Ward Arnold v. Fed Natl Mortgage Assn, et a

Case: 13-40649 Document: 00512641894 Page: 1 Date Filed: 05/27/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 13-40649 FILED
May 27, 2014
Lyle W. Cayce
WARD ARNOLD; ANDREA ARNOLD, Clerk
Plaintiffs - Appellants
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, also known as Fannie
Mae; BANK OF AMERICA, N.A., as Successor by Merger to BAC Home
Loans Servicing, L.P.; JERRY FISHER, Constable Precinct 8, Galveston
County, Texas; MERS, INCORPORATED; TOMMY BASTIAN; BARRETT
DAFFIN FRAPPIER TURNER & ENGEL, L.L.P.; CARL GILSON,
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 3:13-CV-101
Before JOLLY, GARZA, and HIGGINSON, Circuit Judges.
PER CURIAM:*
This appeal involves Ward and Andrea Arnolds’ claims against Federal
National Mortgage Association and others (collectively the “Defendants”) all
arising from a foreclosure on their home in Texas. The Arnolds executed a
promissory note, secured by a deed of trust, in an amount payable to
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 13-40649
Countrywide Home Loans, Inc., to which Bank of America, N.A. is the
successor by merger. The Arnolds defaulted on the loan and it was purchased
at a foreclosure sale. The Arnolds brought a host of meritless claims against
the Defendants who were involved in both the servicing of the loan and the
foreclosure on the home. The litigation ended after the district court issued a
final judgment that granted summary judgment in favor of the Defendants and
sanctioned both the Arnolds and their counsel Jeffrey Kelly. Having fully
reviewed the record on appeal, we AFFIRM the district court’s judgment for
the Defendants on the merits of the claims, but VACATE the portion of the
judgment awarding attorneys’ fees and REMAND for further proceedings on
that issue. The district court abused its discretion in awarding sanctions,
jointly and severally against the Arnolds and Kelly, without properly
articulating its basis for doing so and without making the required findings of
fact.
I.
At the initial conference in this case, the district court explicitly warned
the Arnolds and their original counsel that it believed their claims lacked any
merit and that if they chose to continue to prosecute their suit they might face
sanctions. Nevertheless, the Arnolds continued on with their suit and their
original counsel withdrew. Kelly replaced the original counsel and during a
contentious pretrial conference the Arnolds requested to file an amended
complaint. The judge impliedly denied their request and instead ordered that
the Arnolds respond to a summary judgment motion previously filed by the
Defendants. The Arnolds responded to the motion, yet also filed the amended
complaint without leave of the court. Following a later hearing on the
Defendants’ motion for summary judgment, the district court issued a final
judgment which granted Federal National Mortgage Association possession of
the home, ordered the Arnolds to vacate the home, and sua sponte sanctioned
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No. 13-40649
the Arnolds and Kelly $7,500, an amount for which they were made jointly and
severally liable. The award was calculated at the parties’ summary judgment
hearing based upon the Defendants’ counsel’s rough estimation of the resultant
attorneys’ fees in defending against the Arnolds’ claims.
The district court’s final judgment, however, does not state the legal
basis for its imposition of sanctions. 1 Over a span of several conferences and
hearings, the court only briefly mentioned both Rule 11 of the Federal Rules of
Civil Procedure and 28 U.S.C. § 1927, but never made mention of them in
detail. To further complicate this matter, the respective parties on appeal have
viewed and briefed the issue of sanctions differently. The Arnolds construe the
sanctions as arising under Rule 11, while the Defendants construe them as
arising under the district court’s inherent powers; neither party addresses 28
U.S.C. § 1927.
The district court’s imposition of sanctions may be reviewed under either
Rule 11, 28 U.S.C. § 1927, or its inherent powers for an abuse of discretion.
Jenkins v. Methodist Hosps. of Dallas, Inc., 478 F.3d 255, 263 (5th Cir. 2007)
(for sanctions pursuant to Rule 11); Cambridge Toxicology Grp., Inc. v.
Exnicios, 495 F.3d 169, 180 (5th Cir. 2007) (for sanctions pursuant to 28 U.S.C.
§ 1927); Crowe v. Smith, 151 F.3d 217, 226 (5th Cir. 1998) (for sanctions under
a court’s inherent powers). We cannot, however, be left to guess at the basis
for the sanctions in this case. Each possible basis for the sanctions has
differing legal considerations. For instance, a district court may not impose
sanctions under Rule 11 by sua sponte order unless “the court issue[s] [a] show-
cause order under Rule 11(c)(3).” Marlin v. Moody Nat’l Bank, N.A., 533 F.3d
374, 378 (5th Cir. 2008) (citing Fed. R. Civ. P. 11(c)(5)(B)). On the other hand,
1 It states only that “[t]he Arnolds and their lawyer–Jeffrey Kelly–are jointly and
severally liable for the defendants’ attorneys’ fees of $7,500.”
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sanctions under a court’s inherent powers require a “specific finding that the
[party] acted in bad faith.” Crowe v. Smith, 151 F.3d at 236. If sanctions are
imposed under 28 U.S.C. § 1927, a “district court must make detailed factual
findings.” Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d 848,
871 (5th Cir. 2014) (citation omitted). Additionally, other steps must be taken
under § 1927; the court must “(1) identify sanctionable conduct and distinguish
it from the reasons for deciding the case on the merits, (2) link the sanctionable
conduct to the size of the sanctions, and (3) differentiate between sanctions
awarded under different statutes.” Id. at 872. The final judgment here does
not meet the requirements under any of the three possible bases for sanctions
in this case.
II.
Here, the order fails to articulate the basis for the sanctions and fails to
follow the proper procedure and analysis for their imposition. These
inadequacies constitute an abuse of the district court’s discretion. We do not
express any opinion on the merits of the sanctions; we only hold that the
district court abused its discretion by failing to adequately articulate the
authority, the basis, and the reasoning for the sanctions. The district court did
not, however, err in granting the Defendants’ motion for summary judgment
on the merits of this case. In sum, we AFFIRM the district court’s final
judgment on the merits, but VACATE and REMAND solely on the issue of
sanctions so that the district court can state its basis for sanctions and follow
the proper legal steps in issuing them. 2
2See 5th Cir. R. 47.6 (allowing a judgment or order to be affirmed or enforced
without opinion in certain circumstances).
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