Court Opinion

ID: 4302926
Source: CourtListenerOpinion
Date Created: 2018-08-10 20:00:32.259888+00
Date Added: 2024-06-11T13:03:11.401452
License: Public Domain

Case: 17-12744     Date Filed: 08/10/2018      Page: 1 of 14

                                                                            [PUBLISH]

               IN THE UNITED STATES COURT OF APPEALS

                        FOR THE ELEVENTH CIRCUIT
                          ________________________

                                 No. 17-12744
                             Non-Argument Calendar
                           ________________________

                       D.C. Docket No. 1:15-cv-23028-RNS

JULIO ANTONIO SILVA,
and all others similarly situated under 29 U.S.C. 216(b),

                                                  Plaintiff - Appellant,

                                       versus

PRO TRANSPORT, INC.,
OSCAR ACHARANDIO,
TONY MENENDEZ,

                                                  Defendants - Appellees.

                           ________________________

                   Appeal from the United States District Court
                       for the Southern District of Florida
                         ________________________

                                 (August 10, 2018)
              Case: 17-12744        Date Filed: 08/10/2018   Page: 2 of 14

Before WILLIAM PRYOR, JILL PRYOR and ANDERSON, Circuit Judges.

PER CURIAM:

      Plaintiff Juan Antonio Silva appeals a district court order assessing sanctions

against him and his attorneys. Silva sued his employer, Pro Transport, Inc., and its

owners, Oscar Acharandio and Tony Menendez, to recover unpaid overtime wages

under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-19. The district

court granted summary judgment to the defendants, concluding that judicial

estoppel barred Silva’s FLSA claim because he had failed to disclose it as an asset

in his Chapter 13 bankruptcy. The district court then sanctioned Silva and his

attorneys because it found that they acted in bad faith in litigating Silva’s FLSA

claim when it was clear under our precedent that judicial estoppel barred the claim.

While Silva’s appeal of the sanctions award was pending in our Court, we issued

an en banc opinion clarifying the standard for applying judicial estoppel. See

Slater v. U.S. Steel Corp., 871 F.3d 1174 (11th Cir. 2017) (en banc). Because

Slater makes clear that Silva and his attorneys did not act in bad faith in litigating

the FLSA claim, we reverse the district court’s award of sanctions.

                               I.      BACKGROUND

      This dispute arises out of Silva’s claim that Pro Transport failed to pay him

overtime wages. Silva alleged that Pro Transport paid him for working only 40

hours per week, even though he was required to work 70 hours.

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      In 2014, Silva consulted with attorney Zandro Palma about his claim for

unpaid overtime wages. Palma sent a letter to Pro Transport demanding payment

on the ground that it had violated the FLSA by failing to pay Silva overtime wages.

But when Pro Transport was unwilling to settle with Silva, Palma ceased

representing Silva.

      Later that year, Silva, facing foreclosure on his home, filed a petition for

Chapter 13 bankruptcy. In the bankruptcy proceeding, Silva was represented by a

different attorney. In the bankruptcy petition, Silva was required to disclose his

assets. He failed to list his FLSA claim against Pro Transport and its owners as a

contingent and unliquidated claim. In April 2015, the bankruptcy court confirmed

Silva’s Chapter 13 plan.

      In August 2015, Silva’s mother saw an advertisement by attorney J.H.

Zidell. At his mother’s urging, Silva met with Zidell about his potential claim for

unpaid wages. At the meeting, Zidell had Silva complete an intake form that asked

whether Silva had any pending legal matters. Silva did not identify his pending

bankruptcy proceeding because he did not think that it was relevant. Zidell did not

ask Silva in person whether he had any pending legal matters. After the meeting,

Zidell filed this action on Silva’s behalf. When the action was filed, Silva did not

update his bankruptcy disclosures to reflect that he had filed the lawsuit.

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         The defendants in the FLSA action moved for summary judgment, asserting

that judicial estoppel barred Silva’s FLSA claim because he had taken inconsistent

positions regarding the existence of that claim by bringing the civil action and

failing to disclose the claim in his bankruptcy proceeding and because Silva acted

with an intent to manipulate the judicial process. Regarding Silva’s intent, the

defendants relied on our precedent holding that a plaintiff who fails to disclose a

civil claim in a bankruptcy proceeding acts intentionally because he has a motive

to conceal the claim from his creditors to avoid having the proceeds from the

lawsuit become the property of the bankruptcy estate.

         In response to the summary judgment motion, Silva argued that judicial

estoppel was unwarranted because he had never intended to manipulate or make a

mockery of the judicial system; rather, he had merely made a mistake. Silva

explained that due to his lack of sophistication he had not understood the

importance of telling Ziddell about his bankruptcy proceeding or informing his

bankruptcy counsel of his FLSA lawsuit. Silva also pointed out that he was

attempting to correct the error by amending his bankruptcy disclosures, as was

permitted under the bankruptcy rules. His bankruptcy attorney successfully

amended Silva’s bankruptcy schedules to disclose the pending FLSA claim as an

asset.

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      The district court granted summary judgment to the defendants, finding that

Silva had intended to make a mockery of the judicial system and concluding that

judicial estoppel barred his FLSA claim. The district court explained that under

existing Circuit precedent Silva had acted intentionally because he had a motive to

conceal his FLSA claim in his bankruptcy proceedings. The district court

dismissed as “insufficient,” “irrelevant[,] and immaterial” Silva’s attempt to

correct the non-disclosure by amending his bankruptcy schedules. Doc. 38 at 2. 1

      After the district court entered judgment in the defendants’ favor, they

moved for sanctions against Silva and his attorneys, seeking to recover their

attorney’s fees and costs. They argued that the district court should award

sanctions pursuant to its internal authority, 28 U.S.C. § 1927, and Federal Rule of

Civil Procedure 11 because Silva and his attorneys had acted unreasonably and in

bad faith in litigating the FLSA claim when they knew or should have known that

judicial estoppel barred the action. Silva and his attorneys opposed the motion for

sanctions, contending that they had a good faith basis for arguing that judicial

estoppel should not apply, especially given that Silva amended his bankruptcy

disclosures upon learning of the omission.

      The district court referred the sanctions motion to a magistrate judge. After

a hearing, the magistrate judge recommended that the district court impose

      1
          Citations to “Doc. #” refer to numbered entries on the district court’s docket.
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sanctions against Silva and his attorneys. The magistrate judge found that Silva

and his attorneys had acted unreasonably and in bad faith in bringing the FLSA

claim because “the case law in the Eleventh Circuit is clear that when a debtor fails

to disclose a pending lawsuit to the bankruptcy court, while having knowledge of

the lawsuit and a motive to conceal it, the doctrine of judicial estoppel bars the

undisclosed action from proceeding.” Doc. 61 at 14 (internal quotation marks

omitted). The magistrate judge determined that Silva’s attorneys had failed to

perform an adequate investigation before filing the lawsuit. Although Zidell asked

Silva on an intake form whether he had any other pending actions, the magistrate

judge found that Zidell was required to ask Silva at their meeting whether he had

any pending litigation or to search the PACER system to verify that Silva had no

other pending federal actions.2

       Although Silva and his attorneys objected to the magistrate judge’s Report

and Recommendation, the district court adopted it and granted the motion for

sanctions. While the parties were litigating over the amount of the sanctions

award, our Court agreed to rehear Slater en banc to address judicial estoppel in the

context of a debtor’s failure to disclose an asset in a Chapter 13 bankruptcy. Silva

asked the district court to stay the case pending the en banc decision in Slater. The

       2
         The magistrate judge also noted that Silva gave inconsistent testimony at the evidentiary
hearing about whether his first attorney, Palma, told him that he had no overtime case and about
the identity of the attorneys who represented him in his bankruptcy proceedings. But the
magistrate judge did not rely on these inconsistencies to find that Silva acted in bad faith.

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district court refused to stay the case and ultimately awarded the defendants

sanctions in the amount of $50,756 in attorney’s fees and $445.43 in costs holding

Silva and his attorneys jointly and severally liable for the sanctions award.

       This is Silva’s appeal. 3 We note that Silva appeals only the district court’s

decision to impose sanctions and not the underlying grant of summary judgment.

                            II.     STANDARD OF REVIEW

       We review a district court’s imposition of sanctions for abuse of discretion.

See Nicholson v. Shafe, 558 F.3d 1266, 1270 (11th Cir. 2009) (applying abuse of

discretion standard to review sanctions imposed under Rule 11 and 28 U.S.C.

§ 1927); Barnes v. Dalton, 158 F.3d 1212, 1214 (11th Cir. 1998) (applying abuse

of discretion standard to review sanctions imposed pursuant to district court’s

inherent power). “An abuse of discretion occurs if the judge fails to apply the

proper legal standard or to follow proper procedures in making the determination

or bases an award . . . upon findings of fact that are clearly erroneous.” Mut. Servs.

Ins. Co. v. Frit Indus., Inc., 358 F.3d 1312, 1322 (11th Cir. 2004) (internal

quotation marks omitted). “Under clear error review, we will reverse only if after

viewing all the evidence, we are left with the definite and firm conviction that a

       3
         After filing a notice of appeal, Silva filed a motion in our Court to stay the appeal
pending our en banc decision in Slater. We granted the motion. The parties submitted their
briefs once the Slater en banc decision issued.

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mistake has been committed.” Sciarretta v. Lincoln Nat’l Life Ins. Co., 778 F.3d
1205, 1213 (11th Cir. 2015) (internal quotation marks omitted).

                                III.   DISCUSSION

      Silva contends that the district court abused its discretion when it imposed

sanctions against him and his attorneys pursuant to its inherent power, 28 U.S.C.

§ 1927, and Federal Rule of Civil Procedure 11. Before addressing whether the

district court abused its discretion in imposing sanctions, we pause to discuss our

Circuit’s law regarding judicial estoppel after our decision in Slater.

      Judicial estoppel applies when (1) a party takes an inconsistent position

under oath in a separate proceeding, and (2) the party’s inconsistent positions were

“calculated to make a mockery of the judicial system.” Slater, 871 F.3d at 1181

(internal quotation marks omitted). In Slater, we addressed how judicial estoppel

applies when a plaintiff brings a civil claim that he failed to disclose in his

bankruptcy proceeding. Id. at 1176. We acknowledged that such a plaintiff has

taken an inconsistent position “by asserting in the civil lawsuit that he has a claim

against the defendant while denying under oath in the bankruptcy proceeding that

the claim exists.” Id. We focused our analysis in Slater on the evidence required

for a court to infer that the plaintiff intended to make a mockery of the judicial

system. Id.

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      Prior to Slater, we endorsed an inference that a plaintiff who failed to

disclose a civil claim intended to make a mockery of the judicial system because

she knew about the existence of her civil claim and possessed a motive to conceal

it. Id. at 1184. We treated as irrelevant the fact that the plaintiff subsequently

corrected her bankruptcy disclosures because a party should not be permitted to

“‘back-up, re-open the bankruptcy case, and amend his bankruptcy filings’ after

[her] adversary raises judicial estoppel.” Id. at 1183 (quoting Burnes v. Pemco

Aeroplex, Inc., 291 F.3d 1282, 1288 (11th Cir. 2002)). Under our prior precedent,

then, a defendant could establish as a matter of law that the plaintiff intended to

make a mockery of the judicial system simply by showing that she failed to

disclose a civil claim in her bankruptcy proceedings; a court was not required to

consider all of the circumstances of the particular case to determine whether the

plaintiff acted with the requisite intent. Id. at 1184.

      In Slater we overruled our precedent that “permit[ted] a district court to infer

intent to misuse the courts without considering the individual plaintiff and the

circumstances surrounding the nondisclosure.” Id. at 1177. We held instead that

to find that a plaintiff who failed to disclose a civil claim in his bankruptcy

proceedings intended to make a mockery of the judicial system, a district court

must consider “all the facts and circumstances of the particular case” including:

      the plaintiff’s level of sophistication, whether and under what
      circumstances the plaintiff corrected the disclosures, whether the
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       plaintiff told his bankruptcy attorney about the civil claims before
       filing the bankruptcy disclosures, whether the trustee or creditors were
       aware of the civil lawsuit or claims before the plaintiff amended the
       disclosures, whether the plaintiff identified other lawsuits to which he
       was party, and any findings or actions by the bankruptcy court after
       the omission was discovered.

Id. at 1185. We explained that it was inappropriate to infer in all cases that a

debtor who failed to disclose a lawsuit intended to make a mockery of the judicial

system because less sophisticated debtors “may not realize that a pending lawsuit

. . . must be disclosed” in bankruptcy. Id. at 1186.4

       With Slater’s holding in mind, we turn to whether the district court erred in

imposing sanctions in this case. A district court may impose sanctions pursuant to

its inherent authority, 28 U.S.C. § 1927, and under Federal Rule of Civil Procedure

11 if the plaintiff acted in bad faith by pursuing a claim that was plainly barred by

existing precedent and there was no reasonable chance of success in changing the

law.

       If these conditions are met, a district court may impose sanctions pursuant to

its inherent authority because a court is permitted to exercise its inherent power to

impose sanctions when it finds that a party litigated a case in bad faith. Barnes,
158 F.3d at 1214. We have recognized that a finding of bad faith is warranted

when “an attorney knowingly or recklessly raises a frivolous argument.” Id.

       4
        Of course, a factfinder ultimately “may determine that a plaintiff’s testimony that he
misunderstood the disclosure obligations is not credible.” Slater, 871 F.3d at 1186 n.12.

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(internal quotation marks omitted); see In re Evergreen Sec., Ltd., 570 F.3d 1257,

1274 (11th Cir. 2009) (recognizing that “continually advancing [a] groundless and

patently frivolous litigation is tantamount to bad faith” (internal quotation marks

omitted)).

      Likewise, when a plaintiff pursues a frivolous claim in bad faith, a district

court is permitted to award sanctions against her attorney under 28 U.S.C. § 1927.

A district court may impose sanctions under § 1927 against an attorney who

“multiplies the proceedings in any case unreasonably and vexatiously.” 28 U.S.C.

§ 1927. An attorney unreasonably and vexatiously multiplies the proceedings

when he “willfully abuse[s] the judicial process by conduct tantamount to bad

faith.” Schwartz v. Millon Air, Inc., 341 F.3d 1220, 1225 (11th Cir. 2003) (internal

quotation marks omitted). And an attorney acts in bad faith when she “knowingly

or recklessly pursues a frivolous claim.” Id.

      A district court may also impose sanctions pursuant to Rule 11 when a party

files a legal action that is based on a legal theory that has no reasonable chance of

success. Rule 11 provides that when an attorney files a pleading, written motion,

or other paper, he certifies that “to the best of [his] knowledge, information, and

belief, formed after an inquiry reasonable under the circumstances” that the

pleading “is not being presented for any improper purpose, such as to harass, cause

unnecessary delay, or needlessly increase the cost of litigation”; “the claims . . . are

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warranted by existing law or by a nonfrivolous argument for extending, modifying,

or reversing existing law or for establishing new law;” and there is “evidentiary

support” for the factual contentions. Fed. R. Civ. P. 11(b)(1)-(3). A district court

thus may impose sanctions under Rule 11 when a party files a pleading that “(1)

has no reasonable factual basis; (2) is based on a legal theory that has no

reasonable chance of success . . . ; [or] (3) is filed in bad faith for an improper

purpose.” Baker v. Alderman, 158 F.3d 516, 524 (11th Cir. 1998).

      The magistrate judge found—and the district court accepted—that it was

appropriate to impose sanctions in this case because “Eleventh Circuit case law is

clear that Silva’s failure to disclose the overtime wages claim in the bankruptcy

proceedings precluded him from bringing this action.” Doc. 61 at 15 n.12. The

district court concluded that our judicial estoppel precedent foreclosed Silva’s

FLSA claim and thus that his action was frivolous. By filing a frivolous lawsuit,

Silva and his attorneys acted in bad faith, making sanctions appropriate.

      But the magistrate judge and the district court relied on our pre-Slater cases,

which held that a plaintiff who failed to disclose a civil action in bankruptcy

proceedings necessarily acted with an intent to make a mockery of the judicial

system because he had a potential motive to conceal a claim. In Slater we

overruled this precedent and rejected the argument that judicial estoppel must be

applied when a plaintiff failed to disclose a civil claim in his bankruptcy

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proceeding. We held that a district court must consider all the facts and

circumstances of the case to find that the plaintiff acted with the requisite intent to

make a mockery of the judicial system. See Slater, 871 F.3d at 1185.

       In light of Slater, we are left with a definite and firm conviction that the

district court made a mistake in determining that Silva and his attorneys took a

frivolous position and had no reasonable chance of success in arguing that judicial

estoppel did not apply. 5 As Slater illustrates, Silva and his attorneys had

reasonable arguments that judicial estoppel should not apply given, among other

things, Silva’s lack of sophistication and the fact that the bankruptcy court

permitted Silva to amend his bankruptcy schedules to add the FLSA claim. See

Slater, 871 F.3d at 1185 (identifying “the plaintiff’s level of sophistication” and

“whether . . . the plaintiff corrected the disclosures” as factors relevant to whether

the plaintiff intended to make a mockery of the judicial system). Because the facts

do not support that Silva and his attorneys acted in bad faith or took legal action

       5
          The defendants argue that because Silva appealed only the imposition of sanctions, not
the grant of summary judgment, he may not relitigate whether the district court properly applied
judicial estoppel. We agree that the question of whether the district court properly granted
summary judgment based on judicial estoppel is not before us in this appeal. But to review the
sanctions order, we must assess whether the district court clearly erred in finding that Silva and
his attorneys acted in bad faith and for an improper purpose when they brought the FLSA claim.
This question requires us to consider whether it was frivolous for Silva to assert that judicial
estoppel did not apply. See Schwartz, 341 F.3d at 1225; Baker, 158 F.3d at 524. And although
Slater was issued after the district court imposed sanctions, Slater’s reasoning is relevant to
determining whether Silva took a reasonable position in the litigation when he contended that
judicial estoppel should not apply.

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that had no reasonable chance of success, we conclude that the district court

abused its discretion in imposing sanctions. 6

                                   IV.     CONCLUSION

       For the foregoing reasons, we reverse the district court’s award of sanctions

to the defendants.

       REVERSED.

       6
          The district court found in the alternative that even if judicial estoppel did not apply,
Silva and his attorneys acted in bad faith because Silva lacked standing to assert the FLSA claim.
But this finding was also clearly erroneous because the district court misunderstood a debtor’s
standing to pursue a civil claim. It is true that in a Chapter 7 bankruptcy generally only the
trustee, not the debtor, has standing to pursue a civil legal claim. See Slater, 871 F.3d at 1180.
But in a Chapter 13 bankruptcy, the debtor retains standing to continue to pursue the civil claim.
See id. (citing 11 U.S.C. § 1303; Fed. R. Bankr. P. 6009)).
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