Court Opinion

ID: 5436
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:05:54+00
Date Added: 2024-06-11T09:03:05.441057
License: Public Domain

United States Court of Appeals,

                                              Fifth Circuit.

                                              No. 92-7038.

                           UNITED STATES of America, Plaintiff-Appellee,

                                                    v.

                                U.T. ALEXANDER, et al., Defendants.

              MALONE TRUCKING COMPANY, Defendant-Cross Claimant-Appellant,

                                                   and

                                   Eugene B. Wilshire, Jr., Appellant,

                                                    v.

  JOC OIL EXPLORATION CO., INC., formerly known as Velsicol Chemical Corp., Southern
Pacific Transportation Co., Chromalloy American Corp., Borden, Inc., Texas City Terminal Railway,
Cross Defendants-Appellees.

                                              Jan. 21, 1993.

Appeals from the United States District Court for the Southern District of Texas.

Before DAVIS and JONES, Circuit Judges and PARKER1, District Judge.

          W. EUGENE DAVIS, Circuit Judge:

          Appellant challenges the district court's Rule 11 sanctions order. 771 F.Supp. 830. We

conclude that the district court abused its discretion in imposing sanctions and vacate its order.

                                                    I.

          In 1986, the government filed suit against appellant Malone Trucking Company (Malone) and

over two dozen other defendants under the Comprehensive Environmental Response, Compensation,

and Liability Act of 1980 (CERCLA), 42 U.S.C.A. 9601, et seq. (West 1983 & West Supp.1992).

The government sued Malone as one of the "responsible parties" for the cleanup of a hazardous waste

site. The government alleged that Malone transported hazardous materials to the site on behalf of

others who owned the materials. In 1987, the government entered into a settlement with some of the

defendants relieving them of liability for onsite cleanup and costs. Malone was not among the settling

   1
       Chief Judge of the Eastern District of Texas, sitting by designation.
defendants.

        The defendants who settled with the government (settling defendants) were divided into two

groups: the non-premium settling defendants and the premium or de minimus settling defendants.

The government released the premium or de minimus settling defendants for any liability relating to

cleanup and release of hazardous substances at the waste site. The settlement agreement , by its

express terms, did not apply to claims for cleanup of substances beyond the Matco site, such as offsite

contamination or groundwater contamination. The government's release of the premium or de

minimus defendants was to be void if reliable future evidence showed that any such defendant

generated more than one percent of the total residual material at the waste site. The settlement

documents and decree further provided that the non-premium settling defendants assumed any liability

of the premium settling defendants including liability for offsite and subsurface and groundwater

contamination.

        The case proceeded against Malone and others as remaining defendants. Judge Kent issued

a docket control order requiring that all cross- and counter-claims be filed by May 1, 1991. On that

day, Malone filed a cross-claim for contribution and indemnity against the defendants, including

defendants who had settled with the government four years earlier. On July 24, the district court

issued an order stating that it intended to dismiss the cross-claim and that it believed the filing violated

Rule 11. The court gave Malone six days to respond and ordered that the response not exceed five

pages in length. Malone filed a timely response.

        On August 8, the district court issued a twenty-five page sanctions order, finding that

Malone's cross-claim was meritless and filed in bad faith with respect to the premium settling

defendants. The court found that the cross-claim was either "an obvious attempt to forestall" the end

of litigation that had lasted five years o r an effort to "coerce Malone's dismissal by creating mass

confusion only weeks before trial." Additionally, it found that "service, when ultimately effected on

many of the other defendants, was sloppy, improperly handled, and in many instances deficient." It

concluded that the cross-claim was "calculated to do nothing more than delay an already long,

drawn-out litigation process." In the course of its opinion, the district court conceded that Malone's
right to contribution under state law presented an issue of first impression in this circuit, and the court

disavowed an opinion of a New York district court that arguably supported Malone's position.

        The district court imposed sanctions of $10,000 against Malone and $10,000 against Malone's

lawyer. It also required Malone and its counsel to pay all the premium settling defendants' costs and

attorney's fees related to their response to the cross-claim. The court instructed the parties to submit

affidavits establishing their costs, and ordered Malone to pay by September 20 or "face contempt

citation and additional sanctions." The court ordered Malone not to file any pleadings on any issue

related to the sanctions order. Malone complied, paying out almost $14,000 in fees and costs to the

other parties, plus $20,000 in sanctions. Malone timely lodged this appeal from the sanctions order.

                                                    II.

        Rule 11 provides that a pleading must be "warranted by existing law or a good faith argument

for the extension, modification, or reversal of existing law." Fed.R.Civ.P. 11. In Thomas v. Capital

Sec. Servs., Inc., 836 F.2d 866, 873 (5th Cir.1988), we concluded that we should defer to the trial

court's factual findings underlying its ruling on sanctions. We also determined that we should review

the district court's decision to impose sanctions under an abuse of discretion standard. Id. at 872-73.

The United States Supreme Court later adopted this view. See Cooter & Gell v. Hartmarx Corp.,

496 U.S. 384, 405, 110 S.Ct. 2447, 2460-61, 110 L.Ed.2d 359 (1990).

        In Thomas we also examined what Rule 11 requires of attorneys who sign pleadings. Rule

11 demands that the actions of the attorney be objectively, not just subjectively, reasonable under the

circumstances. An attorney's subjective good faith is not enough. Thomas, 836 F.2d at 873.

        In this case, Malone contends that its contribution rights were not extinguished against the

premium settling defendants because the government had not fully released those defendants from

all liability. We agree that the government's release of these defendants was not comprehensive. The

settlement agreement, by its express terms, was limited to onsite remediation costs. Offsite costs

were not expressly covered by the settlement agreement. Although the non-premium settling

defendants agreed to assume the liability of the premium settling defendants for offsite migration, this

assumption did not include a covenant not to sue. The release therefore did not prevent the
government from suing the premium settling defendants for cleanup of waste that migrated offsite.

Because the government is not precluded from suing the premium settling defendants for offsite

cleanup, Malone has a plausible argument that those premium settling defendants are not shielded

from Malone's contribution claim. The district court did not address how the agreement by the

non-premium settling defendants to indemnify the premium settling defendants would affect Malone's

contribution claim. It may be that the non-premium settling defendants will assume the defenses of

the premium settling defendants or that Malone will dismiss its contribution claim against the

premium settling defendants after the non-premium settling defendants acknowledge their indemnity

obligation. But, we are not persuaded that Malone's contribution action directly against the premium

settling defendants is legally insupportable.

        The district court seemed to believe that the settlement agreement shielded the premium

settling defendants from all claims for contribution because of 42 U.S.C.A. §§ 9613(f)(2) and

9622(g)(5) (West Supp.1992). These sections were adopted when Congress enacted the SARA

amendments in 1986.       Sections 9613(f)(2) and 9622(g)(5) shield settling defendants from a

subsequent suit "for contribution regarding matters addressed in the settlement." (emphasis added).

Thus, neither section, on its face, protects settling defendants from claims for contribution for matters

not addressed in the settlements. The district court did not address this plausible argument, which

was justified from the face of the statute and the text of the settlement agreement. Thus, it cannot

be said that the claim had no basis in law. In reversing a portion of a sanctions order in another case,

we concluded that the absence of authority in this circuit combined with the complexity of the issue

was enough to bar Rule 11 sanctions. Vatican Shrimp Co. v. Solis, 820 F.2d 674, 681 (5th Cir.),

cert. denied, 484 U.S. 953, 108 S.Ct. 345, 98 L.Ed.2d 371 (1987).

        Malone also argued that SARA's provisions did not bar claims for contribution arising under

state law. To support this view, it cited United States v. Hooker Chems. & Plastics Corp., 739

F.Supp. 125, 129 (W.D.N.Y.1990), which held that a party liable for damages under CERCLA was

not barred fro m pursuing contribution for those damages under state law. The district court

concluded that "[t]his appears to be a case of first impression in the Fifth Circuit" and that Hooker
plausibly supported Malone's view.         United States v. Alexander, 771 F.Supp. 830, 841

(S.D.Tex.1991). The district court then rejected Hooker as incorrect and concluded that it was

bound to interpret CERCLA "in the spirit of and within the anticipated mandates provided by the

Fifth Circuit." Id. The district court cited no Fifth Circuit authority supporting its view that SARA

bars state law claims for contribution.

        Parties who argue points of first impression in a circuit are not ordinarily the recipients of a

Rule 11 sanctions order. Coghlan v. Starkey, 852 F.2d 806, 811 n. 8 (5th Cir.1988) (per curiam);

Brubaker v. Richmond, 943 F.2d 1363, 1378 (4th Cir.1991); Securities Indus. Ass'n v. Clarke, 898

F.2d 318, 321-22 (2nd Cir.1990). Of course, a claim that is utterly insupportable may be sanctionable

even if the circuit has not addressed the issue. However, Malone's contribution claim had reasonable

support under the plain words o f SARA and the settlement agreement. Its claim for contribution

under state law had the direct support of one district court opinion. Thus, Malone's legal view, even

if not correct, was at least plausible.

        The district court also found that the claim was filed for impermissible reasons, i.e., to delay

the proceedings or to avoid liability. It is true that mere legal and factual support will not rescue a

pleading filed for an impermissible reason. Sheets v. Yamaha Motors Corp., U.S.A., 891 F.2d 533,

538 (5th Cir.1990). Still, where the filing enjoys reasonable factual and legal support, it is not

sanctionable absent "unusual circumstances." Id. The district court here did not cite any "unusual

circumstances" that warranted sanctions. The court merely asserted the view that the claim was filed

for an improper purpose. Even though detailed findings are not required to uphold an award of

sanctions, there must be some record to review. Here, there was none.

        The district court cites one final reason for its order. It asserts that Malone's service of the

claim on the other defendants was "sloppy." We are aware of no authority supporting the view that

"sloppy" service may render an otherwise legally and factually justifiable filing sanctionable under

Rule 11. Rule 11 does not impose continuing obligations on attorneys. As we observed in Thomas,

the focus of Rule 11 is on the document signed by the attorney and on the objectively reasonable

nature of the filing at the time of the filing. Thomas, 836 F.2d at 875. Sloppy service should not be
the basis for sanctions under Rule 11 without more indicia of bad faith in the filing of the claim.

       For the above reasons we conclude that Malone's third party complaint, which was filed within

the district court's deadline, was suppo rted by plausible legal arguments. Additionally, the record

demonstrates no objective bad faith or improper purpose of Malone or its attorney in filing the

complaint. The district court therefore abused its discretion in imposing sanctions against Malone.

Accordingly, we vacate the sanctions order and remand this case to the district court for further

proceedings.

       VACATED and REMANDED.