Court Opinion

ID: 28875
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:31:09+00
Date Added: 2024-06-11T11:49:59.265990
License: Public Domain

UNITED STATES COURT OF APPEALS
                          FOR THE FIFTH CIRCUIT

                         _______________________

                               No. 01-60507
                         _______________________

            UNITED STATES OF AMERICA ex rel. SIMMIE BROWN,
                                                          Plaintiff,

                                     versus

         BOARD OF DIRECTORS OF DELTA FOUNDATION, INC., et al.
                                               Defendants-Appellees,

           JOHN D. FIKE, ROBIN PAGE WEST, J. STEPHEN SIMMS,
                                                         Appellants.

_________________________________________________________________

           Appeal from the United States District Court
  for the Northern District of Mississippi, Greenville Division
                             99-CV-108
_________________________________________________________________
                         September 4, 2002

Before KING, Chief Judge, JONES and EMILIO M. GARZA, Circuit
Judges.

PER CURIAM:*

            Appellants John D. Fike, Robin Page West, and J. Stephen

Simms are the attorneys who represented the relator in this qui

tam action.     The district court granted summary judgment for the

defendants     and   ordered   the   appellants   to   pay   $38,489.78   in

     *
      Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
attorneys’   fees    and    expenses       under   28    U.S.C.      §    1927    for

unreasonably and vexatiously multiplying proceedings.                     We VACATE

the sanctions order.

                              I.   BACKGROUND

          This appeal arises from a qui tam action filed in May

1999. The relator, Simmie Brown, filed a pro se complaint alleging

that Delta Foundation, Inc., a non-profit community development

corporation, had violated the False Claims Act (FCA), 31 U.S.C. §

3729, et seq., by misusing block grants from the Department of

Health and Human Services (HHS).1

          In December 1999, the United States filed a notice

declining to intervene.       See 31 U.S.C. § 3730(b)(4)(B).                     Brown

elected to pursue this action and, through counsel, filed an

amended complaint in March 2000.            The amended complaint named as

defendants   the    Delta   Foundation      plus   a    group   of       individuals

associated with the Foundation.        Because of potential conflicts of

interest, one law firm represented the Foundation while another

represented the individual defendants.

          In July 2000, before the defendants had filed their

answers, Brown moved to stay the qui tam proceedings until the

     1
          HHS instituted administrative proceedings against Delta
Foundation and ordered that $1.2 million be repaid. Incidentally,
HHS did not allege or make any findings of fraud. In other court
proceedings, Delta Foundation has challenged the repayment order,
and Brown contended that he was entitled to a share of any recovery
obtained through the administrative proceedings. These questions
are not presently before us.

                                       2
related   lawsuit     involving    the    administrative         remedy    had   been

resolved.      The district court issued the stay.

              A month later, however, the defendants successfully urged

the   court    to   lift   the   stay    and    order     the    parties    to   file

dispositive motions.         After all parties had filed motions for

summary judgment, one of Brown’s attorneys wrote a letter to the

defendants’ attorneys suggesting that the stay be reinstated:

      When the court’s stay of July 17, 2000, was in place,
      this case was appropriately postured to allow these
      issues to be resolved in a logical sequence that made
      economics [sic] sense, without the need for any defendant
      to incur attorney’s fees unless and until the court
      determined whether the government owes Mr. Brown a
      relator   share   [of  any   money   recovered   in   the
      administrative proceedings].     The defendants’ recent
      motions are, we believe, premature and, depending on the
      resolution of the alternate remedy issue, may never need
      to be decided.

The defendants’ attorneys opposed reinstating the stay because, in

their view, the qui tam claims were patently without merit.                       The

attorney for the individual defendants predicted that the case

would be dismissed and sanctions would be imposed.

              On February 7, 2001, the district court granted the

defendants’ motions for summary judgment. Brown did not appeal the

dismissal of the qui tam action.

              The defendants’ attorneys then filed motions to recover

their   fees    and   expenses.         The    attorney    for    the     individual

defendants filed a motion for Rule 11 sanctions and requested

                                         3
$15,489.78 in fees and expenses.2      An attorney for the Foundation

filed a motion, citing both Rule 11 and 28 U.S.C. § 1927, and she

sought $23,000 in fees and expenses.

          The district court issued a three-and-a-half page opinion

on the question of fees, expenses, and sanctions.           The district

court correctly   ruled   that   sanctions   under   Rule   11   were   not

available because the defendants had failed to comply with the

“safe harbor” provisions of the Rule.     Because the motion for Rule

11 sanctions was filed after the case had been decided, Brown did

not have a reasonable opportunity to correct the amended complaint

or other challenged filings.     See Tompkins v. Cyr, 202 F.3d 770,

788 (5th Cir. 2000).

          But the district court did impose sanctions on behalf of

the individual defendants and the Foundation pursuant to 28 U.S.C.

§ 1927, which provides that

     Any attorney . . . who so multiplies the proceedings in
     any case unreasonably and vexatiously may be required by
     the court to satisfy personally the excess costs,
     expenses, and attorneys’ fees reasonably incurred because
     of such conduct.

As evidence of appellants’ unreasonable and vexatious conduct, the

court emphasized that (1) the allegations of fraud in the complaint

were “vague and conclusory”; (2) Brown had not explained why the

individual defendants were added to the complaint or how they could

be held liable; and (3) the appellants were apparently motivated by

     2
      The individual defendants did not request sanctions pursuant
to § 1927.

                                   4
the hopes of recovering attorneys’ fees under the FCA.           The

district court ruled that the appellants were liable for fees and

expenses incurred after December 6, 1999 -- the date when the

Government filed its notice declining to intervene.     The district

court wrote that this notice “should have sent a loud and clear

message to the Plaintiff’s attorneys to stop and think before

proceeding further.” The district court further noted that Brown’s

attorneys should have reevaluated the case during the 10-month

period between the Government’s decision not to intervene and the

filing of Brown’s motion for summary judgment.

          The district court entered an order awarding a total of

$38,489.78 in fees and expenses under 28 U.S.C. § 1927.      Brown’s

attorneys now appeal this order.

                          II. DISCUSSION

                                   A

          We review an order awarding sanctions under § 1927 for an

abuse of discretion, bearing in mind that § 1927 is punitive in

nature and must be construed narrowly so as not to dampen the

legitimate zeal of attorneys. Procter & Gamble Co. v. Amway Corp.,

280 F.3d 519, 525-26 (5th Cir. 2002).      “‘A district court abuses

its discretion if it awards sanctions based on an erroneous view of

the law or on a clearly erroneous assessment of the evidence.’”

Id. (quoting Walker v. City of Bogalusa, 168 F.3d 237, 240 (5th

Cir. 1999)).

                                   5
            Our recent opinion in Procter & Gamble reiterates in

detail the kind of analysis necessary to support an award under §

1927.    We need only summarize the main points here.

            First,   it   is     axiomatic   that    a    district   court   must

identify the sanctionable conduct under § 1927.                That is to say,

the   district   court    must    explain    how    the   sanctioned   attorney

multiplied the proceedings both “unreasonably” and “vexatiously” --

a finding which requires proof of “bad faith, improper motive, or

reckless disregard of the duty owed to the court.”                      FDIC v.

Calhoun, 34 F.3d 1291, 1297 (5th Cir. 1994); Edwards v. General

Motors Corp., 153 F.3d 242, 246 (5th Cir. 1998).                In making this

finding, a district court must take care not to conflate the

reasons for sanctioning an attorney and the reasons for deciding

the case on the merits.        Procter & Gamble, 280 F.3d at 526 & n.7.

            Second, the district court must demonstrate a connection

between the sanctionable conduct and the size of the sanctions

award.    Id. at 526 & n.8.        Specifically, a sanction under § 1927

should reflect only the costs or fees incurred in responding to

unreasonable or vexatious litigation tactics.              Browning v. Kramer,

931 F.2d 340, 344-45 (5th Cir. 1991).          To shift the entire cost of

the defense -- which is essentially what happened in this case --

the claimant must prove, by clear and convincing evidence, that

“[1] every facet of the litigation was patently meritless, and [2]

counsel must have lacked a reason to file the suit and must

                                       6
wrongfully have persisted in its prosecution” until the end of the

proceedings.     Procter   &   Gamble, 280 F.3d   at   526   (citations

omitted).

            Third, the district court must differentiate between

sanctions awarded under § 1927 and those under some other statute

or rule, such as Rule 11.      Id.; see also Lapidus v. Vann, 112 F.3d
91, 96-97 (2d Cir. 1997)(noting the substantive and procedural

differences between § 1927 and Rule 11).

            A district court “need not provide specific factual

findings in every sanction order.”       Topalian v. Ehrman, 3 F.3d 931,

936 (5th Cir. 1993).    The level of detail will depend, of course,

upon the complexity of the particular case.            Nevertheless, the

order must be specific enough to allow effective appellate review.

Procter & Gamble, 280 F.3d at 526.

                                    B

            We turn now to the facts of this case.         As noted above,

the district court emphasized that Brown’s allegations of fraud in

the complaint were vague and that he had not shown why the

individual defendants were liable.          The imprecision of Brown’s

allegations of fraud doomed his FCA case on the merits, but this

fact, standing alone, does not evince the kind of bad faith or

improper motive required to uphold a sanctions award under § 1927.

Moreover, assuming that Brown had no arguable basis for naming the

individuals as defendants, the district court did not explain how

                                    7
that sanctionable conduct could be used to support an award for the

Foundation itself.

            The most problematic aspect of the district court’s

opinion is       its   reliance    on    the    Government’s     decision   not   to

intervene in the action.          The district court twice pointed out, in

a   very   brief    opinion,     that    the    Government’s     decision   not   to

intervene should have caused Brown’s attorneys to reevaluate the

merits of the case.        The most plausible reading of the district

court’s opinion is that the appellant’s decision to proceed with

the case indicates bad faith or an improper motive because, after

the Government had diligently investigated the claim and decided

not to intervene, the appellants subjectively must have known that

Brown’s claims lacked merit.

            But the Government’s decision not to intervene in a FCA

qui tam claim does not suggest that the action is without merit.3

The language of the Act makes clear that the Government is not

required or expected to intervene in every meritorious action under

the FCA.    The Fourth Circuit correctly described the Government’s

decision    as     essentially    a     cost-benefit    analysis,      taking   into

account    the     potential   size      of    the   recovery,   the   expense    of

      3
          The United States filed an amicus curiae brief in this
appeal. While taking no position on the merits of the appeal, the
United States contends that the courts, when evaluating a request
for fees or sanctions, should assign no weight to the Government’s
decision not to take over a qui tam action.

                                           8
prosecuting the case, the workload of Government attorneys, the

ability of      the    relator    to    prosecute   the   action,   and   similar

factors.   See United States ex rel. Berge v. Board of Trustees of

the Univ. of Alabama, 104 F.3d 1453, 1458 (4th Cir. 1997).                In sum,

a district court may not infer an improper motive where a qui

tam relator decides to pursue his claim after the Government has

declined to intervene.

           In light of the foregoing discussion, we hold that the

district court abused its discretion in imposing sanctions under 28

U.S.C. § 1927.          Specifically, the district court erroneously

assessed the evidence by (1) not distinguishing between its reasons

for dismissing the claim and its evidence of improper conduct and

(2)   reading    too    much     into   the   Government’s   decision     not   to

intervene in the qui tam action.              Because none of the defendants’

attorneys made a timely motion under Rule 11, we express no opinion

on whether the appellants’ submission of the amended complaint

could have served as the basis for sanctions under the Rule.

                                 III.    CONCLUSION

           The district court’s order awarding fees and expenses

under 28 U.S.C. § 1927 is VACATED.

                                          9