Julio Antonio Silva v. Pro Transport, Inc.

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 17-12744
Non-Argument Calendar
________________________
D.C. Docket No. 1:15-cv-23028-RNS
JULIO ANTONIO SILVA,
and all others similarly situated under 29 U.S.C. 216(b),
Plaintiff - Appellant,
versus
PRO TRANSPORT, INC.,
OSCAR ACHARANDIO,
TONY MENENDEZ,
Defendants - Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(August 10, 2018)
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Before WILLIAM PRYOR, JILL PRYOR and ANDERSON, Circuit Judges.
PER CURIAM:
Plaintiff Juan Antonio Silva appeals a district court order assessing sanctions
against him and his attorneys. Silva sued his employer, Pro Transport, Inc., and its
owners, Oscar Acharandio and Tony Menendez, to recover unpaid overtime wages
under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-19. The district
court granted summary judgment to the defendants, concluding that judicial
estoppel barred Silva’s FLSA claim because he had failed to disclose it as an asset
in his Chapter 13 bankruptcy. The district court then sanctioned Silva and his
attorneys because it found that they acted in bad faith in litigating Silva’s FLSA
claim when it was clear under our precedent that judicial estoppel barred the claim.
While Silva’s appeal of the sanctions award was pending in our Court, we issued
an en banc opinion clarifying the standard for applying judicial estoppel. See
Slater v. U.S. Steel Corp., 871 F.3d 1174 (11th Cir. 2017) (en banc). Because
Slater makes clear that Silva and his attorneys did not act in bad faith in litigating
the FLSA claim, we reverse the district court’s award of sanctions.
I. BACKGROUND
This dispute arises out of Silva’s claim that Pro Transport failed to pay him
overtime wages. Silva alleged that Pro Transport paid him for working only 40
hours per week, even though he was required to work 70 hours.
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In 2014, Silva consulted with attorney Zandro Palma about his claim for
unpaid overtime wages. Palma sent a letter to Pro Transport demanding payment
on the ground that it had violated the FLSA by failing to pay Silva overtime wages.
But when Pro Transport was unwilling to settle with Silva, Palma ceased
representing Silva.
Later that year, Silva, facing foreclosure on his home, filed a petition for
Chapter 13 bankruptcy. In the bankruptcy proceeding, Silva was represented by a
different attorney. In the bankruptcy petition, Silva was required to disclose his
assets. He failed to list his FLSA claim against Pro Transport and its owners as a
contingent and unliquidated claim. In April 2015, the bankruptcy court confirmed
Silva’s Chapter 13 plan.
In August 2015, Silva’s mother saw an advertisement by attorney J.H.
Zidell. At his mother’s urging, Silva met with Zidell about his potential claim for
unpaid wages. At the meeting, Zidell had Silva complete an intake form that asked
whether Silva had any pending legal matters. Silva did not identify his pending
bankruptcy proceeding because he did not think that it was relevant. Zidell did not
ask Silva in person whether he had any pending legal matters. After the meeting,
Zidell filed this action on Silva’s behalf. When the action was filed, Silva did not
update his bankruptcy disclosures to reflect that he had filed the lawsuit.
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The defendants in the FLSA action moved for summary judgment, asserting
that judicial estoppel barred Silva’s FLSA claim because he had taken inconsistent
positions regarding the existence of that claim by bringing the civil action and
failing to disclose the claim in his bankruptcy proceeding and because Silva acted
with an intent to manipulate the judicial process. Regarding Silva’s intent, the
defendants relied on our precedent holding that a plaintiff who fails to disclose a
civil claim in a bankruptcy proceeding acts intentionally because he has a motive
to conceal the claim from his creditors to avoid having the proceeds from the
lawsuit become the property of the bankruptcy estate.
In response to the summary judgment motion, Silva argued that judicial
estoppel was unwarranted because he had never intended to manipulate or make a
mockery of the judicial system; rather, he had merely made a mistake. Silva
explained that due to his lack of sophistication he had not understood the
importance of telling Ziddell about his bankruptcy proceeding or informing his
bankruptcy counsel of his FLSA lawsuit. Silva also pointed out that he was
attempting to correct the error by amending his bankruptcy disclosures, as was
permitted under the bankruptcy rules. His bankruptcy attorney successfully
amended Silva’s bankruptcy schedules to disclose the pending FLSA claim as an
asset.
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The district court granted summary judgment to the defendants, finding that
Silva had intended to make a mockery of the judicial system and concluding that
judicial estoppel barred his FLSA claim. The district court explained that under
existing Circuit precedent Silva had acted intentionally because he had a motive to
conceal his FLSA claim in his bankruptcy proceedings. The district court
dismissed as “insufficient,” “irrelevant[,] and immaterial” Silva’s attempt to
correct the non-disclosure by amending his bankruptcy schedules. Doc. 38 at 2. 1
After the district court entered judgment in the defendants’ favor, they
moved for sanctions against Silva and his attorneys, seeking to recover their
attorney’s fees and costs. They argued that the district court should award
sanctions pursuant to its internal authority, 28 U.S.C. § 1927, and Federal Rule of
Civil Procedure 11 because Silva and his attorneys had acted unreasonably and in
bad faith in litigating the FLSA claim when they knew or should have known that
judicial estoppel barred the action. Silva and his attorneys opposed the motion for
sanctions, contending that they had a good faith basis for arguing that judicial
estoppel should not apply, especially given that Silva amended his bankruptcy
disclosures upon learning of the omission.
The district court referred the sanctions motion to a magistrate judge. After
a hearing, the magistrate judge recommended that the district court impose
1
Citations to “Doc. #” refer to numbered entries on the district court’s docket.
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sanctions against Silva and his attorneys. The magistrate judge found that Silva
and his attorneys had acted unreasonably and in bad faith in bringing the FLSA
claim because “the case law in the Eleventh Circuit is clear that when a debtor fails
to disclose a pending lawsuit to the bankruptcy court, while having knowledge of
the lawsuit and a motive to conceal it, the doctrine of judicial estoppel bars the
undisclosed action from proceeding.” Doc. 61 at 14 (internal quotation marks
omitted). The magistrate judge determined that Silva’s attorneys had failed to
perform an adequate investigation before filing the lawsuit. Although Zidell asked
Silva on an intake form whether he had any other pending actions, the magistrate
judge found that Zidell was required to ask Silva at their meeting whether he had
any pending litigation or to search the PACER system to verify that Silva had no
other pending federal actions.2
Although Silva and his attorneys objected to the magistrate judge’s Report
and Recommendation, the district court adopted it and granted the motion for
sanctions. While the parties were litigating over the amount of the sanctions
award, our Court agreed to rehear Slater en banc to address judicial estoppel in the
context of a debtor’s failure to disclose an asset in a Chapter 13 bankruptcy. Silva
asked the district court to stay the case pending the en banc decision in Slater. The
2
The magistrate judge also noted that Silva gave inconsistent testimony at the evidentiary
hearing about whether his first attorney, Palma, told him that he had no overtime case and about
the identity of the attorneys who represented him in his bankruptcy proceedings. But the
magistrate judge did not rely on these inconsistencies to find that Silva acted in bad faith.
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district court refused to stay the case and ultimately awarded the defendants
sanctions in the amount of $50,756 in attorney’s fees and $445.43 in costs holding
Silva and his attorneys jointly and severally liable for the sanctions award.
This is Silva’s appeal. 3 We note that Silva appeals only the district court’s
decision to impose sanctions and not the underlying grant of summary judgment.
II. STANDARD OF REVIEW
We review a district court’s imposition of sanctions for abuse of discretion.
See Nicholson v. Shafe, 558 F.3d 1266, 1270 (11th Cir. 2009) (applying abuse of
discretion standard to review sanctions imposed under Rule 11 and 28 U.S.C.
§ 1927); Barnes v. Dalton, 158 F.3d 1212, 1214 (11th Cir. 1998) (applying abuse
of discretion standard to review sanctions imposed pursuant to district court’s
inherent power). “An abuse of discretion occurs if the judge fails to apply the
proper legal standard or to follow proper procedures in making the determination
or bases an award . . . upon findings of fact that are clearly erroneous.” Mut. Servs.
Ins. Co. v. Frit Indus., Inc., 358 F.3d 1312, 1322 (11th Cir. 2004) (internal
quotation marks omitted). “Under clear error review, we will reverse only if after
viewing all the evidence, we are left with the definite and firm conviction that a
3
After filing a notice of appeal, Silva filed a motion in our Court to stay the appeal
pending our en banc decision in Slater. We granted the motion. The parties submitted their
briefs once the Slater en banc decision issued.
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mistake has been committed.” Sciarretta v. Lincoln Nat’l Life Ins. Co., 778 F.3d
1205, 1213 (11th Cir. 2015) (internal quotation marks omitted).
III. DISCUSSION
Silva contends that the district court abused its discretion when it imposed
sanctions against him and his attorneys pursuant to its inherent power, 28 U.S.C.
§ 1927, and Federal Rule of Civil Procedure 11. Before addressing whether the
district court abused its discretion in imposing sanctions, we pause to discuss our
Circuit’s law regarding judicial estoppel after our decision in Slater.
Judicial estoppel applies when (1) a party takes an inconsistent position
under oath in a separate proceeding, and (2) the party’s inconsistent positions were
“calculated to make a mockery of the judicial system.” Slater, 871 F.3d at 1181
(internal quotation marks omitted). In Slater, we addressed how judicial estoppel
applies when a plaintiff brings a civil claim that he failed to disclose in his
bankruptcy proceeding. Id. at 1176. We acknowledged that such a plaintiff has
taken an inconsistent position “by asserting in the civil lawsuit that he has a claim
against the defendant while denying under oath in the bankruptcy proceeding that
the claim exists.” Id. We focused our analysis in Slater on the evidence required
for a court to infer that the plaintiff intended to make a mockery of the judicial
system. Id.
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Prior to Slater, we endorsed an inference that a plaintiff who failed to
disclose a civil claim intended to make a mockery of the judicial system because
she knew about the existence of her civil claim and possessed a motive to conceal
it. Id. at 1184. We treated as irrelevant the fact that the plaintiff subsequently
corrected her bankruptcy disclosures because a party should not be permitted to
“‘back-up, re-open the bankruptcy case, and amend his bankruptcy filings’ after
[her] adversary raises judicial estoppel.” Id. at 1183 (quoting Burnes v. Pemco
Aeroplex, Inc., 291 F.3d 1282, 1288 (11th Cir. 2002)). Under our prior precedent,
then, a defendant could establish as a matter of law that the plaintiff intended to
make a mockery of the judicial system simply by showing that she failed to
disclose a civil claim in her bankruptcy proceedings; a court was not required to
consider all of the circumstances of the particular case to determine whether the
plaintiff acted with the requisite intent. Id. at 1184.
In Slater we overruled our precedent that “permit[ted] a district court to infer
intent to misuse the courts without considering the individual plaintiff and the
circumstances surrounding the nondisclosure.” Id. at 1177. We held instead that
to find that a plaintiff who failed to disclose a civil claim in his bankruptcy
proceedings intended to make a mockery of the judicial system, a district court
must consider “all the facts and circumstances of the particular case” including:
the plaintiff’s level of sophistication, whether and under what
circumstances the plaintiff corrected the disclosures, whether the
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plaintiff told his bankruptcy attorney about the civil claims before
filing the bankruptcy disclosures, whether the trustee or creditors were
aware of the civil lawsuit or claims before the plaintiff amended the
disclosures, whether the plaintiff identified other lawsuits to which he
was party, and any findings or actions by the bankruptcy court after
the omission was discovered.
Id. at 1185. We explained that it was inappropriate to infer in all cases that a
debtor who failed to disclose a lawsuit intended to make a mockery of the judicial
system because less sophisticated debtors “may not realize that a pending lawsuit
. . . must be disclosed” in bankruptcy. Id. at 1186.4
With Slater’s holding in mind, we turn to whether the district court erred in
imposing sanctions in this case. A district court may impose sanctions pursuant to
its inherent authority, 28 U.S.C. § 1927, and under Federal Rule of Civil Procedure
11 if the plaintiff acted in bad faith by pursuing a claim that was plainly barred by
existing precedent and there was no reasonable chance of success in changing the
law.
If these conditions are met, a district court may impose sanctions pursuant to
its inherent authority because a court is permitted to exercise its inherent power to
impose sanctions when it finds that a party litigated a case in bad faith. Barnes,
158 F.3d at 1214. We have recognized that a finding of bad faith is warranted
when “an attorney knowingly or recklessly raises a frivolous argument.” Id.
4
Of course, a factfinder ultimately “may determine that a plaintiff’s testimony that he
misunderstood the disclosure obligations is not credible.” Slater, 871 F.3d at 1186 n.12.
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(internal quotation marks omitted); see In re Evergreen Sec., Ltd., 570 F.3d 1257,
1274 (11th Cir. 2009) (recognizing that “continually advancing [a] groundless and
patently frivolous litigation is tantamount to bad faith” (internal quotation marks
omitted)).
Likewise, when a plaintiff pursues a frivolous claim in bad faith, a district
court is permitted to award sanctions against her attorney under 28 U.S.C. § 1927.
A district court may impose sanctions under § 1927 against an attorney who
“multiplies the proceedings in any case unreasonably and vexatiously.” 28 U.S.C.
§ 1927. An attorney unreasonably and vexatiously multiplies the proceedings
when he “willfully abuse[s] the judicial process by conduct tantamount to bad
faith.” Schwartz v. Millon Air, Inc., 341 F.3d 1220, 1225 (11th Cir. 2003) (internal
quotation marks omitted). And an attorney acts in bad faith when she “knowingly
or recklessly pursues a frivolous claim.” Id.
A district court may also impose sanctions pursuant to Rule 11 when a party
files a legal action that is based on a legal theory that has no reasonable chance of
success. Rule 11 provides that when an attorney files a pleading, written motion,
or other paper, he certifies that “to the best of [his] knowledge, information, and
belief, formed after an inquiry reasonable under the circumstances” that the
pleading “is not being presented for any improper purpose, such as to harass, cause
unnecessary delay, or needlessly increase the cost of litigation”; “the claims . . . are
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warranted by existing law or by a nonfrivolous argument for extending, modifying,
or reversing existing law or for establishing new law;” and there is “evidentiary
support” for the factual contentions. Fed. R. Civ. P. 11(b)(1)-(3). A district court
thus may impose sanctions under Rule 11 when a party files a pleading that “(1)
has no reasonable factual basis; (2) is based on a legal theory that has no
reasonable chance of success . . . ; [or] (3) is filed in bad faith for an improper
purpose.” Baker v. Alderman, 158 F.3d 516, 524 (11th Cir. 1998).
The magistrate judge found—and the district court accepted—that it was
appropriate to impose sanctions in this case because “Eleventh Circuit case law is
clear that Silva’s failure to disclose the overtime wages claim in the bankruptcy
proceedings precluded him from bringing this action.” Doc. 61 at 15 n.12. The
district court concluded that our judicial estoppel precedent foreclosed Silva’s
FLSA claim and thus that his action was frivolous. By filing a frivolous lawsuit,
Silva and his attorneys acted in bad faith, making sanctions appropriate.
But the magistrate judge and the district court relied on our pre-Slater cases,
which held that a plaintiff who failed to disclose a civil action in bankruptcy
proceedings necessarily acted with an intent to make a mockery of the judicial
system because he had a potential motive to conceal a claim. In Slater we
overruled this precedent and rejected the argument that judicial estoppel must be
applied when a plaintiff failed to disclose a civil claim in his bankruptcy
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proceeding. We held that a district court must consider all the facts and
circumstances of the case to find that the plaintiff acted with the requisite intent to
make a mockery of the judicial system. See Slater, 871 F.3d at 1185.
In light of Slater, we are left with a definite and firm conviction that the
district court made a mistake in determining that Silva and his attorneys took a
frivolous position and had no reasonable chance of success in arguing that judicial
estoppel did not apply. 5 As Slater illustrates, Silva and his attorneys had
reasonable arguments that judicial estoppel should not apply given, among other
things, Silva’s lack of sophistication and the fact that the bankruptcy court
permitted Silva to amend his bankruptcy schedules to add the FLSA claim. See
Slater, 871 F.3d at 1185 (identifying “the plaintiff’s level of sophistication” and
“whether . . . the plaintiff corrected the disclosures” as factors relevant to whether
the plaintiff intended to make a mockery of the judicial system). Because the facts
do not support that Silva and his attorneys acted in bad faith or took legal action
5
The defendants argue that because Silva appealed only the imposition of sanctions, not
the grant of summary judgment, he may not relitigate whether the district court properly applied
judicial estoppel. We agree that the question of whether the district court properly granted
summary judgment based on judicial estoppel is not before us in this appeal. But to review the
sanctions order, we must assess whether the district court clearly erred in finding that Silva and
his attorneys acted in bad faith and for an improper purpose when they brought the FLSA claim.
This question requires us to consider whether it was frivolous for Silva to assert that judicial
estoppel did not apply. See Schwartz, 341 F.3d at 1225; Baker, 158 F.3d at 524. And although
Slater was issued after the district court imposed sanctions, Slater’s reasoning is relevant to
determining whether Silva took a reasonable position in the litigation when he contended that
judicial estoppel should not apply.
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that had no reasonable chance of success, we conclude that the district court
abused its discretion in imposing sanctions. 6
IV. CONCLUSION
For the foregoing reasons, we reverse the district court’s award of sanctions
to the defendants.
REVERSED.
6
The district court found in the alternative that even if judicial estoppel did not apply,
Silva and his attorneys acted in bad faith because Silva lacked standing to assert the FLSA claim.
But this finding was also clearly erroneous because the district court misunderstood a debtor’s
standing to pursue a civil claim. It is true that in a Chapter 7 bankruptcy generally only the
trustee, not the debtor, has standing to pursue a civil legal claim. See Slater, 871 F.3d at 1180.
But in a Chapter 13 bankruptcy, the debtor retains standing to continue to pursue the civil claim.
See id. (citing 11 U.S.C. § 1303; Fed. R. Bankr. P. 6009)).
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