Helen S. Rogers v. Thomas E. Watts, Jr., - Concurring ( 1998 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
HELEN S. ROGERS, )
)
Plaintiff/Appellee, )
) Davidson Circuit
) No. 94C-3689
VS. )
) Appeal No.
) 01A01-9603-CV-00120
THOMAS E. WATTS, JR., )
Defendant/Appellant.
)
) FILED
July 1, 1998
Cecil W. Crowson
Appellate Court Clerk
APPEAL FROM THE CIRCUIT COURT
FOR DAVIDSON COUNTY
AT NASHVILLE, TENNESSEE
THE HONORABLE THOMAS W. BROTHERS, JUDGE
For Plaintiff/Appellee: For Defendant/Appellant:
Helen Sfikas Rogers Thomas E. Watts, Jr.
Jones & Rogers Pro Se
Nashville, Tennessee
AFFIRMED AND REMANDED
WILLIAM C. KOCH, JR., JUDGE
OPINION
This appeal involves another chapter in a lingering, acrimonious dispute
between two Nashville lawyers stemming from a failed settlement of a case in federal
court. After one of the lawyers abandoned his third-party complaint against the other
lawyer for fraudulent misrepresentation, the other lawyer filed a malicious
prosecution action in the Circuit Court for Davidson County. When the trial court
dismissed the complaint on the ground that it was premature, the prevailing lawyer
sought Tenn. R. Civ. P. 11 sanctions against the lawyer whose malicious prosecution
claim had been dismissed. The trial court declined to grant sanctions, and the lawyer
seeking sanctions has appealed. We have determined that the record supports the trial
court’s decision not to award sanctions and, therefore, affirm the trial court’s
decision.
I.
In mid-1992, Sharon McFarlin obtained a default judgment for approximately
$10,000 against Jim and Rose Winfree. On the afternoon of September 17, 1992, she
arrived at the Winfrees’ home with a moving van and a deputy sheriff armed with an
execution authorizing the seizure of the Winfrees’ personal property to satisfy her
judgment. Faced with immediate loss of their furniture and other possessions, the
Winfrees made a hurried telephone call to their lawyer, Thomas E. Watts, Jr.
At that time, Mr. Watts was also representing a corporation in which Mr.
Winfree had an interest in a proceeding in the United States District Court for the
Middle District of Tennessee. One of the parties in the federal proceeding was
represented by Helen S. Rogers, a lawyer who had once practiced with Mr. Watts
until their association was dissolved over a financial dispute. On the day before Ms.
McFarlin arrived at the Winfrees’ home, Mr. Watts received a letter from Ms. Rogers
confirming the terms of a settlement of the litigation and indicating that she would
shortly have the funds for the settlement in hand.1 Mr. Watts anticipated that Mr.
Winfree’s share of this settlement would be sufficient to pay Ms. McFarlin’s
judgment.
1
Ms. Rogers’s letter stated that “[t]he settlement moneys are to be wire transferred into my
trust account around the first of next week and I will let you know when we can complete the
settlement.”
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Mr. Watts requested Ms. McFarlin to forego executing on the Winfrees’
property and promised her that Mr. Winfree would use the expected federal
settlement proceeds to pay her judgment. Ms. McFarlin referred Mr. Watts to her
lawyer. Mr. Watts was unable to reach Ms. McFarlin’s lawyer by telephone but
talked with one of his associates. After receiving Mr. Watts’s assurance that he
would receive the settlement proceeds within five days, the lawyer telephoned Ms.
McFarlin and advised her not to execute on the Winfrees’ property because “money
is better than furniture.” Based on this advice, Ms. McFarlin authorized the lawyer
to release the execution. Unbeknownst to Mr. Watts, Mr. Winfree later sought to
exempt $7,350 of his personal property from execution.
When Mr. Watts did not receive the settlement proceeds as he expected, he
wrote a pointed letter to Ms. Rogers on September 22, 1992 stating that he would
disavow the settlement unless the funds were delivered to him by the next day. After
he did not receive the funds, Mr. Watts wrote another letter to Ms. Rogers stating that
“I do not believe the creditor [Ms. McFarlin] has any claim against me personally, but
in the unlikely and unfortunate event that I am sued, of course, I will have no option
other than to pass the responsibility on to you, and presumably, you would want to
pass it on to your clients.” Ms. Rogers responded by asserting that she had never
given Mr. Watts a definite payment date.
On October 23, 1992, Ms. McFarlin sued Mr. Watts for negligent
misrepresentation in the Sumner County General Sessions Court. The general
sessions court awarded Ms. McFarlin a judgment against Mr. Watts, and Mr. Watts
pursued a de novo appeal to the circuit court. Once the case reached the circuit court,
Mr. Watts filed a third-party complaint against Ms. Rogers, alleging fraud and
fraudulent misrepresentation. At the close of his proof at trial, Mr. Watts essentially
abandoned his fraud claims and sought permission at trial to amend his third-party
complaint to add a negligent misrepresentation claim and to conform his pleadings
to the proof. The trial court declined to permit Mr. Watts to amend his third-party
complaint and granted a directed verdict dismissing Mr. Watts’s fraud and fraudulent
misrepresentation claims against Ms. Rogers. The circuit court thereafter awarded
Ms. McFarlin a $7,550 judgment against Mr. Watts.
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A panel of this court reversed Ms. McFarlin’s judgment against Mr. Watts on
October 28, 1994. See McFarlin v. Watts, 895 S.W.2d 687 (Tenn. Ct. App. 1994).
On November 14, 1994, Ms. Rogers filed a malicious prosecution action against Mr.
Watts in the Circuit Court for Davidson County based on his third-party complaint
that had been dismissed in the Sumner County proceeding.2 Mr. Watts moved for a
summary judgment on the ground that Ms. Rogers’s complaint was premature. After
the trial court dismissed Ms. Rogers complaint, Mr. Watts requested sanctions against
Ms. Rogers under Tenn. R. Civ. P. 11. On July 24, 1995, the trial court denied Mr.
Watts’s motion for sanctions. This appeal followed.
On March 6, 1995, the Tennessee Supreme Court denied Ms. McFarlin’s
application to review this court’s opinion vacating her judgment against Mr. Watts.
On June 9, 1995, Ms. Rogers filed a second malicious prosecution action against Mr.
Watts in the Circuit Court for Davidson County. Following a bench trial, the trial
court awarded Ms. Rogers an $18,000 judgment against Mr. Watts. A divided panel
of this court affirmed the judgment. See Rogers v. Watts, No. 01A01-9611-CV-
00500, 1997 WL 367477 (Tenn. Ct. App. July 2, 1997), perm. app. denied (Tenn.
Jan. 20, 1998).
II.
We must first determine which version of Tenn. R. Civ. P. 11 applies to this
proceeding because the Tennessee Supreme Court revised the rule after the conduct
giving rise to Mr. Watts’s motion for sanctions occurred. Tenn. R. Civ. P. 11 tracked
Fed. R. Civ. P. 11 from 1987 until December 1, 1993 when the United States
Supreme Court dramatically changed the explicit scope of Fed. R. Civ. P. 11, as well
as its certification requirement and available sanctions. The change in the federal rule
was brought about by a desire to curb some of the abuses in Rule 11 motion practice
in federal courts, see 5A Charles A. Wright & Arthur R. Miller, Federal Practice and
Procedure § 1331, at 4 (Supp. 1998), and by a desire to reduce the number of motions
for sanctions filed in federal courts. See 2A James W. Moore, et al., Moore’s Federal
Practice ¶¶ 11.01[8], 11.02[1.-2] (2d ed. 1995).
2
Ms. Rogers also filed a motion in the Circuit Court for Sumner County seeking Tenn. R.
Civ. P. 11 sanctions against Mr. Watts and his lawyer for the filing of the third-party complaint.
This motion was eventually denied on April 27, 1995.
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Even though Tennessee’s courts had not experienced dramatic increases in the
filing of motions seeking Rule 11 sanctions or widespread abuse of these motions, the
Tennessee Supreme Court filed an order on February 1, 1995 conforming Tenn. R.
Civ. P. 11 with the 1993 version of Fed. R. Civ. P. 11. Its reason for amending Tenn.
R. Civ. P. 11 was to prevent the potential for abuse of Tenn. R. Civ. P. 11 sanctions.
See Tenn. R. Civ. P. 11 advisory comm’n cmt. to 1995 amendment. The Court
submitted the proposed rule to the General Assembly in accordance with Tenn. Code
Ann. § 16-3-404 (1994). The House of Representatives approved the rule on April
27, 1995,3 and the Senate followed suit on May 4, 1995.4 By its own terms, the
amended rule took effect on July 1, 1995.
The Tennessee Supreme Court, unlike the United States Supreme Court,
provided no direction concerning the application of the amended version of Tenn. R.
Civ. P. 11 to pending civil cases.5 Thus, we must determine whether all or any
portion of the 1995 version of Tenn. R. Civ. P. 11 applies to conduct occurring before
July 1, 1995. The Tennessee Rules of Civil Procedure themselves do not provide an
answer to this question; accordingly, we must look elsewhere.
The only statute purporting to limit the scope of the Tennessee Supreme
Court’s rulemaking authority is Tenn. Code Ann. § 16-3-403 (1994) which states that
“[t]he rules prescribed by the supreme court pursuant to § 16-3-402 shall not abridge,
enlarge or modify any substantive right, and shall be consistent with the constitutions
of the United States and the state of Tennessee.”6 This provision invokes Tenn.
Const. art. I, § 20's protection against retrospective laws. Thus, we must determine
whether the 1995 amendments to Tenn. R. Civ. P. 11 are substantive or procedural.
See Kuykendall v. Wheeler, 890 S.W.2d 785, 787 (Tenn. 1994); Saylors v. Riggsbee,
544 S.W.2d 609, 610 (Tenn. 1976). If the amendments are procedural, then they
may be applied to all civil cases pending when the amended rule became effective.
3
See Resolution of April 27, 1995, House Res. No. 30, 1995 Tenn. Pub. Acts 1353.
4
See Resolution of May 4, 1995, Senate Res. No. 13, 1995 Tenn. Pub. Acts 1207.
5
The United States Supreme Court’s order amending Fed. R. Civ. P. 11 in 1993 specified that
the amended version of the rule “shall govern all proceedings in civil cases thereafter commenced
and, insofar as just and practicable, all proceedings in civil cases then pending.” See Espinoza v.
United States, 52 F.3d 838, 840 (10th Cir. 1995).
6
The requirement in Tenn. Code Ann. § 16-3-404 that both legislative chambers approve
proposed rules may, as a practical matter, indirectly influence the scope of the Court’s rule-making
authority. The Court could be hesitant to adopt rules that will not meet with legislative approval.
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See Kee v. Shelter Ins. Co., 852 S.W.2d 226, 228 (Tenn. 1993); Pacific Eastern Corp.
v. Gulf Life Holding Co., 902 S.W.2d 946, 956 (Tenn. Ct. App. 1995).
Procedural statutes are ones that affect the method or procedure for prosecuting
or defending a claim. See Shell v. State, 893 S.W.2d 416, 419-20 (Tenn. 1995); State
Dep’t of Human Servs. v. Defriece, 937 S.W.2d 954, 958 (Tenn. Ct. App. 1996). In
this context, procedure includes
the mode or proceeding by which a legal right is enforced,
as distinguished from the law which gives or defines the
right, and which by means of the proceeding, the court is
to administer – the machinery, as distinguished from its
product;. . . including pleading, process, evidence, and
practice. . .. Practice [is] the form . . . for the enforcement
of rights or the redress of wrongs, as distinguished from the
substantive law which gives the right or denounces the
wrong.
Saylors v. Riggsbee, 544 S.W.2d at 610 (quoting Jones v. Garrett, 386 P.2d 194, 198-
99 (Kan. 1963)).
The 1995 amendments to Tenn. R. Civ. P. 11 contain both substantive and
procedural alterations. Substantively, the 1995 amendments broaden the scope of the
conduct subject to sanctions and expand the nature of the certifications implicit in an
attorney’s or party’s signature on pleadings, written motions, or other papers.
Procedurally, Tenn. R. Civ. P. 11.03 changes decisions to impose sanctions from
mandatory to discretionary decisions. Similarly, Tenn. R. Civ. P. 11.03(1)(a)
provides a 21-day safe harbor provision intended to reduce the likelihood of sanctions
by giving parties an opportunity to correct or withdraw challenged submissions, and
Tenn. R. Civ. P. 11.03(2) places new limits on the nature of the sanctions to be
imposed.
While we have no Tennessee precedents regarding the application of amended
rules to conduct occurring before the amendments became effective, the federal
courts have addressed precisely the same question with regard to the 1993
amendments to Fed. R. Civ. P. 11. With regard to sanctionable conduct occurring
before the effective date of the amendment, the federal courts have noted that both
remanding the cases for consideration under the amended rule and reviewing the trial
court’s decision using the amended rule’s standards would be unjust and impractical.
See Silva v. Witschen, 19 F.3d 725, 728-29 (1st Cir. 1994).
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Because the 1993 amendments to Fed. R. Civ. P. 11 were both substantive and
procedural, the federal courts have held that the key consideration is when the
sanctionable conduct occurred, not when the motion for sanctions was filed. See
Vanderventer v. Wabash Nat’l Corp., 893 F. Supp. 827, 838 (N.D. Ind. 1995). With
regard to the substantive aspects of the rule, the federal courts have held that the pre-
1993 version of Fed. R. Civ. P. 11 should apply because lawyers and parties should
only be charged with knowledge of the version of the rule that was in effect when the
paper giving rise to the request for sanctions was filed. See MacDraw, Inc. v. CIT
Group Equip. Fin., Inc., 73 F.3d 1253, 1257 (2d Cir. 1996); Cunningham v. Waters
Tan & Co., 65 F.3d 1351, 1361 (7th Cir. 1995); Land v. Chicago Truck Drivers
Union Health and Welfare Fund, 25 F.3d 509, 516 (7th Cir. 1994); Knipe v. Skinner,
19 F.3d 72, 78 (2d Cir. 1994). They have also held, however, that district judges may
exercise their newfound discretion contained in the 1993 amendments when the filing
giving rise to the request for sanctions preceded the amendments to Fed. R. Civ. P.
11. See Moore v. Local 569, Int’l Bhd. of Elec. Workers, 53 F.3d 1054, 1058 (9th Cir.
1995); Knipe v. Skinner, 19 F.3d at 78; Corporate Printing Co. v. New York
Typographical Union No. 6, 886 F. Supp. 340, 343 (S.D.N.Y. 1995); LaVigna v.
WABC Television, Inc., 159 F.R.D. 432, 436 (S.D. N.Y. 1995).
The choice of which version of Tenn. R. Civ. P. 11 to apply is not outcome
determinative in this case because the conduct Mr. Watts complains of, if found to
have been inappropriate, would have been sanctionable under either version of the
rule. For the purpose of our analysis, however, we will determine whether Ms.
Rogers conduct amounts to a substantive violation of rule using the unamended
version of the rule. Thus, like the trial court, we will apply the objective standard of
reasonableness contained in the pre-July 1, 1995 version of Tenn. R. Civ. P. 11. See
Business Guides, Inc. v. Chromatic Communications Enters., Inc., 498 U.S. 533, 551,
111 S. Ct. 922, 933 (1991); Andrews v. Bible, 812 S.W.2d 284, 288 (Tenn. 1991).
Ms. Rogers’s conduct must be analyzed in light of the circumstances known
to her at the time she filed her first malicious prosecution complaint. See Krug v.
Krug, 838 S.W.2d 197, 205 (Tenn. Ct. App. 1992). Accordingly, we must pursue
answers to the following two questions: first, whether Ms. Rogers filed her first
malicious prosecution complaint believing it to be “well grounded in fact and . . .
warranted by existing law or a good faith argument for extension, modification, or
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reversal of existing law” and second, whether Ms. Rogers filed this complaint “for
any improper purpose such as to harass or to cause unnecessary delay or needless
increase in the cost of litigation.”
These inquires call for the trial courts to make fact-intensive close calls. See
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 404, 110 S. Ct. 2447, 2460 (1990).
Accordingly, appellate courts use the deferential abuse-of-discretion standard when
reviewing a trial court’s decision with regard to the imposition of sanctions. See
Alside Supply Ctr. v. Smith Heritage Siding Co., No 03A01-9702-CH-00069, 1997
WL 414982, at *1 (Tenn. Ct. App. July 25, 1997) (No Tenn. R. App. P. 11
application filed); Berger v. Ratner, No. 02A01-9604-CV-00077, 1997 WL 170327,
at *3 (Tenn. Ct. App. Apr. 11, 1997) (No Tenn. R. App. P. 11 application filed); Krug
v. Krug, 838 S.W.2d at 205. Under this standard of review, a trial court abuses its
discretion if its decision is based on an erroneous view of the law or a clearly
erroneous assessment of the evidence. See Cooter & Gell v. Hartmarx Corp., 496
U.S. at 405, 110 S. Ct. at 2461. An erroneous decision with regard to the imposition
of Tenn. R. Civ. P. 11 sanctions will not be second-guessed on appeal unless it has
caused great injustice and injury to the complaining party. See Binkley v. Cannon,
No. 01A01-9408-CH-00401, 1995 WL 66927, at *5 (Tenn. Ct. App. Feb. 17, 1995)
(No Tenn. R. App. P. 11 application filed).
III.
The remaining issue to be decided is whether Ms. Rogers engaged in
sanctionable conduct when she filed her first malicious prosecution claim against Mr.
Watts. Mr. Watts insists that Ms. Rogers should have known that her first complaint
was not warranted by existing law because his third-party claim in McFarlin v. Watts
had not been finally terminated in her favor at the time she filed her complaint. Ms.
Rogers responds that Tenn. R. Civ. P. 11 sanctions were not warranted because she
eventually succeeded with her second malicious prosecution claim against Mr. Watts.
The reasonableness of Ms. Rogers’s conduct must be established in light of the
circumstances existing when she filed her first malicious prosecution complaint.
Accordingly, the later success of her second malicious prosecution complaint has no
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bearing on our consideration of whether the filing of her first complaint was
sanctionable. As the law stood at the time she filed her first complaint, Ms. Rogers,
like any other reasonably competent lawyer, should have known that she would be
required to prove (1) that Mr. Watts filed his third-party complaint in McFarlin v.
Watts without probable cause, (2) that Mr. Watts acted with malice when he filed his
third-party complaint against her, and (3) that the final disposition of Mr. Watts’s
third-party complaint was favorable to her. See Roberts v. Federal Express Corp.,
842 S.W.2d 246, 247-48 (Tenn. 1992); Christian v. Lapidus, 833 S.W.2d 71, 73
(Tenn. 1992) (both cases holding that the three essential elements of a malicious
prosecution claim are (1) that the defendant brought the prior suit without probable
cause, (2) that the defendant brought the prior suit with malice, and (3) that the prior
suit was terminated in the plaintiff’s favor).
The “favorable termination” element of a malicious prosecution claim can be
satisfied by a showing other than that the defendant’s underlying claim was dismissed
as a result of a final judgment on the merits. Any dismissal indicating the innocence
or nonliability of the malicious prosecution plaintiff will suffice as a favorable
termination. See Sewell v. Par Cable, Inc., No. 87-266-II, 1988 WL 112915, at *3
(Tenn. Ct. App. Oct. 26, 1988) (No Tenn. R. App. P. 11 application filed); see also
Villa v. Cole, 6 Cal. Rptr. 2d 644, 648 (Ct. App. 1992); Restatement (Second) of
Torts § 674 cmt. j (1977); 1 Fowler V. Harper, et al., The Law of Torts § 4.4 (3d ed.
1996). Accordingly, the Tennessee Supreme Court has held that the abandonment
or withdrawal of an allegedly malicious claim is sufficient to establish a final and
favorable termination as long as the abandonment or withdrawal was not
accompanied by a compromise or settlement or was not undertaken in order to refile
the same claim in another forum. See Christian v. Lapidus, 833 S.W.2d at 74.
When Ms. Rogers filed her first malicious prosecution claim against Mr. Watts,
she knew:
(1) that Mr. Watts had filed a third-party complaint against her in McFarlin
v. Watts alleging that she has committed fraud or fraudulent
misrepresentation;
(2) that the trial court had denied Mr. Watts’s motion at the close of the
evidence to conform his third-party complaint to the proof and to
amendment his third-party complaint to add a claim of negligent
misrepresentation;
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(3) that the trial court had granted her motion of a directed verdict
dismissing Mr. Watts’s third-party complaint with prejudice;
(4) that Mr. Watts had appealed from Ms. McFarlin’s verdict against him
and from the trial court’s denial of his motion to amend his complaint
but that he had not specifically appealed from the directed verdict
dismissing his third-party claims for fraud or fraudulent
misrepresentation;7 and
(5) that the Court of Appeals had affirmed the trial court’s judgment.
Based on these facts, Ms. Rogers, or any other reasonably competent lawyer,
could legitimately have concluded that Mr. Watts’s claims based on fraud and
fraudulent misrepresentation had been terminated in Ms. Rogers’s favor. Mr. Watts
had abandoned them at trial by filing the motion to amend, and the trial court had
granted a directed verdict dismissing them. In addition, any reasonably competent
lawyer would have concluded that the trial court’s dismissal of Mr. Watts’s fraud
claims was final because Mr. Watts had not taken issue on appeal with the dismissal
of these claims. By failing to raise this issue on appeal, Mr. Watts placed the issue
of the trial court’s dismissal of his third-party fraud claims beyond the reach not only
of the Court of Appeals but also of the Tennessee Supreme Court. See Tenn. R. App.
P. 13(b). Thus, it was of no consequence that Ms. McFarlin’s Tenn. R. App. P. 11
application had not been disposed of when Ms. Rogers filed her first malicious
prosecution complaint. By virtue of his failure to take issue in the Court of Appeals
with the trial court’s directed verdict dismissing his fraud claims, Mr. Watts had lost
his opportunity to raise these issues in the Tennessee Supreme Court.
In light of these facts, Ms. Rogers, or any other reasonably competent lawyer,
could have concluded that Mr. Watts’s claims based on fraud and fraudulent
misrepresentation had been finally concluded in Ms. Rogers’s favor when she filed
her first malicious prosecution action. This being the case, the trial court could have
properly declined to impose Tenn. R. Civ. P. 11 sanctions for Ms. Rogers’s first
malicious prosecution complaint because it was well-grounded in fact and supported
by existing law.
7
Mr. Watts conceded in the second malicious prosecution proceeding that he did not appeal
from the trial court’s decision to grant the directed verdict dismissing his claims against Ms. Rogers
for fraud or fraudulent misrepresentation.
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IV.
We affirm the judgment dismissing Mr. Watts’s request for Tenn. R. Civ. P.
11 sanctions against Ms. Rogers and remand the case to the trial court for whatever
further proceedings may be required. We tax the costs of this appeal to Thomas E.
Watts, Jr., and his surety for which execution, if necessary, may issue.
____________________________
WILLIAM C. KOCH, JR., JUDGE
CONCUR:
__________________________________
HENRY F. TODD, PRESIDING JUDGE
MIDDLE SECTION
__________________________________
SAMUEL L. LEWIS, JUDGE
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