Court Opinion

ID: 2792495
Source: CourtListenerOpinion
Date Created: 2015-04-09 18:01:15.446009+00
Date Added: 2024-06-11T12:45:00.153093
License: Public Domain

Case: 14-10676      Document: 00512999225         Page: 1    Date Filed: 04/09/2015

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                             United States Court of Appeals
                                                                                      Fifth Circuit

                                      No. 14-10676                                  FILED
                                                                                 April 9, 2015
                                                                               Lyle W. Cayce
                                                                                    Clerk

SCOTT MEYERS; SUSAN MEYERS,
                                                 Plaintiffs–Appellants,
versus
TEXTRON FINANCIAL CORPORATION,
                                                 Defendant–Appellee,
versus
CYNTHIA WILLIAMS COLE,
                                                 Appellant.

                   Appeal from the United States District Court
                        for the Northern District of Texas
                              USDC No. 4:12-MC-15

Before REAVLEY, SMITH, and GRAVES, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*

       Scott and Susan Meyers and their attorney, Cynthia Cole, appeal

       * 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
    Case: 14-10676      Document: 00512999225   Page: 2   Date Filed: 04/09/2015

                                 No. 14-10676
sanctions awarded against them in favor of Textron Financial Corporation
(“Textron”). Textron moves for attorney’s fees and costs pursuant to Federal
Rule of Appellate Procedure 38. We affirm the sanctions and deny the fees.

                                       I.
      We reviewed part of the history of this case in Meyers v. Textron, Inc.,
540 F. App’x 408 (5th Cir. 2013) (per curiam), portions of which we repeat here.
The Meyerses formed AIH Acquisitions, L.L.C. (“AIH”), to purchase assets
from American IronHorse Motorcycle Company, Inc. (“AIMC”), after it had
filed for bankruptcy. Textron was AIMC’s pre-petition secured lender and
post-petition debtor-in-possession lender. After negotiations between the Mey-
erses and Textron, AIH and Textron finalized a sales transaction in which AIH
acquired AIMC using financing from Textron. AIH defaulted shortly there-
after, and the Meyerses filed a petition for intervention against Textron alleg-
ing fraudulent inducement and negligent misrepresentation. The bankruptcy
court dismissed those claims with prejudice. On appeal, the district court
determined that the bankruptcy court did not have the constitutional authority
to dismiss the claims with prejudice, but the district court dismissed them with
prejudice on its own.

      Rocky Mountain Choppers, L.L.C. (“RMC”), then sued Textron, alleging
fraud in connection with the sales transaction. Textron moved to dismiss and
for sanctions against the Meyerses and Cole. The district court severed the
request for sanctions into the case that is currently on appeal and dismissed
RMC’s complaint with prejudice on the ground that, inter alia, it was barred
by res judicata because of the Meyerses previously dismissed case.           We
affirmed after concluding that there was privity between RMC and the
Meyerses—they solely owned RMC and were its only members, they “con-
trolled the [RMC] action as well as the dismissed case,” and they had “full

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                                 No. 14-10676
authority to exercise RMC’s powers and bring or defend claims on RMC’s
behalf.’” Id. at 410.

      After briefs were filed in the sanctions action, the district court ordered
the Meyerses, Cole, and Textron to have a face-to-face meeting to resolve the
dispute. Because that meeting never occurred, Cole and the Meyerses were
ordered to show cause—in a written filing followed by a hearing—for why they
should not be sanctioned. The court also ordered each party to file a document,
with all available legal authorities, establishing whether the Meyerses could
be sanctioned even though they were not named parties to the RMC complaint,
and the court ordered the Meyerses to inform it whether they intended to raise
that issue as a defense. The Meyerses and Cole failed to comply with those
orders.

      On the morning of the hearing, Cole filed a Suggestion of Bankruptcy
and “suggest[ed] that this action and all hearings or other activity related
thereto have been stayed by operation of Title 11 U.S.C. § 362.” Although
counsel for Textron was present at the hearing, Cole and the Meyerses did not
appear.

      The following day, the court noted that, “[f]or the fifth time, [the Mey-
erses and Cole] have failed to comply with an order of this court,” and it indi-
cated that those failures were “intentional[], deliberate[], and contemptous[]
. . . .” The court also ruled that § 362 did not stay the sanctions hearings and
that, regardless, Cole had an obligation to appear as counsel for the Meyerses.

      The court then ordered the Meyerses and Cole to file two itemizations of
fees and expenses incurred in previous proceedings in which Textron was a
party. Nothing was filed, and the court found that they have “twice again
creat[ed] the appearance that they have disrespect and contempt for the
authority of this court.”    The court ordered them to file the information
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                                       No. 14-10676
required in the previous order, followed by a show-cause hearing.

      On the day the filings were due, Cole appeared through counsel and
motioned to extend the deadline and continue the hearing. On the day before
the hearing, Cole’s counsel filed an amended motion for continuance, and Cole
filed a motion for continuance on behalf of the Meyerses. Both motions con-
tained an affidavit from Cole stating that the Meyerses and Cole had not
received some of the orders.

      After hearing testimony from Cole and Susan Meyers, the court found
that Cole had received all previous orders and that their statements to the
contrary were knowingly false and an attempt to defraud the court. Never-
theless, the court continued the hearing to give the Meyerses an opportunity
to decide whether to replace Cole with an attorney whose interest did not con-
flict with theirs. 1 The court also ordered them to provide the information
required by prior orders.

      On the day those filings were due, Cole told the court she would not be
filing anything, pointing to a settlement discussion with Textron. Because
there was a disagreement about whether a settlement had been reached, the
court ordered the hearing to proceed as scheduled; the Meyerses and Cole to
show cause for why they should not be sanctioned for their failures to provide
court-ordered information; and Cole to verify by affidavit that she had provided
the Meyerses with copies of previous orders.

      Following a two-day show-cause hearing, the court imposed sanctions,
jointly and severally, against the Meyerses and Cole for their conduct in the
RMC case and the sanctions action. In a thirty-six page opinion, the court

      1   Cole continued to represent the Meyerses in district court and is their counsel on
appeal.
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                                      No. 14-10676
awarded Textron $79,424.21 (later reduced to $75,249.41 because of a calcula-
tion error) under Rule 11 and 28 U.S.C. § 1927, concluding that the Meyerses
and Cole had brought the RMC case “in bad faith, vexatiously, and for the pur-
pose of harassment.” In re Motion for Sanctions Against Meyers, No. 4:12-MC-
015-A, 2014 WL 1494099, at *14 (N.D. Tex. Apr. 16, 2014). Alternatively, the
court held that the same award would have been appropriate pursuant to its
inherent power. In a separate forty-eight-page opinion, the court awarded
“Textron $83,693.87 as a sanction pursuant to the inherent power of the court
to address the bad faith litigation conduct of the Meyerses and Cole in relation
to [the action for sanctions].” In re Motion for Sanctions Against Meyers,
No. 4:12-MC-015-A, 2014 WL 1910621, at *1 (N.D. Tex. May 9, 2014). The
Meyerses and Cole appeal those awards.

                                             II.
       Sanctions awarded under Rule 11 and 28 U.S.C. § 1927 are reviewed for
an abuse of discretion. See Mercury Air Grp., Inc. v. Mansour, 237 F.3d 542,
548–49 (5th Cir. 2001). “We review de novo a district court’s invocation of its
inherent power and the sanctions granted [thereunder] for an abuse of discre-
tion, recognizing that ‘[a] court should invoke its inherent power to award
attorney’s fees only when it finds that fraud has been practiced upon it, or that
the very temple of justice has been defiled.’” 2 “We review the factual findings
underlying those sanctions, however, only for clear error.” Positive Software
Solutions, Inc. v. New Century Mortg. Corp., 619 F.3d 458, 460 (5th Cir. 2010).

                                            III.
       The Meyerses and Cole maintain that they were denied due process at

       2  FDIC v. Maxxam, Inc., 523 F.3d 566, 590 (5th Cir. 2008) (second alteration in orig-
inal) (footnote omitted) (quoting Boland Marine & Mfg. Co. v. Rihner, 41 F.3d 997, 1005 (5th
Cir. 1995)) (internal quotation marks omitted).
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                                       No. 14-10676
the show-cause hearing. Under Rule 11 and § 1927, “due process demands only
that the sanctioned party be afforded notice and an opportunity to be heard.” 3
“In Rule 11 cases, the opportunity to respond through written submissions
usually constitutes sufficient opportunity to be heard” without requiring “an
actual hearing.” Merriman, 100 F.3d at 1191–92. Under § 1927, “[t]he right
to a hearing . . . is limited to cases where a hearing would assist the court in
its decision.” Travelers, 38 F.3d at 1418 (quoting Hill v. Norfolk & W. Ry., 814
F.2d 1192, 1201 (7th Cir. 1987)) (internal quotation marks omitted). Likewise,
before invoking its inherent power, “[a] court must . . . comply with the
mandates of due process, both in determining that the requisite bad faith exists
and in assessing fees.” Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991).

       Citing the entirety of the 523-page hearing transcripts, the Meyerses and
Cole assert that the court improperly limited their testimony and “completely
ceased cross examinations” and that Cole “was told to stop talking after each
sentence of her [closing argument]”—purportedly demonstrating “the court’s
bias and lack of impartiality [that] violated their right to due process.” As a
preliminary matter, “the Federal Rules of Appellate Procedure require that
appellants, rather than the courts of appeals, ferret out and articulate the rec-
ord evidence considered material to each legal theory advanced on appeal.” 4
Even if their arguments are not waived for lack of citation to specific incidents,
a cursory review of the record shows that their descriptions of the proceeding
are badly exaggerated.

       Although the Meyerses and Cole claim that the district court “completely

       3Merriman v. Sec. Ins. Co. of Hartford, 100 F.3d 1187, 1191 (5th Cir. 1996); accord
Travelers Ins. Co. v. St. Jude Hosp. of Kenner, La., Inc., 38 F.3d 1414, 1418 (5th Cir. 1994).
       4Alexander v. Monsanto Co., 396 F. App’x 137, 140 (5th Cir. 2010) (per curiam) (quot-
ing Conto v. Concord Hosp., Inc., 265 F.3d 79, 81 (1st Cir. 2001)) (internal quotation marks
omitted).
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                                  No. 14-10676
ceased cross examinations,” Textron called two witnesses: Cole, who was not
cross-examined, and another, who was cross-examined without interruption.
Similarly, Cole was not “told to stop talking after each sentence of her [closing
argument]”; instead, she argued—with only one interruption—over five of the
seven transcribed pages of closing argument and was never told to stop talking.
The court spoke only seven times, instructing Cole to limit argument to the
record and confirming the testimony of a witness. When asked whether there
was anything else she wanted to say, Cole declined, stating that “it’s all in the
record . . . .” Although the Meyerses and Cole maintain that the court improp-
erly limited their answers to “yes or no,” citing no specific instances, they per-
haps refer to the single occasion on which the court instructed Cole to “[e]ither
say yes or no or whatever the appropriate answer is . . . without just grunting.”

      In addition to the initial briefing they submitted in opposition to sanc-
tions, the Meyerses and Cole were afforded multiple opportunities to provide
additional information. They were given a two-day hearing, and due process
was not violated by the court’s instructions to stay within the record or confirm-
ation of testimony. Rather than conducting the proceedings with bias, the
court acted with commendable patience throughout this case.

      The Meyerses aver that the court prohibited them from arguing that it
was improper to sanction them because they were not named parties to the
RMC complaint. They neglect to mention, however, that they failed to comply
with multiple orders to file a document with all legal authorities establishing
whether they could be sanctioned, and they did not inform the court whether
they intended to raise that issue as a defense. Although Textron filed the
requested document, the Meyerses did not; Cole does not deny receiving that
order, nor does she explain why it was ignored.

      The Meyerses also contend that “the district court went so far as to enter

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                                         No. 14-10676
an order forbidding [them] from including RMC in written filings with the
court,” but the court did no such thing; it merely instructed them “not to
pretend in any of their filings that [RMC] is a party to this action.” 5 Rather
than preventing them from arguing that they could not be sanctioned because
they were not named parties to the RMC case, the court solicited their views
on the issue, and Cole argued the point uninterrupted in closing argument.

       We need not decide whether the Meyerses fall within the scope of
Rule 11, which authorizes sanctions against “any attorney, law firm, or party
that violated the rule or is responsible for the violation,” if sanctions were
appropriate under the court’s inherent power, which “extends to a full range of
litigation abuses.” 6 A court must make a specific finding of bad faith before
using its inherent power to impose sanctions. See Toon v. Wackenhut Corr.
Corp., 250 F.3d 950, 952 (5th Cir. 2001).

       Although the district court made such a finding, the Meyerses and Cole
maintain that they did not act in bad faith because there was only one cause
of action filed by RMC against Textron. Relying on specific factual findings
that are unchallenged on appeal, the court concluded that the allegation in the
RMC complaint—that RMC was fraudulently induced by Textron to provide
funding for AIH’s purchase of AIMC’s assets—was false and an attempt to

       5 RMC was not a party to the severed action for sanctions, yet Cole filed a document
showing herself to be attorney for herself, the Meyerses, and RMC, and she referred to RMC
as one of the parties.
       6 Chambers, 501 U.S. at 46 (“[W]hereas [Rule 11 and § 1927] reach[] only certain indi-
viduals or conduct, the inherent power extends to a full range of litigation abuses. At the
very least, the inherent power must continue to exist to fill in the interstices.”); see 2 JAMES
WM. MOORE ET AL., MOORE’S FEDERAL PRACTICE § 11.41[1] (3d ed. 2014) (“If the district court
cites multiple sources of authority for sanctions, the appellate court . . . will reverse the award
only if none of the sources provides a sound basis for the sanctions.” (citing Balerna v. Gil-
berti, 708 F.3d 319, 323 (1st Cir. 2013); Amlong & Amlong, P.A. v. Denny’s, Inc., 500 F.3d
1230, 1238–39 (11th Cir. 2007))).
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                                 No. 14-10676
circumvent res judicata. The court set forth nine instances in which the Mey-
erses and Cole represented in judicial proceedings that the Meyerses, and no
one else, provided the funding. Moreover, RMC did not file a proof of claim in
bankruptcy, and there had been no prior assertion that it was the lender.

      Finding the Meyerses well-educated, knowledgeable about their busi-
ness activities, and heavily involved in the litigation, the court concluded that
they knew that the allegation in the RMC complaint was false yet caused,
authorized, and encouraged Cole to file it. Likewise, the court found that Cole
was deeply involved in the representation of the Meyerses and AIH in the
bankruptcy court and knowingly made the false allegation. Noting that the
Meyerses and Cole disregarded Textron’s Rule 11 warning, and the Meyerses
personally financed all of AIH’s bankruptcy litigation against Textron, the
court concluded that the RMC complaint was part of an ongoing scheme among
the Meyerses and Cole to harass Textron and needlessly increase its litigation
costs through repeated court actions, tantamount to a fraud on the court.
Failing to address the court’s factual findings, the Meyerses and Cole have not
shown that it erred by concluding that the lawsuit “was brought and prose-
cuted by [them] against Textron in bad faith, vexatiously, and for the purpose
of harassment.”

      The Meyerses and Cole assert that the court erred by “failing to conduct
an independent and unbiased investigation” into the reasonableness of the
attorney’s fees requested by Textron. Although they state that the district
court accepted the testimony regarding the fees “without question” and “was
not inclined to require [Textron] to produce an accurate accounting of the fees
that were sought,” the record belies those assertions. The court repeatedly
asked questions during the testimony about fees and ordered Textron to
respond to the claim that the fee calculations were inaccurate. Once Textron

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                                     No. 14-10676
had provided corrected calculations, the court ordered the Meyerses and Cole
to identify “each disagreement they now have with the reasonableness, neces-
sity, or calculation of attorneys’ fees set forth in Textron’s reply,” yet they did
not respond.

       Moreover, the Meyerses and Cole have not shown that the sanctions
were inappropriate. The district court limited sanctions to Textron’s reasona-
ble attorney’s fees and costs despite finding that, in light of “[t]estimony given
by Mr. Meyers . . . indicat[ing] that the Meyerses and Cole are not finished
with Textron yet . . . a significant sanction award against [them] would be
helpful in deterring them from again filing frivolous and harassing litigation
against Textron.” Finding no error, we affirm the awards.

                                           IV.
       Textron moves for sanctions on appeal pursuant to Federal Rule of
Appellate Procedure 38. The Meyerses and Cole have not responded to that
motion. Under Rule 38, we may award “just damages and single or double
costs to the appellee” if we determine that an appeal is frivolous. “An appeal
is frivolous if ‘the result is obvious or the arguments of error are wholly without
merit.’” 7

       Textron identifies many deficiencies with the Meyerses and Cole’s brief.
The first nineteen pages of their “Statement of Relevant Facts” is mostly copied
verbatim from a brief filed previously with this court, rehashing their already-
rejected fraud claims without a single citation to the record, and is largely
irrelevant to this appeal. Their due-process argument grossly exaggerates the
limitations placed on them by the district court and provides no specific

       7Howard v. St. Germain, 599 F.3d 455, 458 (5th Cir. 2010) (per curiam) (quoting Buck
v. United States, 967 F.2d 1060, 1062 (5th Cir. 1992) (per curiam)).
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                                 No. 14-10676
citation to the 523 pages of hearing transcripts. They claim that “the district
court failed to apply to [sic] proper standard for awarding sanctions,” yet they
cite the same standards that the court applied. Likewise, their argument that
the district court had made a “pre-hearing promise to rule in [Textron’s] favor”
is completely unfounded and without citation to the record.

      Although much of this appeal borders on frivolous, it is not so deficient
as to warrant attorney’s fees and costs. We note that Cole does not have a
history of filing frivolous appeals, and the parties have agreed to a pre-filing
injunction prohibiting the Meyerses from bringing further claims against Tex-
tron without first receiving the express permission of the district court.

      Textron’s motion for Rule 38 relief is DENIED. The judgment is in all
respects AFFIRMED.

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