Court Opinion

ID: 2965455
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:40:31.707912+00
Date Added: 2024-06-11T15:01:19.449350
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<pre>                 United States Court of Appeals <br>                     For the First Circuit <br> <br> <br> <br>No. 97-1599 <br> <br>                      LUIS BONILLA, ET AL., <br> <br>                      Plaintiffs, Appellees, <br> <br>                                v. <br> <br>                      VOLVO CAR CORPORATION, <br> <br>                      Defendant, Appellant. <br>                       ____________________ <br> <br>No. 97-1600 <br> <br>                      LUIS BONILLA, ET AL., <br> <br>                      Plaintiffs, Appellees, <br> <br>                                v. <br> <br>                TREBOL MOTORS CORPORATION, ET AL., <br> <br>                      Defendants, Appellees. <br>                            __________ <br>  <br>NEREIDA MELENDEZ, RAFAEL PEREZ-BACHS, RUBEN T. NIGAGLIONI, MANUEL <br>FERNANDEZ-BARED, JEANNE HABIB-FIGUEROA, ABELARDO RUIZ-SURIA, <br>FRANCISCO OJEDA, ANTONIO A. ARIAS-LARCADA and McCONNELL VALDES, <br> <br>                           Appellants. <br>                      _____________________ <br> <br>No. 97-1790 <br> <br>                      LUIS BONILLA, ET AL.,  <br> <br>                      Plaintiffs, Appellees, <br> <br>                                v. <br> <br>                TREBOL MOTORS CORPORATION, ET AL., <br> <br>                      Defendants, Appellees. <br> <br>                            __________ <br> <br>    RICARDO GONZALEZ-NAVARRO and CONCHITA NAVARRO DE GONZALEZ, <br> <br>                     Defendants, Appellants. <br> <br>                       ____________________ <br> <br>          APPEALS FROM THE UNITED STATES DISTRICT COURT <br> <br>                 FOR THE DISTRICT OF PUERTO RICO <br> <br>       [Hon. Jaime Pieras, Jr., Senior U.S. District Judge] <br> <br> <br> <br>                              Before <br> <br>                      Selya, Circuit Judge, <br>                                 <br>Campbell, Senior Circuit Judge, <br> <br>and Boudin, Circuit Judge. <br>___________________ <br>     Michael J. Rovell with whom Jewel N. Klein and Law Offices of <br>Michael J. Rovell were on brief for defendants Ricardo Gonzalez- <br>Navarro and Conchita Navarro de Gonzalez. <br>     Allan Kanner with whom Conlee Schell Whiteley, Allan Kanner & <br>Associates, P.C., Paul H. Hulsey, Frederick J. Jekel, Theodore H. <br>Huge, Ness, Motley, Loadholt, Richardson & Poole, P.A., Jose F. <br>Quetglas Jordan, Eric Quetglas Jordan, Zygmunt Slominski, Quetglas <br>Law Offices, Daniel Harris and Law Offices of Daniel Harris were on <br>brief for plaintiffs Luis Bonilla, et al. <br> <br> <br> <br> <br> <br>July 28, 1998 <br> <br> <br> <br> <br> <br> <br>

  BOUDIN, Circuit Judge.  This opinion is a companion to <br>two others issued today, growing out of the same district court <br>case.  In No. 97-1135, we are reversing the principal judgment <br>against Volvo.  In Nos. 97-1140 and 97-1143, the principal judgment <br>against Trebol and the Gonzalez defendants is being vacated and the <br>matter remanded for further proceedings as to damages, subject to <br>the possibility that proceedings against Trebol may be stayed under <br>the bankruptcy laws; that opinion also dismisses the plaintiffs' <br>cross-appeal in No. 97-1145. <br>  This final volume in the trilogy concerns appeals by <br>Volvo (No. 97-1599), Volvo's attorneys (No. 97-1600), and the <br>Gonzalez defendants (No. 97-1790) directed to a sanctions order and <br>an attorney's fee order, entered together in the district court on <br>March 27, 1997.  The effect of the two orders taken together was to <br>award attorney's fees and costs in favor of the plaintiffs in the <br>amount of $3,518,844.41.  In setting forth the history pertinent <br>to the orders under review, we assume familiarity with our two <br>opinions issued this day in Nos. 97-1135, 97-1140, 97-1143 and 97- <br>1145. <br>     Between the filing of the original complaint on June 16, <br>1992, and the start of trial on June 24, 1996, the plaintiffs <br>conducted extensive discovery.  Rancorous disputes ensued.  <br>According to the district court, there are 500 docket entries that <br>relate to discovery matters.  On several occasions the district <br>court made preliminary references to alleged misconduct by one or <br>more of the defendants with a promise of future attention to the <br>matter and possible sanctions. <br>     After discovery was completed and the case proceeded to <br>trial, the issue of sanctions reemerged.  On July 2, 1996, the <br>seventh day of trial, the district judge announced, sua sponte but <br>outside the presence of the jury, that he had examined documents <br>filed under seal by Trebol in August 1995 comprising invoices sent <br>by AUM to Trebol and purporting to be genuine Volvo invoices for <br>cars shipped by Volvo to Trebol.  A number of these invoices, as we <br>now know, included inflated figures significantly exceeding the <br>original invoice prices.  The true prices were shown on invoices <br>for the same sales sent directly by Volvo to Trebol. <br>     Volvo had earlier resisted producing to plaintiffs its <br>own copies of the invoices it had sent directly to Trebol on the <br>ground that they would simply duplicate invoices that Trebol itself <br>had been asked to produce.  On the morning of July 2, the district <br>judge said that when Volvo objected to this earlier production <br>request, Volvo "knew" that its own production of the invoices was <br>not a moot issue and also "knew" that the invoices produced by <br>Trebol did not include specified cost information.  The court said <br>that it would keep this in mind when deciding on the nature of <br>sanctions to be imposed thereafter.  The next day, July 3, 1996, <br>the plaintiffs filed a motion for sanctions, and the court reported <br>that it would sanction Volvo by an instruction to the jury that it <br>could draw a negative inference that the unproduced documents were <br>harmful to Volvo's case.  The court issued an order to this effect <br>on July 12, 1996. <br>     Thereafter, during the trial, the district court limited <br>Volvo's attempt to cross-examine certain of plaintiffs' witnesses <br>on topics involving the relationship between Volvo and AUM.  The <br>judge was seemingly prompted by what he thought was Volvo's alleged <br>misconduct relating to the Volvo-Trebol invoices.  But it is clear <br>from the transcript that the question intermittently became <br>confused with a different objection made several times by the <br>plaintiffs during Volvo's cross-examination, namely, that Volvo had <br>not disclosed to plaintiffs information relating to payments <br>received by Volvo from AUM. <br>     Then, after receiving further information from Volvo, the <br>district court, on July 17, 1996, resolved this separate quarrel <br>and determined that Volvo had produced the Volvo-AUM payment <br>records.  On July 23, 1996, the court reverted to the original <br>dispute regarding the invoices and entered an order accepting the <br>explanation of Volvo's counsel that he had not known that the <br>invoices produced by Trebol were false AUM invoices and that he had <br>objected to plaintiffs' document request in good faith.  The court <br>said that it was withdrawing its earlier determination of <br>sanctions.  The jury was so advised, although Volvo says that it <br>was still prejudiced by the episode. <br>     Following the jury verdict on damages against Volvo on <br>July 30, 1996, plaintiffs filed a motion on August 15, 1996, <br>seeking attorney's fees and costs under RICO, 18 U.S.C.  1964(c).  <br>This motion was primarily directed against Volvo but stated in a <br>footnote that Trebol and the Gonzalezes were jointly and severally <br>liable for amounts owed by Volvo.  Like Volvo, Trebol and the <br>Gonzalezes opposed the motion.  On August 16, 1996, plaintiffs <br>filed another motion seeking attorney's fees and costs against <br>Volvo's counsel under 28 U.S.C.  1927 or, in the alternative, <br>under the court's inherent powers, as a sanction for vexatious <br>litigation.  Volvo opposed the motion for sanctions. <br>     At this time, no final judgment as to damages had yet <br>been entered against Trebol or the Gonzalez defendants and the <br>plaintiffs' August 16 motion did not make any such sanctions <br>request with respect to Trebol or the Gonzalez defendants.  There <br>were various additional filings, but no hearing.  On March 27, <br>1997, the district court issued the two orders that are the subject <br>of the present appeals. <br>     The first opinion and order ("the sanctions order"), is <br>70 pages long and is directed to plaintiffs' August 16, 1996, <br>motion against Volvo for attorney's fees and costs under 28 U.S.C. <br> 1927 or under the court's inherent powers as a sanction for <br>vexatious litigation.  Although the plaintiffs' motion had sought <br>as a sanction to impose liability on Volvo's counsel, the court <br>noted that Volvo itself had opposed the motion and stated that <br>Volvo itself had engaged in sanctionable conduct and that all of <br>the co-defendants were responsible because they had conducted a <br>joint defense. <br>     The court then reviewed a series of incidents that it <br>deemed to evidence vexatious conduct, beginning with Volvo's <br>original objection to producing the Volvo-Trebol invoices.  The <br>court said that "Volvo's recalcitrance in producing the invoices it <br>sent to Trebol" meant that "the double invoicing [i.e., the false <br>AUM invoice scheme] nearly went undetected."  It conceded its <br>earlier withdrawal of sanctions based on this episode but said that <br>this merely affected jury instructions and "left open" the question <br>whether the court would impose sanctions on Volvo and its counsel <br>"for their negligence." <br>     The court went on to discuss under nine further headings <br>a number of other episodes in which Volvo had (according to the <br>court) improperly delayed proceedings or otherwise engaged in <br>misconduct.  These events include persistent objections to bringing <br>Swedish residents to be deposed in Puerto Rico, delay in providing <br>plaintiffs with a document index, failing to provide information <br>material to class certification, submission of Swedish documents <br>without translation, and frivolous motion practice, including a <br>motion that the court require all attorneys pro hac vice to sign <br>every filing. <br>     Although almost all of the examples involved Volvo, the <br>court concluded by finding that all the "codefendants' compliance <br>with their discovery obligations and their conduct generally during <br>this litigation were dilatory, uncooperative and obstructionist."  <br>As already noted, plaintiffs had not at this stage sought sanctions <br>against Trebol or the Gonzalez defendants, nor had the court warned <br>the defaulting defendants that it was now considering sanctions <br>against them. <br>     The court then turned to remedy.   Pointing out that the <br>plaintiffs were already entitled to attorney's fees and costs under <br>RICO, the court said that the only sanction it would impose for the <br>litigation misconduct of all of the defendants was as follows: <br>        [I]n adjudicating codefendants' objections <br>     to plaintiffs' motions for attorneys' fees, <br>     particularly with respect to the rates and the <br>     number of hours spent on this case, the Court <br>     will view plaintiffs' requests indulgently. . <br>     . .  Codefendants should now be barred from <br>     attempting to reduce those attorneys' fees by <br>     objecting to the rates and hours charged.  The <br>     Court will not permit plaintiffs to recover <br>     for fees that are patently excessive, but it <br>     will adjudicate plaintiffs' requests for <br>     attorneys' fees recognizing that plaintiffs' <br>     attorneys spent many additional hours <br>     litigating this case because of the <br>     codefendants' failure to produce all relevant <br>     information willingly, quickly, and without <br>     continuous prodding from the Court. <br> <br>     In its second opinion and order ("the award order"), the <br>court addressed the amount of reimbursement due to the class fund <br>for plaintiffs' attorney's fees and costs under the RICO statute.  <br>RICO provides that an injured party may recover treble damages "and <br>the cost of the suit, including a reasonable attorney's fee."  18 <br>U.S.C.  1964(c).  The district court read this provision to <br>include "reasonable" attorney's fees and those costs contemplated <br>by 28 U.S.C.  1920. <br>     In fixing reasonable attorney's fees, the court repeated <br>its earlier observation that as a sanction for abuse of discovery <br>practices, the court proposed to look indulgently at the hours <br>worked by plaintiffs' counsel and the rates that counsel sought to <br>charge.  It said that to the extent that the reasonableness of a <br>rate or the amount of time spent on the task was in dispute, the <br>court would resolve the matter in favor of the plaintiffs.  It then <br>made detailed computations as to specific hourly rates and hours <br>without further explicit reference to the sanction issue.   <br>     On its appeal, Volvo objects to the sanctions order and <br>the award order on a number of grounds:  that the district court <br>gave Volvo no notice that it was considering sanctions for conduct <br>other than that identified in plaintiffs' motion for sanctions; <br>that it wrongly failed to afford an evidentiary hearing on <br>misconduct issues; that Volvo had violated no court orders and did <br>not engage in deliberate misconduct and was not responsible for <br>misconduct of codefendants; and finally, that enhancing the <br>attorney's fees was neither a permissible nor a proportionate <br>sanction for the alleged misconduct. <br>     The Gonzalez defendants have also appealed, arguing that <br>the enhancement against them was improper on three grounds:  that <br>they had been given no notice or opportunity to be heard on <br>sanctions against them; that they could not be held responsible for <br>misconduct of Volvo; and that the court was not entitled to enlarge <br>attorney's fees for anyone's alleged misconduct and in any event <br>had granted excessive fees by resolving uncertainties in favor of <br>plaintiffs.  Because the Trebol companies were assertedly in <br>bankruptcy, they were not included in the judgment for attorney's <br>fees and costs, and Trebol has filed no appeal from this judgment. <br>     Before turning to the challenges by defendants to the <br>sanctions and award orders, we have to consider whether these <br>orders present live controversies in light of our reversal of the <br>principal judgment against Volvo and our vacation of the principal <br>judgment against the other codefendants.  See North Carolina v. <br>Rice, 404 U.S. 244, 246 (1971).  As to Volvo, the award order and <br>subsequent judgment granting attorney's fees and costs are <br>undermined by our earlier opinions:  under RICO, attorney's fees <br>and costs are awarded only to a plaintiff who establishes liability <br>and injury.  Because of our Volvo decision, plaintiffs now cannot <br>prevail against Volvo on the merits. <br>     The situation is otherwise as to the remaining <br>defendants.  As a result of their default and our ruling upholding <br>the sufficiency of the labeling claims, the remaining defendants <br>have been held liable to plaintiffs; and by defaulting those <br>defendants have also conceded an express factual allegation in the <br>complaint, namely, that as a result of defendants' violations the <br>plaintiff class members "have been injured in their property."  <br>Accordingly, there is no apparent reason why the attorney's fee <br>order should not be reviewable on the merits as to the Gonzalez <br>defendants (it was not reduced to judgment against Trebol). <br>     As for the sanctions order, its only effect was <br>enhancement of the award of attorney's fees and cost by resolving <br>doubts in favor of plaintiffs; no other sanction was imposed.  <br>Therefore, the sanctions order has a current immediate impact on <br>the Gonzalez defendants but not on Volvo (since the attorney's fee <br>award as to it must be reversed) nor on Trebol (because no judgment <br>as to attorney's fees has been entered against Trebol).  <br>Nevertheless, even as to Volvo and Trebol, the sanctions order is <br>potentially significant. <br>     While the sanction remedy chosen by the district court is <br>no longer viable against Volvo, there is no obvious reason why the <br>district judge could not now frame a different sanction remedy-- <br>assuming that Volvo has properly been found to have committed <br>misconduct.  Trebol's prospective liability for attorney's fees <br>remains once the bankruptcy bar is lifted; thus, the sanction order <br>also has a foreseeable impact on Trebol if allowed to stand.  Thus, <br>even if the sanctions order has an immediate impact only upon the <br>Gonzalez defendants, it also has a significant likely impact upon <br>Volvo (as the basis for an alternative sanction remedy) and upon <br>Trebol (because of the impact on Trebol's liability for attorney's <br>fees). <br>     Accordingly, we turn to the merits of the sanctions and <br>attorney's fee orders and conclude at the outset that the sanctions <br>order is flawed for two separate reasons.  The first reason is that <br>there has been inadequate notice and opportunity on the part of the <br>defendants to defend against the sanctions determination; the <br>second is the automatic attribution of fault to all defendants.  We <br>address each point in turn. <br>     Our first concern is that Volvo has been condemned at <br>least in part for conduct as to which it had no warning that any <br>defense was required.  As for Trebol and the Gonzalez defendants, <br>it appears that at no time before the sanctions order was issued <br>were they or their counsel formally advised that any sanctions <br>order against them was being sought.  When they objected to the <br>court on this ground after the order was entered, their motion for <br>reconsideration was tersely overruled. <br>     We have previously noted "the general desirability and <br>sometime necessity of affording notice and an opportunity to be <br>heard when monetary sanctions are imposed."  Media Duplication <br>Servs., Ltd. v. HDG Software, Inc., 928 F.2d 1228, 1238 (1st Cir. <br>1991).  The court has laid down no "per se rule," id., because <br>circumstances are so various:  the nature and complexity of the <br>misconduct, the severity of the sanction, whether the misbehavior <br>took place in the presence of the judge, and similar considerations <br>all play a role.  Id.  And notice and an opportunity to defend do <br>not necessarily entail an evidentiary hearing.  Id.  But here, as <br>in Media Duplication itself, "[c]ircumstances . . . indicate that <br>the procedure followed was inadequate."  Id. <br>     In particular, the district court made determinations on <br>a number of serious charges; yet, as to some (in Volvo's case) and <br>all (the case of the other defendants) there was no prior notice of <br>the charges.  Further, the judge did not explain which <br>determinations in granting attorney's fees were affected by the <br>sanctions remedy; but the amount of attorney's fee award was <br>substantial and a sanction may have had an important effect.  <br>Finally, based on prior incidents in the case, where apparent <br>misconduct turned out to be a misunderstanding, see, e.g., p. 5 <br>above, notice and a full opportunity for explanation would not <br>necessarily have been without purpose. <br>     Wholly independent of the lack of notice and opportunity <br>to defend, the court's sanctions order is flawed because it <br>attributes misconduct to all codefendants indiscriminately without <br>adequate supporting findings.  It holds that because the defendants <br>conducted a joint defense--itself a very elastic notion that could <br>embrace a number of quite different relationships--each defendant <br>was therefore automatically responsible for any misconduct in <br>discovery or other proceedings committed by another defendant.  <br>The district court relied on this concept in imposing sanctions <br>against Volvo for misconduct of Trebol and the Gonzalezes, and <br>against Trebol and the Gonzalezes for Volvo's misconduct. <br>     There may be instances in which one codefendant is liable <br>for sanctions for the litigation-related misconduct of another <br>defendant, but it would take findings as to knowledge and <br>participation or acquiescence far more specific and detailed than <br>a simple reference to a joint defense.  Codefendants cooperate all <br>the time, but that does not mean that one defendant is <br>automatically responsible for misconduct of another--of which it <br>may have no knowledge or as to which it may have played no role, <br>active or passive.  There is not much precedent on this issue but <br>what there is supports the defendants, and the matter is clear <br>enough in principal.  See Independent Fire Insurance Co. v. Lea, <br>979 F.2d 377, 379 (5th Cir. 1992); Lemelson v. Bendix Corp., 104 <br>F.R.D. 13, 18 (D. Del. 1984). <br>     Both flaws--lack of notice and opportunity to defend and <br>unsupported attribution of blame--can be obviated by proceedings on <br>remand.  Volvo and the codefendants now know precisely which <br>episodes of misconduct are charged against them, and can inform the <br>district court of their versions of each episode, of the proof they <br>may wish to offer in an evidentiary hearing or otherwise, and of <br>any legal arguments against imposing sanctions on defendants.  If <br>sanctions are proposed against counsel, they too are entitled to <br>notice and an opportunity to respond.  Whether an evidentiary <br>hearing may be required is a matter for the district court to <br>decide in the first instance. <br>     The attorney's fee award must also be reconsidered.  To <br>the extent that it rests upon the sanctions order, the flaws in the <br>sanctions order infect the attorney's fee order as well; we have no <br>way to isolate fee determinations so affected from others that were <br>not.  Further, the amount of damages that plaintiffs may collect is <br>now changed from a certain to an uncertain figure.  So far as the <br>extent of success may have some bearing on the attorney's fees to <br>be awarded, the award of attorney's fees might need to await the <br>re-determination of damages.  See generally 1 Derfner & Wolf, Court <br>Awarded Attorney Fees para. 8.07 (1997). <br>     These considerations require that the judgment awarding <br>attorney's fees be vacated as to the Gonzalez defendants and <br>remanded for further proceedings.  As to Volvo, the judgment is <br>reversed outright since no attorney's fees can now be awarded <br>against Volvo under the RICO statute.  The Trebol defendants remain <br>potentially liable for attorney's fees but any proceedings to <br>determine their liability is subject to the lifting of the <br>bankruptcy bar.  It would be possible to stop at this point but, <br>since the issue could easily recur on remand, we think it useful to <br>say something about a remaining legal challenge to the attorney's <br>fee award pressed by Volvo and the Gonzalez defendants. <br>     Both Volvo and the Gonzalez defendants' claim that the <br>district court had no authority to "enhance" an award of RICO <br>attorney's fees and costs as a sanction for litigation misconduct.  <br>Sometimes attorney's fees and costs are awarded as a sanction to <br>offset specific added expenses directly caused by an adversary's <br>litigation misconduct; but this is not what the district court's <br>order did.  Rather, the court said that for the entire case, it <br>would resolve legitimate doubts about attorney's fees and hours in <br>favor of the plaintiffs. <br>     In defending this sanction, the plaintiffs point to the <br>very wide latitude normally allowed to district courts in crafting <br>sanctions.  See, e.g., Ponlin v. Green, 18 F.3d 979, 984 (1st Cir. <br>1994); Thibeault v. Square D Co., 960 F.2d 239, 243 (1st Cir. <br>1992).  The defendants point to the language of the RICO statute <br>providing for attorney's fees, which (and here we agree with the <br>district judge) implicitly refers to reasonable attorney's fees and <br>nothing more.  Our own view is that, while "resolving doubts in <br>favor of one side" is problematic and fraught with perils when used <br>as a sanction, the remedy itself is not automatically inconsistent <br>with RICO; whether a particular award is unreasonable depends on <br>the facts. <br>     On remand, this "resolving doubts" remedy--whatever its <br>legality--is no longer available as a sanction against Volvo: since <br>it has prevailed on the merits, there will be no RICO award of <br>attorney's fees and costs against it.  As to the codefendants, the <br>remedy might be available, assuming misconduct found after a proper <br>proceeding.  Still, given the uncertain legal status of this <br>remedy, the district court may want to consider whether it might be <br>best simply to decide fees and hours on the merits, assuming that <br>plaintiffs do qualify as the prevailing party, and fashion some <br>other, more conventional sanction for any misconduct (as the court <br>in all events must do vis--vis Volvo, should it find sanctions <br>warranted). <br>     Nothing we have said in this opinion should be taken to <br>reflect on the able district judge who presided in this <br>extraordinarily difficult case.  Without ourselves suggesting <br>misconduct by parties or counsel, we have seen enough to conclude <br>that a complex case was rendered even more complicated than <br>necessary by various gambits on both sides, including not only <br>discovery tactics but also the proliferation of collateral fraud <br>charges and the remarkable eve-of-trial default.  A burdened trial <br>judge is entitled to more cooperation than the district court here <br>received.   <br>     The judgment entered April 29, 1997, as amended by the <br>judgment entered on May 6, 1997, awarding attorney's fees and costs <br>is reversed as to Volvo and vacated as to the Gonzalez defendants, <br>and the matter is remanded to the district court for proceedings <br>consistent with this opinion. <br>     It is so ordered.</pre>

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