Guaetta & Benson, LLC v. McArdle

United States Court of Appeals
For the First Circuit
No. 22-1034
NICHOLAS L. TRIANTOS,
Plaintiff,
v.
GUAETTA & BENSON, LLC; AUDREY G. BENSON;
PETER V. GUAETTA; SARAH T. FITZPATRICK,
Defendants, Appellees,
DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee for Morgan
Stanley ABS Capital I Inc. Trust 2004-HE4, Mortgage Pass-Through
Certificates, Series 2004-HE4; SELECT PORTFOLIO SERVICING, INC.;
COUNTRYWIDE HOME LOANS, INC.; BANK OF AMERICA, N.A., as
Successor-in-Interest to Countrywide Home Loans, Inc.; NEW
CENTURY MORTGAGE CORPORATION,
Defendants.
MICHAEL M. MCARDLE,
Interested Party, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. William G. Young, U.S. District Judge]
Before
Lynch, Thompson, and Gelpí,
Circuit Judges.
Lucas B. McArdle, with whom McArdle Law & Associates, PLLC
was on brief, for appellant.
John F. Gallant, with whom Nancy A. Morency and Gallant &
Ervin, LLC were on brief, for appellees.
October 27, 2022
LYNCH, Circuit Judge. In this case removed to the
federal district court, Guaetta & Benson, LLC and Audrey Benson,
Peter Guaetta, and Sarah Fitzpatrick, individual partners of that
firm (collectively, "G&B"), moved for sanctions against attorney
Michael McArdle, counsel on the state court complaint, under
Federal Rule of Civil Procedure 11. This sanctions motion was not
served on McArdle under Rule 5 as required by Rule 11. At a
hearing McArdle did not attend, the district court imposed Rule 11
sanctions against him on the court's understanding that (i) he had
signed and filed an amended complaint in federal court and (ii) he
had been properly served. However, the record refutes both of
these bases for the order.
When McArdle learned of the district court's sanctions
order several months later, he immediately moved the court for
relief under Rule 60(b). The court summarily denied the Rule 60(b)
motion. We reverse.
I.
The following facts are drawn from the record and do not
appear to be disputed on appeal. On February 7, 2017, Nicholas
Triantos sued Deutsche Bank National Trust Company and other
mortgage lenders and servicers in Massachusetts Superior Court,
asserting various claims arising out of a foreclosure on his
property. The complaint unusually also named as defendants Guaetta
& Benson, LLC, the firm that had conducted the foreclosure sale on
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behalf of Deutsche Bank, and three individual partners of that
firm, alleging that their actions violated the Fair Debt Collection
Practices Act, 15 U.S.C. §§ 1692-1692p, and the Racketeer
Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968.
McArdle was counsel of record for Triantos in
Massachusetts Superior Court and signed the state court complaint.
On March 16, 2017, G&B sent McArdle a "safe harbor" letter under
Massachusetts Rule of Civil Procedure 11. The letter questioned
the merit of the claims against G&B, demanded that McArdle either
furnish a legal basis for these claims or dismiss them, and warned
that if he did not do so, G&B would pursue relief against both him
and Triantos.
On March 31, 2017, Deutsche Bank removed the case to
federal district court. Following removal, McArdle did not enter
a notice of appearance in the district court,1 but he communicated
with G&B as counsel for Triantos and, at the request of the
defendants, assented to several motions to extend the defendants'
time to file responsive pleadings.
On May 9, 2017, Triantos (himself a lawyer) entered a
pro se notice of appearance in the district court. On May 23,
Triantos signed and filed an amended complaint. This complaint
1 McArdle did not receive electronic notice of later
filings, presumably because he never filed a notice of appearance
in the federal case.
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was also signed by Alex Hess as co-counsel for Triantos.2 McArdle
did not sign or file this complaint, and his name does not appear
on it.
On May 31, 2017, McArdle filed a notice of withdrawal of
his appearance as counsel in the case. In the two months between
removal and his withdrawal as counsel, McArdle did not sign or
file any pleadings or other papers in district court, nor did he
present argument to the court.
On September 14, 2017, the district court dismissed the
amended complaint for failure to state a claim.3 On November 21,
G&B moved for sanctions against Triantos and McArdle under Federal
Rule of Civil Procedure 11, seeking attorney's fees and costs and
expenses. G&B certified to the court that all parties were being
served with the motion but never served the motion on McArdle under
Rule 5 as required by Rule 11. As the basis for sanctions, G&B
stated that the complaint "which the Court dismissed under Fed. R.
Civ. P. 12(b)(6)" -- i.e., the amended complaint -- was signed by
both Triantos and McArdle. G&B also stated that McArdle, rather
than Triantos, had filed the amended complaint. The district court
2 Hess entered a notice of appearance in the district court
on June 14, 2017.
3 The district court also denied Triantos's motion to
remand and granted the defendants' motion to strike a second
amended complaint filed by Triantos (and signed by Triantos and
Hess).
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stayed the motion for sanctions pending the outcome of Triantos's
appeal of the decision dismissing his case.
On September 16, 2020, this court affirmed the district
court's decision dismissing the amended complaint. Triantos v.
Deutsche Bank Nat'l Tr. Co., No. 17-1938 (1st Cir. Sept. 16, 2020).
On September 30, 2020, G&B renewed its motion for
sanctions against Triantos and McArdle. G&B again certified to
the court that all parties were being served with the motion but
never served the motion on McArdle under Rule 5 as required by
Rule 11. The renewed motion repeated the statements that McArdle
had "signed" and "filed" the amended complaint dismissed by the
district court.
On November 2, 2020, after not seeing a docketed response
to the sanctions motion from McArdle, Triantos contacted McArdle.
McArdle (through counsel) immediately contacted G&B to discuss the
motion. In an email, McArdle informed G&B that he "was not
involved in the subject federal case whatsoever, [and] was just
carried over as counsel of record in the state court matter," that
he "specifically advised Triantos not to pursue the claims against
G&B," and that he "withdrew when it was clear [he] needed to create
distance from [Triantos]." McArdle also requested that, should
G&B intend to continue pursuing sanctions against him despite this
information, he be given "time to properly respond."
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On a phone call later that day, the parties discussed a
negotiated resolution whereby G&B would drop the sanctions motion
against McArdle. McArdle followed up with G&B via email regarding
the specifics of this resolution on November 5 and November 10.
G&B did not respond. At this point the parties apparently let the
issue lie.
Eight months passed. On July 1, 2021, the district court
set a hearing date for G&B's sanctions motion. In the following
months, G&B filed materials in support of its motion and Triantos
filed a supplemental opposition. McArdle did not receive these
filings and never filed an opposition. On September 15, 2021, the
district court heard argument on G&B's motion. McArdle was not
present. The following colloquy took place at the beginning of
the hearing:
THE COURT: Very well. And what about Mr.
McArdle, who represents him?
MR. TRIANTOS: Your Honor, if I may? I don't
know. I haven't heard from him. I don't think
he even filed a response to this. So I just
don't know.
THE COURT: I don't see any. Let me talk to
defense counsel. Are you pressing this
against Mr. McArdle?
MR. GALLANT: We are, Your Honor. The motion
that was originally served specifically
addresses him and, um, the motions in our
memorandum specifically address him.
THE COURT: They do, and believe me I've read
everything. Well let's then go forward.
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G&B did not inform the district court that it had never served
McArdle with the motion under Rule 5 as required by Rule 11.
McArdle's absence was not discussed further. His level of
involvement in the federal proceeding was not discussed either.
The district court concluded that the claims against G&B in the
amended complaint were "clearly without merit." On that basis,
the court entered a minute order imposing $10,000 in attorney's
fees and $32 in costs jointly and severally against Triantos and
McArdle pursuant to Rule 11. The court did not state any other
basis for the imposition of Rule 11 sanctions against McArdle.
McArdle became aware of the district court's sanctions
order two-and-a-half months later, on November 29, 2021. On
December 8, he moved for relief from this order under Rule 60(b).4
McArdle's verified motion stated that the amended complaint was
filed by Triantos and signed by Triantos and Hess, and that McArdle
lacked notice of both the sanctions hearing and the fact that G&B
was proceeding with its motion for sanctions. In its opposition,
G&B repeated the statement that McArdle had "signed and filed" the
amended complaint. The district court summarily denied McArdle's
Rule 60(b) motion without hearing argument.
4 McArdle's motion was styled as a "Verified Motion for
Relief from Court Order." Both parties have treated it as a motion
under Rule 60(b).
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McArdle timely appealed the district court's order
denying his Rule 60(b) motion.
II.
We review the district court's decision to deny relief
under Rule 60(b) for abuse of discretion. Giroux v. Fed. Nat'l
Mortg. Ass'n, 810 F.3d 103, 106 (1st Cir. 2016). "This standard
is not monolithic: within it, embedded findings of fact are
reviewed for clear error, questions of law are reviewed de novo,
and judgment calls are subjected to classic abuse-of-discretion
review." Ungar v. Palestine Liberation Org., 599 F.3d 79, 83 (1st
Cir. 2010). Abuse of discretion with respect to judgment calls
occurs where the district court "commit[s] a meaningful error in
judgment." Anderson v. Cryovac, Inc., 862 F.2d 910, 923 (1st Cir.
1988). "[W]e are 'conscious of the impact of sanctions on
attorneys and take our oversight role seriously.'" Lamboy-Ortiz
v. Ortiz-Vélez, 630 F.3d 228, 243 (1st Cir. 2010) (quoting Nw.
Bypass Grp. v. U.S. Army Corps of Eng'rs, 569 F.3d 4, 6 (1st Cir.
2009)).
Under Rule 60(b), a court "may relieve a party or its
legal representative from a final judgment, order, or proceeding"
for six specified reasons. Fed. R. Civ. P. 60(b). We focus on
subsections (b)(1) and (b)(3), as analysis of those two reasons is
enough to convince us that relief should be granted here.
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Rule 60(b)(1) provides that a court may grant relief
from an order based on "mistake, inadvertence, surprise, or
excusable neglect." Id. 60(b)(1). The Supreme Court, in Kemp v.
United States, 142 S. Ct. 1856 (2022), held that Rule 60(b)(1)'s
"mistake" provision encompasses errors of law. Id. at 1860. That
is the rule we apply.
Rule 60(b)(3) provides that a court may grant relief
from an order based on "fraud (whether previously called intrinsic
or extrinsic), misrepresentation, or misconduct by an opposing
party." Fed. R. Civ. P. 60(b)(3). To satisfy Rule 60(b)(3), a
party "'must demonstrate misconduct -- such as fraud or
misrepresentation -- by clear and convincing evidence' and 'show
that the misconduct foreclosed full and fair preparation or
presentation of [his] case.'" Giroux, 810 F.3d at 108 (quoting
Karak v. Bursaw Oil Corp., 288 F.3d 15, 21 (1st Cir. 2002)); cf.
West v. Bell Helicopter Textron, Inc., 803 F.3d 56, 67-68 (1st
Cir. 2015) (noting heightened standard of "substantial
interference" with preparation of case in context of Rule 60(b)(3)
motions based on discovery misconduct). Misconduct "does not
demand proof of nefarious intent or purpose as a prerequisite to
redress" and "can cover even accidental omissions." West, 803
F.3d at 67 (quoting Anderson, 862 F.2d at 923).
We hold that the district court made two errors in
imposing Rule 11 sanctions against McArdle and that these errors
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appear to be based on the district court's understanding of
representations by G&B that were contrary to what the record shows.
First, the district court imposed sanctions on McArdle on the basis
that he had signed and filed the amended complaint that the court
dismissed. We can find nothing in the record to support this.
Second, the district court imposed sanctions even though the
procedural requirements of Rule 11 were not satisfied. The
district court abused its discretion in not granting the Rule 60(b)
motion for relief from the sanctions.
A.
We hold first that the district court erred in imposing
Rule 11 sanctions against McArdle based on the amended complaint.
Rule 11 sanctions may be imposed only when an attorney
(or unrepresented party) violates the requirements of Rule 11(b),
see Fed. R. Civ. P. 11(c)(1), which provides:
By presenting to the court a pleading, written
motion, or other paper -- whether by signing,
filing, submitting, or later advocating it --
an attorney or unrepresented party certifies
that to the best of the person's knowledge,
information, and belief, formed after an
inquiry reasonable under the circumstances:
(1) it is not being presented for any improper
purpose, such as to harass, cause unnecessary
delay, or needlessly increase the cost of
litigation;
(2) the claims, defenses, and other legal
contentions are warranted by existing law or
by a nonfrivolous argument for extending,
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modifying, or reversing existing law or for
establishing new law;
(3) the factual contentions have evidentiary
support or, if specifically so identified,
will likely have evidentiary support after a
reasonable opportunity for further
investigation or discovery; and
(4) the denials of factual contentions are
warranted on the evidence or, if specifically
so identified, are reasonably based on belief
or a lack of information.
Id. 11(b).
The sanctions order is contrary to the text of Rule
11(b). Rule 11 sanctions are available only for misconduct in
"presenting to the court a pleading, written motion, or other paper
-- whether by signing, filing, submitting, or later advocating
it." Id. Any imposition of Rule 11 sanctions must have a basis
in this text. Cf. Lamboy-Ortiz, 630 F.3d at 245 (noting the
textual limitations of Rule 11 and concluding that the Rule "does
not govern the conduct of litigation" beyond those bounds); Balerna
v. Gilberti, 708 F.3d 319, 323 (1st Cir. 2013) (similar). To be
subject to Rule 11 sanctions, an attorney must "present[]" a paper
that is improper for one or more of the reasons delineated in Rule
11(b).
G&B does not argue that McArdle is subject to Federal
Rule 11 sanctions for signing the complaint in state court, and
correctly so. The Federal Rules of Civil Procedure do not apply
to state court proceedings. See Fed. R. Civ. P. 81(c)(1)
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(providing that the Federal Rules apply "to a civil action after
it is removed from a state court" (emphasis added)); see also id.
1 (providing that the Federal Rules "govern the procedure in all
civil actions and proceedings in the United States district
courts"). An individual cannot be subject to Federal Rule 11
sanctions for conduct in state court. See id. 81(c)(1); see also,
e.g., Bisciglia v. Kenosha Unified Sch. Dist. No. 1, 45 F.3d 223,
226-27 (7th Cir. 1995).5
In the two months between removal of the case to federal
court and McArdle's withdrawal as counsel, McArdle did not sign or
file any papers with the district court. His name is not listed
in the signature block of any motions. See Ark. Tchr. Ret. Sys.
v. State St. Corp., 25 F.4th 55, 64 & n.2 (1st Cir. 2022) (holding
that counsel may "present[]" a paper to the court by placing his
or her name in the signature block of a motion, even where counsel
does not individually sign the motion). He did not present
argument to the court.
G&B offers several arguments as to why McArdle should be
subject to Rule 11 sanctions even though he did not sign or file
5 G&B's argument that we should let the Federal Rule 11
sanctions order stand because of asserted similarities between
Federal Rule 11 and Massachusetts Rule 11 amounts to a request to
apply Federal Rule 11 to state court conduct. The argument is not
viable for the reasons discussed above.
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the amended complaint or other papers. None find a basis in the
text of Rule 11.
G&B first argues that Rule 11 sanctions are warranted
because the state court complaint signed by McArdle was the
"operative pleading" in federal court before Triantos filed the
amended complaint. While G&B is correct that the state court
complaint removed to federal court by the defendants was briefly
the operative pleading in federal court, there is no "operative
pleading" exception to Rule 11's "presenting" requirement. See
Fed. R. Civ. P. 11(b); see also id. advisory committee's note to
1993 amendment (noting that "urg[ing] . . . the allegations of a
pleading filed in state court" to the district court following
removal constitutes "presenting"); Bisciglia, 45 F.3d at 226-27,
227 n.5 (focusing on subsequent filings and advocacy in support of
a state court complaint's allegations following removal); Buster
v. Greisen, 104 F.3d 1186, 1190 n.4 (9th Cir. 1997) (same); Danubis
Grp., LLC v. Landmark Am. Ins. Co., 685 F. App'x 792, 802 (11th
Cir. 2017) (same).
McArdle did not "present[]" the complaint to the
district court through the act of removal, because removal was
initiated by the defendants. Once in federal court, he did not
take any action to "present[]" the allegations in the complaint to
the district court.
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G&B next argues that McArdle is subject to Rule 11
sanctions because he had not withdrawn his appearance at the time
that Triantos filed the amended complaint. This does not provide
a basis for imposition of Rule 11 sanctions where McArdle did not
"present[]" any papers to the court.
G&B also contends that McArdle triggered Rule 11
sanctions by assenting to several requests by defendants' counsel
that he agree to motions to extend the defendants' time to file
responsive pleadings. On these facts, merely assenting to the
defendants' motions did not amount to "presenting" them to the
court. G&B further contends that McArdle represented to G&B (but
not to the court) that Triantos would be filing an amended
complaint, and that McArdle assented to the motions for extensions
of time at least in part to allow the defendants to respond to
this forthcoming amended complaint rather than the original
complaint. Nonetheless, this does not fall within the text of
Rule 11(b) as it was not "presenting" to the court.
B.
We also hold that Rule 11's procedural requirements were
not met here.
Under Rule 11, a party's motion for sanctions "must" be
served on all parties as required by Rule 5. Fed. R. Civ. P.
11(c)(2). Furthermore, a motion for sanctions "must not be filed
or be presented to the court if the challenged paper, claim,
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defense, contention, or denial is withdrawn or appropriately
corrected within 21 days after service or within another time the
court sets." Id.; see also id. advisory committee's note to 1993
amendment ("To stress the seriousness of a motion for sanctions
and to define precisely the conduct claimed to violate the rule,
the [Rule] provides that the [21-day] 'safe harbor' period begins
to run only upon service of the motion."). Failure to comply with
these "carefully wrought" procedural requirements "disqualif[ies]"
Rule 11 as a basis for sanctions. Lamboy-Ortiz, 630 F.3d at 244.
Here, G&B did not serve its sanctions motion on McArdle
under Rule 5 or afford him the 21-day safe harbor period required
by Rule 11(c)(2). The "safe harbor" letter that G&B sent McArdle
cannot satisfy these requirements. While parties are encouraged
"to give informal notice . . . whether in person or by a telephone
call or letter" before serving a Rule 11 motion, this informal
notice is not a substitute for actual service of the motion. Fed.
R. Civ. P. 11(c)(2) advisory committee's note to 1993 amendment.
Only service of the motion triggers the 21-day safe harbor period.
Id. 11(c)(2).
III.
For the foregoing reasons, McArdle's Rule 60(b) motion
should have been granted. We reverse and remand with instructions
to vacate the Rule 11 sanctions against McArdle.
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