Court Opinion

ID: 805059
Source: CourtListenerOpinion
Date Created: 2012-07-24 16:18:46+00
Date Added: 2024-06-11T18:00:14.397623
License: Public Domain

FILED
                                                     United States Court of Appeals
                        UNITED STATES COURT OF APPEALS       Tenth Circuit

                                 FOR THE TENTH CIRCUIT                   July 24, 2012

                                                                     Elisabeth A. Shumaker
                                                                         Clerk of Court
MELISSA MELLOTT,

               Plaintiff,

v.                                                         No. 11-1478
                                              (D.C. No. 1:09-CV-02418-PAB-MJW)
MSN COMMUNICATIONS, INC.,                                   (D. Colo.)

               Defendant-Appellee.

------------------------------

JOHN R. OLSEN and
OLSEN & BROWN, LLC,

               Attorney-Appellants.

                                 ORDER AND JUDGMENT*

Before HARTZ, ANDERSON, and O’BRIEN, Circuit Judges.

       John R. Olsen, who was the plaintiff’s attorney in the underlying district-court

action, and his law firm appeal a Fed. R. Civ. P. 11 sanction imposed on them.

*
      After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist 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 This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral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.
Although we sympathize with the district court’s frustration with Mr. Olsen’s

conduct, the sanction was not imposed in compliance with Rule 11’s procedural

requirements. Accordingly, we reverse and remand for the district court to consider

awarding sanctions on some other ground.

                                            I

      This case started out ordinarily enough, with the plaintiff suing her former

employer for discrimination. But the plaintiff’s misconduct in the litigation is an

extraordinary tale of breathtaking proportions. In a thorough order, the district court

chronicled how the plaintiff falsified documents, lied about compensation she

received from other companies after leaving the defendant’s employment (and used

another person’s Social Security Number in connection with such work), and created

a multi-layered, detailed fantasy to explain her failures to appear in court as ordered.

Mr. Olsen backed his client up, even in the face of mounting and flagrant

inconsistencies.

      The defendant moved to dismiss the case. The dismissal motion included a

request for sanctions against the plaintiff and Mr. Olsen under 28 U.S.C. § 1927, the

court’s inherent power, and Fed. R. Civ. P. 11, 26, and 37. Soon after the conclusion

of briefing on the defendant’s dismissal motion, the plaintiff moved to dismiss her

complaint voluntarily with prejudice. On October 29, 2010, the district court granted

the plaintiff’s motion to dismiss the complaint. The court simultaneously denied as

moot the defendant’s motion to dismiss, but retained jurisdiction to dispose of

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collateral matters and granted the defendant leave to file a renewed motion for

sanctions.

       In November 2010 the defendant filed its renewed motion for sanctions. In

addition to citing 28 U.S.C. § 1927, the court’s inherent power, and Fed. R. Civ. P.

11, 26, and 37, the defendant also sought sanctions under Title VII of the Civil

Rights Act of 1964. Ultimately the district court found that the plaintiff and

Mr. Olsen had engaged in sanctionable conduct. But because the defendant had not

properly documented the fees it incurred, the district court denied an award of

attorney fees. Instead, the court ordered the plaintiff to pay $25,000 to the court as a

sanction under the court’s inherent power, and it ordered Mr. Olsen and his firm to

pay $25,000 to the court as a sanction under Rule 11. Only Mr. Olsen and the firm

have appealed.

                                             II

                                    Rule 11 Sanction

       We review a Rule 11 sanction for abuse of discretion. See Roth v. Green,

466 F.3d 1179, 1187 (10th Cir. 2006). “[A] district court will be deemed to have

abused its discretion if its decision to impose sanctions under . . . Rule 11 . . . rested

on an erroneous view of the law.” Id. (brackets and internal quotation marks

omitted).

       Rule 11 allows a district court to award sanctions either sua sponte or on a

party’s motion. Here, the district court proceeded on the defendant’s renewed motion

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for sanctions. But like the initial request for sanctions, this motion was not a separate

Rule 11 motion, as required by Rule 11(c)(2). Moreover, the “safe-harbor” provision

of Rule 11(c)(2) requires a party to serve a copy of its Rule 11 motion on the other

party and to give that party an opportunity (generally 21 days) to withdraw or correct

the challenged document before filing the sanctions motion with the court. But the

defendant did not comply with the safe-harbor provision. This court has held that it

is an abuse of discretion to grant Rule 11 sanctions if the defendant did not comply

with the safe-harbor provision. See Roth, 466 F.3d at 1191-92. Further, the renewed

motion was filed after the court granted the plaintiff’s motion to dismiss, and this

court has held that it is an abuse of discretion to grant a Rule 11 motion that is filed

after the dismissal of the case because it is then impossible to comply with the

safe-harbor provision. See id. at 1193; see also Hutchinson v. Pfeil, 208 F.3d 1180,

1183-84 (10th Cir. 2000) (reliance on Rule 11 would have been untimely because the

motion for attorney fees was filed after summary judgment).

      In light of the extreme facts of this case, we have considered affirming the

sanction on other grounds. See Dummar v. Lummis, 543 F.3d 614, 618 (10th Cir.

2008) (“We may affirm a district court decision on any grounds for which there is a

record sufficient to permit conclusions of law, even grounds not relied upon by the

district court.” (internal quotation marks omitted)). But Hutchinson discourages us

from taking this route, given that it declined to affirm an invalid Rule 11 sanction

award under either § 1927 or the court’s inherent power. See 208 F.3d at 1186-87.

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It noted the “significant substantial and procedural differences [that] exist between

Rule 11 and § 1927.” Id. at 1186. And it stated that “[w]e must be especially

cautious in invoking inherent authority to cure a procedurally defective Rule 11

order, lest the restrictions in Rule 11 become meaningless.” Id. at 1187 (alterations

and internal quotation marks omitted). Accordingly, instead of affirming on other

grounds, we shall remand for further proceedings to allow the district court to

consider whether this sanction is appropriate under another authority.

                              Other Potential Sanctions

      Under Fed. R. Civ. P. 11(c)(5)(B), it is no longer possible for the district court

to impose a monetary Rule 11 sanction sua sponte. See Aerotech, Inc. v. Estes,

110 F.3d 1523, 1529 (10th Cir. 1997). Thus, on remand the court cannot look to

Rule 11 to support this award.

      Another potential source of authority is § 1927. In Steinert v. Winn Group,

Inc., 440 F.3d 1214, 1223 (10th Cir. 2006), we allowed § 1927 sanctions to be sought

and awarded after final judgment. Nevertheless, at least two reasons counsel that on

remand the district court should not rely on § 1927.

      First, because defendant has declined to appeal the district court’s denial of its

request for attorney fees, the only relevant sanction is one payable to the court. The

language of § 1927 itself does not make it clear whether the authorized sanction of

“the excess costs, expenses, and attorneys’ fees reasonably incurred” may be payable

to the court, rather than to the opposing party. It appears that it may not. We have

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held that “the text of § 1927, unlike that of Rule 11, indicates a purpose to

compensate victims of abusive litigation practices, not to deter and punish

offenders.” Hamilton v. Boise Cascade Express, 519 F.3d 1197, 1205 (10th Cir.

2008). Further, other circuit courts have held that a § 1927 sanction is not payable to

the court. See Lamboy-Ortiz v. Ortiz-Velez, 630 F.3d 228, 249 n.34 (1st Cir. 2010);

Prosser v. Prosser, 186 F.3d 403, 407 (3d Cir. 1999); Laitram Corp. v. Cambridge

Wire Cloth Co., 919 F.2d 1579, 1584 (Fed. Cir. 1990), superseded by statute on other

grounds as stated in Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246, 1251

(Fed. Cir. 2000); see also Carroll v. Jaques Admiralty Law Firm, P.C., 110 F.3d 290,

293 (5th Cir. 1997) (Section 1927 “do[es] not squarely contemplate sanctions payable

to the court for disruptive behavior.”); but see Jolly Group, Ltd. v. Medline Indus.,

435 F.3d 717, 719, 721 (7th Cir. 2006) (affirming § 1927 sanction payable, in part, to

the court); Williams Enters., Inc. v. Sherman R. Smoot Co., 938 F.2d 230, 239

(D.C. Cir. 1991) (counsel ordered to pay § 1927 sanction to clerk of appellate court

for conduct during appeal); Westinghouse Elec. Corp. v. NLRB, 809 F.2d 419, 425

(7th Cir. 1987) (same).

      Second, even if there are circumstances in which a § 1927 award can be

payable to the court, the $25,000 sanction imposed here appears to exceed any proper

recovery under § 1927. “‘Excess costs’ recoverable under 28 U.S.C. § 1927 include

only those enumerated in 28 U.S.C. § 1920 . . . [S]anctions under § 1927 cannot be

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based upon the court’s time or upon wasted judicial resources.” Resolution Trust

Corp. v. Dabney, 73 F.3d 262, 267 (10th Cir. 1995).

      In contrast, an inherent-power sanction may be payable to the court, and it may

take account of the court’s inconvenience and the waste of judicial resources.

See id.; see also Chambers v. NASCO, Inc., 501 U.S. 32, 44-45 (1991) (a “primary

aspect” of the district court’s discretion in exercising inherent powers “is the ability

to fashion an appropriate sanction for conduct which abuses the judicial process”).

Further, it does not appear improper for the court to be presented with the issue of

inherent-power sanctions after dismissing the plaintiff’s case: In Chambers the

Supreme Court affirmed an inherent-powers sanction that was sought and awarded

after remand from the appeals court. See 501 U.S. at 40, 56.1 The district court,

however, must heed Chambers’s warning that “[a] court must, of course, exercise

caution in invoking its inherent power, and it must comply with the mandates of due

process” in imposing an inherent-power sanction. Id. at 50.
1
        In Steinert we noted that “the Third Circuit has adopted a ‘supervisory rule’
that sanction issues under Rule 11 and the inherent power of the court must be
decided before or concurrent to the final judgment.” 440 F.3d at 1223. But Steinert
involved § 1927, not an inherent-powers sanction, and it did not adopt the Third
Circuit’s supervisory rule. Moreover, it appears that the Third Circuit’s rule is
grounded in concerns about prompt district-court action and “[t]he interests of
judicial efficiency, timeliness, and notice,” as well as effective disciplinary guidance.
Prosser, 186 F.3d at 405-06. Here, the district court acted promptly in requiring the
defendant to file a renewed motion for sanctions after granting the plaintiff’s motion
to dismiss, and various sanctions issues continued to be presented while and even
after the court considered the sanction at issue in this appeal. In the circumstances of
this case, we believe it is not improper to allow the district court to reevaluate this
sanction.

                                          -7-
                                          III

      The joint $25,000 sanction against Mr. Olsen and the law firm is VACATED

and REMANDED for further proceedings consistent with this order and judgment.

Appellants’ Response Pursuant to Fed. R. App. P. 27.3 and Tenth Cir. R. 27.3 to

Defendant’s Notice of Intent Not to File a Response, which the court has construed as

a motion to strike portions of the notice of intent, is DENIED.

                                                Entered for the Court

                                                Harris L Hartz
                                                Circuit Judge

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