Court Opinion

ID: 4341306
Source: CourtListenerOpinion
Date Created: 2018-11-14 17:01:08.938125+00
Date Added: 2024-06-11T14:48:53.364583
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
Nos. 18-1159 & 18-1368
RICHARD N. BELL,
                                                   Plaintiff-Appellee,
                                 v.

VACUFORCE, LLC,
                                                           Defendant,

APPEALS OF: PAUL B. OVERHAUSER.

                    ____________________

        Appeals from the United States District Court for the
        Southern District of Indiana, Indianapolis Division.
          No. 16-CV-1257 — William T. Lawrence, Judge.
                    ____________________

  ARGUED OCTOBER 3, 2018 — DECIDED NOVEMBER 14, 2018
               ____________________

   Before MANION, HAMILTON, and BRENNAN, Circuit Judges.
    HAMILTON, Circuit Judge. Richard Bell brought a copyright
infringement lawsuit against Vacuforce, LLC, accusing it of
publishing his photograph of the Indianapolis skyline on its
website without a license. Vacuforce hired attorney Paul
Overhauser to defend it. The parties quickly settled, so the
federal lawsuit was dismissed with prejudice.
2                                             Nos. 18-1159 & 18-1368

    That was not the end of the story. Overhauser then moved
to recover attorney fees from plaintiﬀ Bell. He argued that
since the settlement produced a dismissal with prejudice,
Vacuforce was the “prevailing party” for purposes of fees un-
der the Copyright Act, 17 U.S.C. § 505. The district court con-
sidered Overhauser’s motion frivolous and misleading. The
court denied the motion and ordered two monetary sanctions
against Overhauser: one under Federal Rule of Civil Proce-
dure 11 and another under 28 U.S.C. § 1927. Overhauser ap-
peals both sanctions, but we aﬃrm both of them.
I. Factual Background and Procedural History
    This litigation is not the ﬁrst bout between Bell and Over-
hauser. Bell has prosecuted dozens of similar copyright law-
suits before, and Overhauser successfully defended at least
one of them on behalf of an unrelated defendant. See Bell v.
Lantz, 825 F.3d 849 (7th Cir. 2016). In this case, however, his
client settled after answering the complaint. Vacuforce agreed
to pay, or to cause its insurer to pay, $7,000 to Bell in exchange
for voluntary dismissal of the case. The insurer paid Bell, and
he dismissed the suit with prejudice.
   After the court had entered judgment, Overhauser moved
under 17 U.S.C. § 505 to recover attorney fees and costs. Over-
hauser argued that Bell’s voluntary dismissal of the lawsuit
with prejudice necessarily made Vacuforce the “prevailing
party” under § 505 and that Bell’s lawsuit was “frivolous” and
“unreasonable.” 1 Remarkably, the motion seeking fees did

        1 The Copyright Act allows a court to award a reasonable attorney

fee to the prevailing party “as part of the costs.” 17 U.S.C. § 505. Unlike
many fee-shifting statutes designed to encourage private civil
Nos. 18-1159 & 18-1368                                                 3

not mention the settlement agreement or the payment to Bell.
Overhauser also advised the district court that this suit pre-
sented the “identical scenario” as Bell v. Lantz, in which Bell
had voluntarily dismissed a copyright infringement claim af-
ter the defendant ﬁled an answer. In Lantz, however, Bell had
dismissed because his claim lacked a suﬃcient factual basis,
not because the defendant had paid him. Overhauser was
well aware of the diﬀerences between these cases. He had rep-
resented defendant Lantz. 825 F.3d at 850.
    Bell’s response to the motion told the judge about the set-
tlement. The judge deemed Vacuforce’s motion for attorney
fees frivolous and misleading. The judge denied the motion
and ordered Overhauser to show cause why he should not be
sanctioned $500 under Federal Rule of Civil Procedure 11. In
response to the show-cause order, Overhauser primarily con-
tested the merits of Bell’s case and re-asserted his unusual the-
ory that Vacuforce had prevailed. He maintained that settle-
ments are irrelevant to who “prevails” in a lawsuit and that a
dismissal “with prejudice” should count as a win for any de-
fendant. He also argued that Rule 11 sanctions cannot be im-
posed for an omission of fact, but only for an aﬃrmative mis-
representation. Finally, he said, only Vacuforce’s insurer had
paid Bell, so that Vacuforce did not lose anything by settling.
    The district court rejected all of Overhauser’s arguments.
The judge explained that Overhauser’s position that
Vacuforce was the prevailing party was incompatible with ex-
isting law. Further, Overhauser had not made a non-frivolous
argument for what the law ought to be under the

enforcement of the law, § 505 requires that prevailing plaintiffs and de-
fendants be treated alike. Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994).
4                                              Nos. 18-1159 & 18-1368

circumstances of this case. Instead, he had misrepresented the
events leading up to the voluntary dismissal. The court then
entered a modest but symbolic $500 sanction against Over-
hauser. The court also invited Bell to move under 28 U.S.C.
§ 1927 for his attorney fees incurred in responding to Over-
hauser’s motion. Bell ﬁled the motion, and the parties had an-
other round of brieﬁng about whether Overhauser’s request
for fees was sanctionable. Overhauser stuck to his argument
that a settlement is “completely irrelevant” to the determina-
tion of who prevails in litigation. The court again rejected
Overhauser’s arguments and ordered him to pay Bell’s fees.
Overhauser moved to reconsider the Rule 11 sanction and to
modify the court’s ﬁnding that he had misrepresented certain
facts. See Fed. R. Civ. P. 52(b) & 59. The court summarily de-
nied the motion.
    Overhauser appealed on behalf of himself and his client
the orders denying costs and fees, denying reconsideration,
sanctioning him $500, and awarding attorney fees to Bell as
another sanction. We consolidated the appeals and dismissed
as untimely the appeal from the denial of Vacuforce’s original
motion for attorney fees. We then dismissed Vacuforce as an
appellant because no sanctions were imposed against it. 2

        2   As evidence of the disappointing tone of this litigation, Bell’s
brief argues that we should dismiss the appeals because Overhauser listed
Vacuforce as an appellant in the caption of his brief. Please. In an attor-
ney’s appeal of a sanction order, it can be confusing how best to set up the
caption. It is not always done correctly at first by courts or lawyers. We
have used the correct approach in this opinion. See also Hunt v. Moore
Bros., Inc., 861 F.3d 655 (7th Cir. 2017).
Nos. 18-1159 & 18-1368                                             5

II. Analysis
   A. Rule 11 Sanctions
    We review a sanctions order under Rule 11 for an abuse of
discretion. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
405 (1990). Overhauser maintains that the district judge erred
in imposing the $500 sanction against him under Rule 11 be-
cause his contention that Vacuforce was a “prevailing party”
under the Copyright Act, 17 U.S.C. § 505, was not frivolous,
misleading, or otherwise improper.
    Bell makes no arguments about the propriety of Rule 11
sanctions except to claim that we cannot review the ﬁndings
in the district court’s March 13, 2017 ruling denying
Vacuforce’s motion for fees and issuing a show-cause order
because we have already dismissed the appeal from that rul-
ing. That is not correct. When sanctions are imposed for ﬁling
a motion, that underlying motion lies at the heart of the sanc-
tion issues. Overhauser’s arguments against the sanction nec-
essarily echo the points he made when he ﬁrst sought fees for
Vacuforce, but Overhauser’s timely appeal from the district
court’s later order actually entering the Rule 11 sanction
against him is properly before us.
     Under Rule 11, a district court may impose sanctions on a
lawyer who submits frivolous legal arguments—those not
warranted “by existing law or by a nonfrivolous argument for
extending, modifying, or reversing existing law or for estab-
lishing new law.” Fed. R. Civ. P. 11(b)(2); Berwick Grain Co. v.
Illinois Dep’t of Agriculture, 217 F.3d 502, 504 (7th Cir. 2000) (af-
ﬁrming Rule 11 sanction for frivolous post-judgment motion).
    Overhauser’s principal argument here is that his motion
for fees was not frivolous because he cited cases awarding fees
6                                          Nos. 18-1159 & 18-1368

to defendants after courts dismissed the cases with prejudice.
See, e.g., HyperQuest, Inc. v. N’Site Solutions, Inc., 632 F.3d 377,
379 (7th Cir. 2011) (aﬃrming fee award to copyright defend-
ant after suit dismissed for plaintiﬀ’s lack of standing); FM
Industries, Inc. v. Citicorp Credit Services, Inc., 614 F.3d 335, 337,
339–40 (7th Cir. 2010) (aﬃrming fee award to copyright de-
fendant after claim dismissed for want of prosecution); Riviera
Distributors, Inc. v. Jones, 517 F.3d 926, 927–28 (7th Cir. 2008)
(reversing denial of fees to copyright defendant after plaintiﬀ
conceded it lacked evidence to prove its claim and voluntarily
dismissed case).
    None of the cases Overhauser cited in the district court in-
volved an agreed settlement. None oﬀers even tangential sup-
port for the motion ﬁled in this case, by a defendant who paid
the plaintiﬀ to obtain dismissal. In the brieﬁng and argument
in this court, Overhauser has oﬀered no support from any
case in American law for the proposition that such a settle-
ment authorizes treating the defendant as the prevailing party
entitled to costs and attorney fees. His argument that settle-
ment is just not relevant to the question of prevailing party
status is also groundless. The reason opinions usually do not
discuss the relevance of a settlement is that the point has, ap-
parently, been suﬃciently obvious to all.
    On appeal, Overhauser asserts that the holding in Riviera
Distributors supporting his position was recently reaﬃrmed
in Alliance for Water Eﬃciency v. Fryer, 892 F.3d 280 (7th Cir.
2018). Our decision in Alliance for Water Eﬃciency actually un-
dermines his argument. In that copyright case, the parties set-
tled, but on terms that required the district court to retain ju-
risdiction over the case to enforce their long-term compliance
with the settlement terms. We aﬃrmed the district court’s
Nos. 18-1159 & 18-1368                                        7

denial of fees under § 505. We distinguished between settle-
ments and judgments, explaining that the party seeking fees
never obtained a judgment in his favor on the copyright ques-
tion. Id. at 287. Overhauser argues that his client actually ob-
tained a judgment of dismissal with prejudice, which is true,
but the client obtained that judgment only by arranging to
pay an amount satisfactory to the plaintiﬀ. The most salient
language in Alliance for Water Eﬃciency for our purposes is that
a “defendant does not prevail under § 505 just because the
parties settle.” Id. For future reference, we’ll make this ex-
plicit here: a settling defendant is not a “prevailing” defend-
ant for purposes of a statute that authorize fee awards for pre-
vailing parties, whether or not the settlement calls for a judg-
ment of dismissal.
    Since Overhauser did not even admit that a settlement
agreement existed, he developed no non-frivolous argument
that a “prevailing party” includes a defendant that obtains a
voluntary dismissal with prejudice through a settlement paid
by its insurer. His argument lacked even “modest sup-
port” in the case law. Cf. E.E.O.C. v. CVS Pharmacy, Inc., —
F .3d —, —, 2018 WL 5734481, at *5 (7th Cir. 2018) (as
amended on petition for rehearing); Berwick, 217 F.3d at 504.
We reject the notion that a party can “prevail” for purposes of
a fee-shifting statute by paying a settlement and obtaining a
dismissal with prejudice.
   Overhauser next argues that the judge erroneously im-
posed sanctions because his motion was not misleading, and
that even if it was, Rule 11 does not permit sanctions on the
basis that it was misleading by omission. Speciﬁcally, he con-
tends that non-disclosure of the settlement agreement was not
misleading and that “doing so would have breached its
8                                       Nos. 18-1159 & 18-1368

conﬁdentiality provisions, and would have been seemingly
irrelevant in view of this Circuit’s decisions.” But Overhauser
could have disclosed solely the fact of settlement or sought to
ﬁle the document under seal. See S.D. Ind. Loc. R. 5-11. The
agreement itself permitted limited disclosures.
     Overhauser also says it was not misleading to characterize
this case and the Lantz case as presenting the “identical sce-
nario” because “in both cases, Bell moved to dismiss after the
defendant ﬁled an answer and aﬃrmative defense.” The sim-
ilar sequence of ﬁlings does not matter. Claiming these are
identical scenarios, without acknowledging the settlement in
this case, requires a willful obtuseness. The plaintiﬀ in Lantz
conceded defeat and dismissed voluntarily and unilaterally,
not as part of a settlement. That’s why that defendant was en-
titled to attorney’s fees under 17 U.S.C. § 505. In this case,
Vacuforce paid the same plaintiﬀ to settle the claim. Obtaining
a dismissal with prejudice in this case was necessary to give
eﬀect to the parties’ desire for conﬁdentiality by divesting the
district court of jurisdiction over the agreement. (Retaining ju-
risdiction over the settlement agreement would have required
incorporating it into the judgment, see Lynch, Inc. v. Sa-
mataMason Inc., 279 F.3d 487, 489–90 (7th Cir. 2002), but there
was nothing to oversee after plaintiﬀ was paid.)
    The district court did not abuse its discretion by imposing
sanctions for ﬁling a motion for fees that was baseless and
rested on “an inﬁrm factual foundation.” CVS Pharmacy, —
F.3d at —, 2018 WL 5734481, at *7; see also Fed. R. Civ. P.
11(b)(3) (requiring that factual contentions have evidentiary
support). Overhauser’s factual foundation was at the very
least “inﬁrm” when he contended that the posture of the case
was analogous to Bell v. Lantz. Given that Overhauser litigated
Nos. 18-1159 & 18-1368                                           9

Lantz, there is no good explanation for his misrepresentation.
And Overhauser’s contention that an “omission”—here, the
fact that his client paid to settle—is not sanctionable is not cor-
rect. See, e.g., Hoskins v. Dart, 633 F.3d 541, 543 (7th Cir. 2011)
(aﬃrming sanctions for party’s failure to disclose litigation
history regarding 28 U.S.C. § 1915A); In re Ronco, Inc., 838 F.2d
212, 218 (7th Cir. 1988) (agreeing with district court that attor-
ney’s failure to disclose relevant prior representation in bank-
ruptcy case was sanctionable).
    Finally, we reject Overhauser’s last challenge to his Rule
11 sanction. He argues for the ﬁrst time on appeal that the dis-
trict court violated Rule 11(c)(5)(B), which limits the court’s
power to impose monetary sanctions on its own initiative af-
ter the entry of judgment. Overhauser waived this argument,
which he could have raised in opposition to the show-cause
order or in his motion to reconsider the ﬁrst sanctions order.
See Puﬀer v. Allstate Insurance Co., 675 F.3d 709, 718 (7th Cir.
2012). If Overhauser had preserved the argument, however, it
would have been plausible. Rule 11(c)(5)(B) allows a court to
award monetary sanctions on its own initiative if it issues a
show-cause order “before voluntary dismissal or settlement of the
claims made by or against the party…whose attorneys are, to
be sanctioned.”
    Still, it would produce an odd result to ﬁnd that provision
applicable here, where the misconduct did not occur until af-
ter the district court had entered judgment. It was the judg-
ment itself—dismissal with prejudice pursuant to settle-
ment—that triggered Overhauser’s sanctionable motion.
   We see no obvious reason why Rule 11 should be inter-
preted to allow attorneys to ﬁle frivolous and abusive plead-
ings after a judgment without the threat of court-initiated
10                                      Nos. 18-1159 & 18-1368

monetary sanctions. See, e.g., Kennedy v. Schneider Electric, 893
F.3d 414 (7th Cir. 2018) (aﬃrming Rule 11 sanction for frivo-
lous post-judgment motion); Berwick Grain, 217 F.3d at 504
(7th Cir. 2000) (same, in copyright case). Allowing a court-in-
itiated monetary sanction for post-judgment misconduct is
consistent with the purpose of subsection (c)(5)(B), which pro-
tects parties from post-judgment sanctions that might have af-
fected the decision to settle or to dismiss a case voluntarily in
the ﬁrst place. See Fed. R. Civ. P. 11 advisory comm. notes
1993 amend. We are conﬁdent that if Bell had had any idea
that Overhauser was going to pull this stunt, he would not
have been willing to dismiss the case voluntarily. The district
court ordered Overhauser to show cause before imposing the
sanctions, thus satisfying the fairness and notice concerns em-
bodied in the rule. See Fed. R. Civ. P. 11(c)(1); Divane v. Krull
Electric Co., 200 F.3d 1020, 1025 (7th Cir. 1999). For these rea-
sons, we will not overlook Overhauser’s waiver of the textual
argument.
     B. Section 1927 Fee Award
    We also review sanctions imposed under 28 U.S.C. § 1927
for an abuse of discretion. United States v. Rogers Cartage Co.,
794 F.3d 854, 862 (7th Cir. 2015). The same standard applies to
the denial of a motion to reconsider. Lightspeed Media Corp. v.
Smith, 830 F.3d 500, 505 (7th Cir. 2016). Overhauser appeals
the § 1927 sanctions requiring him to pay the attorney fees Bell
incurred in responding to the frivolous motion for fees. Over-
hauser rests his argument on his earlier premise that his mo-
tion to award costs and attorney fees to Vacuforce was not
frivolous or misleading. He also contends that Bell’s motion
for § 1927 sanctions was incoherent and that the district court
did not explain its decision adequately.
Nos. 18-1159 & 18-1368                                       11

    The district court did not abuse its discretion by imposing
the § 1927 sanction. “Objective bad faith” will support a sanc-
tion under § 1927. Hunt v. Moore Bros., Inc., 861 F.3d 655, 659
(7th Cir. 2017). A lawyer demonstrates objective bad faith
when she “pursues a path that a reasonably careful attorney
would have known, after appropriate inquiry, to be un-
sound.” Boyer v. BNSF Ry. Co., 824 F.3d 694, 708, modiﬁed on
other grounds on reh’g, 832 F.3d 699 (7th Cir. 2016), quoting
In re TCI, Ltd. 769 F.2d 441, 445 (7th Cir. 1985). A court has
broad discretion using this power. Hunt, 861 F.3d at 660. The
district court found that Overhauser’s legal contentions were
baseless and that he failed to disclose the proper factual foun-
dation necessary to evaluate his legal argument. Although
Bell did not belabor the reasons for sanctioning Overhauser,
the motion and the court’s earlier order gave Overhauser ad-
equate notice of the objectionable conduct and aﬀorded him a
fair opportunity to respond. See Morjal v. City of Chicago, 774
F.3d 419, 422 (7th Cir. 2014). The district court did not abuse
its discretion in determining that Overhauser’s conduct was
so objectively unreasonable that it called for compensatory
sanctions under § 1927 just as it called for sanctions under
Rule 11.
    Overhauser also contests the denial of his motion to recon-
sider the ruling initially sanctioning him. As the discussion of
the sanctions awards should make clear, the district court’s
assessment of that motion was correct: Overhauser’s assertion
that Vacuforce “prevailed” while failing to mention the settle-
ment provided a sound basis for denying the motion. See Al-
liance for Water Eﬃciency, 892 F.3d at 286 (rulings on fee re-
quests under § 505 are reviewed for abuse of discretion). Be-
cause Vacuforce was not the prevailing party and the district
court was well within its discretion to impose sanctions as an
12                                      Nos. 18-1159 & 18-1368

original matter, it had even greater discretion not to recon-
sider that ruling, especially without a coherent argument that
it had erred legally or factually.
     C. Appellate Sanctions
    Finally, Bell’s response brief requests appellate sanctions
against Overhauser for several reasons, including that Over-
hauser’s appeal simply repeats his losing arguments from the
district court and constitutes a “colossal waste of time.” Fed-
eral Rule of Appellate Procedure 38 expressly requires parties
to move for sanctions in a “separately ﬁled motion.” We re-
minded Bell’s counsel of this requirement at oral argument,
and only afterwards did Bell ﬁle the requisite motion. We
have previously refused to grant non-conforming requests for
sanctions, noting the “irony inherent in a party’s procedurally
improper request that the court sanction an opposing party
for failing to comply with other procedural rules.” Kennedy v.
Schneider Electric, 893 F.3d at 421. Bell’s motion has come too
late.
    In addition, although the underlying motion that
prompted the district court to admonish Overhauser was friv-
olous and sanctionable, it does not follow that the appeal of
the sanctions was itself frivolous. See Insurance Co. of the West
v. County of McHenry, 328 F.3d 926, 930 (7th Cir. 2003) (Rule
38 sanctions not warranted where at least one issue on appeal
had reasonable basis in law and fact). We also are not inclined
to add fuel that would further raise the temperature between
these two parties in their legal analog to long-term trench
warfare.
   The district court did not abuse its discretion in imposing
sanctions under Rule 11 and 28 U.S.C. § 1927 or in denying
Nos. 18-1159 & 18-1368                                     13

relief under Rules 52 and 59. The orders of the district court
are AFFIRMED.