Opinion ID: 514584
Heading Depth: 1
Heading Rank: 3

Heading: combined's motion for sanctions under fed.r.civ.p. 11

Text: 37 On cross-appeal, Combined asks this court to reverse the district court's decision denying sanctions under Rule 11. Combined alleges that Kale's claims were both substantively and procedurally flawed, and that he continued to prosecute those claims even after Combined had revealed their utter lack of merit. For the reasons that follow, we affirm the disposition of the district court. 38
39 In the wake of the 1983 amendments to Rule 11, a debate has arisen in the various circuits as to what standard of review an appellate court should use in passing on a district court's Rule 11 determination. See, e.g., FDIC v. Tekfen Construction and Installation Co., Inc., 847 F.2d 440, 442-43 (7th Cir.1988) (noting disagreement among authorities as to proper standard of review). In this case, while Combined argues for a de novo review and Kale argues for an abuse of discretion standard, neither addresses all of the concerns raised by the case law on point. It is necessary, therefore, to examine the relevant appellate decisions discussing this issue. 40 It should be noted at the outset that although this circuit has often reviewed Rule 11 dispositions under an abuse of discretion standard, none of our cases has examined the validity of that standard in light of the 1983 amendments to the rule. See Alvarado-Morales v. Digital Equipment Corp., 843 F.2d 613, 618 (1st Cir.1988); Fudge v. Penthouse International, Inc., 840 F.2d 1012, 1022 (1st Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 65, 102 L.Ed.2d 42 (1988);; EBI, Inc., v. Gator Industries, Inc., 807 F.2d 1, 6 (1st Cir.1986); Gianfriddo v. Western Union Telegraph Co., 787 F.2d 6, 7 (1st Cir.1986). 11 The argument for a de novo standard thus appears to be one of first impression in this circuit and calls upon us to reassess our past holdings. 41 In 1983, Rule 11 was amended to establish a simple, objective standard for determining whether a party and his attorney have responsibly initiated and/or litigated a cause of action. The Rule states: 42 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. 43 Fed.R.Civ.P. 11. The amendment did away with the old standard of subjective good faith 12 on the part of the attorney, see Nemeroff v. Abelson, 620 F.2d 339, 350 (2d Cir.1980) (per curiam); Hashemi v. Campaigner Publications, Inc., 784 F.2d 1581, 1583 (11th Cir.1980), and replaced it with an objective one of reasonableness under the circumstances. Fed.R.Civ.P. 11 advisory committee's note. The previous rule had not been effective in deterring abuses of the litigation process, and it was hoped that the new standard would reduce the reluctance of courts to impose sanctions. Id.; see also Eastway Construction Corp., v. City of New York, 762 F.2d 243, 253 (2d Cir.1985) (noting same). 44 A number of courts of appeals have examined the new language of Rule 11 and concluded that appellate review of lower court determinations concerning the imposition of sanctions should be de novo, at least in part. See Eastway Construction Corp., 762 F.2d at 254 n. 7; Zaldivar v. City of Los Angeles, 780 F.2d 823, 828 (9th Cir.1986); Westmoreland v. CBS, Inc., 770 F.2d 1168, 1173-75 (D.C.Cir.1985); Donaldson v. Clark, 819 F.2d 1551, 1555-56 (11th Cir.1987) (en banc); Beeman v. Fiester, 852 F.2d 206, 209 (7th Cir.1988); Kurkowski v. Volcker, 819 F.2d 201, 203 n. 8 (8th Cir.1987); see also Snow Machines, Inc. v. Hedco, Inc., 838 F.2d 718, 724-25 (3rd Cir.1988) (citing favorably, though not expressly adopting, de novo standard). Some of these decisions establish a three-tier standard of review for Rule 11 dispositions. 45 If the facts relied upon by the district court to establish a violation of the Rule are disputed on appeal, we review the factual determinations of the district court under a clearly erroneous standard. If the legal conclusion of the district court that the facts constitute a violation of the Rule is disputed, we review that legal conclusion de novo. Finally, if the appropriateness of the sanction imposed is challenged, we review the sanction under an abuse of discretion standard. 46 Zaldivar, 780 F.2d at 828; see Kurkowski, 819 F.2d at 203 n. 8. Others have created a variation on this approach utilizing an abuse of discretion standard when reviewing the factual reasons for imposing Rule 11 sanctions and the amount and type of sanctions, while reserving a de novo analysis for reviewing the legal sufficiency of a pleading or motion and the determination to impose sanctions. Thomas v. Capital Security Services, Inc., 836 F.2d 866, 872 (5th Cir.1988) (en banc); see Donaldson, 819 F.2d at 1556; Westmoreland, 770 F.2d at 1174-75; Eastway Construction Corp., 762 F.2d at 254 n. 7. 47 The ratio decendi of these cases is that by using the phrase shall impose ... an appropriate sanction, the new rule mandates the imposition of sanctions whenever an objective violation of its tenets is found. See, e.g., Westmoreland, 770 F.2d at 1174-75. And since the Rule establishes an objective standard, an appellate court is in as good a position as the district court to evaluate the legal sufficiency of any pleadings or motions. See Eastway Construction Corp., 762 F.2d at 254 n. 7. 48 An almost equal number of circuit courts, however, have looked at the same language and concluded that an abuse of discretion standard should be used in reviewing all aspects of a district court's Rule 11 determination. See Thomas, 836 F.2d at 872-73; FDIC v. Tekfen Construction and Installation Co., Inc., 847 F.2d 440, 443 (7th Cir.1988); Century Products, Inc. v. Sutter, 837 F.2d 247, 253 (6th Cir.1988) (utilizing abuse of discretion standard while noting possibility of de novo review of abstract legal determinations); O'Connell v. Champion, 812 F.2d 393, 395 (8th Cir.1987); Cotner v. Hopkins, 795 F.2d 900, 903 (10th Cir.1986); Stevens v. Lawyers Mutual Liability Insurance Co. of North Carolina, 789 F.2d 1056, 1060 (4th Cir.1986). These cases opt for this result because of its ease in application and because it vests the lion's share of the responsibility for imposing Rule 11 sanctions with the judicial actor closest to litigation--the district judge. We find this argument persuasive. 49 The district judge is a firsthand observer of the proceedings below. His is the view from the trenches: he sees the shots fired by one party against the other, and he has full knowledge of the circumstances prompting the crossfire. It is his exercise of judgment and discretion that is the clearest guidepost to appellate courts. See Muthig v. Brant Point Nantucket, Inc., 838 F.2d 600, 603 (1st Cir.1988). Since the imposition of sanctions will usually require a intensive inquiry into the factual circumstances surrounding an alleged violation, [t]he trial judge is in the best position to review [those] circumstances and render an informed judgment.... Thomas, 836 F.2d at 873. Thus, while we acknowledge the mandatory language of Rule 11, 13 we cannot escape the fact that at its core imposition of sanctions is a judgment call. FDIC, 847 F.2d at 443 (citing In re Central Ice Cream Co., 836 F.2d 1068, 1072 (7th Cir.1987). We believe that judgment is one best left to the district judge whose familiarity with the case, parties, and counsel ... we cannot have. O'Connell, 812 F.2d at 395. We feel this standard will be true to Rule 11's goals of streamlin[ing] the litigation process and deterring abusive tactics while not chilling innovative advocacy. Fed.R.Civ.P. 11 advisory committee's note. We now turn to the merits of Combined's appeal. 50
51 Combined argues that Kale's filing of a facially time-barred complaint and his continued prosecution of the claim even after the untimeliness was revealed to him warrant sanctions. It asserts that Rule 11 requires an attorney to undertake an investigation of his claims before making any filings. Since a rudimentary examination of the ADEA would have revealed that Kale's complaint was time-barred, Combined concludes that Kale's attorney has transgressed the Rule 11 standards. We disagree. 52 Combined is correct in asserting that the new Rule 11 imposes a duty on counsel to investigate their clients' claims before making any filings and to reassess them throughout the litigation. See Shrock v. Altru Nurses Registry, 810 F.2d 658, 661 (7th Cir.1987); Woodfork By And Through Houston v. Gavin, 105 F.R.D. 100, 104 (N.D.Miss.1985); Fed.R.Civ.P. 11 advisory committee's note. It is also correct that the standard to be applied to filings in light of that requirement is one of objective reasonableness under the circumstances existing at the time. See Donaldson, 819 F.2d at 1556; Thomas, 836 F.2d at 873. It is in the application of these principles to the facts of this case, however, where our analysis diverges from that of Combined. 53 We believe, as did the district court, that while Kale's complaint was facially time-barred, his argument for equitable modification removed any element of frivolousness regarding that issue. Although the plaintiff was asking for a more liberal equitable tolling doctrine than exists in any other circuits, the fact that there was no First Circuit precedent on point allowed such an argument. Indeed, even if we had previously decided in favor of a conservative equitable tolling doctrine, Kale's argument might have qualified as a good faith argument for the extension, modification, or reversal of existing law.... Fed.R.Civ.P. 11. Cf. Golden Eagle Distributing Corp. v. Burroughs Corp., 801 F.2d 1531, 1542 (9th Cir.1986) (A lawyer should not be able to proceed with impunity in real or feigned ignorance of authorities which render his argument meritless.). 54 What Combined appears to be arguing is that Kale's attorney had no knowledge of the doctrine of equitable tolling at the time he filed the complaint, and that, therefore, his lack of timely and reasonable investigation should trigger Rule 11 sanctions. See Alvarado-Morales v. Digital Equipment Corp., 843 F.2d 613, 618 (1st Cir.1988). At first blush, this argument has some appeal. Kale's original complaint fails to mention the doctrine of equitable tolling, and it is arguable that Kale's attorney learned of the equitable tolling doctrine when doing research well after the initial filing of the complaint. Whether an equitable tolling argument was possible under the circumstances, Combined contends, is immaterial to a Rule 11 inquiry; where an attorney has failed to properly investigate facts and legal theories and then files an otherwise time-barred complaint, there are grounds for sanctions. 55 We believe the objective nature of the inquiry requirement of Rule 11 defeats Combined's argument. Sanctions may be imposed where, after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading 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. Eastway Construction Corp., 762 F.2d at 254. Looking at this case objectively, then, a reasonable inquiry would have revealed the possibility of making an equitable tolling argument such as the one proffered by Kale. Since the subjective knowledge of the attorney is no longer the relevant inquiry under Rule 11, we agree with the district court that Kale's equitable tolling argument was objectively sound. We also note that if we were to agree with Combined's view, we would be telling Kale that his argument did have some merit but that since he was not fully aware of that fact at the initial filing, he has violated Rule 11. 56 It is easy to imagine a myriad number of satellite litigations arising if this were our holding. See Fed.R.Civ.P. 11 advisory committee's note (counselling against such atomization). Anytime an attorney did not fully flesh out an argument he would be subject to a charge that he had not engaged in a reasonable investigation. While this is proper where an inquiry would have revealed the lack of merit in an argument, it is not where that inquiry would have instead bolstered counsel's contentions. Sanctions should not be imposed where a plausible good faith argument can be made.... Zaldivar v. City of Los Angeles, 780 F.2d 823, 833 (9th Cir.1986). 57
58 Combined next argues that sanctions should be imposed on Kale for his continued litigation of a claim that lacks substantive merit. It contends that while appellant may have pleaded the elements of a claim for age discrimination, the facts as revealed by discovery, particularly appellant's [Kale's] deposition, show that there was no evidence whatsoever supporting an inference of unlawful age discrimination by Combined. In other words, Combined believes Kale has failed both to establish a prima facie case of age discrimination and to demonstrate that Combined's proffered reasons for his dismissal were pretexts for what was in fact a discriminatory firing. For the reasons that follow, we do not find that the district court abused its discretion in refusing to impose Rule 11 sanctions on this ground. 59 To recover under the ADEA, a plaintiff must show that age was a determining factor in his dismissal. See Cuddy v. Carmen, 694 F.2d 853, 856-57 & n. 19 (D.C.Cir.1982); Loeb v. Textron, Inc., 600 F.2d 1003, 1013-14, 1019 (1st Cir.1979). When the plaintiff makes a prima facie case, an inference arises that age was a determining factor. See id. The standard for establishing a prima facie case of age discrimination is well settled in this circuit. A plaintiff must show: 60 that he was in the protected age group [40-70], that he was performing his job at a level that met his employer's legitimate expectations, that he nevertheless was fired, and that [the employer] sought someone to perform the same work after he left. 61 Loeb, 600 F.2d at 1014; see also McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S.Ct. 1817, 1824, 36 L.Ed.2d 668 (1973) (establishing virtually same test for Title VII cases); Johnson v. Allyn & Bacon, Inc., 731 F.2d at 70-71 (applying same test to cases of sex discrimination). The burden next shifts to the employer to produce, i.e., simply state, a legitimate, non-discriminatory basis for the plaintiff's firing. See Loeb, 600 F.2d at 1011. Plaintiff then has the final burden of persuading the court that the employer's stated basis for his firing is actually a pretext designed to cover-up a discriminatory dismissal. See id. at 1011-12. 62 In the case at bar, Combined alleges that Kale has satisfied only the age prong of the prima facie case. Combined states that it did not hire a younger employee to replace Kale and that Kale's own deposition admits that he had been criticized for his work performance for several years. Neither of these assertions negates plaintiff's prima facie case. First, there is no requirement that plaintiff show a younger employee was hired to replace him. It is enough for plaintiff to show that the employer sought some form of replacement performance, which would demonstrate its continued need for the same services and skills. Id. at 1013. Plaintiff has met this burden here, since Combined revealed in its answers to one of Kale's interrogatories that [p]laintiff's job functions were absorbed by several different employees of defendant. 14 63 Second, while it is true Kale admitted in his deposition that he had been criticized for inadequate performance for years, his affidavit counters that these criticisms were malicious and false, blaming him for others' delays. In essence plaintiff is arguing that he met his employer's legitimate expectations of performance but that his efforts were met with illegitimate condemnation. We believe such a contention would sustain a prima facie case by plaintiff. 15 64 A closer question is whether Kale's allegation of improper criticism and pretext will overcome the defendant's articulation of a legitimate non-discriminatory basis for the dismissal. It is true that a mere allegation of pretext, with little or no factual support, cannot easily overcome a valid reason proffered for a firing. See Selsor v. Callaghan & Co., 609 F.Supp. 1003, 1008-10 (D.Ill.1985). Yet we are mindful of the lower court's words in this case that in age discrimination cases that turn on the question of pretext, the defendant's intent is difficult to establish except through discovery; imposing sanctions in cases such as this runs the risk of chilling meritorious litigation. 16 We agree. The issue here is not whether Kale's assertions are weighty enough to survive a summary judgment motion, see Selsor, 609 F.Supp. at 1010 & n. 8 (affirming entry of summary judgment under similar facts), but whether they are so objectively unsound as to warrant sanctions. We find that the district court did not abuse its discretion in refusing to impose sanctions. 65