ANR v. Lyndonville Savings Bank ( 2001 )

STATE OF VERMONT
ENVIRONMENTAL COURT
Secretary, Vermont
Agency of Natural
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Resources, Plaintiff,
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Docket No. 40-3-99
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v Vtec
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Lyndonville Savings Bank
& Trust Co., Respondent.
Decision and Order on Pending Motions
On February 5, 1999, the Secretary of the Vermont Agency of Natural
Resources (ANR) issued an administrative order (the 1999
Administrative Order) pursuant to 10 V.S.A. ' 8008 regarding
Respondent's1 logging activities in Bolton in 1997, under the so-called
A heavy cutting@ law. The order imposed a monetary penalty and did
not contain any other provisions. Respondent requested a hearing in
Environmental Court. Respondent is represented by Philip H. White,
Esq.; the Secretary of the Agency of Natural Resources is now
represented by Conrad W. Smith, Assistant Attorney General.
The administrative order as originally issued asserted that Respondent
had conducted a heavy cut on 64 +/- acres. After discovery had
proceeded, and shortly before the first scheduled date of trial in
September, 1999, the Secretary was given leave to amend the
administrative order to assert that the heavy cut had taken place on A
40 acres or more.@ The first full day of the hearing on the merits was
held on September 22, 1999.
At the hearing on September 22, 1999, Respondent filed a written
motion for sanctions under V.R.C.P. 11, asserting that the state could
not prove that Respondent had conducted a heavy cut on more than
40 acres, due to the deficiencies in the methodology used by the state
forestry district manager who investigated the site in the late summer
of 1997. Respondent sent a copy of the motion for Rule 11 sanctions
to the Secretary no earlier2 than September 21. The Court= s ruling on
the Rule 11 motion was reserved until after the decision on the merits
of the case.
During the September 22 hearing, evidence was presented on the site
inspection survey or Acruise@ of a portion of the cut area done by the
state forestry district manager. The Secretary did not finish putting on
the witness= testimony. Rather, during voir dire regarding several
successive plots of the cruise area on a computer-generated map of
the cut area, various discrepancies were presented comparing the
scale of the underlying maps to the scale of the cruise area. The
September 22 hearing day concluded with the Court= s directive that
the Secretary arrange for the computer file of the base map of the cut
area to be retrieved and printed, that a one-inch scale line be
physically drawn on that new printout, and that the cruise area be
plotted again on the new computer-generated base map. Respondent=
s expert witness or witnesses were present on the date of the
September 22 hearing, but their testimony was not reached.
The next trial date had been scheduled for the morning of September
30, but it was canceled on September 27, and hearing dates were
rescheduled for October 12, 19 and 25.
After the task of re-plotting the cruise area on the computer-generated
base map had been completed, on October 7 the Secretary moved to
dismiss the proceeding in this Court, under V.R.C.P. 41(a)(2), and
moved to withdraw or A reverse@ the underlying administrative order
without prejudice, that is, without its standing as a resolution of the
merits of the administrative order in Respondent= s favor. By fax on
October 8, followed by the original filed on October 12, Respondent
filed its opposition to the Secretary= s motion to dismiss and moved
for judgment in favor of Respondent. Respondent requested
reimbursement for its costs, expenses and attorney= s fees, either as
terms and conditions of the dismissal order, or under Rule 11, and the
parties briefed the then-pending motions.
By written order dated November 17, 1999, the Court allowed the
Secretary to dismiss the underlying administrative order, but required
that the dismissal be with prejudice to filing a further administrative
order on the same underlying cutting event from 1997. The Court= s
November 1999 Dismissal Order noted that if the hearing on the
merits had concluded, and if the Secretary had failed to prove a
violation due to the calculation methodology or any other reason, the
Court would have been required by 10 V.S.A. ' 8012(b)(1) to reverse
the administrative order. That is, regardless of whether the Rule
41(b)(2) dismissal was with or without prejudice to the Secretary= s
filing a future administrative order regarding the same asserted 1997
violation, the effect of the dismissal was necessarily that the asserted
violation was not proved and that the 1999 Administrative Order must
be reversed. The November 1999 Dismissal Order discussed that the
pending Rule 11 motion would survive the dismissal, and that if
Respondent should wish to file an independent action for malicious
prosecution or its civil equivalent, such an action would also survive
the dismissal and, indeed, would have had to have awaited the
resolution of the underlying case before it could have been filed in any
event.
The Secretary then moved for reconsideration of the November 1999
Dismissal Order, arguing that as the Secretary= s dismissal was
voluntary under Rule 41(a)(2), the Court should have given the
Secretary the opportunity to accept the proposed conditions of
dismissal, including whether dismissal would be with prejudice, or to
decide to withdraw the proposed dismissal and go forward with the
case. The Secretary also moved to strike or summarily deny
Respondent= s Rule 11 motions, due to lack of compliance with the
procedural requirements of Rule 11 as amended in 1996. Respondent
has renewed its motions for attorney= s fees, expert fees and costs.
The Court allowed the parties to undertake discovery on the
circumstances underlying Respondent= s motions for sanctions, and to
file extensive supplemental memos on their motions.
The Present Motions:
Two of the Secretary= s motions are before the Court: the motion for
reconsideration of the November 1999 Dismissal Order, and the
motion to strike or summarily deny the Rule 11 motion. Respondent
continues to seek reimbursement for its expert witness fees, other
costs, and attorney= s fees, now on four theories, which have been
presented in various combinations in Respondent= s memoranda: as a
sanction under Rule 11; to it as the prevailing party under the
Cameron > bad faith= exception to the American Rule that each party
bears its own litigation expenses; as a discovery sanction; and as a
condition of allowing the Rule 41(a)(2) dismissal. In discussing these
motions, we will distinguish as necessary between attorney= s fees and
other expenses, such as expert witness fees.
Respondent= s motions for sanctions describe in detail a course of
conduct on the part of the ANR with respect to Mr. Kenneth Davis,
suggesting that the Secretary= s motivation for the initial filing of the
Administrative Order in this case went beyond considerations of the
alleged violation itself. However, sanctions available to a court under
any of Respondent= s theories are available only to vindicate the
authority of the court, either though applicable court rules or through
the inherent power of the court to address the conduct of the litigants
and attorneys in litigation before it. Pre-litigation conduct may be
considered only as it may demonstrate a motive for or circumstantial
evidence of sanctionable conduct during the litigation. Consequently,
at the outset we must note that if Respondent or Mr. Davis has a
cause of action for malicious prosecution or its civil equivalent, based
on the two years of conduct leading up to the filing of this
administrative order detailed in the motion memoranda and
attachments, such a cause of action would be beyond the jurisdiction
of the Environmental Court. Accordingly, the present decision and
order makes no determination on this issue.
Rule 11
Rule 11 sanctions may be applied to pleadings, written motions or
other papers presented to the Court in litigation if the filing is
presented for any improper purpose; if the legal contentions are not
warranted by existing law (or an extension of the law); if the factual
contentions lack evidentiary support; or if denials of factual
contentions lack evidentiary support. As a court rule of civil procedure,
Rule 11 only applies to conduct of the attorneys or parties during the
litigation, and not to conduct leading up to the litigation. The Court= s
consideration of Rule 11 sanctions in the present case was initiated by
Respondent= s motion in the present case.
Under the Uniform Environmental Enforcement Act, 10 V.S.A. Chapter
201, the Secretary has authority to take several administrative actions
which may never come to court, including to issue an administrative
order. If no hearing is requested on an administrative order, it simply
becomes final. After it has become final, if a respondent does not
comply with it, the Secretary may file a complaint under 10 V.S.A. '
8014 to enforce the final administrative order. If a respondent does
request a hearing, the administrative order is brought before the court
and becomes a de novo proceeding in Environmental Court. In the
present case, the litigation subject to Rule 11 did not commence until
the Respondent= s filing of the Notice of Request for Hearing (and
other related motions) on March 16, 1999.
Vermont Rule of Civil Procedure 11, as amended in 1996 (adopting the
1993 amendments to the equivalent federal rule), provides what is
referred to as a A safe harbor@ provision. The party seeking Rule 11
sanctions must make the request separately from other motions or
requests, must describe the specific conduct alleged to warrant the
sanctions and must serve the motion on the opposing party in
question. The opposing party has 21 days to react to the motion. The
motion may not even be presented to or considered by the court
unless A the challenged paper, claim, defense, contention, allegation,
or denial is not withdrawn or appropriately corrected3" within that 21-
day period4. The Vermont Supreme Court has emphasized that this >
safe harbor= period must be provided. Bennington Realty, LLC v. Jard
Company, Inc., et al., 169 Vt. 538-39 (1999).
In the present case, the motion for Rule 11 sanctions was filed with
the Court on September 22, 1999. The Secretary moved to dismiss the
underlying administrative order on October 7, 1999, well within the 21
day safe harbor period. There is no requirement in Rule 11 that a
voluntary dismissal be taken with prejudice, in order to satisfy Rule
11's requirement that the challenged paper or allegation be withdrawn.
Moreover, the Rule 11 motion is required to describe the specific
conduct alleged to warrant the sanctions, whether by signing, filing,
submitting, or later advocating any court-filed document. It has been
difficult for the Court to determine which documents filed in
Environmental Court are alleged to have violated Rule 11, as
Respondent has focused on a course of conduct stretching back to the
original investigation in the fall of 1997. Even if the actions of Agency
personnel prior to the Secretary= s issuance of the administrative
order, and the timing or motives of the Secretary in issuing the
administrative order, were objectionable or even reprehensible in and
of themselves, they simply cannot form the basis of Rule 11 sanctions,
as they do not constitute representations to the court covered by Rule
11(b). Most of the actions described in Respondent= s memoranda do
not qualify as A signing, filing, submitting, or later advocating@ any
pleadings, written motions, or other papers filed in court, regardless of
when those actions occurred. When considerations of the pre-litigation
course of conduct are stripped away, Respondent essentially argues
that the Secretary= s attorney should have known at an earlier point
than the first day of trial that the allegations of the amended
administrative order lacked sufficient evidentiary support to allow the
Secretary to proceed.
After an interlocutory appeal and a related Superior Court case were
disposed of, the first document filed by the Secretary was the required
pre-trial memorandum, filed on May 26, 1999. Respondent moved in
limine on June 10, 1999 to challenge the calculation methodology; the
Secretary filed a motion in opposition, arguing that the methodology
should be ruled on at trial. Respondent also moved on June 10, 1999
to compel the Secretary to produce its expert; the Secretary
responded that no expert had then been selected and that the expert
would be disclosed as soon as selected. The Secretary= s expert, Mr.
Carlton Newton, was disclosed on August 18, 1999, a month before
the trial. Respondent moved on June 21, 1999 to compel the
production of documents and worksheets pertaining to Mr. Charles
Vile= s measurement methodology as used during the July 1997
cruise; the Secretary= s attorney responded that he had asked his
clients for the documents and that no documents were available.
Respondent thereupon moved to take the deposition of Mr. Vile on
September 3, 1999, which required permission of the Court under the
rules applicable to proceedings under the Uniform Environmental
Enforcement Act. The Court granted that motion and ruled on other
pending motions at a telephone hearing recorded on audio tape on
September 16, 1999.
None of the documents filed or later advocated during the four months
of pre-trial proceedings in this case, from the secretary= s pre-trial
memorandum to the first day of trial, was presented for an improper
purpose, such as to harass or to cause unnecessary delay or needless
increase in the cost of litigation. Certainly if the Secretary had more
promptly retained an expert witness, the flaws in the methodology
used to conduct and to plot the 1997 cruise could have been
discovered or exposed prior to the first day of trial, and thereby could
have saved the Secretary, Respondent, and the Court the expenses
related to that first day of trial. However, Rule 11 only governs the
filing of signed documents with the Court. The Secretary= s response
to Respondent= s Motion in Limine, and the Secretary= s response to
the Motion to Compel, were not filed for any improper purpose. Nor
were the legal contentions in any documents unwarranted by existing
law or a nonfrivolous legal argument. Until the thorough scrutiny of
the calculation and plotting methodology during the first day of trial,
the Secretary had reason to believe, from the work of Agency
personnel, that the allegations of the amended administrative order
had evidentiary support.
Accordingly, Respondent= s motion for attorney= s fees and costs,
including expert witness fees, on the basis of V.R.C.P. 11 is DENIED.
Attorney= s fees under the Cameron exception to the American Rule
Respondent argues that this is the type of A exceptional case@ in
which attorney= s fees should be paid under Vermont= s exception to
the American Rule. See Lakeview Farm, Inc. v. Enman, 166 Vt. 158,
164-165 (1997), citing Cameron v. Burke, 153 Vt. 565 (1990); In re
Gadhue, 149 Vt. 322, 327-28. Attorney= s fees may be warranted
under the rule in Cameron and the analogous federal jurisprudence if
conduct in this litigation meets the standard of bad faith, vexatious or
A unreasonably obdurate or obstinate@ conduct.
Before determining whether the Agency= s conduct in this case meets
that standard, the first obstacle to applying this doctrine is that if
attorney= s fees were unavailable under Rule 11 due to the A safe
harbor@ provision, the Cameron exception cannot be applied to A
defeat the safe-harbor provision of Rule 11, added to the rule
subsequent to Cameron, by invoking the same residual powers of
equity and justice that form the basis of the rule and its
requirements.@ Bennington Realty, LLC v. Jard Company, Inc., et al.,
169 Vt. 538, 539 (1999)
Moreover, even if not precluded by the reasoning in Bennington
Realty, this case does not meet the standard in Cameron that the
litigant was forced to seek judicial assistance to secure a clearly
defined and established right which should have been freely enjoyed
without judicial intervention. That is, the Cameron exception is
available only when the litigant has had to engage in a second round
of litigation to vindicate its rights. In the present case, even if the
Secretary failed to recognize early enough that the Agency= s scientific
method was faulty, Respondent has only had to engage in the first
round of litigation.
Accordingly, Respondent= s motion for attorney= s fees and costs,
including expert witness fees, on the basis of the exception to the
American Rule is DENIED.
Attorney= s Fees as a Discovery Sanction
Respondent also argues that attorney= s fees are warranted as a
discovery sanction. Monetary sanctions are only available in discovery
disputes after the Court has issued an order to compel discovery, and
that order has not been complied with. V.R.C.P. 37(b). That is not the
circumstance of this case.
Accordingly, Respondent= s motion for attorney= s fees and costs,
including expert witness fees, as a discovery sanction is DENIED.
Secretary= s Motion for Reconsideration
One of the Secretary= s arguments in opposition to the costs and
attorney= s fees sought by Respondent is that the November 1999
Dismissal Order was granted with prejudice. A dismissal without
prejudice would have allowed the refiling of the administrative order.
The dismissal with prejudice precluded a subsequent administrative
order from being issued against Respondent for the 1997 Bolton
timber harvest. Whether dismissal is with or without prejudice, under
Rule 41(a)(2) if dismissal is granted, the court has discretion to
impose such terms and conditions, including any fees or costs, as it
deems proper in the interests of justice and to protect the legitimate
interests of both parties, 5 Moore's Federal Practice & 41.05[1]. The
factors the Court should consider in formulating the terms and
conditions include the plaintiff= s diligence in moving to dismiss, any A
undue vexatiousness@ on the part of the plaintiff, the extent to which
the action has progressed, including defendant= s trial preparation
expenses, the duplicative expenses of a second litigation, and the
adequacy of plaintiff= s explanation of the need for the dismissal.
When dismissal is with prejudice, so that there cannot be a subsequent
prosecution, attorney= s fees are generally not warranted, as they
would not have been available under the American Rule if Respondent
had prevailed on the merits. If dismissal were without prejudice, the
Court would need to consider the risk and duplication of expenses that
might be incurred in a second litigation. Curiously, despite this reliance
on the A with-prejudice@ dismissal, the Secretary has moved the
Court to reconsider its November 1999 Dismissal Order, to give the
Secretary the opportunity to determine whether to accept a A with
prejudice@ condition, or other possible conditions of dismissal, or to
proceed with the underlying administrative order.
The Secretary is correct that, rather than unilaterally imposing
dismissal with prejudice, under Rule 41(a)(2) jurisprudence the Court
should have stated the conditions it would impose on dismissal, and
should have allowed the Secretary to choose whether to go forward
with dismissal on those terms, or to proceed with the merits hearing
on the administrative order. Accordingly, the Secretary= s Motion for
Reconsideration is GRANTED. The Court will proceed to present the
conditions of dismissal, and to provide the Secretary the opportunity to
determine whether to accept those conditions.
In determining initially to dismiss with prejudice, the Court considered
that the dismissal motion was filed after six months of trial
preparation, after pretrial motions had been briefed and addressed and
after the first day of trial; that the Secretary had determined5 that the
methods used to perform the most current calculations of the asserted
heavy cut area were unreliable; and that although the Secretary had
requested dismissal without prejudice, the Secretary had no plan or
intent to relitigate6 Respondent= s alleged violation stemming from the
1997 Bolton timber harvest. Accordingly, the Court in the November
1999 Dismissal Order determined that the litigation had progressed
sufficiently that it would be unfair to leave the possibility of a refiled
administrative order hanging over Respondent.
Respondent now requests that the Court impose the requested
attorney= s fees and costs as a condition of the Rule 41(a)(2)
dismissal. However, a court may impose attorney= s fees or other
costs as a term and condition of a Rule 41(a)(2) dismissal only if
attorney= s fees can be independently supported, that is, if attorney= s
fees are provided for by statute, or warranted under Rule 11, or if the
circumstances of the case warrant an exception to the American Rule.
In the present case, we have already determined that attorney= s fees
cannot be independently supported. We will therefore examine
whether expert witness fees and other costs of preparing for and
attending trial should be imposed as a condition of dismissal.
The conditions are based on the considerations in the original dismissal
order, and on the fact that if the Secretary had more promptly
retained and disclosed the Agency= s expert witness, the flaws in the
methodology used to conduct and to plot the 1997 cruise could have
been discovered or exposed prior to the first day of trial, and thereby
could have saved the Secretary, Respondent, and the Court the trial
preparation expenses related to the depositions of Mr. Vile and of the
Secretary= s expert, as well as that first day of trial. Further, if the
matter is refiled, Respondent will face the duplication of the expenses
related to the first day of trial and the deposition of the Secretary= s
expert. Accordingly, the Secretary= s Motion to Dismiss the
administrative order will be granted on the following alternative terms
and conditions, necessary to do justice and protect the interests of
both parties. On or before February 7, 2001, the Secretary shall file
with the Court its choice among these alternatives, or shall state
whether the Agency intends to proceed with the hearing7 on the merits
of the administrative order.
Alternative I - The proceedings in this Court will be dismissed with
prejudice, with the parties to bear their own costs, except that the
Secretary shall reimburse Respondent for Respondent= s expert
witness fees for the September 22, 1999 day of hearing, as that
hearing day would not have been necessary if the Secretary had
thoroughly reviewed the methodology and had dismissed before the
start of trial.
Alternative II - The proceedings in this Court will be dismissed without
prejudice, with the Secretary reimbursing Respondent for Respondent=
s expert witness fees in trial preparation for the depositions of that
witness, if one was held, of the Secretary= s expert witnesses and of
Mr. Vile, and for the September 22, 1999 day of hearing, as that
preparation would not have been necessary if Secretary had
thoroughly reviewed the methodology and had dismissed before the
start of trial, and those expenditures would necessarily have to be
repeated if the proceedings are refiled.
Done at Barre, Vermont, this 22nd day of January, 2001
___________________
Merideth Wright
Environmental Judge
Footnotes
1.
At all times during these proceedings the Respondent has been
the Lyndonville Savings Bank and Trust Co., which had contracted with
Kenneth Davis for the logging work at issue in this proceeding. The
Secretary was aware of an indemnification agreement between Mr.
Davis and the Bank making Mr. Davis responsible for the defense of
this proceeding.
2.
In its memorandum filed November 30, 1999, Respondent refers
to this motion as having been „properly served‟ on the Secretary 21
days prior to its having been filed in Court, but no proof of service or
later reference to this service has been made by Respondent in the
face of the Secretary‟s argument that the Rule 11 motion was first
sent to the Secretary on September 21, 1999. Accordingly, the Court
must use September 22, 1999 as the date of service on the Secretary
in the absence of any other evidence to the contrary. We note that the
Secretary was aware before that date, at least from the discovery
disputes in the summer, that Respondent took issue with the cruise
methodology and the methodology for calculation of the cut area.
3.
This requirement may be inapplicable when a Rule 11 motion is
filed post-judgment, as there is no remaining opportunity to correct or
withdraw the challenged paper, but such was not the situation when
the motion was first filed in the present case.
4.
Similarly, Rule 11(c)(1)(B) provides a procedure for the court on
its own motion to enter an order posing the equivalent of a Rule 11
motion, describing the offending conduct and directing the attorney or
party to show cause why Rule 11(b) has not been violated. However,
monetary sanctions may not be imposed on the court‟s initiative unless
the order to show cause is issued prior to the voluntary dismissal.
5.
Secretary‟s memorandum filed October 27, 1999, at p. 2.
6.
Secretary‟s memorandum filed October 27, 1999, at p. 10.
7.
We reiterate, however, as we stated in the November 1999
Dismissal Order, that it does not make sense to force a party which
has the burden of proof to proceed with a hearing which it has stated
its intention not to pursue. Agency of Natural Resources v. Mountain
Valley Marketing, Inc., Docket No. E90-007 (Vt. Envtl. Ct., June 19,
1991). A trial “with an unwilling plaintiff, even if it could be enforced,
would be an expensive luxury.” Smoot v. Fox, 340 F.2d 301, 303 (6th
Cir. 1964).