Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-93-07029/USCOURTS-ca10-93-07029-0/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 

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PUBLISH FILED 

U nft.d Stat~~ C®rt of Appala 1'enth Circuit 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

ROBERT L. BARRETT; BARRETT 

CATTLE, INC.; B & R FARMS; 

JOHNNY SLOVER; JOHNNY SLOVER 

CATTLE I INC. I 

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Plaintiffs - Appellants, ) 

v. 

GERALD TALLON, individually; THE 

BANK OF JOHNSTON COUNTY; RAY FOX, 

individually, and doing business 

as R.R.R. Cattle Company; ALVIN 

BRADSHAW, individually, and doing 

business as R.R.R. Cattle Company, 

Defendants - Appellees. 

ROBERT L. BARRETT; BARRETT 

CATTLE, INC.; B & R FARMS; 

JOHNNY SLOVER; JOHNNY SLOVER 

CATTLE I INC . I 

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Plaintiffs - Appellants, ) 

v. 

THE BANK OF JOHNSTON COUNTY, 

Defendant - Appellee, 

and 

GERALD TALLON, individually; RAY 

FOX, individually, and doing 

business as R.R.R. Cattle Company; 

ALVIN BRADSHAW, individually, and 

doing business as R.R.R. Cattle 

Company, 

Defendants. 

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) 

JUL 1 9 1994 

ROBERT L. HOECKER 

Clerk 

No. 93-7029 

No. 93-7080 

Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 1 
APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF OKLAHOMA 

(D.C. No. CV-92-617-S} 

Donald M. Hunt of Carr, Fouts, Hunt, Craig, Terrill & Wolfe, 

Lubbock, Texas, for Appellants. 

Ron Wright of Wright, Stout & Fite, Muskogee, Oklahoma, for 

Appellees. 

Before SEYMOUR, Chief Judge, LOGAN, and ANDERSON, Circuit Judges. 

ANDERSON, Circuit Judge. 

Plaintiffs Robert L. Barrett, Johnny Slover, and their cattle 

companies appeal from separate orders of the district court (1) 

dismissing their complaint for failure to state a claim, Fed. R. 

Civ. P. 12(b) (6), and (2) imposing against them Rule 11 sanctions 

of $32,885.15. For convenience we decide both appeals (Nos. 

93-7029 and 93-7080) in this opinion. The district court held 

that the complaint did not state a claim under the Racketeer 

Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 

§§ 1961-1968. The plaintiffs do not challenge that holding but 

contend that they successfully pleaded state law claims of fraud 

and conversion for which there was diversity jurisdiction. The 

plaintiffs also object to the Rule 11 sanctions on several 

grounds. We reverse the order of dismissal to the extent that it 

is inconsistent with this opinion and remand for further 

proceedings. In addition, we vacate the order of sanctions. 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 2 
BACKGROUND 

The plaintiffs (appellants) in this case are Barrett, Slover, 

and their closely held cattle corporations (Barrett Cattle, Inc., 

B & R Farms, Inc., and Johnny Slover Cattle Co., Inc.). The 

defendants are the Bank of Johnston County, Oklahoma ("Bank"), 

Bank president and chief executive Gerald Tallon, and Ray Fox and 

Alvin Bradshaw of the R.R.R. Cattle Co. ("R.R.R.") .

1 According to 

the complaint, all plaintiffs reside in Texas, and all defendants 

reside in Oklahoma. Pl.'s Am. Compl., Appellant's App., No. 

93-7029, Tab 1 at 1-3 (hereinafter "Compl.") 

Plaintiffs filed their original complaint on October 1, 1992, 

and amended it on November 13. In essence, the plaintiffs alleged 

that they placed thei-r cattle in the hands of R.R.R. (Fox and 

Bradshaw) pursuant to a grazing contract, which plaintiffs say 

they agreed to based on Tallon's express assurances of R.R.R.'s 

trustworthiness. Id. at 3-4. Tallon allegedly knew otherwise, 

however, and conspired with R.R.R. to defraud the plaintiffs. Id. 

at 4. According to the complaint, Tallon and Fox mortgaged the 

plaintiffs' cattle to the Bank in return for $140,000, and Fox, 

Bradshaw, and the Bank sold the cattle at auction without the 

plaintiffs' consent, keeping the proceeds for themselves. Id. at 

4-5. 2 

1 The plaintiffs also named Oren Cochran (individually and 

doing business as Atoka Livestock Auction) as a defendant, but 

district court dismissed the complaint against him without 

prejudice, and he is not a party on appeal. 

2 Plaintiffs' counsel on appeal, who did not represent them 

below, acknowledged that the complaint is no model of clarity. 

Among other flaws, the complaint ignored Fed. R. Civ. P. 10(b), 

the 

(continued on next page) 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 3 
The complaint stated: 11This is an action to recover . 

damages as a result of . . . violati [ons] . . . of. the RICO Act 

• , 11 and alleged federal jurisdict~on on that basis. Id. at 

3. It also stated: 11 Jurisdiction properly lies based on the 

. diversity statute, 11 28 U.S.C. § 1332 (a) (1). Id. at 2-3. 

The Bank moved to dismiss for failure to state a claim under 

Rule 12(b) (6), or, in the alternative, to stay the federal 

proceedings in favor of a pending state case between the parties. 

Bradshaw and Tallon answered the complaint, denying liability and 

asserting that.the complaint failed to state a claim. 

On February 26, 1993, the district court entered an order 

dismissing the complaint with prejudice as to all defendants 

pursuant to Rule 12(b) (6). Dismissal Order, Appellant's App., No. 

93-7029, Tab 12 (hereinafter 11Dismissal Order 11 ). The court held 

that the complaint failed to state a RICO claim because it did not 

allege the requisite 11 enterprise 11 or 11 pattern of racketeering 

activity. 11 Id. at 2-3. The district court concluded: 

Plaintiffs' allegations are an unsuccessful effort 

to dress a garden-variety state fraud and/or conversion 

case in RICO clothing, .... 

There is presently pending in [an Oklahoma state 

court] a lawsuit involving these same parties and . . . 

claims . . . which are repeated herein as RICO 

allegations. . . . Plaintiffs' RICO allegations are 

nothing more than their state fraud and conversion 

claims against these defendants. . . . In any event, 

the court finds that plaintiffs' complaint fails to 

state a cause of action on which relief can be granted. 

(continued from previous page) 

which states in part, 11All averments of claim or defense shall be 

made in numbered paragraphs, the contends of each of which shall 

be limited as far as practicable to a statement of a single set of 

circumstances ... 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 4 
Id. at 3-4. On March 18, the plaintiffs filed a motion asking the 

district court to reconsider, or, in the alternative, for leave to 

amend their complaint. That motion was denied. 

The Bank, meanwhile, filed a motion for Rule 11 sanctions 

seeking to recover its costs and attorneys' fees incurred in 

defending against the federal complaint. The district court 

granted the motion, finding that "plaintiffs' RICO claim . 

[was] frivolous and nothing more than an attempt to harass the 

defendant with unnecessary, vexatious, and multiple litigation on 

their state claims for fraud and conversion." Sanctions Order, 

Appellant's App., No. 93-7080, Tab 9 at 2 (hereinafter "Sanctions 

Order"). The court ordered the plaintiffs to pay "defendants' 

attorney's fees and costs, necessarily incurred in defending this 

action," which the court found to be $32,885.15. Id. at 2-3. The, 

order imposed no liability for the sanctions award on plaintiffs' 

attorneys. 

DISCUSSION 

I. RULE 12(B) (6) DISMISSAL OF THE COMPLAINT 

We review a dismissal under Rule 12(b) (6) de novo, confining 

our review to the allegations in the complaint and accepting the 

facts pleaded as true. Doyle v. Oklahoma Bar Ass'n, 998 F.2d 

1559, 1566 (lOth Cir. 1993). We will uphold a Rule 12(b) (6) 

dismissal only when it appears "clear that no relief could be 

granted under any set of facts that could be proved consistent 

with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 5 
(1984); Lehman v. City of Louisville, 967 F.2d 1474, 1476 (lOth 

Cir. 1992). 

As noted above, plaintiffs accept the ruling that they failed 

to state a RICO claim. They contend, however, that the district 

court erred in confining its analysis to RICO without considering 

whether the complaint alleged fraud or conversion under state law 

and, if so, whether diversity jurisdiction enabled those claims to 

be heard in federal court. We agree that the district court read 

the complaint too narrowly. 

While the district court correctly observed that the 

plaintiffs attempted "to dress a garden-variety state fraud and/or 

conversion case in RICO clothing," the fact that RICO was 

improperly invoked did not mandate complete dismissal of the 

complaint. A complaint should not be dismissed under Rule 

12(b) (6) "merely because plaintiff's allegations do not support 

the legal theory he intends to proceed on," SA Charles A. Wright & 

Arthur R. Miller, Federal Practice & Procedure § 1357, at 336-37 

(2d ed. 1990), and certainly not when other theories are apparent 

on the face of the complaint. 

In focusing on RICO, the district court failed to analyze 

whether the complaint adequately pleaded "garden variety" fraud or 

conversion. Based on our review of the complaint, as explained 

below, we hold that the plaintiffs successfully pleaded fraud 

against Tallon and the Bank, and conversion against Tallon, the 

Bank, Fox, and Bradshaw. Consequently, the complaint should not 

have been dismissed in its entirety. 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 6 
A. Preliminary Issues 

Before discussing the substantive allegations in the 

complaint, we address two matters that. may require consideration 

on remand. First, the district court never addressed the 

plaintiffs' allegation of diversity jurisdiction in the complaint. 

See Dismissal Order at 1 ("Federal jurisdiction in this case is 

based upon alleged violations of the RICO statute, .... "). 

This was likely because the district court viewed the complaint as 

purely RICO in character rather than because the court had found 

diversity jurisdiction lacking. Thus, we assume--but do not 

decide--that diversity jurisdiction exists for purposes of 

reviewing the complaint under Rule 12(b) (6). Of course, on remand 

the district court must determine whether it has subject matter 

jurisdiction over the surviving state law claims. 

Second, because the proceedings below focused on RICO, there 

has been little discussion about which state's law applies to the 

fraud and conversion claims. Plaintiffs have suggested without 

explanation that Oklahoma law applies, but neither the defendants 

nor the district court addressed the question. A federal court 

sitting in diversity applies the substantive law, including choice 

of law rules, of the forum state. Moore v. Subaru of America, 891 

F.2d 1445, 1448 (lOth Cir. 1989). Here, the forum state is 

Oklahoma, which in tort cases requires application of the law of 

the state with the most significant relationship to the occurrence 

and to the parties. Childs v. State ex rel. Oklahoma State Univ., 

848 P.2d 571, 578 n.41 (Okla.), cert. denied, 114 S. Ct. 92 

(1993); White v. White, 618 P.2d 921, 924 (Okla. 1980). According 

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to the complaint, the plaintiffs reside in Texas, the defendants 

reside in Oklahoma, and most if not all of the allegations 

occurred either place. Thus, either Oklahoma or Texas law 

applies. We leave the choice of law question open because under 

either Oklahoma or Texas law we reach the same conclusions about 

the complaint under Rule 12(b) (6). 

B. The Complaint 

1. Fraud 

Under Oklahoma and Texas law, a fraud claim requires proof of 

these elements: (1) a material misrepresentation, (2) knowingly 

or recklessly made, (3) with intent that it be relied upon, and 

(4) actual reliance upon the statement by another to his or her 

detriment. See, ~' Silver v. Slusher, 770 P.2d 878, 881 n.8 

(Okla. 1988), cert. denied, 493 U.S. 817 (1989); Sears, Roebuck & 

Co. v. Meadows, No. D-3659, 1994 WL 138332, at *2 (Tex. Apr. 20, 

1994) (per curiam) . Federal plaintiffs must plead fraud with 

particularity. Fed. R. Civ. P. 9(b) .

3 

The complaint alleges that Tallon, acting in his capacity as 

president of the Bank, made two representations to Barrett and 

Slover that he knew to be false: (1) that the Bank fully backed 

the plaintiffs' grazing contracts with Fox and Bradshaw, and (2) 

3 The complaint makes conclusory averments of fraud against 

every defendant in sections VII ("Defendants, and each of them, 

were accordingly guilty of . . . committing actionable acts of 

fraud against your Plaintiffs . . . ") and IX ("All of these 

Defendants acted jointly ... to perpetrate said fraud ... "). 

Compl. at 6. The section VII allegation lacks sufficient 

particularity to state a claim, and section IX actually alleges 

conversion, not fraud. Thus, these averments fail to state claims 

of fraud against any defendant. 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 8 
that Tallon knew Fox and Bradshaw to be trustworthy and 

creditworthy. Compl. at 4. The complaint further alleges that 

Tallon intended the plaintiffs to rely, and the plaintiffs 

actually relied, on his assurances to their detriment in 

entrusting their cattle to Fox and Bradshaw. Id. Accepting these 

allegations as true, as we must, we hold that the plaintiffs 

stated claims of fraud against Tallon and the Bank with sufficient 

. 1 . 'd d' . 1 4 part1cu ar1ty to avo1 1sm1ssa . The complaint does not 

adequately allege fraud against the other defendants; thus, any 

other fraud claims are deemed dismissed by the district court's 

order. 

2. Conversion 

Oklahoma and Texas cases define conversion as an act of 

dominion and control wrongfully exerted over another's personal 

property in denial of or inconsistent with his rights. See, ~, 

Installment Finance Corp. v. Hudiberg Chevrolet, Inc., 794 P.2d 

751, 753 (Okla. 1990); Bandy v. First State Bank, 835 S.W.2d 609, 

622 (Tex. 1992). Pleading conversion requires only a "short and 

plain statement of the claim showing that the pleader is entitled 

to relief." Fed. R. Civ. P. 8(a) (2). 

4 The only theory on which the Bank is alleged to have 

committed a fraud is vicariously through Tallon, acting "as agent 

of The Bank" and "with the full knowledge, consent, and 

permission" of the Bank "in accordance with his job function as 

Chief Executive Officer." Compl. at 4. The complaint further 

stated, however, that Tallon acted "without the participation and 

joinder of other officers and directors of The Bank .... " Id. 

at 5. We express no opinion as to whether there actually was an 

agency relationship between Tallon and the Bank sufficient to 

support vicarious liability for fraud, to the extent such 

liability exists under the applicable state law. 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 9 
The plaintiffs allege two acts of conversion. First, they 

placed $1.5 million worth of cattle "in the hands" of the Bank, 

Fox, and Bradshaw, and "the Defendants [subsequently] ... 

converted said cattle . by selling the cattle at auction and 

converting the proceeds derived from [the sale] to their own 

personal use without the knowledge [or] consent . . . of the 

Plaintiffs . " Compl. at 4. Second, Tallon and Fox 

"mortgag[ed] said Plaintiff's cattle as if said cattle belonged to 

them, to the Bank . . . for the sum of $140,000." Again, 

accepting these allegations as true, and expressing no opinion of 

their merit, we hold that they plead conversion sufficient to 

avoid dismissal under Rule 12(b) (6). Any other attempted 

conversion claims are dismissed. 

C. Refusal to Permit the Plaintiffs to Amend 

The plaintiffs contend that the district court abused its 

discretion in denying them leave to amend their complaint after 

the court entered its order of dismissal. We find no abuse here. 

The plaintiffs delayed their request until after all discovery and 

motion deadlines had passed and the case had been dismissed, even 

though the defendants moved to dismiss the first amended complaint 

shortly after it was filed. Appellant's App., No. 93-7029, Tab 18 

at 8. Since the only reason for plaintiffs' delay appears to have 

been their willingness to stand on their complaint, we cannot say 

that the district court abused its discretion in refusing them 

leave to amend. See Castleglen. Inc. v. Resolution Trust Corp., 

984 F.2d 1571, 1585 (lOth Cir. 1993). 

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Appellate Case: 93-7029 Document: 01019283642 Date Filed: 07/19/1994 Page: 10 
II. RULE 11 SANCTIONS 

The district court ordered the plaintiffs to pay Rule 11 

sanctions of $32,885.15, equal to the Bank's costs and attorneys' 

fees incurred in defending the federal action. The plaintiffs 

contend that the sanctions award was unwarranted and excessive, 

that they did not receive adequate notice that sanctions were 

being considered against them, and that it was not them but their 

attorneys, if anyone, who should have been sanctioned. All 

aspects of the district court's Rule 11 determination are reviewed 

for abuse of discretion, which is shown if the district court 

"based its ruling on an erroneous view of the law or on a clearly 

erroneous assessment of the evidence." Cooter & Gell v. Hartmarx 

Corp., 49~ U.S. 384, 405 (1990); Coffey v. Healthtrust, Inc., 955 

F.2d 1388, 1393 (lOth Cir. 1992). We vacate the sanctions order 

for reasons explained below. 

A. Grounds for Sanctions 

Rule 11, as applicable to the plaintiffs·' amended complaint, 

provides in part: 

The signature of an attorney or party constitutes a 

certificate by the signer that the signer has read the 

pleading, motion, or other paper; that to the best of 

the signer's knowledge, information, and belief formed 

after reasonable inquiry it is well grounded in fact and 

is warranted by existing law or a good faith argument 

for the extension, modification, or reversal of existing 

law, and that it is not interposed for any improper 

purpose, such as to harass or to cause unnecessary delay 

or needless increase in the cost of litigation. 

Fed. R. Civ. P. 11 (prior to amend. effective Dec. 1, 1993). 

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The district court found two reasons for Rule 11 sanctions 

against the plaintiffs: (1) there was no reasonable, good faith 

basis for attempting to sue under RICO, and (2) the court viewed 

the federal complaint as having been filed vexatiously, in bad 

faith, for the purposes of harassing the defendants with 

duplicative litigation and "avoiding" adverse rulings in a similar 

suit in state court. Sanctions Order at 2. 

As to the first ground, the district court properly applied 

an objective standard--whether a reasonable and competent attorney 

would believe the argument has merit--in concluding that there was 

no good faith basis to sue under RICO. See Dodd Ins. Co. v. Royal 

Ins. Co. of America, 935 F.2d 1152, 1155 (lOth Cir. 1991); White 

v. General Motors Corp., 908 F.2d 675, 680 (lOth Cir. 1990), cert. 

denied, 498 U.S. 1069 (1991). Considering that the complaint fell 

short of pleading two of the necessary elements for a RICO claim, 

and that plaintiffs under new counsel abandoned their RICO 

argument altogether on appeal, we cannot say that the district 

court abused its discretion in justifying sanctions on this 

ground. 

The second ground--improper motive--is more troublesome. 

Certainly, "[a]s an appellate court we must give deference to fact 

findings by a district court," Crabtree ex rel. Crabtree v. 

Muchmore, 904 F.2d 1475, 1478 (lOth Cir. 1990), and particularly 

when reviewing sanctions under Rule 11, we must give "[d]eference 

to the determination of ·courts on the front lines of litigation." 

Cooter & Gell, 496 U.S. at 404. Nevertheless, the record gives no 

support to the district court's finding that the plaintiffs acted 

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vexatiously, in bad faith, or with intent to harass the defendants 

or avoid rulings by the Oklahoma court. 

The district court was displeased that the plaintiffs brought 

into federal court the same parties and claims already proceeding 

in state court. Apparently, though, the plaintiffs did not choose 

the state forum; the Bank named them as third party defendants, 

along with Fox. See Appellant's App., No. 93-7029, Tab 3 at 9. 

The plaintiffs, in fact, argued to the district court that the 

Bank joined Fox, whose interests (and domicile) are apparently 

more in line with the Bank's than the plaintiffs', as a third 

party defendant in order to defeat diversity and, presumably, 

removal. While the district court did not discuss the alignment 

of the parties in state court, and we need not do so here, it is 

clear that plaintiffs Barrett and Slover did not initiate 

duplicative actions in state and federal court, as the district 

court seemed to suggest. And even if they had, "[g]enerally, as 

between state and federal courts, the rule is that the pendency of 

an action in the state court is no bar to proceedings concerning 

the same matter in the federal court having jurisdiction." 

Colorado River Conserv. Dist. v. United States, 424 U.S. 800, 817 

(1976) (recognizing that "exceptional" circumstances might warrant 

a stay or dismissal of federal action in favor of concurrent state 

action) (quotation deleted); Fox v. Maulding, 16 F.3d 1079, 1081-

82 (lOth Cir. 1994) (reversing dismissal because district court 

failed to explain its reliance on Colorado River doctrine) . 

If there was any evidence, other than the existence of a 

concurrent state action, that the plaintiffs had an improper 

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motive in bringing their federal complaint, the district court did 

not cite it. While the abuse of discretion standard relieves us 

"from the duty of reweighing evidence," we still must consider 

whether Rule 11 sanctions were based on a "clearly erroneous 

assessment of the evidence." Cooter & Gell, 496 U.S. at 405. 

Since nothing in the record shows an improper motive, we hold that 

the district court abused its discretion in imposing Rule 11 

sanctions on this ground. 

B. Amount and Allocation 

"Sanctions must be appropriate in amount and levied upon the 

person responsible for the violation." White, 908 F.2d at 685. 

Plaintiffs contest the amount of the sanction and the fact that it 

was imposed against them rather than their attorneys. 

The district court based the amount of the sanction on the 

Bank's total expenses because it believed that (1) the entire 

complaint was frivolous and (2) it was brought with an improper 

motive.· We have rejected both of those conclusions, and have held 

that the only permissible basis upon which sanctions could have 

been imposed was for including the frivolous RICO claim in an 

otherwise valid complaint. See Dodd Ins. Co., 935 F.2d at 1157 

(holding that a complaint with both frivolous and nonfrivolous 

claims may or may not violate Rule 11). The district court's 

order of sanctions did not identify the nature or amount of 

sanction, if any, that was appropriate solely for the frivolous 

claim. Thus, we must vacate the sanctions order. 

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If, on remand, the district court decides to order sanctions 

for the RICO claim, it should impose the least severe sanction 

reasonably necessary to deter the wrongdoer, taking into account 

the factors discussed in White, 908 F.2d at 684-85. It should 

also reconsider whether responsibility for the violation lies with 

the plaintiffs or their attorneys. Courts routinely direct 

sanctions for frivolous legal claims at attorneys rather than 

clients. See, ~' Kirk Capital Corp. v. Bailey, 16 F.3d 1485, 

1492 (8th Cir. 1994) (reversing sanctions imposed against client 

for frivolous claim); Bakker v. Grutman, 942 F.2d 236, 242 (4th 

Cir. 1991) (noting that sanctions for the frivolous complaint were 

not warranted against the clients, who acted "on advice of their 

lawyers"); see also SA Wright & Miller, supra, § 1336 at 104 

(" [W]hen the offending conduct relates to work that lies within 

the supposed competence of counsel, especially when it is beyond 

the understanding of the client . . . it is the former who should 

be sanctioned, not the latter."). 

In fact, under the recent amendment to Rule 11, which does 

not strictly apply here but is nevertheless instructive, monetary 

sanctions may not be imposed against a represented party--only 

against the attorney--for the assertion of a frivolous legal claim 

or contention. Fed. R. Civ. P. 11(c) (2) (A) (effective Dec. 1, 

1993). Thus, in the case of a frivolously pleaded RICO claim, it 

seems that the court should sanction the responsible attorneys 

rather than the plaintiffs, unless it finds that the plaintiffs 

insisted, against the advice of counsel, that the RICO claim be 

asserted, or that the plaintiffs had a sufficient understanding of 

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the nature, elements, and limitations of the attempted RICO claim 

to independently evaluate its applicability to the alleged facts. 

See White, 908 F.2d at 685 (sanctioning a party 11 requires specific 

findings that the party was aware of the wrongdoing 11 ). 

C. Due Process 

11 A party that is the target of a sanctions request has a due 

process right to 'notice that such sanctions are being considered 

by the court and a subsequent opportunity to respond' before final 

judgment ... White, 908 F.2d at 686 (quoting Braley v. Campbell, 

832 F.2d 1504, 1514 (lOth Cir. 1987) (en bane)). In this case, 

the Bank filed a written motion for sanctions, the plaintiffs 

responded in writing opposing sanctions, and the district court 

heard evidence and arguments of counsel on the issue of sanctions 

before deciding to impose them. Thus, this is not a case where 

sanctions were imposed summarily, without warning or discussion. 

Nevertheless, the plaintiffs contend that their right to due 

process was violated because they were never told that sanctions 

were being considered against them in addition to or instead of 

their attorneys, 5 and this deprived them of an opportunity to 

argue about how sanctions, if awarded, should be allocated. 

Having vacated the sanctions order on other grounds, we need not 

5 If, in fact, the plaintiffs never received such notice, their 

attorneys are to blame. The Bank's motion requesting sanctions, 

which was served on the plaintiffs' attorneys, specifically 

stated: 11 Rule 11 provides for reasonable expenses and a reasonable 

attorney's fee assessed against the represented parties, which 

[the Bank] requests. 11 Appellant's App., No. 93-7080, Tab 4 at 3 

(emphasis added) . Rule 11 also stated explicitly that a court 

could impose sanctions upon 11 a represented party. 11 Fed. R. Civ. 

P. 11 (prior to amend. of Dec. 1, 1993). 

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decide whether the notice and opportunity to respond provided to 

the plaintiffs through their counsel in this case satisfied due 

process, or whether direct notice to the plaintiffs was necessary, 

as they contend. 

On remand, if the district court in the exercise of its 

discretion imposes Rule 11 sanctions for the frivolous RICO claim, 

the target of such sanctions will likely be the responsible 

counsel, who already had an opportunity to argue that sanctions 

were unwarranted on this ground. That issue does not need to be 

revisited. If there is a dispute as to the proper allocation of 

any such sanctions, however, then both plaintiffs and their former 

counsel should be provided an opportunity to respond and, if 

necessary, introduce evidence relevant to the allocation question. 

The plaintiffs and their former counsel are presumed to be 

notified by this opinion that Rule 11 sanctions may be considered 

against them on the basis of the frivolously pleaded RICO claim. 

III. CONCLUSION 

For the reasons expressed above, we REVERSE the district 

court's order of dismissal to the extent that it dismissed the 

plaintiffs' state law fraud claims against Tallon and the Bank, 

and conversion claims against Tallon, the Bank, Bradshaw, and Fox, 

and REMAND for further proceedings consistent with this opinion. 

We also VACATE the order imposing Rule 11 sanctions against the 

plaintiffs in the amount of $32,885.15. 

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