Court Opinion

ID: 9563960
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:51:10.395952+00
Date Added: 2024-06-11T09:18:09.628592
License: Public Domain

*624CALABRIA, Judge,
concurs in part and dissents in part.
I concur with the majority that the plaintiff and plaintiffs counsel were given appropriate notice of the basis for the sanctions that were brought against them and had an opportunity to be heard. However, I respectfully dissent from the majority’s holding that the defendants must specifically allege that plaintiff filed claims “for an improper purpose.” The trial court correctly imposed non-monetary sanctions under both Rule 11 and their inherent power to discipline attorneys who appear before the court. Furthermore, I agree with the defendants that the trial court erred by failing to award attorney’s fees.
I. Rule 11
Rule 11 of the North Carolina Rules of Civil Procedure states in pertinent part:
The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, or other paper; that to the best of his 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. ... If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney’s fee.
N.C. Gen. Stat. § 1A-1, Rule 11 (2007) (emphasis added)..
The majority states that the trial court erred by imposing sanctions “based on matters other than a review of the face of the plaintiff’s amended complaint,” and relies on the Supreme Court’s holding in Bryson v. Sullivan, 330 N.C. 644, 412 S.E.2d 327 (1992). The Bryson Court did indeed hold that “in determining whether a pleading was warranted by existing law at the time it was signed the court must look at the face of the pleading.” Id. at 656-57, 412 S.E.2d at 333. The majority argues that because defendants did not allege that plaintiff filed his claim for an improper purpose, or failed to seek sanctions specifically for an improper purpose, the trial court may not consider the actions of the plaintiff beyond the pleadings. I disagree.
*625Although the Bryson Court limits whether or not to impose sanctions under the legal sufficiency prong of Rule 11, sanctions are not limited when later filings reveal the case has become meritless. The trial court may look beyond the face of the pleading when considering whether litigation was continued for an improper purpose. “[0]nce responsive pleadings or other papers are filed and the case has become meritless, failure to dismiss or further prosecution of the action may result in sanctions either under the improper purpose prong of the Rule, or under other rules, or pursuant to the inherent power of the court.” Id. at 658, 412 S.E.2d at 334. The existence of an. improper purpose under Rule 11 is determined by an objective standard. Id. at 656, 412 S.E.2d at 333. The plain language of Rule 11 gives the trial court the power to impose sanctions “upon its own initiative.” An omission in the allegations by a party to the action cannot serve to take away the power of the court provided by Rule 11 to impose appropriate sanctions.
In the case sub judice, the trial judge made ample findings of fact to support a conclusion that the plaintiff and his counsel maintained their complaint for an improper purpose by continuing to litigate even when it was clear, or should have been clear, that their claim was meritless. The trial judge concluded that “the initial pleadings in this case, would, standing alone, support Rule 11 sanctions.” The judge found that “the shortcomings in the Complaint... demonstrate a disregard for or lack of attention to the rules of procedure as well as court decisions and admonitions.” The court also noted that plaintiffs counsel failed to notify the plaintiff of the business court’s decision in In re Pozen Shareholders Litigation, 2005 NCBC 7, a case in which plaintiff’s counsel also appeared before the court and one which “could have had a direct impact on [plaintiff’s] case.” Plaintiff’s counsel also failed to communicate to plaintiff a formal request from the defense counsel “that plaintiff reconsider going forward with the litigation following the Pozen decision.” They failed to do so.
Furthermore, the trial judge found that this lack of communication led directly to plaintiff’s counsel’s ignorance of the fact that plaintiff sold all his shares of Red Hat and therefore completely divested himself of standing to pursue a shareholder derivative action in Red Hat’s name. “[T]he firm should have possessed that information and in all probability would have but for its failure to inform [plaintiff] of the developments in his case.” Indeed, as the court found, plaintiff “played no significant role in the litigation process.”
*626Applying an objective standard as provided in Bryson, it is clear from the trial court’s findings that plaintiff and plaintiff’s counsel knew, or reasonably should have known, that the claims were merit-less once plaintiff’s counsel became aware of the business court’s decision in Pozen. This, along with other findings of misconduct by both the plaintiff and his counsel support a conclusion that the complaint was filed and maintained for an improper purpose in violation of N.C. Gen. Stat. § 1A-1, Rule 11. Sanctions were appropriate and the trial court’s decision imposing sanctions should be affirmed.
II. Inherent Power of the Court to Discipline Attorneys
The trial court’s authority to impose sanctions is not limited to Rule 11. Sanctions can also be ordered under a court’s inherent power to deal with attorneys appearing before it. North Carolina State Bar v. Randolph, 325 N.C. 699, 701, 386 S.E.2d 185, 186 (1989). “[I]t has been held repeatedly that in North Carolina there are two methods by which disciplinary action or disbarment may be imposed upon attorneys — -statutory and judicial.” Id., at 701-02, 386 S.E.2d at 186. “Nothing contained in [the statutes creating and empowering the State Bar to discipline attorneys] shall be construed as disabling or abridging the inherent powers of the court to deal with its attorneys.” N.C. Gen. Stat. § 84-36 (2007). This power includes the power to disbar attorneys appearing before it. See In re Delk, 336 N.C. 543, 550, 444 S.E.2d 198, 201 (1994).
In the instant case, the trial judge made several findings of fact concerning misconduct by plaintiff’s counsel, most notably counsel’s violation of Rule 1.4 of the Rules of Professional Conduct of the North Carolina State Bar, which mandates communication between a lawyer and his client. Plaintiff’s counsel “failed to keep its client informed of significant developments in the lawsuit, including a motion for sanctions which could directly affect the client.” The trial judge also found “Mr. Egelhof, the firm, and the individual lawyers have failed in their duties and responsibilities to each other and to the Court.”
Plaintiff’s counsel argues in its brief that the court lacks the authority to prospectively prohibit out-of-state counsel from appearing in North Carolina courts pro hac vice. However, this “prospective” prohibition is analogous to the court’s power to disbar in-state counsel appearing before it, a power which has been repeatedly affirmed in North Carolina courts. “The right to appear pro hac vice in the courts of another state is not a right protected by the Due Process *627Clause of the Fourteenth Amendment.” In re Smith, 301 N.C. 621, 630, 272 S.E.2d 834, 840 (1981).
“The purpose of the statutes governing an attorney’s ability to be admitted pro hac vice is to afford [North Carolina] courts a means to control out-of-state counsel and to assure compliance with the duties and responsibilities of attorneys practicing in this State.” Couch v. Private Diagnostic Clinic, 146 N.C. App. 658, 670, 554 S.E.2d 356, 365 (2001) (internal quotes omitted). In light of this purpose, it would be irrational to hold that the legislature intended to grant the power to “prospectively prohibit” licensed members of the North Carolina State Bar from appearing before North Carolina courts, but not exercise a similar power over out-of-state counsel. Therefore, I would affirm the trial court’s imposition of non-monetary sanctions on plaintiff’s counsel.
III. Defendants’ Motion for Attorney’s Fees
In affirming the trial court’s failure to award attorney’s fees, the majority states that “it is clear that the trial court exercised its discretion and chose to deny defendants’ motion for attorney’s fees pursuant to both N.C. Gen. Stat. § 1A-1, Rule 11 and N.C. Gen. Stat. § 6-21.5.” I agree with the majority that the trial court’s decision whether or not to award attorney’s fees may not be overturned absent an abuse of discretion. Martin Architectural Prods. v. Meridian Constr. Co., 155 N.C. App. 176, 182, 574 S.E.2d 189, 193 (2002). However, “in deciding a motion brought under N.C.G.S. § 6-21.5, the trial court is required to evaluate whether the losing party persisted in litigating the case after a point where he should reasonably have become aware that the pleading he filed no longer contained a justiciable issue.” Sunamerica Financial Corp. v. Bonham, 328 N.C. 254, 258, 400 S.E.2d 435, 438 (1991) (emphasis added). A plaintiff has “a continuing duty to review the appropriateness of persisting in litigating a claim which [is] alleged [to lack a justiciable issue].” Bryson, 330 N.C. at 660, 412 S.E.2d at.335 (quoting Sunamerica, supra).
The trial court made numerous findings of fact concerning misconduct by both plaintiff and his counsel as well as circumstances illustrating that their case was without merit. Nevertheless, the court denied any award of attorney’s fees apparently because of the “timing” of the litigation relative to the order dismissing the Pozen case.
According to the record, the timeline began 10 November 2005 and ended 13 March 2006.
*628The Order dismissing the Pozen case was entered November 10, 2005. Defendants’ reply to Plaintiff’s response to the motion to dismiss [in the Egelhof case] was filed November 15, 2005. Mr. Egelhof sold his shares in Red Hat on December 31, 2005. Oral arguments on the motion to dismiss were originally scheduled for December 20, 2005, but were heard February 2, 2006, upon Plaintiff’s motion. The Order dismissing Egelhof was entered March 13, 2006.
The court found that plaintiff’s counsel had ample notice of Pozen and its impact on the instant case, since plaintiff’s counsel personally represented the plaintiff in Pozen. Furthermore, the record includes a letter dated 14 November 2005 sent by defendants’ counsel to plaintiff’s counsel urging them to voluntarily dismiss the case in light of Pozen, in return for a waiver of any claim for fees and costs. The trial court’s reliance on “timing” here seems misplaced, since oral arguments on the motion to dismiss occurred nearly three months after the dismissal of Pozen, and more than a month after plaintiff divested himself of standing by selling all his stock. Plaintiff ignored defendants’ counsel and persisted in litigation after it was clear that there was no justiciable issue in the case.
The trial court never expressly evaluated whether or not the pleading contained a justiciable issue when the plaintiff persisted in opposing defendants’ motion to dismiss, or whether the plaintiff reasonably should have known. The trial court’s failure to adequately address defendants’ motion under N.C. Gen. Stat. § 6-21.5 is an abuse of discretion and constitutes reversible error. The case should be remanded for consideration of that issue.
Conclusion
I would affirm the trial court’s imposition of non-monetary sanctions pursuant to N.C. Gen. Stat. § 1A-1, Rule 11 and its inherent authority to discipline attorneys appearing before it. The case should be remanded for consideration of defendants’ motion for attorney’s fees under N.C. Gen. Stat. § 6-21.5.