Court Opinion

ID: 6333579
Source: CourtListenerOpinion
Date Created: 2022-04-21 15:00:31.081968+00
Date Added: 2024-06-11T09:23:29.250101
License: Public Domain

Appellate Case: 21-2035    Document: 010110673869       Date Filed: 04/21/2022   Page: 1
                                                                                 FILED
                                                                     United States Court of Appeals
                      UNITED STATES COURT OF APPEALS                         Tenth Circuit

                              FOR THE TENTH CIRCUIT                         April 21, 2022
                          _________________________________
                                                                        Christopher M. Wolpert
                                                                            Clerk of Court
  SAN JUAN REGIONAL MEDICAL
  CENTER,

        Plaintiff Counter Defendant -
        Appellee,
                                                             No. 21-2035
  v.                                             (D.C. No. 1:19-CV-00734-MV-JFR)
                                                              (D. N.M.)
  THE LAW OFFICES OF JAMES P.
  LYLE, P.C.,

        Defendant Counter Plaintiff Third
        Party Plaintiff - Appellant,

  THE MIDLAND GROUP; JACKSON,
  LOMAN, STANFORD AND DOWNEY,
  P.C.,

        Defendants Third-Party Defendants -
        Appellees,

  and

  21ST CENTURY CENTENNIAL
  INSURANCE COMPANY; JUDY LYNN
  PARKER,

        Defendants.
                          _________________________________

                              ORDER AND JUDGMENT*

        *
         After examining the briefs and appellate record, this panel has determined
 unanimously that oral argument would not materially assist in the determination of
 this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
 ordered submitted without oral argument. This order and judgment is not binding
Appellate Case: 21-2035     Document: 010110673869          Date Filed: 04/21/2022      Page: 2

                          _________________________________

 Before BACHARACH, PHILLIPS, and CARSON, Circuit Judges.
                  _________________________________

        This is an appeal by the Law Offices of James P. Lyle, P.C. (Lyle Law Firm) and

 James P. Lyle from the district court’s award of attorneys’ fees to the San Juan Regional

 Medical Center (Hospital), the Midland Group (Midland), and Jackson, Loman, Stanford,

 & Downey, P.C. (Jackson Law Firm) as a sanction under Fed. R. Civ. P. 11. Exercising

 jurisdiction under 28 U.S.C. § 1291, we affirm.

                                    I. BACKGROUND

 A. State Court Suit

        In 2018, Judy Lynn Parker was injured in a car accident in New Mexico and taken

 to the Hospital for treatment. Midland, the Hospital’s billing agent, filed a notice of

 hospital lien with the county clerk in the amount of $15,171.26 for Parker’s treatment.

 See N.M. Stat. Ann. § 48-8-1(A). The Hospital also mailed copies of the notice to

 21st Century Centennial Insurance Company (21st Century), the responsible party’s

 insurer, and Parker’s attorney, the Lyle Law Firm.

        The Lyle Law Firm attempted to settle the hospital lien under the theory that

 Parker’s claim would eventually exceed the $50,000 limit of the responsible driver’s

 liability coverage and the lien should be reduced to $2,124.03 based on the common fund

 doctrine and principles of equitable subrogation. Midland disputed application of the

 precedent, except under the doctrines of law of the case, res judicata, and collateral
 estoppel. It may be cited, however, for its persuasive value consistent with
 Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
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 doctrine of equitable subrogation because the Hospital did not have a subrogation interest

 in Parker’s recovery from 21st Century; however, it agreed that Parker was entitled to a

 reduction under the common fund doctrine and offered to reduce the lien to $10,620.13.

        The Lyle Law Firm refused the offer; instead, it proceeded to negotiate a

 settlement with 21st Century for $50,000. When it received the $50,000 check, the firm

 took out what it was owed for attorneys’ fees and other costs and disbursed the remaining

 funds to Parker.

        The Jackson Law Firm stepped in because the one-year deadline for filing suit on

 the hospital lien was fast approaching. See id. § 48-8-3(B). When the parties failed to

 reach an agreement, it filed suit in state court on behalf of the Hospital and against Parker

 on the theory that she held the disbursed funds in a constructive trust for the benefit of the

 Hospital, and against 21st Century and the Lyle Law Firm as parties who had notice of

 the lien but nonetheless disbursed the funds before the lien had been satisfied. See id.

 § 48-8-3(A). Attached to the complaint was a “Court-Annexed Arbitration Certificate,”

 which notified the court that the amount in controversy was less than $25,000. Aplees.

 Suppl. App. at 15. Under the local rules, such cases are typically referred to a local

 arbitrator, which gives the parties an opportunity to resolve the dispute quickly and at less

 expense.

 B. RICO Complaint

        But rather than resolving the dispute in state court, Lyle, as the attorney for the

 Lyle Law Firm, removed the case to federal court asserting a class-action claim on behalf

 of the firm and against the Hospital, Midland, and the Jackson Law Firm (Appellees)

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 under the Racketeer Influenced and Corrupt Organizations Act (RICO). According to the

 complaint, Appellees, described collectively as the “‘Enterprise,’” were “engaged in a

 widespread pattern of illegal activity,” which “consists of systemic extortion of excessive

 reimbursements from payments made on behalf of third-party wrongdoers, typically by

 way of insurance liability payment to injured parties, their[] agents and representatives.”

 Aplt. App. at 16. “Specifically, the Enterprise routinely [makes] demands for lien

 payments which exceed the amounts that can be validly claimed under New Mexico law

 because, on information and belief, the Enterprise does not honor New Mexico’s

 Doctrine of Equitable Subrogation.” Id. “The Enterprise does this to compel the persons

 [it] threaten[s] to pay excess amounts as ‘lien reimbursements’ or face meritless

 litigation,” which “constitutes extortion as a matter of law.” Id. at 18.

        The complaint further alleged that the Lyle Law Firm had “suffered financial loss

 as a result” of the Hospital’s refusal to accept a proposed reduction of Parker’s debt, id.,

 when in fact it had already been paid its attorneys’ fees. Lyle then used this sham injury

 as the basis to expand the claim into a class action brought by the firm “on behalf of itself

 and the putative class which consists of similarly situated persons . . . who were coerced

 by the Enterprise into making lien reimbursement payments . . . which did not include

 appropriate reductions required under the New Mexico Equitable Subrogation Doctrine.”

 Id. at 19 (internal quotation marks omitted).

 C. Motion For Sanctions

        On August 30, 2019, Appellees sent Lyle a Rule 11 safe-harbor letter and motion

 for sanctions. See Fed. R. Civ. P. 11(c)(2). The letter stated that the motion would be

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 filed “twenty-one days after the transmission of this letter” unless the RICO claim was

 withdrawn. Aplt. App. at 51.

        Four days later, on September 3, Appellees filed a motion to dismiss under

 Fed. R. Civ. P. 12(b)(6), which alleged that the complaint failed to state a cognizable

 RICO claim because there was no predicate act or any injury. Further, Appellees

 informed the district court that they intended to file their motion for Rule 11 sanctions if

 the RICO complaint was not withdrawn and attached a copy of the August 30 safe-harbor

 letter sent to Lyle.

        When the RICO claim was not withdrawn, Appellees filed their Rule 11 motion

 for sanctions on September 24—twenty-five days after Appellees sent the safe-harbor

 letter. Although the Lyle Law Firm disagreed that sanctions were warranted, the district

 court later found that it did “not dispute[] that [Appellees] complied with the safe harbor

 provision of Rule 11(c)(2) by serving their Motion for Sanctions . . . before filing it.”

 Aplt. App. at 184 n.2.

 D. District Court’s Order

        1. Failure to State a Claim

        The district court laid the groundwork for sanctions in its order dismissing the

 RICO claim. It noted that the elements of a RICO claim include, among other things, a

 pattern of racketeering, which in turn requires the “commission of at least two predicate

 acts.’” Id. at 179 (quoting Deck v. Engineered Laminates, 349 F.3d 1253, 1257 (10th Cir.

 2003)). Although extortion is included as a predicate act under RICO, see 18 U.S.C.

 § 1961(1), the court found that the threat of even meritless litigation is not extortion.

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 See Aplt. App. at 180 (“In Deck, the Tenth Circuit joined a multitude of other courts in

 specifically holding that meritless litigation is not extortion under [RICO].” (brackets and

 internal quotation marks omitted)).

        Moreover, the district court found that the claim was “subject to dismissal for

 failure to alleged the requisite injury[,]” because “[a] plaintiff has standing to assert a

 RICO claim only if the RICO violation ‘proximately caused’ injury to his or her business

 or property.” Id. at 181 (quoting Bixler v. Foster, 596 F.3d 751, 756 (10th Cir. 2010)).

 “Here, the factual allegations of the [RICO complaint] belie its conclusory and vague

 allegation that [the Lyle Law Firm] suffered financial loss as a result of the Enterprise’s

 pattern of racketeering activity.” Id. (internal quotation marks omitted). Instead, “[b]y

 its own allegations, [the firm], as Parker’s attorney, would first be reimbursed for its fees,

 and thus would suffer no injury whatsoever[] as a result of [Appellees’] allegedly

 extortionate demands for payment on the [Hospital] Lien.” Id. The court granted the

 motion to dismiss and remanded the case to state court.

        2. Rule 11 Sanctions

        The district court also granted Appellees’ motion for sanctions. As grounds, the

 court found that “a brief review of controlling Tenth Circuit law would have revealed that

 the threat of allegedly abusive litigation does not constitute extortion, and thus cannot

 serve as a predicate act for purposes of RICO,” id. at 185, and therefore “a reasonable

 and competent attorney would not have believed in the merit of [the] class action [RICO]

 claim,” id. at 186. “By filing the [RICO] Complaint and the response in opposition to the

 Motion to Dismiss, Lyle has violated the requirements of Rule 11.” Id. Moreover, the

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 court found that “the sanctions requested by [Appellees], namely, an award . . . of their

 reasonable attorney’s fees, costs, and expenses in defending against the [RICO claim] are

 ‘limited to what suffices to deter repetition of the conduct or comparable conduct by

 others similarly situated,’ and thus are appropriate.” Id. (quoting Predator Int’l, Inc. v.

 Gamo Outdoor USA, Inc., 793 F.3d 1177, 1182 (10th Cir. 2015)). The court directed

 Appellees to file a motion for attorneys’ fees within ten days and Lyle to file any

 objection to the amount of fees within fourteen days.

 E. Motion For Attorneys’ Fees

        Appellees requested $19,205.39 in attorneys’ fees. In response, Lyle changed his

 position and argued for the first time that the August 30 safe-harbor letter was sent to the

 wrong email address, and he never received it. He did not dispute the reasonableness of

 the hourly rate but complained that the Jackson Law Firm spent too much time in

 preparing the motion to dismiss and otherwise argued that fees could not be recovered for

 anything other than the motion to dismiss. In their reply, Appellees acknowledged that

 the letter had the wrong email address but produced a copy of the actual transmittal email

 that was sent to the correct address.

        Faced with evidence that the August 30 safe-harbor letter had been sent to the

 correct email address, Lyle advanced several additional meritless arguments. For

 example, he argued that his office manager reads and prints his emails, and she did not

 recall seeing the letter. Lyle also accused Appellees of potential fraud on the court

 because the transmittal letter “does not contain the native language computer coding

 which would typically be found in any e-mail that has an attachment,” and it “should be

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 provided so that the Court can determine, once and for all, whether this e-mail was

 actually sent, along with when it was sent and where it was sent.” Id. at 238. The

 magistrate judge recommended an award of $20,836.64 in attorneys’ fees, which

 included an additional $1,631.25 for Appellees’ reply.

        The district court overruled Lyle’s objections and adopted the recommendation.

 Regarding the August 30 safe-harbor letter, the court rejected the untimely argument that

 it was sent to the wrong address because Appellees produced the actual email

 transmitting the letter to the correct email address. As to the reasonableness of the fees,

 the court also “reject[ed] [the] efforts to limit fees to those incurred in connection with

 the motion to dismiss,” because “the [RICO] Complaint was improper from the outset,”

 and its order granting sanctions was “clear that the award should broadly include

 reasonable . . . fees, costs, and expenses in defending against the claims.” Id. at 268

 (internal quotation marks omitted). This appeal followed.

                                II. LEGAL FRAMEWORK

        Rule 11 states:

        By presenting to the court a pleading, written motion, or other paper—
        whether by signing, filing, submitting, or later advocating it—an attorney
        . . . certifies that to the best of [the attorney’s] knowledge, information, and
        belief, formed after an inquiry reasonable under the circumstances: (1) it is
        not being presented for any improper purpose, such as to harass, cause
        unnecessary delay, or needlessly increase the cost of litigation; (2) the
        claims, defenses, and other legal contentions are warranted by existing law
        or by a nonfrivolous argument for extending, modifying, or reversing
        existing law or for establishing new law; [and] (3) the factual contentions
        have evidentiary support or, if specifically so identified, will likely have
        evidentiary support after a reasonable opportunity for further investigation
        or discovery . . . .

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 Fed. R. Civ. P. 11(b).

        “Rule 11 imposes an affirmative duty to conduct a reasonable inquiry into the

 facts and the law before filing.” Collins v. Daniels, 916 F.3d 1302, 1320 (10th Cir. 2019)

 (ellipsis and internal quotation marks omitted). “We evaluate an attorney’s conduct

 under a standard of objective reasonableness—whether a reasonable attorney admitted to

 practice before the district court would file such a document.” Id. (brackets and internal

 quotation marks omitted). See also White v. Gen. Motors Corp., 908 F.2d 675, 680 (10th

 Cir. 1990) (“A good faith belief in the merit of an argument is not sufficient; the

 attorney’s belief must also be in accord with what a reasonable, competent attorney

 would believe under the circumstances.”).

        When . . . a pleading contains allegations that are not warranted by existing
        law, we examine whether they are warranted by a nonfrivolous argument
        for extending, modifying, or reversing existing law or for establishing new
        law. Again, we employ an objective standard intended to eliminate the
        empty-headed pure-heart justification for patently frivolous arguments.
 Collins, 916 F.3d at 1320 (citation and internal quotation marks omitted).

        “[T]he award of Rule 11 sanctions involves two steps. The district court first must

 find that a pleading violates Rule 11. The second step is for the district court to impose

 an appropriate sanction.” Id. at 1319 (citation and internal quotation marks omitted). At

 step two, “[t[he court must consider the purposes to be served by the imposition of

 sanctions and so limit its sanctions ‘to what suffices to deter repetition of the conduct or

 comparable conduct by others similarly situation.’” King v. Fleming, 899 F.3d 1140,

 1148 (10th Cir. 2018) (quoting Fed. R. Civ. P. 11(c)(4)).

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                               III. STANDARD OF REVIEW

         “On appeal we apply an abuse-of-discretion standard in reviewing all aspects of a

  district court’s Rule 11 determination. A district court would necessarily abuse its

  discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous

  assessment of the evidence.” Predator Int’l, 793 F.3d at 1182-83 (internal quotation

  marks omitted).

                                       IV. ANALYSIS

         First, Lyle argues that the district court should have enforced a subpoena for

  Appellees “to produce the original e-mail which supposedly attached the misaddressed

  August 30, 2019 [safe-harbor] letter, including all meta-data or ‘native language’ which

  would prove exactly when it was sent and to whom,” and then conduct a hearing to

  determine the validity of the transmittal letter. Aplt. Opening Br. at 14. Recall that in

  response to the belated argument that the letter had been sent to the wrong email address,

  Appellees produced the actual transmittal email. The court’s determination that no

  further investigation was warranted was not an abuse of discretion.

         Next, Lyle cites Martin v. Franklin Capital Corp., 546 U.S. 132 (2005) for the

  proposition that only “[e]xtraordinary [c]ircumstances” can justify an award of sanctions.

  Id. at 15 (internal quotation marks omitted). But Martin relates to an award of attorneys’

  fees for wrongful removal of a case to federal court, which was not the basis for sanctions

  in this case. See Martin, 546 U.S. at 141 (“Absent unusual circumstances, courts may

  award attorney’s fees under [28 U.S.C.] § 1447(c) only where the removing party lacked

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  an objectively reasonable basis for seeking removal.”).1 The Martin test has no

  application here.

         Further, Lyle has not made any argument that the RICO claim was warranted by

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

  existing law. Indeed, Lyle never discusses Deck; instead, he raises two irrelevant

  arguments: (1) that “[t]he decision to award attorneys fees is inexorably intertwined with

  the court’s evaluation of whether allegations were pleaded with sufficient particularly to

  survive [the] 12(b)(6) motion to dismiss” and (2) whether there was “a good faith basis

  for removal under the facts alleged in the counterclaims and third-party claims.” Aplt.

  Opening Br. at 22. But the court did not dismiss the complaint or impose sanctions

  because the RICO claim was not pled with sufficient particularity, nor did it impose

  sanctions for wrongful removal.

         There is likewise no merit to the argument that “the district court’s refusal to allow

  [the firm] permission to amend definitely influenced the court’s decision to award fees

  under Rule 11.” Id. at 23. This argument fails because Lyle never moved to amend the

  complaint. Equally without merit is the further argument that Appellees’ refusal to

  recognize the doctrine of equitable subrogation is “extortion, pure and simple.” Id. at 25.

         1
            Lyle also appears to also argue that the district court erred in dismissing the
  RICO claim under Rule 12(b)(6). But any appeal from that order is untimely because
  the notice of appeal was filed more than thirty days after the order was entered.
  See Fed. R. App. P. 4(a)(1)(A) (“In a civil case . . . the notice of appeal . . . must be
  filed . . . within 30 days after entry of the judgment or order appealed from.”).
  Moreover, the Rule 12(b)(6) order was not designated as part of the appeal. See
  Fed. R. App. P. 3(c)(1)(B) (“The notice of appeal must . . . designate the judgment—
  or the appealable order—from which the appeal is taken.”).
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  Unsurprisingly, there is no authority cited to support the argument that the refusal to

  agree with an opposing party’s legal position is extortion under RICO.

                           V. APPELLATE ATTORNEYS’ FEES

         Appellees request that we designate the appeal as frivolous under Fed. R. App. P.

  38, which authorizes this court, upon a separately filed motion, to award damages and

  costs against an appellant who brings a frivolous appeal. “An appeal is frivolous when

  the result is obvious, or the appellant’s arguments of error are wholly without merit.”

  Braley v. Campbell, 832 F.2d 1504, 1510 (10th Cir. 1987) (en banc) (internal quotation

  marks omitted). Other indicia of a frivolous appeal include rambling briefs, citation to

  irrelevant authority, and continued attempts to relitigate matters already concluded. See

  id. at 1513. After a careful review of the briefs on appeal, we find they have the indicia

  of a frivolous appeal.

         But because Appellees have not sought sanctions in a separately filed motion, we

  order them to file a motion describing the sanctions sought and the underlying reasons

  within fifteen days of the filing date of this Order and Judgment. Lyle and the Lyle Law

  Firm shall have fifteen days from the filing of Appellees’ motion to show cause why they

  should not be sanctioned. The parties’ submissions will guide our determination

  regarding whether sanctions should be imposed. The parties shall limit their submissions

  to ten pages.

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                                   VI. CONCLUSION

        The judgment of the district court is affirmed.

                                               Entered for the Court
                                               Per Curiam

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