Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-06314/USCOURTS-ca10-91-06314-0/pdf.json

Parties Involved:
Group Health Service of Oklahoma
Appellant
Henderson National Corporation
Appellee
Timothy P. Nolen
Appellee

Document Text:

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

TIMOTHY P. NOLEN, 

Plaintiff-Appellee, 

v. 

HENDERSON NATIONAL CORPORATION, doing 

business as Los Cuartos Inns, 

Defendant-Appellee, 

v. 

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) 

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) 

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) 

) 

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) 

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GROUP HEALTH SERVICE OF OKLAHOMA, doing) 

business as Blue Cross and Blue Shield ) 

of Oklahoma, ) 

Third-Party-DefendantAppellant. 

) 

) 

) 

ORDER AND JUDGMENT* 

FEBO 5 1993 

ROBERT L. HOECKER 

Clerk 

Nos. 91-6299 

& 

91-6314 

(D.C. No. CIV-90-1797-A) 

(W.D. Okla.) 

Before BALDOCK and SETH, Circuit Judges, and BABCOCK,** District 

Judge. 

**Honorable Lewis T. Babcock, District Judge, 

District Court for the District of Colorado, 

designation. 

United States 

sitting by 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case , res judicata, or collateral estoppel. 10th Cir. R. 

36 . 3 . 

Appellate Case: 91-6314 Document: 010110166217 Date Filed: 02/05/1993 Page: 1 
After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of these appeals. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The cases are therefore ordered 

submitted without oral argument. 

Group Health Service of Oklahoma, Inc., d/b/a Blue Cross and 

Blue Shield of Oklahoma (Blue Cross) appeals from the district 

court's dismissal of its "cross/counter-claim" and denial of its 

motion for attorneys' fees and costs, which Blue Cross asserted 

under a variety of theories. We affirm. 

Plaintiff Timothy P. Nolen was injured in an accident and 

sought coverage for his injuries under his employer's group health 

insurance plan that Blue Cross provided. Blue Cross denied his 

claim on the basis that he was not c overed by its plan when the 

accident occurred. Nolen then filed suit in Oklahoma state court 

against defendant and third-party plaintiff Henderson National 

Corporation, parent corporation of his employer. He asserted that 

Henderson was negligent and breached a legal duty by not making 

him aware of his right to apply for the Blue Cross plan so he 

would have been covered for the accident. (Nolen also brought a 

separate state court action on the same grounds against his 

employer and Henderson's subsidiary, Los Cuartas Inns of America, 

Inc.) Henderson filed a third-party action against Blue Cross, 

and because that action raised issues involving the Employee 

Retirement Income Security Act of 1974 (ERISA), Blue Cross removed 

the case to federal court in November 1990. On January 30 , 1991, 

Nolen filed an amended complaint and asserted claims against.Blue 

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Cross. In its answer, Blue Cross asserted a "cross/counter-claim" 

against Nolen and Henderson . 

On March 26, 1991, after receiving a settlement payment from 

Henderson's liability insurer, Nolen executed a release of claims 

against all parties including Henderson and Blue Cross. On 

May 31, Nolen filed a motion to dismiss on the basis that his 

claims had been settled. In its initial response to this motion, 

Blue Cross requested the district court to dismiss all claims 

asserted against it with prejudice and objected to any dismissal 

without prejudice, stating that Nolen but not Henderson had agreed 

to a dismissal with prejudice . Blue Cross later amended its 

response and stated that it would not agree to any dismissal 

without prejudice and would not waive or prejudice its right to 

seek attorneys' fees and costs. The district court directed 

Henderson to state to the court in writing whether it would assert 

any claims against Blue Cross, and Henderson responded that "it 

does not now intend to pursue any claim" against Blue Cross. 

Before Henderson responded, Blue Cross filed a motion for judgment 

and for costs and attorneys' fees under a variety of theories. 

On July 22, 1991, the district court granted Nolen's motion 

to dismiss and dismissed all claims, including Blue Cross's, with 

prejudice. Blue Cross filed a notice of appeal of that order. On 

August 21, the district court determined that its dismissal order 

rendered part of Blue Cross's motion for judgment , costs, and 

attorneys' fees moot; the court denied the remainder of the 

motion. Blue Cross filed a second notice of appeal pertaining to 

that order. 

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On appeal, Blue Cross argues first that the district court 

erred by dismissing its claim over its objections, and second that 

its claim for attorneys' fees and costs is valid under one theory 

or another and should have been granted. Because whether the 

district court's dismissal of Blue Cross's claim for fees and 

costs was correct depends on the validity of the claim, Blue 

Cross's arguments are intertwined. 

Blue Cross's "cross/counter-claim" stated in relevant part 

that: 

the joinder as a party and the claims and causes of 

action asserted against Blue Cross are without legal 

merit and clearly in bad faith for which Blue Cross 

prays judgment for costs, attorney fees, and other 

relief to which it may be entitled. 

Appellant's App. at 94. 

The district court granted Nolen's motion to dismiss pursuant 

to Fed. R. Civ. P . 41 (a) (2). That rule provides in part that 

"[i]f a counterclaim has been pleaded by a defendant prior to the 

service upon the defendant of the plaintiff's motion to dismiss, 

the action shall not be dismissed against the defendant's 

objection unless the counterclaim can remain pending for 

independent reasons." Of course, the defendant's counterclaim 

must be a proper claim to survive dismissal. See Sams v. Beech 

Aircraft Cor:p., 625 F.2d 273, 277 (9th Cir. 1980) (objection 

premised upon improper counterclaim cannot prevent dismissal under 

Rule 41(a) (2) because counterclaim not entitled to independent 

adjudication); 5 James W. Moore Federal Practice~, 41.09, p.41 - 100 

(1992). We must therefore determine whether Blue Cross's demand 

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for attorneys' fees and costs asserts a valid and independent 

cause of action. 

Blue Cross contends that it is entitled to fees and costs 

under a variety of theories. It stated in its motion for judgment 

that 

There was no basis for claims or cause of action against 

this defendant from the very beginning. Accordingly, a 

dismissal on the merits, or judgment pursuant to Rules 

12, 41, or 56 should be entered, and any such judgment 

or dismissals should include costs and attorney fees 

incurred in the defense of this action. The award of 

costs and attorney fees can be further authorized under 

Rule 41 as a condition of dismissal, under Rule 11 as a 

sanction, under the ERISA statutes as a prevailing party 

(29 U. S . C. §1132), and/or pursuant to 28 U.S.C. §1927 

for unreasonably and vexatiously multiplying the 

proceedings, per Rule 55 through default, or under the 

inherent power of the Honorable Court. 

Appellant's App. at 154-55. Blue Cross repeats these contentions 

on appeal. However, in neither its motion for judgment nor its 

appellate briefs does Blue Cross assert that any of these 

"grounds" is a particular independent cause of action. Blue 

Cross's claim contends only that the claims Nolen and Henderson 

asserted against it are "without legal merit and clearly in bad 

faith" entitling it to fees and costs. 

In their joint response brief, Nolen and Henderson assume 

that Blue Cross is attempting to assert a malicious prosecution 

claim, which they claim fails primarily because of prematurity. 

In its reply brief, Blue Cross stated that "[a]lthough Blue Cross 

has not confined its cross/counterclaim to a common law malicious 

prosecution theory under Oklahoma state law, it is clear that such 

a theory is viable." Appellant's Reply Brief at 10 . Because Blue 

Cross failed to argue in its opening brief that the district ,court 

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erred by not recognizing its claim as a valid malicious 

prosecution claim, we decline to consider Blue Cross's backhanded 

attempt to make that argument. See Boone v. Carlsbad 

Bancorporation. Inc., 972 F.2d 1545, 1554 n.6 (10th Cir. 

1992) (refusing to address argument first made in reply brief) . 

The only other potentially valid basis for an independent 

cause of action in Blue Cross's laundry list of grounds is its 

request for sanctions under Rule 11. However, courts do not 

appear to allow Rule 11 to form a basis for a counterclaim, but 

instead allow Rule 11 sanctions only upon motion . See Sound Video 

Unlimited, Inc. v . Video Shack Inc., 700 F . Supp. 127, 149 

(S.D.N.Y. 1988) (barring counterclaim for "baseless litigation;" 

Rule 11 claim "is not properly interposed as a counterclaim in the 

litigation" but should be made by motion at conclusion of case); 

Lenoir v. Tannehill, 660 F. Supp. 42, 44 (S.D. Miss. 1986) (finding 

that Rule 11 clearly permits claim for sanctions only through a 

motion and that it does not create "a bad faith type tort claim in 

favor of a party who has been subjected to frivolous harassing or 

vexatious litigation"); cf. Official Airline Guides, Inc . v. 

Churchfield Publications, Inc., 756 F . Supp. 1393, 1406 (D. Or . 

1990) (refusing to dismiss as premature a counterclaim that had 

been re-raised as a post-trial motion for sanctions) . In any 

event, the district court addressed Blue Cross's request for Rule 

11 sanctions in its second order concerning Blue Cross's motion 

for judgment. We therefore need not decide whether Rule 11 

provides a basis for Blue Cross's counterclaim sufficient f or it 

to survive Rule 41(a) (2 ) dismissal because that issue is moo~. 

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We next turn to the various theories contained in Blue 

Cross's motion that it contends support an award of fees and 

costs. 

Rules 12 and 56 

Blue Cross argues that Rules 12 and 56 entitle it to judgment 

because 11 [n]either Henderson nor Nolen stated a claim for relief 

or established a genuine issue of material fact as to the 

purported liability of Blue Cross." Appellant's Brief at 19. The 

district court found this argument to be moot in light of its 

dismissal of the case. We agree. Moreover, Blue Cross does not 

explain, nor do we understand, how judgment pursuant to these 

rules would entitle it to fees and costs. 

Rule 55 

Blue Cross claims that because both Nolen and Henderson 

failed to answer its counterclaim, it is entitled to judgment by 

default for its fees and costs under Rule 55. The district court 

also dismissed this argument as moot. We agree because implicit 

in the district court's orders is its determination that Blue 

Cross's claim for fees and costs did not state an independent 

cause of action. 

Rule 41 

Blue Cross contends that the district court should have 

awarded it fees and costs as a condition of dismissal under Rule 

41(a) (2). The district court held that costs were available under 

Rule 41 only'" [i]f a plaintiff who has once dismissed an action 

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in any court commences an action based upon or including the same 

claim against the same defendant. '" Appellant's App. at 307 

(quoting Rule 4l (d )). Because that specific test did not apply in 

this situation, the district court refused to award costs t o Blue 

Cross under Rule 41. The district court did not address the award 

of fees, apparently because no section of Rule 41 specifically 

addressed fees awards. 

We agree with the district court that Rule 41 does not 

support Blue Cross's claim, but for different reasons. Though a 

defendant may recover fees and costs with respec t to a dismissal 

without prejudice, it cannot recover them where the dismissal is 

with prejudice barring exceptional circumstances. See Mobile 

Power Enters., Inc . v. Power Vac, Inc., 496 F.2d 1311, 1312 (10th 

Cir. 1974 ) ; Colombrito v. Kelly, 764 F.2d 122, 133-34 (2d Cir. 

1985) (explaining basis for rule); 5 James W. Moore Federal 

Practice ,r 41.06, p. 41-77 (1992 ) . The dismissal here was with 

prejudice, and we do not find any exceptional circumstances 

justifying an award of fees and costs. 

29 u.s.c. § 1132 

Blue Cross argues that it is the prevailing party in this 

case and that ERISA allows it to recover its fees and costs under 

29 U.S.C. § 1132 (g ) (1 ) . ERISA does authorize recovery of fees and 

costs, but only to a party who has at least partially prevailed. 

See Morgan v . Independent Drivers Ass'n Pension Plan, 975 F.2d 

1467, 1471 (10th Cir. 1992 ) ; cf. Anderson v. Emergency Medicine 

Assocs. , 860 F.2d 987 , 992 (10th Cir. 1988). This case was 

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dismissed after Nolen settled with Henderson's liability insurer 

and with no payment or other consideration from Blue Cross. Blue 

Cross is not a prevailing party in this situation. See Mobile 

Power, 496 F.2d at 1312 ("by no stretch of the imagination can we 

see where settlement between plaintiff and one co-defendant 

transforms the other co-defendant into a prevailing party"). It 

is therefore not entitled to fees and costs under 29 U.S.C. 

§ 1132. 

Rule 11 

Contrary to Blue Cross's contention that the standard of 

review for Rule 11 issues "is one of law," Appellant's Brief at 

13, we review all aspects of a district court's decision whether 

to award sanctions under an abuse of discretion standard. Coffey 

v. Healthtrust. Inc., 955 F.2d 1388, 1393 (10th Cir. 1992); Hughes 

v. City of Fort Collins, 926 F.2d 986, 988-89 (10th Cir. 1991). 

"'Deference to the determination of courts on the front lines of 

litigation will enhance these courts' ability to control the 

litigants before them.'" Hughes, 926 F.2d at 988 (quoting Cooter 

& Gell v. Hartmarx Corn., 110 s. Ct. 2447, 2460 (1990)). We do 

not believe that the district court abused its discretion in 

denying Blue Cross's request for Rule 11 sanctions. 

28 u.s.c. § 1927 

Fees and costs may be awarded under 28 U.S.C. § 1927 when an 

attorney "multiplies the proceedings in a case unreasonably or 

vexatiously." Such an award should be made "only in instances 

evidencing a 'serious and standard disregard for the o~derly 

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Appellate Case: 91-6314 Document: 010110166217 Date Filed: 02/05/1993 Page: 9 
process of justice,'" which is an "extreme standard." White v. 

American Airlines. Inc., 915 F.2d 1414, 1427 (10th Cir. 

1990) (citations omitted). As with Rule 11 sanctions, we review a 

district court's decision whether to award§ 1927 sanctions for 

abuse of discretion. O'Connor v. R.F. Lafferty & Co., 965 F.2d 

893, 903 (10th Cir. 1992). The district court found no evidence 

that Henderson's and Nolen's attorneys acted "unreasonably" or 

"vexatiously" and declined to award sanctions under§ 1927. The 

district court did not abuse its discretion in declining to award 

§ 1927 sanctions. 

Inherent power of the court 

A court has the discretion to award attorneys' fees against a 

party who has "'acted in bad faith, vexatiously, wantonly, or for 

oppressive reasons.'" White, 915 F.2d at 1427 n.11 (quoting 

Alyeska Pipeline Serv. Co. v. Wilderness Soc'y. 421 U.S. 240, 

258-59 (1975) (quoting F.D. Rich Co. v. United States ex rel. 

Indus. Lumber Co., 417 U.S. 116, 129 (1974))). The district court 

did not explicitly rule on Blue Cross's argument that the court 

should award it fees and costs using its inherent power. However, 

implicit in the court's order was its determination not to use 

this power to award fees and costs to Blue Cross. We see no error 

in the court's determination. 

Nolen and Henderson contend that Blue Cross's appeal is 

frivolous and have requested damages and costs pursuant to 

Fed. R. App. P. 38. We do not find this appeal to assert the type 

of frivolous claim that would justify a Fed. R. App. P. 38 award. 

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=B=r=a=l~ey.,__v.e.....:....•_~C=arn=p=b=e=l:.=l, 832 F.2d 1504, 1510 (10th Cir. 

1987) (appeal is frivolous when arguments of error are wholly 

without merit or result is obvious). We deny the request for 

damages and costs. 

The judgments of the United States District Court for the 

Western District of Oklahoma are AFFIRMED. 

Entered for the Court 

Lewis T. Babcock 

District Judge 

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