Sheldon v. Vermonty

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
AUG 3 2004
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
DAVE SHELDON,
Plaintiff-Appellee/Cross-
Appellant, Nos. 02-3364 & 03-3048
(D.C. No. 98-CV-2277-JWL)
v. (D. Kan.)
JAY VERMONTY; CARMEN
VERMONTY; GERSHON
TANNENBAUM,
Defendants-Appellants/Cross-
Appellees.
ORDER AND JUDGMENT *
Before EBEL , ANDERSON , and BRISCOE , Circuit Judge.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
these appeals. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The cases are
therefore ordered submitted without oral argument.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
These appeals arise out of an action for securities violations and fraud
brought by plaintiff to redress losses suffered in stock transactions involving a
corporation controlled and promoted by defendants. After the jury found against
defendants and awarded plaintiff $38,722 in compensatory damages, the district
court heard additional evidence and awarded plaintiff $150,000 in punitive
damages, $35,921 in statutory interest, $186,000 in attorney fees, and $12,000 in
costs. Plaintiff filed a motion to alter or amend judgment, seeking an increase in
the punitive damages, fees, and costs. The district court increased the award of
costs to $12,143, but left the punitive damages and fee awards unchanged.
Both sides appealed. In Appeal No. 02-3364, defendants assert numerous
objections regarding the judgment of liability and the determination of damages. 1
In Appeal No. 03-3048, plaintiff raises several issues regarding the fee award and
also challenges, more summarily, the district court’s determination of punitive
damages and costs. We affirm in both appeals, with one minor modification
regarding plaintiff’s allowable costs.
1
Defendants filed a notice of appeal following the jury verdict but before the
district court determined punitive damages, and then failed to file a notice of
appeal with respect to the subsequent award of punitive damages, fees, and costs.
In the meantime, however, this court ordered the parties to brief the question of
jurisdiction in Appeal No. 02-3364, and we now hold that defendants’ resultant
memorandum brief, filed December 5, 2002, “gives the notice required by Rule 3
[of the Federal Rules of Appellate Procedure, and] is effective as a notice of
appeal” sufficient to encompass the matters defendants address in their merits
briefs. Smith v. Barry , 502 U.S. 244, 248-49 (1992).
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Defendants’ Appeal (No. 02-3364)
Several issues raised by defendants concern trial matters that fall within the
discretion of the district court, including the admission and exclusion of evidence,
see McCue v. Kan., Dep’t of Human Resources , 165 F.3d 784, 788 (10 th Cir.
1999), enforcement of procedural provisions of the pretrial order, see Denison v.
Swaco Geolograph Co. , 941 F.2d 1416, 1425 (10 th Cir. 1991), handling of
alleged juror misconduct, see United States v. McVeigh , 153 F.3d 1166, 1185
(10 th Cir. 1998), and maintenance of courtroom decorum, see United States v.
Okoronkwo , 46 F.3d 426, 436 (5 th Cir. 1995). Upon consideration of the parties’
contentions and the pertinent materials, we discern no abuse of discretion by the
district court in any of these respects.
Plaintiff prevailed on his claim under Kan. Stat. Ann. § 17-1255 that
defendants aided and abetted the sale of unregistered securities. The only
affirmative defenses to this claim asserted by defendants in the pretrial order had
been that the securities were exempt from registration requirements pursuant to
Kan. Stat. Ann. § 17-1262(c) and (h). See R. doc. 257 at 32-33; see also id. at 11.
Now, on appeal, defendants complain that they were not given the opportunity to
prove that the securities were also exempt under Kan. Stat. Ann. § 17-1262(b),
citing only to the trial record where, again, they made no reference to this distinct
exemption. See R. doc. 361 at 561-63; see also id. at 564-70 (further discussion
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of § 17-1262(c) & (h) defenses). We reject defendants’ attempt to expand the
scope of their preserved and presented trial defenses.
In contrast to plaintiff’s success on the aiding and abetting claim under
§ 17-1255, plaintiff failed to persuade the jury that defendants had also violated
Kan. Stat. Ann. § 17-1254 by acting as broker-dealers themselves. Yet on appeal
defendants object to the admission of evidence plaintiff offered, ineffectually, to
prove that they were required to register as broker-dealers. “It is elementary that
a litigant is not entitled to have the court decide the merits of an issue he raises
unless he can show some basis for arguing that the challenged action has caused
him a cognizable injury.” Ass’n Against Discrimination in Employment, Inc. v.
City of Bridgeport , 710 F.2d 69, 73 (2d Cir. 1983). Given the disposition of the
claim in their favor, defendants lack standing merely to seek review of subsidiary
rulings or findings they deem erroneous. See United States v. Good Samaritan
Church , 29 F.3d 487, 488 (9 th Cir. 1994).
In conjunction with seeking an evidentiary hearing on punitive damages,
plaintiff’s counsel submitted an affidavit from plaintiff that was later revealed to
have been improperly notarized by counsel outside plaintiff’s physical presence.
When the circumstances were explained, candidly, by counsel, the district court
found no fraudulent intent had been involved and elected to strike the affidavit
but impose no further sanction. Plaintiff testified at the hearing, so exclusion of
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the affidavit did not affect the evidentiary underpinning for the court’s subsequent
punitive damage award. On appeal, defendants insist the court should have halted
the punitive damage proceedings altogether and ordered plaintiff and his counsel
to pay costs associated with the aborted proceedings.
The district court is afforded “wide discretion in selecting an appropriate
sanction.” Eisenberg v. Univ. of N.M. , 936 F.2d 1131, 1136 (10 th Cir. 1991).
Considering the substantive inconsequentiality of the offending conduct, and
keeping in mind the general principle that “[t]he appropriate sanction should be
the least severe sanction adequate to deter and punish the plaintiff,” id. (quotation
omitted), we do not think the district court acted beyond the proper bounds of its
discretion in limiting its sanction to striking the improperly notarized affidavit.
Defendants appear to combine two distinct objections to the verdict against
them on plaintiff’s “10b-5 claim” under Section 10b of the Securities Exchange
Act of 1934, 15 U.S.C. § 78j(b), and 17 C.F.R. § 240.10b-5. They initially frame
the issue in terms of the district court’s failure to instruct the jury on the requisite
scienter, but virtually all of their argument is directed toward what they consider
plaintiff’s insufficient proof on that element. The indirect nature of defendants’
presentation here may reflect their intimation, apt as explained below, that they
failed to preserve the evidentiary challenge at trial.
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Parties may not raise a particular issue of evidentiary insufficiency on
appeal unless they moved for judgment as a matter of law on the issue at the close
of evidence, thereby affording the trial court a chance to consider the matter
before giving the case to the jury. Cummings v. Gen. Motors Corp. , 365 F.3d
944, 949 (10 th Cir. 2004). And though “technical precision” in identifying the
grounds for such a motion is not required, the focus of the evidentiary challenge
must at least “be stated with sufficient certainty to apprise the court and opposing
counsel of the movant’s position.” Id. at 949-50 (quotation omitted). “Merely
moving for directed verdict is not sufficient to preserve any and all issues that
could have been, but were not raised in the directed verdict motion.” Id. at 950(quotation omitted). Here, when given the chance to explain their generic and
obscure “motion to dismiss this case in its entirety” because “plaintiff failed to
present a prima facie case,” R. doc. 361 at 548, defendants conceded that they had
“nothing further to add by way of argument in support,” id. at 551, and the court
turned to other matters . Under the circumstances, defendants may not now target
the scienter element of plaintiff’s 10b-5 claim for an evidentiary challenge.
We also reject defendants’ related contention that the jury was not told that
a failure of proof on scienter would be fatal to plaintiff’s 10b-5 claim. The
instruction stating the elements of the 10b-5 claim informed the jury that it had to
find “that the defendant acted knowingly,” R. doc. 332 at 13, and a separate
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instruction specifically elaborated on this requirement that “the defendant acted
‘knowingly’ or with ‘scienter,’” explaining, inter alia, that “[i]t is not enough for
the plaintiff to show the defendant acted accidently, mistakenly, or negligently,”
id. at 17.
In sum, defendants have failed to demonstrate any reversible error in
connection with the judgment entered against them. We therefore affirm in
Appeal No. 02-3364.
Plaintiff’s Cross-Appeal (No. 03-3048)
Attorney Fees
Following his success at trial, plaintiff moved for “reasonable attorney
fees” under Kan. Stat. Ann. § 17-1268(a). While this statutory fee authorization
rests on “only three of [plaintiff’s] claims, the three Kansas Security Act claims,”
the district court recognized that, under relevant state case law, “plaintiff is
entitled to recover a reasonable fee for all of his claims.” Sheldon v. Vermonty ,
237 F. Supp. 2d 1270, 1273-74 (D. Kan. 2002). In contrast to these substantive
points, which are properly controlled by state law, our standard of review is a
matter of federal law. See Mid-America Pipeline Co. v. Lario Enters., Inc. ,
942 F.2d 1519, 1524 (10 th Cir. 1991). Accordingly, we review the
reasonableness of the district court’s fee award only “for abuse of
discretion, giving great weight to the district court’s assessment.” Sussman v.
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Patterson , 108 F.3d 1206, 1209 (10 th Cir. 1997) (quotation omitted). The district
court determined the fee amount using the traditional lodestar formula of a
reasonable number of hours times a reasonable hourly fee. On appeal, plaintiff
objects only to the number of hours used in the district court’s calculation.
Plaintiff initially sought fees for approximately 2100 hours. The district
court reduced the figure to 1200 hours, citing the inadequacy of billing records
(particularly for work done after plaintiff and counsel switched to a contingency
fee arrangement and counsel’s hourly rate doubled), lack of billing judgment, and
the expenditure of excessive time on tasks that warranted much less time or were
not even necessary. See Sheldon , 237 F. Supp. 2d at 1275-78 (also noting this
court’s prior assessment of “the poor quality of [counsel’s] advocacy,” Sheldon v.
Vermonty , 2000 WL 1774038, at *6 (10 th Cir. Dec. 4, 2000)). Plaintiff moved for
reconsideration, conceding that his initial request had overstated the number of
compensable hours and substituting a request for 1725 hours supported by more
detailed billing records. The district court refused to alter its determination,
noting that the supporting materials were still deficient in some respects and
holding that, in any event, even if the updated materials complied with applicable
standards, the prior hourly reduction remained appropriate “for lack of billing
judgment and because the billing for certain tasks was not reasonable.” Id. at
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1284. The court also commented that the large hourly discrepancy between the
initial and updated requests had undermined counsel’s credibility. Id.Plaintiff offers a rambling critique of the district court’s determination, and
some of the points strung together in his brief warrant little comment. He objects
to the court’s observation–on the materials submitted with the first request–that
“it is clear [counsel] was not keeping detailed, contemporaneous records,” id. at
1278, by suggesting that counsel had only to “keep” such records and that it was
the court’s duty to inquire into, solicit, and facilitate submission of such records
to shore up the deficient request. See Appellee’s Response and Cross-Appellant’s
Opening Brief (Aplee. Br.) at 29, 32, 37. This view of the respective duties of
court and counsel is mistaken; counsel bears the burden of proving reasonable
hours to the court “by submitting meticulous, contemporaneous time records.”
Case v. Unified Sch. Dist. No. 233 , 157 F.3d 1243, 1250 (10 th Cir. 1998); see
Mallinson-Montague v. Pocrnick , 224 F.3d 1224, 1234 (10 th Cir. 2000) (noting
counsel must “keep and produce” time records to support fee request). We are
likewise unmoved by the hyperbole in plaintiff’s complaint that all of the effort
put into substantiating the fee request was perfunctorily undercut by the district
court “in one conclusory sentence,” Aplee. Br. at 38; on the contrary, the court’s
thorough consideration is plainly evident from its lengthy published analysis of
the matter. See Sheldon , 237 F. Supp. 2d at 1273-80, 1283-84.
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We also think it rather disingenuous of plaintiff to justify the inadequacy of
counsel’s first billing statement by referring to its hasty completion in the busy
period just before trial. There was nothing to prevent counsel from revising the
materials during the month between trial and the bench proceedings on the fee
request. But we need not pause long over plaintiff’s attempts to explain or excuse
the manner in which the documentary burden associated with the fee request was
handled, because, as noted above, the district court ultimately held that its initial
reduction of the hourly total was appropriate in any event for the lack of billing
judgment and excessive time expenditures evident in the request.
The primary thrust of plaintiff’s criticism of the district court’s hourly
determination is that it did not include much detail about specific instances
prompting the reduction made. But “‘[a] general reduction of hours claimed in
order to achieve what the court determines to be a reasonable number is not an
erroneous method, so long as there is sufficient reason for its use.’” Case ,
157 F.3d at 1250 (quoting Mares v. Credit Bureau of Raton , 801 F.2d 1197, 1203
(10 th Cir. 1986)). In fact, in a case such as this, with “thousands of pages of
written work product” and “well over a hundred pages in billing statements,” an
overly particularized approach “is neither practical nor desirable.” Id. (quotation
omitted); see, e.g., Gudenkauf v. Stauffer Communications, Inc. , 158 F.3d 1074,
1082-83 (10 th Cir. 1998).
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What is “important is the discretionary determination by the district court
of how many hours, in its experience, should have been expended on the specific
case.” Case , 157 F.3d at 1250. The discussion in the district court’s initial and
supplemental orders is sufficient to satisfy us that it properly considered the
submitted materials in light of its hands-on knowledge of the demands of the case
and the efficiency and efficacy of counsel’s efforts to satisfy those demands. We
cannot say its determination was “arbitrary, capricious, whimsical, or manifestly
unreasonable.” Mallinson-Montague , 224 F.3d at 1235 (articulating standard of
review for discretionary hourly fee determination) (quotation omitted).
Plaintiff suggests the fee reduction here is comparable to the determination
reversed by this court in Case . But we read Case as different not only in degree
but in kind. There, this court reversed an 80% hourly reduction that cut counsel’s
time to less than one-half that worked–and conceded as reasonable–by opposing
counsel. We noted such unprecedented circumstances made for a “rare case”
requiring the district court to provide “a fuller explanation for its actions.” Case ,
157 F.3d at 1253. Here, in contrast, there is no concession from defendants
regarding the reasonableness of plaintiff’s hourly request, and the reduction made
by the court is of a facially plausible, indeed fairly common, magnitude, see, e.g. ,
Mallinson-Montague , 224 F.3d at 1235; Gudenkauf , 158 F.3d at 1082; Jane L. v.
Bangerter , 61 F.3d 1505, 1510 (10 th Cir. 1995).
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Finally, plaintiff summarily complains that the district court failed to make
an adjustment for inflation. Plaintiff did not raise this point in either his initial
fee request or his motion for reconsideration. We will not disturb the district
court’s otherwise proper exercise of discretion on the basis of a contention it was
not given an adequate chance to consider. See, e.g. , Pierce v. Shorty Small’s of
Branson Inc. , 137 F.3d 1190, 1192 (10 th Cir. 1998).
Punitive Damages
Plaintiff objects to the district court’s punitive damage award of $150,000,
insisting the amount “should have been at a minimum very close to $500,000.”
Aplee. Br. at 54. We note that this suggested minimum would potentially exceed
a constitutionally permissible ratio of consequential to punitive damages. See
Cont’l Trend Res., Inc. v. OXY USA Inc. , 101 F.3d 634, 639-40 (10 th Cir. 1996).
In any event, we affirm the district court’s award under conventional common law
review principles.
The district court’s factual determinations regarding the amount of punitive
damages may not be disturbed on appeal unless they are clearly erroneous. Nieto
v. Kapoor , 268 F.3d 1208, 1221 (10 th Cir. 2001). To properly implement this
standard of review, we must have all of the relevant evidence relied upon by the
party challenging the operative findings. Plaintiff’s argument for a larger award
of punitive damages focuses on the district court’s finding that he had not shown
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that defendants profited from their misconduct. Plaintiff cites a number of trial
exhibits that he insists establish such profit. But the trial exhibits are not in the
appellate record. In light of this omission plaintiff cannot satisfy his burden of
demonstrating that the district court’s findings were erroneous. Scott v. Hern ,
216 F.3d 897, 912 (10 th Cir. 2000) (following Deines v. Vermeer Mfg. Co. ,
969 F.2d 977, 979-80 (10 th Cir. 1992)); see also United States v. Hanif , 1 F.3d
998, 1002 & n.2 (10 th Cir. 1993). Even if some of the contents of these exhibits
were included in some form with other materials in the eighteen-volume record, it
would not be incumbent upon this court to search for and muster evidence that
might support plaintiff’s appeal. Munoz v. St. Mary-Corwin Hosp. , 221 F.3d
1160, 1167 n.6 (10 th Cir. 2000); see also Lantec, Inc. v. Novell, Inc. , 306 F.3d
1003, 1019 (10 th Cir. 2002).
The district court supported its determination of punitive damages with an
extensive and thoughtful analysis of the many relevant factors. See Sheldon , 237
F. Supp. 2d at 1280-83, 1286-87. Plaintiff has not demonstrated any error in this
analysis. We therefore affirm.
Costs
The district court awarded plaintiff $12,143 in costs. On appeal, plaintiff
objects to the district court’s exclusion of expenses falling outside the express
scope of 28 U.S.C. § 1920, arguing that some of the excluded costs were actually
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covered by the statute and that, in any event, the district court retained and should
have exercised discretion to award even those costs that are not listed. The latter
argument is contrary to controlling precedent. See Bee v. Greaves , 910 F.2d 686,
690 (10 th Cir. 1990) (following Crawford Fitting Co. v. J.T. Gibbons, Inc. ,
482 U.S. 437, 441-42 (1987), to hold district court “has no discretion to award
items as costs that are not set out in section 1920”); cf. Gobbo Farms & Orchards
v. Poole Chem. Co. , 81 F.3d 122, 123 (10 th Cir. 1996) (noting district court has
discretion to disregard limits set by statute if awarding costs as a sanction ).
Most of the items cited by plaintiff are simply not included in the statutory
allowance. The district court did, however, mishandle one matter that is covered.
Plaintiff sought expenses associated with a witness, Mike Psak, to which he was
entitled under § 1920(3) (“[f]ees and disbursements for . . . witnesses”). This
entitlement is fleshed out in 28 U.S.C. § 1821: “In addition to an attendance fee
of [$40.00] per day, section 1821 also permits a witness to recover for travel
expenses to and from trial and provides a subsistence allowance if the witness
must stay overnight to attend trial.” Reazin v. Blue Cross & Blue Shield of Kan,
Inc. , 899 F.2d 951, 980 n.45 (10 th Cir. 1990); see §§ 1821(b), (c) & (d). Plaintiff
requested travel and subsistence expenses for Psak, but the district court denied
the request on the basis that anything beyond the $40.00 attendance fee was not
taxable. Sheldon , 237 F. Supp. 2d at 1285-86.
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The error is easily corrected. Plaintiff included a receipt for Psak’s airfare
($159), and we take judicial notice of the fact that the applicable government
subsistence per diem referenced in § 1821(d) was $123 at the time of trial. Thus,
we will modify the judgment to add $282 to the allowed costs, raising the total to
$12,282. In doing so, we note that the full $700 plaintiff sought in connection
with Psak was inflated by a clearly unauthorized request for reimbursement of
missed work time and a generic request for car expenses that were not specified,
quantified, or substantiated by receipts.
The judgment of the district court, as modified to include an additional
$282 to the total costs allowed, is AFFIRMED. Pending motions for stay and
formal consolidation of these appeals are DENIED as moot.
Entered for the Court
David M. Ebel
Circuit Judge
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