F.3d 1239, 1249 (11th Cir. 2012) (“It is well-settled that we will generally
refuse to consider arguments raised for the first time on appeal.”). Moreover, apart
from any issue of forfeiture, reversal is warranted only if the district court abused
its discretion in denying Smith’s request for leave. The district court cannot abuse
its discretion by failing to consider arguments that are not before it.
Accordingly, we conclude that the district court did not abuse its discretion
in denying Smith leave to pursue fees under § 1927.
CONCLUSION
The district court’s decision to award Appellees attorneys’ fees under the
FWA was within its discretion. Sarbanes–Oxley provides no obstacle to the
exercise of that discretion, because the federal statute does not preempt the FWA’s
fee provision. Furthermore, the district court did not abuse its discretion in
awarding Appellees’ fees for the costs they incurred opposing Smith’s Rule 11
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motion, nor did it abuse its discretion in denying Smith the opportunity to seek
§ 1927 sanctions 21 months after the court’s deadline for fee motions had passed.
AFFIRMED.
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