United States Court of Appeals,

Fifth Circuit.

No. 92–3174

Summary Calendar.

INDEPENDENT FIRE INSURANCE CO.,

Plaintiff–Cross–Defendant–Appellee–Cross–Appellant,

v.

Robert W. LEA, Jr., J. Randall Lea, and Elizabeth Lemoine Lea,

Defendants–Cross–Plaintiffs–Appellants–Cross–Appellees,

and

Richard Dennis Guffey, d/b/a Dick Guffey Insurance, Defendant–Cross–Appellee.

Dec. 18, 1992.

Appeals from the United States District Court For the Eastern District of Louisiana.

Before HIGGINBOTHAM, SMITH, and DeMOSS, Circuit Judges.

PER CURIAM:

BACKGROUND

In October, 1990, Independent Fire Insurance Company ("Independent Fire"), appellee, filed

a complaint for declaratory judgment in the United States District Court for the Eastern District of

Louisian a seeking a determination that it did not provide fire and vandalism insurance on certain

apartment complexes owned by Robert W. Lea, Jr., Randall Lea, and Elizabeth Lemoine Lea ("the

Leas"), appellants. It also sought declaratory relief that Richard Dennis Guffy d/b/a Dick Guffy

Insurance ("Guffy"), was not acting as its agent in connection with any attem pts to place insurance

on the apartment projects. The Leas counterclaimed for fire losses to the apartments and

cross-claimed for damages against Guffy as agent, in the event the Court found that Guffy had failed

to secure insurance coverage on the apartment units.

In March 1991 the Leas ame nded their counterclaim to increase their demand and ask for

penalties and interest for failure to pay an insurance claim under Louisiana law. Trial was originally

set for June 17, 1991, but was reset for January 6, 1992. In December 1991 the Trial Judge allowedIndependent Fire to amend its original complaint so as to allege the Leas were guilty of fraud under

Lo uisiana law which would permit recision of any contract of insurance and allow an award of

attorney's fees and costs. The matter was ult imately tried as a bench trial for four days beginning

Januar y 6, 1992, during which more than 100 exhibits were put into evidence and testimony was

heard from twelve witnesses.

In a 43 page opinion, (782 F.Supp. 1144; E.D.La.1992) the Trial Court, after detailed review

of the testimony and evidence, concluded that no policy had ever been issued by Independent Fire to

the Leas and confirmed its earlier summary judgment that Guffy was the agent of the Leas and not

of Independent Fire. It further found that no case had been made on the cross-claims by the Leas

against Guffy; and that, since there was never any contract of insurance, there could be no recision,

and therefore no fraud in the inducement. Hence the Trial Court granted the declaratory relief sought

by Independent Fire that it had no policy liabilit y, dismissed the Leas counterclaim, dismissed the Leas

cross-claim against Guffy, and dismissed Independent Fire's claim for damages and attorney 's fees

against the Leas based on fraud. More or less on its own motion, the Trial Court found that the filing

of the application for insurance and the filing of the amended counterclaim by the Leas, violated Rule

11 of the Federal Rules of Civil Procedure; and awarded attorney's fees and costs of $50,396.89 to

Independent Fire as sanctions against the Leas. In this appeal, the Leas appeal from the levy of the

sanctions against them, the Independent Fire cross-appeals the refusal of the Trial Court to award it

attorney's fees and damages for fraud.

OPINION

Part A. Rule 11 Sanctions

While the Trial Judge has broad discretion in assessing sanctions under Rule 11, we conclude

that he abused s uch discretion in applying sanctions to Randall Lea and Elizabeth Lemoine Lea.

These two individuals lived in Springfield, Missouri, and were involved in this litigation solely because

of their joint ownership wit h Robert W. Lea, Jr. the apartment projects purportedly insured by

Independent Fire. Neither of these individuals participated in t he day to day management of the

apartment projects; and neither had any co ntact with Mr. Guffy or any representatives ofIndependent Fire regarding the insurance coverage. Neither of these individuals gave any testimony

either by deposition o r at the time of trial; and neither attended the 4–day trial. Neither of these

individuals signed any pleading, any affidavits, or any loss claim forms. In its lengthy opinion, the

Trial Court clearly identified the many grounds and circumstances on which it felt that actions taken

by Robert W. Lea, Jr. failed to satisfy the requirements of Rule 11; but no where did the Trial Court

identify any similar actions as having been taken by either Randall Lea or Elizabeth Lemoine Lea.

While Rule 11 of the Federal Rules of Civil Procedure does contemplate that sanctions can

be levied against a "represented party", we are constrained to hold under the facts of this case that

the "represented party" ag ainst which sanctions are levied must be a party who had some direct

personal involvement in the management of the litigation and/or th e decisions that resulted in the

actions which the court finds improper under Rule 11. This test would clearly include Robert W. Lea,

Jr. but would also clearly exclude Randall Lea and Elizabeth Lemoine Lea. There is nothing in the

express language of Rule 11 that all parties at interest on a particular side of a given law suit shall be

subject to sanctions on a pro rata or joint and several liabilit y or in solido basis; and we do not think

that the basic policies of "deterrence and education" behind Rule 11 require an interpretation of the

Rule which creates such forms of vicarious liability.

We have tested the circumstances and applicability of the sanction judgment against Robert

W. Lea, Jr. under the teachings and standards outlined b y t he Supreme Court in C ooter & Gell v.

Hartmarx Corporation, 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed .2d 359 (1990), and B usiness

Guides v. Chromatic Communications Enterprises, Inc.,

––– U.S.

––––, 111 S.Ct. 922, 112 L.Ed.2d

1140 (1991); and hold that the Trial Court's determinations as to the occasions for and the amount

of such sanctions are well within the "objective standard of reasonableness" and the discretion vested

by necessity in the Trial Court. We therefore affirm t he Trial Court's judgment as to sanctions

applicable to Robert W. Lea, Jr.

Part B. Independent Fire's Fraud Claim

Independent Fire cross appeals regarding the failure of the Trial Court to award it damages

for fraud either under a contract o r t o rt t heo ry. Louisiana Civil Code Article 1958, under whichIndependent Life initially sought recovery, states:

The party against whom recision is granted because of fr aud is liable for damages and

attorney's fees.

However, the Trial Court did not grant recision of an insurance policy on account of fraud;

but rather found that the insurance application originally submitted by Guffy contained a variety of

material misrepresentations, that this application was never accepted by Independent Fire, that no

init ial premium was ever paid by the Leas to Independent Fire, and that no policy was ever issued by

Independent Fire insuring the apartment project owned by the Leas. Consequently, the court held

that Article 1958 was not applicable to this case. We think the trial court findings were amply

supported by the evidence and his conclusion of law was correct.

In a post trial memorandum and in their appellate brief, Independent Life asserts that it should

not be limit

ed to a contract theory o f fraud under art. 1958, but shoul d be enti tl ed to recovered

damages on a tort theory of fraud. Our reading of the record convinces us, however, that the case

was not tried on a tort theory of fraud; and the Trial Court clearly did not address that theory in

rendering its decision. We decline to address that theory of recovery when it has not been considered

by the Trial Court.

CONCLUSION

For all of the foregoing reasons, we hereby order that the final judgment entered in this cause

under date of February 7, 1992, be and it is hereby amended by striking the names of "Randall Lea

and Elizabeth Lemoine Lea" from the subparagraph awarding judgment in favor of Independent Life

of $50,396.89 as sanctions under Rule 11; and as so amended, such final judgment is now

AFFIRMED.