Carline Smith v. Grand Bank & Trust of Florida, (11th Cir. 2006)

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[D O NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

F O R THE ELEVENTH CIRCUIT FILEDU.S. COURT OF APPEALS

ELEVENTH CIRCUIT

JULY 20, 2006

N o . 05-13760

THOMAS K. KAHN

N o n - A r g u m e n t Calendar

CLERK

D . C. Docket No. 04-80343-CV-DTKH

C A R L IN E SMITH,

Plaintiff-Appellee,

SCOTT BEHREN,

WALDMAN FELUREN HILDERBRANDT & TRIGOBOFF, P.A.

LAW OFFICES OF SCOTT BEHREN, P.A.

Interested Parties-Appellees,

versus

GRAND BANK & TRUST OF FLORIDA,

Defendant-Appellant.

A p p e al from the United States District Court

fo r the Southern District of Florida

(July 20, 2006)

B efo re CARNES, PRYOR and KRAVITCH, Circuit Judges.

P E R CURIAM: G ra n d Bank & Trust of Florida ("Grand Bank") appeals the district court's d en ial of sanctions under 28U.S.C. § 1927 against attorney Scott Behren and the la w firm Waldman, Feluren, Hildbrandt & Trigoboff ("Waldman"). After a th o ro u g h review of the record, and for the reasons that follow, we affirm.

I. Background C a rlin e Smith was employed by Grand Bank as a loan teller for several years b efo re she was diagnosed with breast cancer. She applied for and received leave tim e under the Family Medical Leave Act ("FMLA"), 29U.S.C. § 2601, from S ep tem b er through November 2003. After she completed her treatment, Smith's d o cto r released her to return to work part-time, but when she came to work, she d is co v e re d that her position had been filled. Grand Bank offered her another p o sitio n as a lock box teller, which would accommodate part-time work, until she c o u ld return to full-time status. The lock box position provided the same salary an d benefits. Although Smith refused the position, and despite Smith's inability to w o r k full-time, Grand Bank paid her for two weeks of work. Grand Bank then m ad e several attempts to make other employment arrangements for Smith, to no av ail. Instead, Smith presented Grand Bank with a doctor's note stating that she co u ld not return to work. Nevertheless, Grand Bank extended Smith's leave and in su ran ce coverage. Smith was not released for full-time work until after her leave h a d expired. Once she was cleared for work, however, Smith did not contact G ran d Bank. After multiple attempts to reach Smith, Grand Bank ultimately d isch arg ed her from employment in January 2004. Smith then hired Behren for rep resen tatio n , and Behren threatened Grand Bank with a lawsuit for FMLA v io la tio n s . Grand Bank disputed that there was any FMLA violation, but offered S m ith a settlement in the amount of $2,500. Smith and Behren rejected the offer.

On April 2, 2004, using Waldman's letterhead, Behren filed a complaint against G ran d Bank on Smith's behalf.

Grand Bank moved for summary judgment, asserting that Smith received all sh e was entitled to under the FMLA. Smith did not respond to the motion, but so u g h t to extend the time in which to conduct discovery. Nevertheless, Smith did n o t engage in discovery and did not respond to Grand Bank's discovery requests.

Grand Bank conducted Smith's deposition, in which Smith admitted that the lo ck box teller job provided the same benefits and salary, that she had refused the jo b , and that she was not able to return to full-time work. After this deposition, G ran d Bank notified Behren that it would seek sanctions unless the frivolous co m p lain t was dismissed. Behren did not dismiss the complaint, and Grand Bank filed an amended summary judgment motion including Smith's deposition. In late Ju ly 2004, Behren was terminated from his employment with Waldman.

Behren and Smith moved to dismiss the complaint without prejudice. Grand B an k opposed the motion and moved for sanctions against Behren, Waldman, and S m ith under § 1927 and the court's inherent powers.1 Grand Bank alleged that B eh ren had failed to conduct sufficient inquiry before filing suit, refused Grand B an k 's settlement offer despite the frivolity of the claim, and refused to dismiss the co m p lain t after learning that the complaint had no basis in law or fact. Grand Bank asserted that it had incurred more than $50,000 in costs associated with defending th e suit.

Behren responded that he had acted with good faith belief that there was a c o lo r a b le legal issue, that Smith had not relayed full information before they filed th e complaint, and that he had not conducted additional discovery after Smith's d ep o sitio n to minimize expenses.

Waldman responded that it was not involved in Smith's representation, B e h r en had been an independent contractor, and Behren had agreed to file a su b stitu tio n of counsel removing Waldman as Smith's counsel of record, which G ran d Bank was aware of and had not objected to.2 The parties then moved to d ism iss the complaint with prejudice, but permit the court to address the sanctions m o tio n .

At the hearing on sanctions before a magistrate judge, Grand Bank argued th at sanctions were appropriate because § 1927 required the attorney's conduct be u n reaso n ab le and vexatious, and the conduct must multiply the proceedings, both o f which were present. Grand Bank claimed that Behren acted in bad faith by k n o w in g ly and recklessly filing the complaint without all the facts, failing to research the law, ignoring Grand Bank's warning that the facts did not support a c la im , and delaying the case by seeking continuances and discovery. It further a ss er te d that Waldman was liable for sanctions because (1) the firm (a) represented S m ith at the time the complaint was filed, (b) paid the filing fee, and (c) sought a lie n against Smith for fees; (2) there was no evidence that Behren acted as an in d e p e n d e n t contractor; and (3) the stipulation to substitute counsel had never been filed with the court.

B e h r en argued that he did not engage in vexatious conduct that multiplied th e litigation, and he explained that the standard was something greater than friv o lity or negligence. He then argued that the complaint was dismissed during th e safe harbor period for Fed. R. Civ. P. ("Rule") 11, and, therefore, sanctions s h o u ld not be imposed. He noted that he did not conduct additional discovery after th e deposition in order to avoid increasing the costs of the litigation. Waldman arg u ed that § 1927 did not provide for sanctions against the firm, and, in any event, th ere was no evidence of bad faith.

The magistrate judge recommended granting sanctions against Behren and W ald m an , jointly and severally. First, the magistrate judge found that Behren and W ald m an engaged in bad faith by filing a complaint without good cause and in the ab sen ce of any factual or legal basis for the FMLA claim, and refusing to dismiss after the facts came to light. The magistrate judge further found that Behren's and W ald m an 's conduct multiplied the litigation. The court noted that there was no ev id en ce that Behren was an independent contractor or that the stipulation to su b stitu te counsel had been filed with the court, and, therefore, the firm was liable.

Waldman and Behren objected to the report and recommendation. The d istrict court conducted a de novo review and rejected the magistrate judge's reco m m en d atio n , noting that sanctions were permissible but not required, and fin d in g that the conduct did not rise to the level of willful abuse and bad faith.

After Grand Bank filed its notice of appeal, Waldman sought fees and costs u n d er Rule 68. The court stayed the Rule 68 motion pending the outcome of the a p p e a l.

II. The Appeal We review the district court's imposition of sanctions under 28U.S.C.

§ 1927 for an abuse of discretion. Schwartz v. Millon Air, Inc., 341 F.3d 1220, 1 2 2 5 (11th Cir. 2003). "An abuse of discretion occurs if the judge fails to apply th e proper legal standard or to follow proper procedures in making the d e te rm in a tio n , or bases an award upon findings of fact that are clearly erroneous." Cordoba v. Dillard's, Inc., 419 F.3d 1169, 1180 (11th Cir. 2005).

Under § 1927: "Any attorney or other person admitted to conduct cases in an y court of the United States or any Territory thereof who so multiplies the p r o c e e d in g s in any case unreasonably and vexatiously may be required by the c o u r t to satisfy personally the excess costs, expenses, and attorneys' fees reaso n ab ly incurred because of such conduct." 28U.S.C. § 1927 (emphasis ad d ed ). The statute was designed to sanction attorneys who "willfully abuse the ju d icial process by conduct tantamount to bad faith." Schwartz, 341 F.3d at 1225 (citin g Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1544 (11th Cir. 1993) a n d Avirgan v. Hull, 932 F.2d 1572, 1582 (11th Cir. 1991)).

A s this court has explained, "this section is not a `catch-all' provision for s an c tio n in g objectionable conduct by counsel." Id. Rather, for sanctions to be ap p ro p riate (1) counsel must have engaged in unreasonable and vexatious conduct; (2 ) this conduct must have multiplied the proceedings; and (3) the amount of the san ctio n cannot exceed the costs resulting from the conduct. Id.; McMahan v. T o to , 256 F.3d 1120, 1128 (11th Cir. 2001), amended on reh'g, 311 F.3d 1077 (1 1 th Cir. 2002). Moreover, "bad faith is the touchstone," and mere negligence is n o t sufficient to justify sanctions. Schwartz, 341 F.3d at 1255. A determination of b ad faith is warranted where an attorney knowingly or recklessly pursues a friv o lo u s claim. Id. at 1225-26. Whether this bad faith is subjective or objective h as not been decided in this circuit. Cordoba, 419 F.3d at 1178 (finding the d istin ctio n unimportant for purposes of that case). Sanctions are not warranted, h o w ev er, simply because counsel's performance did not rise to the highest stan d ard s of the profession. Peterson v. BMI Refractories, 124 F.3d 1386, 1396 (1 1 th Cir. 1997).

A. Sanctions against Behren 3 G ran d Bank argues that sanctions were warranted against Behren because he w illfu lly abused the judicial process and acted in bad faith when he pursued a claim that he knew had no basis in law or fact. It notes that the magistrate judge m ad e factual findings that were not clearly erroneous and which were entitled to d e f er en c e . Grand Bank asserts that imposing sanctions in this case would have met th e goals of § 1927 to deter frivolous litigation and force the offending party to b ear the costs of its conduct, thus limiting the court's discretion to deny sanctions.

Grand Bank notes that the district court did not explain why it believed sanctions w ere not warranted.4 S ectio n 1927 requires bad faith, which is more than negligence or lack of m erit. This court has held that an attorney who "knowingly or recklessly pursues a friv o lo u s claim" acts in bad faith. Schwartz, 341 F.3d at 1225. Although it is u n clear whether this bad faith must be subjective or objective, we need not decide th a t question here. For the reasons discussed below, we conclude that whether B eh ren acted in bad faith is a close call, and, as a result, we cannot say that the co u rt abused its discretion.

Arguably, Behren should have known that the claims were frivolous.5 B eh ren knew Smith had been offered another position with comparable benefits, th a t Smith was unable to return to full-time work, and that Grand Bank was 4 Importantly, the court is not required to make specific findings of bad faith in awarding sanctions under § 1927. Cordoba, 419 F.3d at 1178 n.6.

5 This court, addressing fees under the Americans with Disabilities Act, has explained that the frivolity inquiry involves whether the plaintiff could "introduce any evidence to support their claims;" "whether the plaintiff established a prima facie case;" and "whether the defendant offered to settle." Cordoba, 419 F.3d at 1176. p rep ared to return Smith to her previous position when she was able to return to f u ll- tim e status. Given these facts, Grand Bank did all it was required to do under th e FMLA, see 29 C.F.R. § 825.204, and had Behren investigated the law or the facts, he should have been aware that the complaint had no merit. His failure to do eith er investigation before filing suit could constitute reckless behavior sufficient to rise to the level of bad faith. Cf. Schwartz, 341 F.3d at 1223-24.

Behren contends that Smith was not completely forthcoming with all of the facts, and that she changed her story after their initial meeting. Subjectively, then, if Smith was not truthful, Behren had no knowledge of the facts that would have co n firm ed the complaint had no merit. Moreover, the fact that Grand Bank in fo rm ed Behren that the case had no merit did not dictate that Behren dismiss the c as e. It should, however, have encouraged him to research the law more c o m p le te ly and investigate the facts more thoroughly. Nevertheless, the fact that w e may reach the opposite conclusion does not mean the court abused its d iscretio n in determining that Behren's conduct did not amount to bad faith.

A cco rd in g to Grand Bank, however, Behren's bad faith extended beyond filin g the complaint when he sought extensions of time for discovery, refused to d is m is s even after it became clear that the claim had no merit, and was unprepared a t the hearing on the motion for sanctions.6 These events, however, took place o v e r only a few months, and § 1927 does not require the voluntary dismissal once a plaintiff decides not to pursue the claims. Jackson Marine Corp. v. Thomas J o r d a n , Inc., 794 F.2d 989, 992 (5th Cir. 1986).

E v e n if Behren's conduct was in bad faith, sanctions are not warranted u n le ss the conduct also multiplied the litigation. Thus, there must be some causal co n n ectio n between the conduct and the continuation of proceedings that otherwise w o u ld not have occurred. Peterson, 124 F.3d at 1396-97. There was no such c o n n e ctio n in the instant case, which lasted only a few months and involved m in im al discovery.

Moreover, a review of the record indicates that Grand Bank's conduct co n trib u ted to the rising litigation fees. Grand Bank asserts that it suffered $50,000 in fees and costs, which seems extraordinarily high for a case of this duration.

F in ally, even if Behren acted in bad faith, and this conduct multiplied the p r o c e e d in g s , the district court may nevertheless exercise its discretion to award s an c tio n s .7 Additionally, there is no case law supporting Grand Bank's claim that 6 Behren asserts that his conduct before the magistrate judge cannot serve as a basis for sanctions because Grand Bank did not raise this issue before the district court, but that his conduct did not multiply the litigation at that point because the underlying case had been closed.

7 Notably, the cases Grand Bank cites for this proposition that the court was required to impose sanction are cases addressing sanctions under Rule 11 or 42U.S.C. § 1988. See Head v. Medford, 62 F.3d 351, 355 (11th Cir. 1995). See also Quintana v. Jenne, 414 F.3d 1306, 1309 (11th th e court was required to make special findings or that the award was justified u n less special circumstances are shown. In fact, the case law stands for the o p p o s ite conclusion. Schwartz, 341 F.3d at 1225. Accordingly, the district court d id not abuse its discretion by denying sanctions.

B . Sanctions against Waldman G r an d Bank correctly argues that § 1927 allows for sanctions against a law f ir m . See Malautea v. Suzuki Motor Co., Ltd., 987 F.2d 1536, 1544 (11th Cir. 1 9 9 3 ) ; Avirgan v. Hull, 932 F.2d 1572, 1582 (11th Cir. 1991). Although Waldman a rg u e s that Grand Bank misunderstands the law, it appears that the confusion lies w ith Waldman. Avirgan addresses sanctions under both Rule 11 and § 1927; h o w ev er, the language of the decision tracks language applicable to § 1927 u n reaso n ab le and vexatious conduct. Thus, the court in Avirgan considered the s ta n d a r d under § 1927. Additionally, Malautea, which addresses sanctions under § 1927, cites Avirgan, and, therefore, this court has implicitly determined that § 1927 applies to law firms. We are not bound by other circuits that have reached th e opposite conclusion.

Thus, the issue here becomes whether Waldman's involvement constitutes v ex atio u s conduct that multiplied the proceedings. Waldman contends that its Cir. 2005) (discussing sanctions awarded for frivolous claim under Rule 11 and 42U.S.C. § 1988, but where sanctions were denied under § 1927). lim ited involvement with Behren after the case began does not justify sanctions.

Grand Bank contends that Waldman essentially ratified Behren's conduct by failin g to control Behren's actions, and participating in the suit.

H ere, the facts do not show that the firm acted to harass Smith or to multiply th e proceedings. Waldman signed the pleadings, paid the filing fee for the c o m p la in t, and notarized Smith's affidavits. According to the record, however, B e h r en was the only attorney from the firm involved in Smith's case. Behren was te rm in a te d from the firm during the litigation, which, as noted, lasted only a short p erio d of time and involved minimal discovery. Thus, the conduct falls short of th e bad faith requirement necessary for sanctions under § 1927. See Schwartz, 341 F .3 d at 1255.

III. Conclusion A s a final aside, we note the unnecessarily contentious nature of this litig atio n , and we do not condone the parties' behavior in this case. In fact, it a p p e a r s that the parties' extreme adversarial conduct has contributed to the legal fees incurred. Nevertheless, in light of the record, we cannot conclude that the c o u r t abused its discretion in denying sanctions. Therefore, we AFFIRM.

1 On appeal, Grand Bank does not challenge the denial of sanctions against Smith. Therefore, it has abandoned the issue, and we do not address it. Rowe v. Schreiber, 139 F.3d 1381, 1382 n.1 (11th Cir. 1998).

2 It does not appear that the stipulation was filed in the district court.

3 Notably, the parties continue to confuse sanctions under Rule 11 and those under § 1927. Behren continually argues that there is no bad faith when the complaint is dismissed during the safe harbor period applicable to Rule 11. Section 1927, however, does not include a safe harbor period.

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