Court Opinion

ID: 1025944
Source: CourtListenerOpinion
Date Created: 2013-07-05 06:58:09.757985+00
Date Added: 2024-06-11T12:28:35.032456
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 07-1487

RUBY SALVIN,

                Plaintiff - Appellant,

           v.

AMERICAN NATIONAL INSURANCE CO.,

                Defendant - Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Jerome B. Friedman, District
Judge. (2:06-cv-00264-JBF)

Argued:   March 19, 2008                  Decided:   June 10, 2008

Before MICHAEL and GREGORY, Circuit Judges, and Jane R. ROTH,
Senior Circuit Judge of the United States Court of Appeals for the
Third Circuit, sitting by designation.

Affirmed by unpublished per curiam opinion.

Thomas Francis Hennessy, III, LEISER, LEISER & HENNESSY, P.L.L.C.,
Vienna, Virginia, for Appellant. David C. Burton, WILLIAMS MULLEN,
Virginia Beach, Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

            This appeal involves a collateral issue in a case filed

by Ruby Salvin against her former employer, American National

Insurance     Company    (ANICO    or   the   company).     After   Salvin’s

deposition revealed that she had no evidence to support her claims,

ANICO asked Salvin’s counsel, Thomas Hennessy, to voluntarily

dismiss the case.       When Hennessy refused, ANICO complied with its

remaining discovery obligations and then filed a motion for summary

judgment, which the district court granted.               ANICO thereafter

sought to recover its attorney’s fees against Hennessy under 28

U.S.C. § 1927, arguing that he had “multiplie[d] the proceedings

. . . unreasonably and vexatiously” by continuing to litigate the

case despite his awareness that the claims lacked merit.                 The

district    court   found   that   Salvin’s    deposition   testimony   gave

Hennessy actual notice that Salvin’s claims lacked merit and,

therefore, awarded ANICO the fees it incurred after the deposition.

Because we determine that the district court did not abuse its

discretion in awarding fees under § 1927, we affirm.

                                        I.

            For several years Ruby Salvin sold insurance policies on

a commission basis as an independent contractor for ANICO.               She

worked pursuant to a written contract, which stated that either

party could terminate the relationship by providing thirty days’

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written notice.      After ANICO terminated Salvin, she sued the

company, alleging breach of contract, tortious interference with

economic relationships, and fraud.        The suit was originally filed

in Virginia state court but was removed to federal court on

diversity grounds. On July 25, 2006, the district court granted in

part   ANICO’s   motion   to   dismiss   Salvin’s   claims.   The   court

dismissed the tortious interference and fraud claims outright and

dismissed the breach of contract claim as it related to Salvin’s

allegation that a company representative had orally agreed to give

her twelve months to reach a particular sales quota but then

terminated her prior to the end of the twelve-month period.           The

court denied the motion to dismiss with respect to the breach of

contract claim as it related to allegations that the company had

altered Salvin’s sales records, resulting in a decrease in the

amount of post-termination compensation the company owed her.

           Following the partial dismissal the case proceeded to

discovery. On August 28, 2006, ANICO took Salvin’s deposition, and

the answers she gave made clear that her remaining breach of

contract claim lacked merit.      Specifically, Salvin testified that

she believed she was receiving the amount of post-termination

commissions she was entitled to under the written agreement, and

she presented no evidence that the company had altered any of her

sales records. While Salvin testified that she believed that ANICO

should have provided her additional compensation based on the “fair

                                    3
value” of her “agency,” she was unable to identify any language in

her written agreement supporting that position.           J.A. 110-13.

           Shortly after the deposition ANICO’s counsel approached

Salvin’s counsel, Thomas Hennessy, and asked that he voluntarily

dismiss   the    remaining   claim   in   light   of   Salvin’s   deposition

testimony.      Hennessy refused.    ANICO then continued litigating the

case by complying with its remaining discovery obligations and

preparing and filing a summary judgment motion based on Salvin’s

deposition testimony.        Hennessy filed an opposition to summary

judgment on Salvin’s behalf, but the opposition did not address

ANICO’s contention that Salvin had provided no evidence to support

the altered records theory underlying her remaining breach of

contract claim.      Instead, the opposition relied on an alternative

theory, which was based on factual allegations not included in the

complaint.      In addition, the opposition included a new affidavit

from Salvin that contained statements contradicted by the testimony

she gave in her deposition.          The district court granted summary

judgment to ANICO based on Salvin’s deposition testimony.

           ANICO next filed a motion to recover attorney’s fees

against Hennessy (Salvin’s counsel) under 28 U.S.C. § 1927.            That

section 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.

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28 U.S.C. § 1927.     The district court granted ANICO’s request for

attorney’s    fees   in   part.    The    court    found   that     “after   the

plaintiff’s    deposition    revealed     that    her   remaining    claim   was

fundamentally infirm, Mr. Hennessy should have taken the advice of

the defense attorneys and voluntarily dismissed the action.”                 J.A.

296.    The court further found it was “undisputed that Mr. Hennessy

had actual notice that no basis existed for proceeding on the

plaintiff’s case after her deposition testimony revealed as much.”

Id.    Therefore, the court granted ANICO’s motion but limited its

recovery of fees to $26,057, which was the amount incurred after

the plaintiff’s deposition.       Hennessy now appeals.

                                    II.

            We begin with a brief overview of § 1927.               The Supreme

Court has recognized that § 1927 “does not distinguish between

winners and losers, or between plaintiffs and defendants.” Roadway

Express, Inc. v. Piper, 447 U.S. 752, 762 (1980). Moreover, “[t]he

statute is indifferent to the equities of a dispute and to the

values advanced by the substantive law.” Id. Instead, the statute

is “concerned only with limiting the abuse of court processes.”

Id.    For this reason, a court considering the propriety of a § 1927

award must focus “on the conduct of the litigation and not on its

merits.”    DeBauche v. Trani, 191 F.3d 499, 511 (4th Cir. 1999).

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            When   a   district   court    imposes   an   award   against   an

attorney under § 1927, we review only for an abuse of discretion.

Chaudhry v. Gallerizzo, 174 F.3d 394, 410 (4th Cir. 1999).              This

standard recognizes that, as in the context of sanctions under Rule

11 of the Federal Rules of Civil Procedure, “the district court is

better situated than the court of appeals to marshal the pertinent

facts and apply the fact-dependent legal standard” of § 1927.

Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 402 (1990) (reviewing

Rule 11 sanctions for abuse of discretion).           The factual findings

underpinning the district court’s award are reviewed for clear

error.     Ohio River Valley Envtl. Coal., Inc. v. Green Valley Coal

Co., 511 F.3d 407, 413 (4th Cir. 2007).

                                    III.

            Hennessy first argues that § 1927 requires a finding of

subjective bad faith and that the district court erred by stating

that an objective bad faith standard applied.             We need not decide

which standard applies in this case because the district court’s

factual findings support a determination that Hennessy acted in bad

faith, even assuming that the more stringent subjective standard

applies.

            The district court found that Hennessy had actual notice

that Salvin’s remaining breach of contract claim was rendered

meritless by the admissions made in Salvin’s deposition testimony.

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The court noted that the content of the summary judgment opposition

submitted by Hennessy confirmed his “awareness that the plaintiff’s

deposition had indicated that her lawsuit was meritless”; rather

than arguing the sole theory approved by the court’s partial

dismissal order, the opposition advanced a new breach of contract

theory based on facts not pled in the complaint.         J.A. 297.   The

district court’s finding that Hennessy knew Salvin’s claim lacked

merit is not clearly erroneous and, thus, is sufficient to support

a determination that Hennessy acted in bad faith under either an

objective or a subjective standard.

             Hennessy next argues that a § 1927 fee award is not

appropriate because he did not “multipl[y] the proceedings” within

the meaning of the statute.   In support he cites DeBauche, where we

concluded “as a matter of law that the filing of a single complaint

cannot be held to have multiplied the proceedings unreasonably and

vexatiously and therefore that § 1927 cannot be employed to impose

sanctions.”    191 F.3d at 511-12.       In that case, we held that Rule

11 was the proper mechanism to address the filing of a frivolous

complaint. According to Hennessy, the holding in DeBauche mandates

that an attorney does not multiply proceedings simply by failing to

dismiss a claim, even when it becomes apparent that the claim is

meritless.

          Hennessy’s argument misses the mark.          His actions are

simply not analogous to the filing of a single faulty complaint

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that gave rise to our decision in DeBauche.              As we stated in

DeBauche, “[§] 1927 focuses on the conduct of the litigation and

not on its merits.”       191 F.3d at 511.      The district court’s fee

award in this case was properly based on the manner in which

Hennessy conducted the litigation.            By refusing to voluntarily

dismiss the case once its lack of merit became evident, Hennessy

protracted the litigation.      ANICO was forced to continue with its

discovery obligations, file a summary judgment motion, and respond

to Hennessy’s opposition to that motion.             And, as the district

court noted, “[t]he brief in response to [ANICO’s] motion for

summary   judgment   is    emblematic    of    the   unreasonableness   and

vexatiousness employed by Mr. Hennessy” because it failed to

address the altered records theory at issue, raised new theories

based on factual allegations not pled in the complaint, and was

based on a new affidavit by Salvin in which she contradicted her

earlier deposition testimony.           J.A. 297.      We agree with the

district court that Hennessy’s conduct multiplied the proceedings

unreasonably and vexatiously within the meaning of § 1927.

           Hennessy next argues that the district court erred by not

making a sufficient inquiry into his ability to pay.          The court’s

consideration of the ability-to-pay issue was limited to this

passage in the order:

     As to Mr. Hennessy’s ability to pay, he admitted to the
     court at oral argument that, had [ANICO’s] motion for
     attorneys’ fees been brought pursuant to Federal Rule of
     Civil Procedure 11, his conduct would likely be

                                    8
      sanctionable, and he would be agreeable to paying. Such
      statement provides the court with sufficient evidence as
      to Mr. Hennessy’s ability to pay the fees requested by
      [ANICO] in this case.

J.A. 301-02.    We have previously stated in the Rule 11 context that

“a monetary sanction imposed without any consideration of ability

to pay would constitute an abuse of discretion.”            In re Kunstler,

914 F.2d 505, 524 (4th Cir. 1990).         At the same time, we noted that

the “[i]nability to pay . . . should be treated as reasonably akin

to an affirmative defense, with the burden upon the parties being

sanctioned    to   come   forward   with   evidence    of   their   financial

status.” Id. (quoting White v. General Motors Corp., 908 F.2d 675,

685   (10th    Cir.   1990)).       Applying   these    standards    to   the

circumstances of this case, we conclude that Hennessy’s argument

lacks merit. The court’s discussion of the issue, while brief, is

enough to demonstrate that it at least considered Hennessy’s

ability to pay.       Moreover, given that Hennessy did not raise his

inability to pay before the district court (nor does he assert in

his appellate brief that he would in fact be unable to pay), we

cannot conclude that the district court abused its discretion in

determining that Hennessy will be able to pay the amount in

question.

             Finally, we consider Hennessy’s contention, raised at

oral argument, that upholding the fee award in this case would have

a chilling effect on the efforts of plaintiffs’ attorneys to

zealously pursue their clients’ cases.          We appreciate the concern

                                      9
expressed by Hennessy, but we respectfully disagree with him.           We

recognize that Hennessy was put in a tough position because he

filed the case based on his client’s version of events at the time,

only to have the client give a different story -- one that defeated

the case -- when faced with questions, under oath, from opposing

counsel. But Hennessy’s proper course of action was clear: rather

than protract the litigation, he should have voluntarily dismissed

the case when ANICO’s counsel requested that he do so.        As we have

said, “litigants and their counsel are not free . . . to disregard

evidence that comes to light in discovery and to continue to press

their case without any reasonable belief” that the case has merit.

Blue v. U.S. Dept. of the Army, 914 F.2d 525, 537 (4th Cir. 1990).

Indeed, there is nothing novel in recognizing that an attorney can

face sanctions “for pursuing a case after it becomes clear that the

case is without merit.”   Id.   Nothing in these principles or in our

application of § 1927 in this case will prevent any plaintiff’s

attorney from zealously pursuing a meritorious case.

                                 * * *

          For   the   reasons   stated   above,   the   judgment   of   the

district court is

                                                               AFFIRMED.

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