Court Opinion

ID: 29967
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:48:14+00
Date Added: 2024-06-11T14:57:13.273324
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT

                       _____________________

                            No. 01-41340
                       _____________________

     BETTAH BEACH PRODUCTIONS INC; ET AL

                     Plaintiffs

     BETTAH BEACH PRODUCTIONS INC

                     Plaintiff - Appellee

          v.

     PARK BOARD OF TRUSTEES OF THE CITY OF GALVESTON; ET AL

                     Defendants

     PARK BOARD OF TRUSTEES OF THE CITY OF GALVESTON

                     Defendant - Third Party Plaintiff – Appellee

          v.

     MCLEOD ALEXANDER POWEL & APFFEL

                    Defendant – Third Party Defendant – Appellant
_________________________________________________________________

           Appeal from the United States District Court
                for the Southern District of Texas
                            (98-CV-619)
_________________________________________________________________
                         January 16, 2003

Before KING, Chief Judge, and JOLLY and HIGGINBOTHAM, Circuit
Judges.
KING, Chief Judge:*

     Defendant-Third Party Defendant-Appellant McLeod Alexander

Powel & Apffel (“MAPA”) appeals from the final judgment entered

by the District Court for the Southern District of Texas awarding

Defendant-Third Party Plaintiff-Appellee Park Board of Trustees

of the City of Galveston (“Park Board”) approximately $2 million

as a result of malpractice committed by MAPA during its

representation of the Park Board.     MAPA also appeals the court’s

entry of sanctions against them for Rule 11 violations.    Because

we hold that the district court erroneously retained supplemental

jurisdiction over this case after the federal claims had been

dismissed, we vacate the district court’s judgment and remand

with instructions to dismiss the case.    We also affirm the

district court’s award of Rule 11 sanctions against MAPA for

filing frivolous post-trial motions.

                  I.   FACTS AND PROCEDURAL HISTORY

     In 1994, the Park Board solicited proposals for private

management of a section of the waterfront known as East Beach.

Any party seeking management of East Beach would be required to

comply with the regulations promulgated by the Texas General Land

Office (“GLO”).   The GLO’s interpretation of the Texas Open

     *
           Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.

                                  2
Beaches Act (“TOBA”) requires that any revenues received from

beach user fees be applied solely to beach-related services.

     Two local residents, George Childress and Allen Flores, and

their company, Bettah Beach Productions, Inc. (“Bettah Beach”),

showed interest in privately managing East Beach.    Daniel Vaughn,

the attorney for the Park Board and a partner in MAPA, advised

Flores that he should contact the GLO for information about the

permissible uses of parking and concession revenues.    The GLO

replied that whether Bettah Beach could profit from parking

revenues was a matter for the Park Board.    Bettah Beach and the

Park Board ultimately reached a deal; the terms of the Concession

Agreement which Vaughn drafted bound Bettah Beach to comply with

“all applicable laws, rules and regulations regarding beach user

fees.”

     During the term of the Agreement, questions arose concerning

whether Bettah Beach’s use of parking revenues complied with the

TOBA.    Before these questions were resolved, though, a barge

owned by Buffalo Marine Services, Inc. (“Buffalo Marine”) spilled

oil onto East Beach in March 1996.    Both Bettah Beach and the

Park Board sought recovery from Buffalo Marine, and both were

represented by MAPA attorneys after initial attempts at

settlement failed.    Whether or not this joint representation was

fully disclosed and approved of is in dispute: MAPA claims that

it explained the joint representation fully to both parties,

while the Park Board claims that it had never been asked for and

                                  3
had never given permission for joint representation with Bettah

Beach against Buffalo Marine.   In November 1997, Buffalo Marine,

under the terms of a settlement, paid the Park Board $165,000 and

Bettah Beach $235,000.

     When the time came to renew the Concession Agreement, Bettah

Beach assured the Park Board that it had been complying with all

“applicable” rules and regulations.   After renewing the

Agreement, the Park Board met with the GLO to express its

concerns that Bettah Beach was misappropriating beach fees.    The

GLO requested quarterly accountings and performed an audit.    The

audit revealed questions concerning both whether Bettah Beach

properly allocated the proceeds from the Buffalo Marine

litigation to beach user fees and whether the Park Board had

exercised insufficient supervision over Bettah Beach as its

subcontractor.

     In December 1998, Bettah Beach sued the Park Board, arguing

that the Board never said that Bettah Beach could not profit from

its parking revenues.    The Board counterclaimed that Bettah Beach

fraudulently misrepresented that it would comply with applicable

laws.   The Park Board later filed a third-party complaint against

MAPA, alleging that it had breached its fiduciary duty by its

joint representation in the Buffalo Marine litigation.

     In March 2000, the Park Board and Bettah Beach reached a

settlement covering the claims between them.   In May, MAPA moved

to have the remainder of the case dismissed on the grounds that

                                  4
federal subject matter jurisdiction no longer existed because all

of the federal claims had been resolved as part of the

settlement.   The district court, in opting to retain supplemental

jurisdiction over the remaining claims, wrote:

     From the beginning, this case has received copious press
     coverage. Understandably, the citizens of the City of
     Galveston are intensely interested in a suit involving
     elements of their local government, the management of a
     popular local beach, and the professional competence and
     integrity of a prominent local law firm. Consequently,
     the Court has determined that it would be inappropriate
     to prevent a full and public airing of the grievances
     between the parties by granting dispositive relief on
     hyper-technical grounds. A trial date has been set for
     January 22, 2001. All of these matters of legitimate
     public interest will be definitively adjudicated in the
     course of open trial.

     In October 2000, the Park Board amended its complaint to

include charges that Vaughn had negligently drafted the

Concession Agreement and that he had failed to monitor Bettah

Beach’s use of the beach user revenues to ensure that they

complied with the law.   The case went to trial on August 20,

2001.   On August 23, the jury reached its verdict.   However, MAPA

contends that, while the parties were waiting in the courtroom

for the jury to return and announce the verdict, the two parties

told the court that they had reached a binding settlement.   The

Park Board disagrees, saying that the settlement was not binding

unless it was approved by a vote of the full Board.   The district

court refused to certify the settlement; the jury returned a

verdict of $1.75 million against MAPA, finding that MAPA had both

committed malpractice and breached their fiduciary duty to the

                                 5
Park Board.   The district court also added, as part of the final

judgment, attorney’s fees: a refund of the $52,854.21 paid by the

Park Board to MAPA in the Buffalo Marine litigation, and $160,000

(an amount the parties had stipulated to) in attorney’s fees

expended by the Park Board in defending itself in the Bettah

Beach suit.

     On August 28, the full Park Board met to discuss the

proposed settlement; the Board unanimously rejected it.

Nevertheless, the next day MAPA filed a Notice of Settlement.

The court rejected the settlement.   MAPA then filed a request for

an evidentiary hearing to discuss the settlement and created a

Statement of Proceedings that sought to reconstruct the pre-

verdict courtroom settlement discussions (which had not been

transcribed for the record).   MAPA also raised the settlement

issue in its motion opposing the entry of the final judgment.     At

a hearing held to discuss the amount of bond MAPA should post

while the judgment was pending on appeal, MAPA mentioned that it

wanted a more complete hearing on the settlement issue; the court

reiterated that it had ruled on the enforceability of the

settlement.   Two weeks later, MAPA again moved that the court

recognize the settlement and tried to get admitted its Statement

of Proceedings.   The court refused and sanctioned MAPA and its

                                 6
counsel in the amount of $2,500 “for the continued filing of

frivolous pleadings.”1

     MAPA raises several issues on appeal: (1) the district court

lacked supplemental jurisdiction over the case; (2) the Board

failed to prove that MAPA’s alleged malpractice proximately

caused the damages; (3) the Board failed to prove damages to any

degree of certainty; (4) the statute of limitations barred the

action; (5) the district court made erroneous evidentiary rulings

concerning proffered expert testimony; (6) the district court

judge was openly biased in favor of the Park Board; (7) the award

of attorney’s fees was inappropriate; and (8) the refusal to

enforce the settlement agreement and subsequent sanctioning of

MAPA for pressing the point were erroneous.

    II.   SUPPLEMENTAL JURISDICTION OVER THE STATE LAW CLAIMS

     The district court denied MAPA’s motion to dismiss the

action on the grounds that the court, after the federal claims

had been settled, no longer had supplemental jurisdiction over

the remaining state law claims.   This court reviews a decision to

retain supplemental jurisdiction over state law claims for abuse

     1
         MAPA filed a litany of other motions as well (all of
which the Park Board responded to) that did not directly deal
with the settlement. Ultimately, the court filed an order
denying all future motions, stating that, under “an absolute
blizzard of filings on all sorts of extraneous matters before
this Court,” the parties should save their motions for the
pending appeal.

                                  7
of discretion.   McClelland v. Gronwaldt, 155 F.3d 507, 511 (5th

Cir. 1998).

     District courts have the discretion to exercise supplemental

jurisdiction over claims that, while they have no independent

basis for federal jurisdiction, are “so related to claims in the

action within such original jurisdiction that they form part of

the same case or controversy.”   28 U.S.C. § 1367(a) (2000).

However, a district court may choose to decline that jurisdiction

in certain circumstances; one of these is when “the district

court has dismissed all claims over which it has original

jurisdiction.”   Id. § 1367(c)(3).    In such a case, the “general

rule is to decline to exercise jurisdiction over pendent state-

law claims . . . [though] this rule is neither mandatory nor

absolute.”    Batiste v. Island Records, Inc., 179 F.3d 217, 227

(5th Cir. 1999) (internal quotation and citation omitted).     In

such a case, the district court should consider the factors of

“judicial economy, convenience, fairness, and comity” when

weighing whether to exercise pendent jurisdiction.     Carnegie-

Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988).

     The Park Board argues that the sheer volume of pleadings and

motions that had come before the district court sufficiently

implicates the notion of judicial economy to make supplemental

jurisdiction appropriate.   However, at the time MAPA filed its

motion to dismiss, most of the judicial resources had actually

been expended on the underlying case between the Park Board and

                                  8
Bettah Beach.   When MAPA moved to dismiss for lack of subject

matter jurisdiction on May 9, 2000, the Park Board had yet to

file its final amended complaint in the case and the actual trial

was more than fifteen months away.2   See Parker & Parsley

Petroleum Co. v. Dresser Indus., 972 F.2d 580, 587 (5th Cir.

1992) (dismissing supplemental jurisdiction because, at the point

the motion was made, the parties were “not ready for trial”).

The Parker court also noted that the fact that the moving party

had, after the district court opted to retain supplemental

jurisdiction, later filed an amended complaint tended to show

that the litigation was in such an early stage that dismissal

would have been appropriate.   Id.

     The district court here made no mention of any of the

factors that it was required by § 1367 and Carnegie Mellon to

consider when deciding whether to retain supplemental

jurisdiction over the pendent state law claims.   Instead, the

district court claimed to be doing so out of a sense of the

“intense public interest” of the citizens of Galveston in seeing

the case reach a full and fair conclusion.   Whether or not public

interest in the case was high, though, is irrelevant for purposes

     2
         Of course, by now substantial judicial resources have
been expended on this case, given that it has already gone
through a trial. However, the decision on whether the exercise
of supplemental jurisdiction was appropriate must be made by
looking at the circumstances at the time the party filed its
motion to dismiss for lack of jurisdiction. Parker & Parsley
Petroleum Co. v. Dresser Indus., 972 F.2d 580, 587 (5th Cir.
1992).

                                 9
of a district court’s exercise of supplemental jurisdiction; a

strong public interest does not implicate any of the four

Carnegie-Mellon factors.    Further, the suggestion implicit in the

district court’s reason for retaining jurisdiction is that the

strong public interest of the citizens of Galveston in seeing the

case reach a full and fair conclusion could not be satisfied in

state court (presumably also in Galveston).   That suggestion must

be rejected.

     In view of the fact that the district court’s decision to

exercise supplemental jurisdiction over the case did not address

any of the Carnegie-Mellon factors and relied instead on yet

another factor that was simply wrong, we find that the district

court abused its discretion in retaining supplemental

jurisdiction over this case.   Section 1367(c), as interpreted by

Carnegie-Mellon, embodies specific factors that a district court

must consider in choosing whether to exercise supplemental

jurisdiction over pendent state law claims.   A district court

errs if it fails to consider those factors.

               III. THE POST-TRIAL SANCTIONING OF MAPA

     While our holding that the district court abused its

discretion by retaining supplemental jurisdiction over this case

also disposes of the majority of MAPA’s remaining claims on

appeal, we must still address MAPA’s claim that the district

                                 10
court erred in sanctioning them $2,500 for their post-trial

actions.

     All aspects of Rule 11 sanctions are reviewed for abuse of

discretion.   Merriman v. Sec. Ins. Co. of Hartford, 100 F.3d

1187, 1191 (5th Cir. 1996).    “A district court necessarily abuses

its discretion in imposing sanctions if it bases its ruling on an

erroneous view of the law or a clearly erroneous assessment of

the evidence.”   Elliott v. Tilton, 64 F.3d 213, 215 (5th Cir.

1995).   However, a district court’s discretion in this area is

generally very broad.     Cooter & Gell v. Hartmarx Corp., 496 U.S.

384, 402 (1990) (“Familiar with the issues and litigants, the

district court is better situated than the court of appeals to

marshal the pertinent facts and apply the fact-dependent legal

standard mandated by Rule 11.”).

     The district court, in sanctioning MAPA, stated:

     Plaintiff also sought sanctions pursuant to Rule 11 of
     the Federal Rules of Civil Procedure. The Court, finds
     that, at this time, sanctions are appropriate. It is,
     therefore, ordered that Defendant and its counsel be
     sanctioned for the continued filing of frivolous
     pleadings, and the Court deems that the appropriate
     sanction for the filing of such Motion and for its
     continuing pattern of conduct in that regard, is
     $2,500.00.

Sanctions may be assessed against a party for filing excessive or

frivolous motions.     Sheets v. Yamaha Motors Corp., 891 F.2d 533,

538 (5th Cir. 1990).    Thus, the district court’s determination

that MAPA’s continued filing of post-trial motions was

“frivolous” forms an appropriate basis for sanctions.

                                  11
     The district court expressly identified MAPA’s “continuing

pattern of” filing frivolous post-trial motions as the basis for

its decision to impose sanctions.    After the full Park Board

rejected the pre-verdict settlement, MAPA filed a notice of

settlement which the court rejected.    Had MAPA stopped there,

sanctions would have been inappropriate; in fact, at that time

the court denied the Park Board’s motion for sanctions, finding

that MAPA had pursued the settlement in good faith.    However,

after the court rejected the settlement MAPA moved for an

evidentiary hearing, attempted to file a Statement of

Proceedings, and partially reargued the merits of the settlement

in its motion opposing the entry of a final judgment.    MAPA then

brought the issue up again at the bond hearing, where the court

expressly stated that it had ruled on the issue.    Nevertheless,

MAPA again filed notice to settle and to have the Statement of

Proceedings made part of the record.    Given the repeated attempts

to press the same point, even after the court had specifically

told MAPA that the settlement issue had been decided, the court

did not abuse its discretion in sanctioning MAPA for continuing

to beat a dead horse.

                         IV.   CONCLUSION

     We VACATE the district court’s judgment and REMAND with

instructions to dismiss the case.    We AFFIRM the district court’s

                                12
award of sanctions again MAPA for filing frivolous post-trial

motions.   Each party shall bear its own costs.

                                13