Court Opinion

ID: 199965
Source: CourtListenerOpinion
Date Created: 2011-02-07 04:41:04+00
Date Added: 2024-06-11T17:27:04.300358
License: Public Domain

United States Court of Appeals
                     For the First Circuit

No. 01-1411

                           PAUL NYER,

                           Appellant,

                               v.

                   WINTERTHUR INTERNATIONAL,

                            Appellee.

ISMAR HOCHEN, AS ADMINISTRATOR OF THE ESTATE OF ISMAEL HOCHEN;
RICHARD DUFAULT; CHRISTINE DUFAULT, INDIVIDUALLY AND AS MOTHER AND
      NEXT FRIEND OF RICHARD DUFAULT, JR.; LEAH DUFAULT,

                           Plaintiffs,

                               v.

                       BOBST GROUP, INC.,

                           Defendant.

         APPEAL FROM THE UNITED STATES DISTRICT COURT
               FOR THE DISTRICT OF MASSACHUSETTS

       [Hon. Robert B. Collings, U.S. Magistrate Judge]

                             Before

                     Torruella, Circuit Judge,
                  Stahl, Senior Circuit Judge,
                    and Lynch, Circuit Judge.

     Christopher Maffucci, with whom Casner & Edwards, LLP was on
brief, for appellant.
     Kimberly M. McCann, with whom Daniel P. Gibson and Gibson &
Behman, P.C. were on brief, for appellee.
                            May 16, 2002

          STAHL, Senior Circuit Judge. Attorney Paul Nyer ("Nyer")

appeals from an order sanctioning him under Federal Rule of Civil

Procedure 11 for his attempt to bring an unfair trade practices claim

against Winterthur International Insurance Company ("Winterthur") in

connection with Winterthur's defense of a personal injury suit against

its insured.   For the following reasons, we affirm.

                                  I.

          In 1994, Avery Dennison Corp. ("Avery") contracted with Bobst

Group, Inc. ("Bobst") to install and service certain controls and

equipment on Avery's printing press. On August 2, 1994, an explosion

in the printing press seriously injured two Avery employees, Ismael

Hochen and Richard Dufault.     The two men retained Nyer as their

attorney and filed suit against Bobst in 1996, alleging inter alia that

Bobst's negligent maintenance of the presses caused the explosion.

Bobst filed several motions for summary judgment and obtained partial

summary judgment in 1997 on the statute of repose issue and partial

summary judgment in 2000 on Hochen's claims regarding breach of

warranty and failure to warn.1 After the summary judgment motions, only

the negligent maintenance issue remained for trial.

     1The merits of the underlying suit are addressed in a
separate opinion issued this day. See Hochen v. Bobst Group,
Inc., No. 96-11214 (D. Mass. 2000), appeal docketed, No. 00-1841
(1st Cir. March 20, 2001).

                                 -2-
           On February 18, 2000, approximately two and a half months

before the trial was set to begin, the plaintiffs attempted to add

Winterthur, Bobst's insurance carrier, as a direct defendant in the

lawsuit.   In their motion to amend, the plaintiffs alleged that

Winterthur had violated Massachusetts General Laws chapter 93A because

its negotiation tactics ran afoul of Massachusetts General Law chapter

176D, which regulates insurance companies.2 The magistrate judge

deferred ruling on the motion in order to see whether the plaintiffs

would prevail at trial against Bobst.3 After the magistrate judge

directed a verdict in favor of Bobst and entered judgment on May 19,

2000, he denied the motion to amend the complaint as moot. On June 9,

2000, Winterthur filed a motion for attorney fees, costs and sanctions

against the plaintiffs' attorney Nyer pursuant to Fed. R. Civ. P. 11

and 28 U.S.C. § 1927. Nyer opposed the motion on June 30, 2000, and

Winterthur filed its response on July 12, 2000.

           In determining whether sanctions were appropriate, the

magistrate judge reviewed the history of negotiations between the

parties. Plaintiffs began the settlement negotiations by making a

demand to settle of $5 million -- $3 million for Hochen and $2 million

for Dufault.     On June 22, 1999, the plaintiffs, Bobst and

     2See infra note 7 and accompanying text for further
explanation of the relationship between chapters 93A and 176D.
     3
     The parties consented to proceed before the magistrate
judge for trial and entry of judgment pursuant to 28 U.S.C. §
636(c).

                                 -3-
representatives from Winterthur participated in a mediation session,

during which Winterthur made an offer to settle the case for $475,000.

According to Nyer, the plaintiffs rejected the offer because (1)

Winterthur did not apportion the settlement among the individual

defendants and (2) with the workers' compensation liens at $417,000,

the settlement would be virtually unprofitable. The parties met again

for settlement discussions on September 22, 1999. Although the record

does not include the specifics of any offer allegedly made by

Winterthur at that meeting, Nyer claims that Winterthur refused to put

its offer in writing and again rejected Nyer's request that it

apportion the proposed settlement among the individual plaintiffs.

          After this September meeting, Nyer sent Winterthur a 93A

demand letter alleging that Winterthur's failure to apportion the offer

or put it in writing violated Massachusetts General Law chapters 93A

and 176D. After retaining outside counsel, Winterthur responded to the

letter by offering $550,000 to resolve the case, although still

insisting that the plaintiffs had not demonstrated that liability was

reasonably clear. Shortly thereafter, Winterthur presented a proposed

apportionment of the offer, allocating $110,000 to each of the five

plaintiffs.4 Nyer and the workers' compensation carrier, however,

rejected this offer.

     4
     The three additional plaintiffs named in the lawsuit were
family members of Richard Dufault.

                                 -4-
          In its motion for sanctions, Winterthur claimed that it was

under no obligation to make a settlement offer to the plaintiffs under

chapter 176D because they could not show that Bobst's liability was

reasonably clear. As it had no duty even to negotiate, Winterthur

argued, it could not be found liable for violating the insurance

regulations laid out in chapter 176D or unfair trade practices

provision in chapter 93A. Therefore, Winterthur concluded, the 93A

claim that the plaintiffs attempted to assert against it was frivolous

and made only for the improper purpose of forcing Winterthur to offer

a higher settlement figure.

          In his defense, Nyer claimed that the parties understood that

Bobst's liability was reasonably clear, as reflected by the size of

Winterthur's settlement offers.        Therefore, in Nyer's view,

Winterthur's refusal to apportion the settlement offer to the

individual plaintiffs and the fact that the offer was barely above the

amount of the workers' compensation lien constituted an unfair

settlement practice. Consequently, Nyer insisted that his attempt to

assert a 93A claim against Winterthur should not be sanctionable.

          Before reaching the merits of Winterthur's motion, the

magistrate judge rejected Nyer's arguments that Winterthur did not have

standing to seek sanctions and that Winterthur's motion was untimely.

He then determined that there was no basis for a 93A claim against

Winterthur in light of relevant Massachusetts law, and imposed

                                 -5-
sanctions pursuant to Rule 11, along with attorneys' fees and costs.5

Hochen v. Bobst Group Inc., 198 F.R.D. 11 (D. Mass. 2000). Nyer timely

appealed.

     5Although the magistrate judge concluded that Nyer had
violated Rule 11, he found it "not as clear that [Nyer's]
actions were vexatious so as to multiply the proceedings," in
violation of § 1927. Hochen, 198 F.R.D. at 18. Because Rule 11
provided a sufficient basis to award Winterthur with all of the
relief it sought, the magistrate judge found it unnecessary to
reach the issue of whether Nyer's conduct infringed § 1927. Id.

                                 -6-
                                 II.

A.   Standing

          Before assessing the propriety of the magistrate judge's

ruling, we must first inquire as to whether Winterthur had standing to

seek sanctions under Rule 11. We review issues of standing de novo.

New Hampshire Right to Life Political Action Comm. v. Gardner, 99 F.3d

8, 12 (1st Cir. 1996).

          As a general rule, non-parties to a case may not bring a

motion for sanctions pursuant to Rule 11. New York News, Inc., v.

Kheel, 972 F.2d 482, 488 (2d Cir. 1992). In limited circumstances,

however, a non-party may have standing to move for Rule 11 sanctions.

For example, in Westmoreland v. CBS, Inc., 770 F.2d 1168 (D.C. Cir.

1985), a non-party witness was permitted to bring a Rule 11 motion

stemming from defense counsel's commencement of contempt proceedings

against him. On the other hand, individuals that are either explicitly

discussed in a complaint or entities that are indirectly implicated by

a complaint's allegations may not intervene in the litigation for the

sole purpose of seeking Rule 11 sanctions. See New York News, Inc.,

972 F.2d at 488-89 (individual); Port Drum Co. v. Umphrey, 852 F.2d 148

(5th Cir. 1988) (corporate entity).

          In Greenberg v. Sala, 822 F.2d 882 (9th Cir. 1987), the Ninth

Circuit ruled that individuals who had been named in a frivolous

complaint could seek Rule 11 sanctions, even though they had never

actually become official parties to the litigation due to lack of

                                 -7-
service. In finding that the would-be defendants had standing, the

court noted that "the filing of the complaint . . . caused the

defendants to incur costs and attorney fees. . . . Moreover, the filing

of the complaint necessarily triggered the expenditure of court

resources."   Id. at 885.

          We consider this case to be closely analogous to Greenburg.

Winterthur was never formally made a party to the litigation, but this

was due to the fact that the magistrate judge decided to reserve

judgment on the motion to amend plaintiffs' complaint until the

underlying issues regarding Bobst's liability were resolved.

Furthermore, although Winterthur was never required to refute the

chapter 93A allegations contained in the amended complaint, Winterthur

was forced to prepare a possible defense against the charge of unfair

trade practices. In this sense, Winterthur was similarly situated to

the non-party witness in Westmoreland who had to defend himself against

a petition for civil contempt arising out of his refusal to allow his

deposition to be videotaped. Therefore, we find that, even under the

reasoning of New York News, Inc., Winterthur qualifies as one of the

types of non-parties that may bring a motion for Rule 11 sanctions.

See 972 F.2d at 488-89 (distinguishing Westmoreland and Greenberg).

Accordingly, we find that Winterthur has standing to file a motion for

Rule 11 sanctions.

B.   Timeliness

                                 -8-
          One additional issue remains before we can turn to the merits

of the Rule 11 determination.     Nyer has not sought review of the

district court's ruling that Winterthur's motion for sanctions was

timely filed. In his appeal, however, Nyer alleges for the first time

that Winterthur failed to comply with the "safe harbor" provision of

Rule 11, which requires a movant to wait twenty-one days after serving

a motion for sanctions on opposing counsel before filing the motion

with the court.   Fed. R. Civ. P. 11(c)(1)(A).     This provision is

designed to allow an attorney to correct his error before a party

commences Rule 11 proceedings. In this case, however, we need not

decide whether there was any failure to comply with the "safe harbor"

provision because Nyer did not present this issue to the magistrate

judge in his opposition to the motion for sanctions. "If any principle

is firmly established in this circuit, it is that, in the absence of

excusatory circumstances -- and none are apparent here -- arguments not

seasonably raised in the district court cannot be raised for the first

time on appeal." Corrada Betances v. Sea-Land Serv., Inc., 248 F.3d

40, 44 (1st Cir. 2001).6

     6We note, however, that Nyer filed his motion to amend on
February 18, 2000 and the motion was dismissed as moot on May
19, 2000. Interestingly, Winterthur did not file its motion for
fees and sanctions until June 9, 2000, i.e., twenty one days
after the magistrate judge entered judgment and dismissed the
motion to amend. Prior to the dismissal, Nyer had approximately
three months to reconsider and withdraw the motion to amend but
chose not to do so.    Once the magistrate judge dismissed the
motion as moot, the purposes of the safe harbor provision could
no longer be effectuated because Nyer had lost his opportunity
to reverse course.

                                 -9-
                                 III.

          With those preliminary matters resolved, we now focus on the

question of whether sanctions were appropriate in this case. Rule 11

provides for the imposition of sanctions against an attorney who files

a pleading, motion or paper that is not "well grounded in fact" or is

not "warranted by existing law or a good faith argument for the

extension, modification, or reversal of existing law," or is

"interposed for any improper purpose, such as to harass or to cause

unnecessary delay or needless increase in the cost of litigation."

Fed. R. Civ. P. 11.

          We pause momentarily to offer some clarification as to the

proper standard of review in this case. In this circuit, as a general

rule, all aspects of a district court's Rule 11 determination are

examined under the abuse of discretion standard. See Kale v. Combined

Ins. Co. of Am., 861 F.2d 746, 757-58 (1st Cir. 1988).         By "all

aspects," we refer to both "the legal conclusion of the district court

that the facts constitute a violation of the Rule and . . . the

appropriateness of the sanction imposed." Figueroa-Ruiz v. Alegria,

905 F.2d 545, 548 n.2 (1st Cir. 1990).      As the Supreme Court has

instructed, however, "[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." Cooter & Gell v.

Hartmax Corp., 496 U.S. 384, 405 (1990). Therefore, in order to assess

whether the magistrate judge acted within his discretion in imposing

                                 -10-
sanctions, we must discern whether he properly interpreted the relevant

Massachusetts authorities regarding liability under chapters 93A and

176D.

           Under state law, insurance companies in Massachusetts have

an obligation to abstain from "unfair claim settlement practices," such

as "failing to effectuate prompt, fair and equitable settlements of

claims in which liability has become reasonably clear. . . ." Mass.

Gen. L. ch. 176D § 3(9)(f).7 In order to determine whether liability

is "reasonably clear," the fact finder must determine "whether a

reasonable person, with knowledge of the relevant facts and law, would

probably have concluded, for good reason, that the insurer was liable

to the plaintiff." Demeo v. State Farm Mut. Auto. Ins. Co., 38 Mass.

App. Ct. 955, 956-57, 649 N.E. 2d 803, 804 (1995).

          For the purposes of assessing whether Nyer's attempt to bring

an unfair trade practices claim against Winterthur violated Rule 11,

the court must focus on whether Nyer had evidentiary support for his

claim and/or whether his accusations were "warranted by existing law or

by a nonfrivolous argument for the extension, modification or reversal

     7
     Chapter 93A of Massachusetts law also protects consumers
from unfair trade practices.     Mass. Gen. L. ch. 93A § 2(a)
("Unfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce are hereby
declared unlawful.").   When drafted, neither chapter 93A nor
chapter 176D provided any avenue for the private enforcement of
these protections. In 1979, however, the legislature amended
chapter 93A, granting consumers a private cause of action
against insurers who violate chapter 176D.     Id. § 9(1).   See
generally Thomas P. Billings, The Massachusetts Law of Unfair
Insurance Settlement Practices, 76 Mass. L. Rev. 55 (June 1991).

                                 -11-
of existing law . . . ."     Fed. R. Civ. P. 11(b)(2)-(3).       After

reviewing the history of negotiations between the parties and examining

the underlying personal injury litigation, the magistrate judge

determined that no reasonable attorney would have believed that he had

any evidence to support a claim that Winterthur failed to negotiate a

settlement in good faith on behalf of its insured, whose liability was

reasonably clear.

          Nyer insists that Winterthur's substantial settlement offer

was an implicit acknowledgment that Bobst's liability was "reasonably

clear." Yet, as the magistrate judge noted, Winterthur explicitly

stated that its settlement proposal represented an amount approximating

the estimated cost of defense. This practice is not uncommon. In

fact, many cases are settled simply to avoid the uncertainties and

costs of going to trial. Under Nyer's view, however, the mere proposal

of a settlement offer would serve as an admission by the insurer that

liability is reasonably clear. Not only is this interpretation of

chapter 176D legally erroneous, but it would also produce the highly

undesirable effect of drastically reducing the willingness of parties

to seek an amicable resolution to their dispute.

          The magistrate judge observed that "the relevant evidence to

consider when determining whether liability was reasonably clear is not

settlement offers made by defense counsel but rather facts concerning

the actual underlying claim."       Hochen, 198 F.R.D. at 17.      The

magistrate judge's assessment was that, in light of the significant

                                 -12-
hurdles facing the plaintiffs in the underlying litigation, no

reasonable attorney, on these facts, would have had a basis for

believing    that   Bobst's    liability   was   reasonably    clear.

            In his appeal and in the proceedings below, Nyer has insisted

that it was Winterthur's failure to apportion the settlement amount

that constituted bad faith on the insurer's part.        Nyer offers no

authority, however, to support his position that Winterthur was somehow

obligated to apportion the sum among the various parties. We are

unaware of any Massachusetts law that would impose an apportionment

obligation upon Winterthur and counsel has not pointed us to any such

authority.    Therefore, no attorney, particularly relying on this

apportionment argument, could reasonably have believed that the facts

of this case could sustain a claim against Winterthur under chapter 93A

and 176D.    This argument is simply frivolous.

            We emphasize that the standard for determining whether an

insurance company has violated chapter 176D claim is distinct from the

standard for determining whether an attorney has offended Rule 11 by

making (or attempting to make) such an allegation. Yet, one cannot

assess the latter without a precise understanding of the former. The

magistrate judge did not err in his conclusion. Because we agree that

the apportionment argument raised by the appellant is totally

frivolous, in reviewing the magistrate judge's decision to impose

sanctions under the abuse of discretion standard, we find no error

                                  -13-
because, "at its core[, the] imposition of sanctions is a judgment

call."   Kale, 861 F.2d at 758 (internal quotations omitted).

                               IV.

          For the foregoing reasons, we affirm the imposition of

sanctions under Rule 11 against attorney Nyer.

                               -14-