Colleen Macort v. Prem, Inc.

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
NOVEMBER 30, 2006
No. 06-12316
THOMAS K. KAHN
Non-Argument Calendar
CLERK
________________________
D. C. Docket No. 03-01710-CV-T-17-MSS
COLLEEN MACORT,
ACCESS NOW, INC., a
Florida not-for-profit
corporation,
Plaintiffs-Appellees,
versus
PREM, INC., a Florida
corporation d.b.a. Budget
Inn of Sarasota,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_________________________
(November 30, 2006)
Before CARNES, WILSON and PRYOR, Circuit Judges.
PER CURIAM:
Prem, Inc., more commonly known as Budget Inn of Sarasota (Budget),
appeals the district court’s order adopting the magistrate judge’s report and
recommendation denying Budget’s motion for fees, costs and sanctions against
Colleen Macort and Access Now, Inc.
I.
In 2003, Macort and Access Now filed suit against Budget for failing to
comply with the American with Disabilities Act. During Macort’s April 2004
deposition, it became clear that she lacked standing to pursue her claim. A month
after the deposition, Budget filed a motion to dismiss for lack of standing and a
motion for fees and sanctions pursuant to Fla. Rules Prof’l Conduct R. 4-1.8, Fed.
R. Civ. P. 11, and 28 U.S.C. § 1927. In the fees and sanction motion Budget
asserted that Macort’s counsel failed to conduct a sufficient pre-suit investigation.
Several days later, Macort’s counsel sent Budget a proposed joint motion to
dismiss without prejudice. Budget, wanting its own motion to dismiss and motion
for fees and sanctions to be considered, did not respond to the proposed joint
motion.
Macort then filed its own separate motion for the district court to dismiss
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the suit with prejudice, and the court did so. At the time the court granted
Macort’s motion to dismiss, Budget had not yet received a copy of that motion.
The court ordered each party to bear its own cost. Budget filed a motion to vacate
and set aside the judgment under Fed. R. Civ. P. 59(e) and 60(b) and renewed its
motion for fees and sanctions. The district court denied both motions, and Budget
timely appealed.
We considered that appeal and decided that the district court had abused its
discretion by dismissing the suit without allowing Budget an opportunity to
respond. We vacated both the district court’s order granting the motion to dismiss
and that part of its order denying Budget’s motion for fees and sanctions based on
Fla. Rules Prof’l Conduct R. 4-1.8 and 28 U.S.C. § 1927. We did affirm the part
of the district court’s order denying the motion for fees and sanctions insofar as it
was based on Rule 11 grounds.
On remand, the district court decided that an evidentiary hearing was
needed on Budget’s sanctions motion and referred the matter to a magistrate judge.
After holding a three-hour evidentiary hearing on October 20, 2005, the magistrate
judge issued on December 16, 2005 a report and recommendation that the district
court deny Budget’s motion for sanctions. Budget filed objections to the report.
On April 13, 2006, the district court adopted the magistrate judge’s report
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and recommendation, denying Budget’s motion for costs, fees and sanctions. The
district’s denial order categorized Budget’s objections as: (1) failing to raise any
specific problems with the magistrate judge’s report and merely reciting the
background of the case; (2) asserting facts not found by the magistrate judge’s
report that did not effect the outcome of the decision; and (3) simply offering a
detailed analysis of the relevant law. The district court’s order stated that the
magistrate judge’s findings were supported by the evidence and adopted them.
Budget filed its notice of appeal the next day, April 14, 2006. The transcript of the
evidentiary hearing was not available to the court or the parties until June 20,
2006, well after the district court had adopted the magistrate judge’s report.
II.
Budget first contends that the district court adopted the wrong standard of
review in considering the magistrate judge’s report and Budget’s objections to it.
Budget contends that its objections necessitated de novo review and that the
district court could not have conducted de novo review because the hearing
transcript was not available and there is no indication that the court had listened to
the tape-recording of the evidentiary hearing. It argues that the district court
erroneously concluded that no specific objections were raised and improperly
reviewed the report only for clear error.
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Macort argues that because Budget failed to raise any specific objections,
clear error review was all that was required. Further, Macort asserts that even if
we find that Budget did make specific objections, we should presume that the
district court conducted the proper de novo review. Jones v. Pillow, 47 F.3d 251,
253 (8th Cir. 1995) (“[W]here the record provides no indication of whether de
novo review was conducted, such review, including a review of the hearing
transcript or tape, may be presumed.”). Macort claims that there is no indication
that Budget even tried to determine whether the district court had listened to the
tape-recording and that the district court must have properly reviewed the report
and recommendation because it devoted three pages of its opinion to a discussion
of the appropriate standard of review.
“In order to challenge the findings and recommendations of the magistrate
[judge], a party must . . . file . . . written objections which shall specifically
identify the portions of the proposed findings and recommendation to which
objection is made and the specific basis for objection. . . . Upon receipt of
objections meeting the specificity requirement set out above, a United States
District Judge shall make a de novo determination of those portions of the report .
. . to which objection is made and may accept, reject, or modify in whole or in part,
the findings or recommendations made by the magistrate [judge].” Heath v. Jones,
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863 F.2d 815, 822 (11th Cir. 1989).
We review de novo the legal question of whether the district court applied
the proper standard of review in adopting the report and recommendation of the
magistrate judge. Norton v. Spencer, 351 F.3d 1, 4 (1st Cir. 2003) (“[T]his Court
examines the legal conclusions of the district court, including the proper standard
of review, de novo.”); Yeager v. Reliance Standard Life Ins. Co., 88 F.3d 376,
380 (6th Cir. 1996) (“Our review of the district court’s determination regarding
the proper standard to apply . . . is de novo.”); Natural Res. Def. Council, Inc. v.
E.P.A., 16 F.3d 1395, 1400 (4th Cir. 1993) (applying de novo review to determine
whether the district court applied the correct legal standard).
In LoConte v. Dugger, 847 F.2d 745 (11th Cir. 1988), we determined that in
circumstances like those at issue in this case, there are three types of fact findings
for purposes of determining reviewability on appeal: “(1) findings of fact made by
the magistrate [judge] to which the parties did not object; (2) findings of fact
made by the magistrate [judge] to which the parties did object with the objections
being resolved de novo by the district court; and (3) independent findings of fact
made by the district court.” Id. at 749. Most circuits agree that “[i]n the absence
of a timely filed objection, a district court need not conduct a de novo review, but
instead must only satisfy itself that there is no clear error on the face of the record
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in order to accept the recommendation.” Diamond v. Colonial Life & Accident
Ins., 416 F.3d 310, 315 (4th Cir. 2005) (quotations omitted); accord Johnson v.
Zema Sys. Corp., 170 F.3d 734, 739 (7th Cir. 1999) (“If no objection or only
partial objection is made [to the magistrate judge’s report], the district court judge
reviews those unobjected portions for clear error.”); United States v. Wilson, 864
F.2d 1219, 1221 (5th Cir. 1989) (noting that the “clearly erroneous” standard is
appropriate where there has been no objection to the magistrate judge’s ruling);
Drywall Tapers & Pointers v. Local 530, 889 F.2d 389, 395 (2d Cir. 1989)
(“Where a magistrate [judge] has been appointed to conduct an evidentiary
hearing, the district court reviews the Report and Recommendation under the same
clearly erroneous standard.” (citing Wooldridge v. Marlene Indus. Corp., 875 F.2d
540, 544 (6th Cir.1989)).
Where a proper, specific objection to the magistrate judge’s report is made,
it is clear that the district court must conduct a de novo review of that issue.
Stokes v. Singletary, 952 F.2d 1567, 1576 (11th Cir. 1992) (quoting LoConte, 847
F.2d at 750). It is critical that the objection be sufficiently specific and not a
general objection to the report. Goney v. Clark, 749 F.2d 5, 7 (3d Cir. 1984). De
novo review implies that “the district court’s consideration of the factual issue . . .
be independent and based upon the record before the court. To the extent that the
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magistrate judge has made findings of fact based upon the testimony of the
witnesses heard before the magistrate judge, the district court is obligated to
review the transcript or listen to the tape-recording of those proceedings.”
LoConte, 847 F.2d at 750.
Thus, the question for us is whether Budget raised a specific objection to the
magistrate judge’s report necessitating de novo review. As we have already
indicated, the district court characterized all eleven of Budget’s objections as a
recitation of the background of the case, or a list of facts omitted from the
magistrate judge’s report, or simply an explanation of the applicable law. Our
review convinces us that Budget’s Objection no. 1 merely recites language from
our previous order remanding the case and does not specifically object to anything
in the report and recommendation. Objections nos. 3–11 do merely set out the
applicable law. None of the those ten objections meet the specificity requirement.
Objection no. 2 is different. In it, Budget sets out fifteen facts that were
omitted from the magistrate judge’s report, objects to them not being found, and at
least implicitly argues that had those facts been considered, the conclusion would
have been that the requirements for § 1927 sanctions were met. Although the
district court does not explicitly state that it applied de novo review to Objection
no. 2, the court does say that it “reviewed those facts and analyzed whether their
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inclusion in the final [r]eport . . . would have warranted a different conclusion.”
The court determined that even if those fifteen facts had been found, the result
would still have been the same—Budget failed to establish its right to have § 1927
sanctions awarded.
What the district court did with Budget’s Objection no. 2 amounts to de
novo review of the magistrate judge’s failure to find the facts asserted in that
objection, because it is a legal conclusion that those facts do not matter. If that
legal conclusion is correct, there is no point in determining whether the facts do
exist. If, on the other hand, the district court is wrong about the asserted facts not
mattering, then Budget is entitled to have its assertion that the facts do exist
decided.
The non-availability of the transcript of the evidentiary hearing at the time
the district court overruled Budget’s objections is irrelevant to the district court’s
conclusion that the asserted facts do not matter. And, if the district court was
wrong about whether those facts do matter, making a remand necessary, the court
will have the evidentiary hearing transcript on remand.
III.
We turn now to the question of whether the facts raised in Budget’s
objections to the magistrate judge’s report and recommendation, if true, would
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have entitled Budget to § 1927 or Fla. Rules Prof’l Conduct R. 4-1.8 fees and
sanctions. Budget contends that the actions of Macort’s attorneys merit sanctions
because they filed suit without conducting a proper pre-suit investigation and
because the contract between Macort and the firm essentially made the firm the
client. Macort asserts that Budget cannot meet its § 1927 burden and that Fla.
Rules Prof’l Conduct R. 4-1.8 provides no third-party cause of action.
“We review the trial court’s ruling on an award of sanctions under 28
U.S.C. § 1927 only for abuse of discretion. As we have observed, the abuse of
discretion standard of review recognizes that for the matter in question there is a
range of choice for the district court and so long as its decision does not amount to
a clear error of judgment we will not reverse even if we would have gone the other
way had the choice been ours to make.” McMahan v. Toto, 256 F.3d 1120, 1128
(11th Cir. 2001) (internal citation omitted).
A.
Under 28 U.S.C. § 1927, “[a]ny attorney . . . who so multiplies the
proceedings in any case unreasonably or vexatiously may be required by the court
to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably
incurred because of such conduct.” Id. Thus, the statute sets out a three-prong,
conjunctive test: (1) unreasonable and vexatious conduct; (2) such that the
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proceedings are multiplied; and (3) a dollar amount of sanctions that bears a
financial nexus to the excess proceedings. Peterson v. BMI Refractories, 124 F.3d
1386, 1396 (11th Cir. 1997). All three requirements must be met before sanctions
are imposed. We have held that because of the penal nature of § 1927, it is to be
strictly construed. Id. at 1395. “For sanctions under section 1927 to be
appropriate, something more than a lack of merit is required. The statute was
designed to sanction attorneys who willfully abuse the judicial process by conduct
tantamount to bad faith.” Schwartz, 341 F.3d at 1225. There must be bad faith;
mere negligence is not enough. Id. “A determination of bad faith is warranted
where an attorney knowingly or recklessly pursues a frivolous claim or engages in
litigation tactics that needlessly obstruct the litigation of non-frivolous claims.”
Id.
The district court did not abuse its discretion in finding that Budget failed to
prove the three elements of § 1927, even if the fifteen “facts” asserted in its
objections to the report and recommendation are taken as true. As an initial
matter, the language of § 1927 makes clear that it only applies to unnecessary
filings after the lawsuit has begun. 28 U.S.C. § 1927; see also Matter of Yagman,
796 F.2d 1165, 1187 (9th Cir.) (“Section 1927 does not apply to initial pleadings,
since it addresses only the multiplication of proceedings. It is only possible to
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multiply or prolong proceedings after the complaint is filed.”), amended, 803 F.2d
1085 (9th Cir. 1986). “The filing of a complaint may be sanctioned pursuant to
Rule 11 or a court’s inherent power, but it may not be sanctioned pursuant to §
1927.” In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996).
Here, Budget’s failure to give Macort the twenty-one day safe harbor period
forecloses Rule 11 sanctions for the initial filing of a frivolous suit. As a result,
we can consider only whether § 1927 sanctions are merited by conduct following
the initial filing of this suit.
In order for § 1927 sanctions to be justified, all three factors we have set out
are necessary. If one factor is missing, sanctions cannot be imposed. Here we find
that, even considering the additional fifteen “facts” from Budget’s objections to
the report and recommendation, Budget cannot show that Macort’s counsel
improperly multiplied the proceedings. Prior to Budget’s appeal, this was a fairly
small, simple case with only a complaint, initial disclosures, and limited discovery.
As soon as Macort’s lawyers were convinced that she lacked standing, they sought
dismissal. Macort’s attorneys did not file voluminous or multiple pleadings, and
they filed only one lawsuit by Macort against Budget. None of the asserted
additional facts changes that.
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B.
Fla. Rules Prof’l Conduct R. 4-1.8 prohibits an attorney from acquiring a
proprietary interest in the subject matter of litigation the attorney is conducting.
Nevertheless, the rule does not create a third party cause of action. None of the
additional objection facts changes that. The district court did not err in denying
sanctions under this rule regardless of those asserted facts.
AFFIRMED.
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