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. e du/thir dc ir c uit_1999/223Filed July 30, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 98-7607 and 98-7610

JEFFREY J. PROSSER, Appellant, 98-7607

v.

MARGARET S. PROSSER

JEFFREY J. PROSSER

v.

MARGARET S. PROSSER

KEVIN A. RAMES, Appellant, 98-7610

APPEAL FROM THE DISTRICT COURT

OF THE VIRGIN ISLANDS (D.C. Nos. 96-cv-00029 and 95-cv-00095) District Judge: Raymond L. Finch

SUBMITTED: April 15, 1999

BEFORE: NYGAARD, McKEE, and RENDELL, Circuit Judges.

(Filed: July 30, 1999)Kevin A. Rames, Esq. 2111

Company Street, Suite 3 Christiansted, St. Croix USVI, 00820 Attorney for Appellant, 98-7607

Paul J. Ruskin, Esq.
72-08 243rd Street Douglaston, NY 11363 Attorney for Appellant, 98-7610

OPINION OF THE COURT

NYGAARD, Circuit Judge.

The issue in this case is whether District Court of the Virgin Islands, Appellate Division erred by orderin g sanctions against a party and his attorney thirty m onths after it entered a final order. The Appellate Divis ion had jurisdiction over the appeal from the decision of t he Virgin
Islands Territorial Court under V.I. Code Ann. tit. 4, S 33. We have jurisdiction over the appeal of the final o rder of the Appellate Division under 48 U.S.C. S 1613a(c). We c onclude that the Appellate Division erred and will reverse.

I. Background

In 1989, Jeffrey Prosser sued for divorce from his wife Margaret Prosser in the Territorial Court of the Vi rgin Islands. The Prossers negotiated a settlement agree ment, which was approved by the court. On March 22, 1990, the
court entered a Final Decree of Divorce into which the written property settlement agreement was merged.

Jeffrey failed to make a $2,500,000 payment as requ ired by the divorce decree. Thereafter, Margaret filed a Praecipe requesting that the Territorial Court issue a Writ of Execution for the entire amount, plus interest. See V.I. Code Ann. tit. 5, S 471 (authorizing the issuance o f writs of execution by the Territorial Court). The Territoria l Court issued the writ. Jeffrey filed a motion to vacate t he writ of execution, which the Territorial Court denied. Jeff rey then

2appealed to the District Court of the Virgin Island s,

Appellate Division.

On April 18, 1996, the Appellate Division denied Je ffrey's appeal. Finding that the appeal lacked merit, the c ourt noted that it was considering awarding fees and cos ts to Margaret under Federal Rule of Appellate Procedure 38 (as to Jeffrey) and 28 U.S.C. S 1927 (as to Jeffrey's c ounsel, Kevin Rames), and asked for additional briefing on the issues. Soon thereafter, however, the Prossers sett led the case, and Jeffrey paid Margaret the $2,500,000, plu s all interest, costs, and attorney's fees.

On November 4, 1998, more than two and a half years after its final order, the Appellate Division issue d a Memorandum Opinion and Order fining Jeffrey $20,000 and Rames $5000 in the nature of a sanction, relyin g on the court's inherent power to punish litigants and their attorneys for abuse of process. Jeffrey and Rames a ppealed.1

We review the Appellate Division's sanction award f or abuse of discretion. See Chambers v. NASCO, Inc., 5 01 U.S. 32, 55, 111 S. Ct. 2123, 2138 (1991). "An abuse of discretion is a clear error of judgment, and not si mply a different result which can arguably be obtained whe n applying the law to the facts of the case." In re T utu Wells Contamination Litig., 120 F.3d 368, 387 (3d Cir. 19 97) (citations omitted).

II. Discussion

A. Timing

As noted above, the Appellate Division invoked its inherent power2 to impose the sanctions on Jeffrey and his counsel approximately thirty months after rendering its

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1. As part of the settlement agreement, Margaret ag reed to take no position on sanctions and she did not participate i n this appeal.

2. In its Memorandum Opinion, the Appellate Divisio n stated that it was only relying on its inherent power "to the extent t hat [its] authority under Rule 38 and section 1927 need[ed] supplementa tion." However, as noted in Part I.B., neither Rule 38 nor section 192 7 supplied the necessary authority for the type of sanctions issue d in this case.

3final decision on the merits. Our precedent concern ing Rule

11 sanctions helps guide our review here. In Mary A nn Pensiero, Inc. v. Lingle, 847 F.2d 90, 92 (3d Cir. 1988), we adopted a supervisory rule requiring parties tofile all motions for Rule 11 sanctions before entry of the c ourt's final order. See also Mellon Bank Corp. v. First Un ion Real Estate, 951 F.2d 1399, 1413 (3d Cir. 1991); Hilmon Co. v. Hyatt Int'l, 899 F.2d 250, 251 n.1 (3d Cir. 1990).

We extended this rule to apply to courts considerin g Rule 11 sanctions in Simmerman v. Corino, 27 F.3d 58 (3d Cir. 1994). In Simmerman, we reversed the district court 's sua sponte imposition of Rule 11 sanctions because the order was issued three months after the entry of the fina l order. Following the logic of Pensiero, we held that a dis trict court should raise and resolve sua sponte Rule 11 sanctio ns issues "prior to or concurrent with its resolution of the merits of the case." Id. at 63. We opined that such a rule would not greatly increase the burdens faced by the district courts because the dictates of due process "should not necessitate prolonged consideration in the district court" to
assess sanctions once a violation has been establis hed. Id. (quoting Pensiero, 847 F.2d at 99). We also noted t he beneficial impact that such a rule would have on ju dicial

resources:

In the district court, resolution of the iss ue before the inevitable delay of the appellate process wi ll be more efficient because of current familiarity wit h the matter. Similarly, concurrent consideration of chall enges to the merits and the imposition of sanctions avoid s the invariable demand on two separate appellate panels to acquaint themselves with the underlying fact s and the parties' respective legal positions.

Id. (quoting Pensiero, 847 F.2d at 99).

We continued:

[t]here is no reason why prompt action shoul d be required of an opposing party and yet not si milarly required of the court. At the time that the court decided the motions for summary judgment and dismissal, it had before it the identical in formation that it relied upon three months later in imposin g the

4sanctions. Nothing was to be gained by delay . If

sanctions had truly been appropriate, the co urt should have imposed them at that time. Their imposi tion three
months later was an abuse of discretion.

Id. at 63-64 (footnote omitted).

We see no reason to limit the logic of Simmerman t o sua sponte Rule 11 sanctions.3 See Langer v. Presbyteri an Med. Ctr., 1995 WL 395937, *3 (E.D. Pa. July 3, 1995) (r elying
on Simmerman and Pensiero to vacate court's own tar dy award of attorney's fees under Federal Rule of Civi l Procedure 26(g) and section 1927). The interests of judicial efficiency, timeliness, and notice are no different when imposing sanctions under the court's inherent power . At the time of its final order on the merits, the Appe llate Division possessed the same evidence of the conduct that it
had when it issued its sanction order two and a hal f years later. The same rationale that supported the invali dation of
the Rule 11 sanction entered three months after the final order in Simmerman supports the invalidation of the inherent power sanction here, which was entered ove r thirty months after the final order.

Sanctions ideally operate as instructional tools to deter parties and attorneys whose conduct has not met the requisite professional standards from continuing on their wayward course of conduct. This exemplary function is ill served when sanctions are delayed. During the cours e of a delay, memories can fade and, importantly, attorney s and parties may continue to misbehave because they do n ot have the benefit of disciplinary guidance from the court.4 If

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3. Certainly, a court retains its power to sanction under its inherent power for abuses which occur or are discovered afte r the entry of the final order. See Chambers, 501 U.S. at 56, 111 S. C t. at 2138-39 (citing Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 395- 96, 110 S. Ct. 2447, 2455-56 (1990), for the proposition that sanctions, even under Rule 11, may properly be imposed years after the final judgm ent on the merits). 4. Although we need not address the merits of the s anctions here, we feel the need to remind the Appellate Division that "[b] ecause of their very potency, inherent powers must be exercised with res traint and discretion." Chambers, 501 U.S. at 44, 111 S. Ct. a t 2132. A court cannot be motivated by vindictiveness or retributio n when issuing sanctions. Indeed, courts must fight the temptation to find all losing arguments frivolous, and should only award sanction s in cases in which they are clearly justified.

5sanctions based on the court's inherent power were truly

appropriate in this case, the Appellate Division sh ould have imposed them when it issued its final order. The Ap pellate
Division's order will be reversed.

B. Particularized Notice

Although the timeliness issue is dispositive, we fe el that
to fulfill our instructional function it is incumbe nt on us to comment upon another troubling aspect of the Appell ate
Division's sanctions order. Fundamental fairness an d the established law of this circuit require that a cour t afford the parties due process by giving them notice and oppor tunity to be heard before imposing sanctions or awarding damages. See Jones v. Pittsburgh Nat'l Corp., 899 F.2d 1350, 1357 (3d Cir. 1990). "The party against whom sanctions are being considered is entitled to notic e of the legal rule on which the sanctions would be based, t he reasons for the sanctions, and the form of the pote ntial sanctions." In re Tutu Wells, 120 F.3d at 379 (citi ng Simmerman, 27 F.3d at 64). Here, the notice given b y the Appellate Division was insufficient because the par ties were
not on notice that the sanctions would be based on the court's inherent power, nor were they warned of the possibility that the sanction might be in the form of a fine payable to the court.

Due process requires that the parties have sufficie nt notice of the form of the sanctions being considere d by the court because the issues that must be addressed may differ depending on the form. See id. at 380 (citing Gagli ardi v. McWilliams, 834 F.2d 81 (3d Cir. 1987) (per curiam) ). The sanction imposed by the Appellate Division was in t he nature of a monetary fine payable to the court. Alt hough a court may impose a fine under its inherent power, s ee id. at 383, neither Jeffrey nor Rames had been given any n otice that the court was considering this type of sanctio n. As to Jeffrey, the Appellate Division indicated in its or iginal order that it was only considering awarding costs and fee s to Margaret as damages under Federal Rule of Appellate Procedure 38.5 In Rames's case, the court indicated only

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5. Rule 38 states:

6that it was considering sanctions under section 192 7 6 for

excess costs. Instead, the court imposed a $20,000f ine against Jeffrey and a $5000 fine against Rames.

Moreover, the sanction imposed, a monetary fine pay able to the court, is not an allowable remedy under eith er section 1927 or Rule 38. Under section 1927, courts may order attorneys to personally satisfy "the excess c osts, expenses, and attorneys' fees."7 Section 1927 does not, however, allow courts to impose a fine without arti culating a basis for the amount. Like Rule 38, section 1927 only allows the court to award costs and attorney fees p ayable to the opposing party, not payable to the court. Se e Laitram Corp. v. Cambridge Wire Cloth Co., 919 F.2d 1579, 1 584 (Fed. Cir. 1990).

Rule 38 is even more clear. It does not provide for
sanctions at all. It allows one who has sufferedfin ancial detriment from having to defend a legitimate judgme nt

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If a court of appeals determines that an app eal is frivolous, it

may, after a separately filed motion or notice fr om the court and reasonable opportunity to respond, award jus t damages and single or double costs to the appellee.

Fed. R. App. P. 38 (emphasis added).

6. Section 1927 states:

Any attorney or other person admitted to con duct cases in any court of the United States or any Territory thereo f who so multiplies the proceedings in any case unreasonably and vex atiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably inc urred because of such

conduct.

28 U.S.C. S 1927.

7. The Appellate Division couched its sanction in t erms of the "harm to the judicial system." This is not the type of harm Congress intended to address through section 1927. The "excess costs" al lowable as a sanction
under 1927 are limited to those costs enumerated un der 28 U.S.C. S 1920. See Roadway Express, Inc. v. Piper, 447 U.S . 752, 757-59, 100 S. Ct. 2455, 2459-62 (1980). Under section 1920, ex cess costs do not include fines for "harm done to the judicial system " as relied upon by the Appellate Division.

7against a frivolous appeal, to recover fees and cos ts as

"damages." Moreover, the text of Rule 38 itself lim its the award of damages to the financially injured party, not the

court.

III. Conclusion

In sum, the Appellate Division, by entering a sanct ions order approximately two and a half years after itsf inal order, by imposing a monetary fine payable to the c ourt, which is not an allowable remedy under either secti on 1927 or Rule 38, and by failing to inform the parties of its intention to use its inherent power, erred. Hence, we will reverse its order of November 4, 1998.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

8