Opinion
CIVIL ACTION NO: 02-722, SECTION: "R" (4)
October 15, 2003
ORDER AND REASONS
Before the Court is the motion of plaintiff, Tracy Bergquist, for sanctions against defense counsel, Nancy J. Marshall, pursuant to the Court's inherent power. Also before the Court are the cross-motions of defendants, FyBX Corporation, and Michael Arata and Hoffman, Siegel, Seydel, Bienvenu, Centola Cordes, for sanctions against Tracy Bergquist pursuant to Rule 11 and 28 U.S.C. § 1927. For the following reasons, the Court DENIES all motions for sanctions.
I. BACKGROUND
This case involved an intercine corporate dispute between plaintiff, a minority shareholder, and defendants, the corporation and its lawyers. Plaintiff essentially asserted that every transaction the corporation had entered was unauthorized, including its issuance of stock to her.
The facts behind the lawsuit are detailed in this Court's opinion on the parties' motions for summary judgment. Bergguist v. FyBX Corp., No. CIV. A. 02-722, 2003 WL 220813G8 (E.D. La. Aug. 29, 2003).
On May 14, 2001, plaintiff filed a lawsuit against defendants in the Northern District of Georgia. Plaintiff sued FyBX and the attorney defendants jointly and severally under section 12(2) of the Securities Act of 1933 (as amended), section 10(b) of the Securities Exchange Act of 1934 (as amended), and Rule 10b-5 of the Securities and Exchange Commission. Further, plaintiff sued FyBX and the attorney defendants under the Georgia RICO statute and the Georgia Securities Act. Plaintiff directly and derivatively sued the attorney defendants under Georgia or Louisiana state law for wrongful misrepresentation, breach of contract, breach of warranty or representation, fraud, malpractice, and negligence. Finally, plaintiff sued the attorney defendants due to FyBX's "insolvency" and her status as a creditor of FyBX. Plaintiff based her allegations of liability against the two law firms, Hoffman, Siegel and Bordelon, Hamlin, on the conduct of defendant Michael Arata while he was associated with them. Plaintiff alleged, inter alia, that the majority of shares that she received as a result of the merger of FyBX and another company were worthless because FxBX and Arata failed to follow corporate formalities. Defendants argued that the board's actions were valid because, inter alia, the shareholders voted by requisite vote to ratify its actions.
Defendants moved for summary judgment, asserting that plaintiff's claim under section 10(b) of the Exchange Act should be dismissed under the "law of the case" doctrine. In the alternative, defendants argued that the plaintiff failed to state a claim under the Exchange Act. Defendants also asserted that plaintiff's claim under section 12(2) of the Securities Act failed because FyBX and Arata were not statutory sellers and because the securities transaction of which plaintiff complained was not a public offering.
Judge Forrester of the Northern District of Georgia had previously dismissed plaintiff's 10(b) claims because plaintiff had failed to plead scienter with particularity. See Bergquist, 2003 WL 22081368, at *8.
On August 29, 2003, the Court granted defendants' motions for summary judgment on the federal law claims and dismissed plaintiff's remaining state law claims for lack of jurisdiction. Bergquist, 2003 WL 22081368, at *12.
Plaintiff and defendants now seek sanctions. Plaintiff asks the Court to use its inherent power to sanction defense counsel, Nancy J. Marshall, for unprofessional conduct. Specifically, plaintiff seeks sanctions because Marshall used the words "scum" in an e-mail and "fucking assholes" during a phone conference, made accusations of dishonesty, and made snide comments and was inattentive during depositions. Defendants seek sanctions under Rule 11 and 28 U.S.C. § 1927. Defendants essentially argue that plaintiff's claims had no evidentiary support and were not warranted by existing law.
II. DISCUSSION
1. Plaintiff's motion for sanctions
For the following reasons, the Court declines to exercise its inherent power to impose sanctions on Marshall.
Courts may use the judiciary's inherent power — those powers vested in the courts upon their creation, see Michaelson v. U.S., 266 U.S. 42, 66 (1924), and not derived from any statute, see Link V. Wabash R.R. Co., 370 U.S. 626, 630 (1962) — to regulate the conduct of the members of the bar. See Eash v. Riggins Trucking Co., 757 F.2d 557, 561 (3d Cir. 1985). These inherent powers are incidental to the "administration of justice." Michaelson, 266 U.S. at 66; Eash, 757 F.2d at 563 n. 8 (stating that the inherent power derives from "judicial powers pursuant to Article III," from "the nature of the court," and from "necessity" or "practicality"). It is well-settled Fifth Circuit law that [t]he inherent power of a court to manage its affairs necessarily includes the authority to impose reasonable and appropriate sanctions upon errant lawyers practicing before it." Flaksa v. Little River Marine Constr., 389 F.2d 885, 888-89 (5th Cir.), cert. denied, 392 U.S. 928 (1968); see also Ex Parte Bradley, 74 U.S. 364, 374 (1868) ("We do not doubt the power of the court to punish attorneys as officers of the same, for misbehavior in practice of the profession."); United States v. Cleveland, No. Crim. A. 96-207, 1997 WL 539664, at *3 (E.D. La. 1997); Nasco, Inc. v. Calcasieu Television and Radio, Inc., 124 F.R.D. 120 (W.D. La. 1985). [T]he threshold for the use of inherent power sanctions is high . . . and must be exercised with restraint and discretion." Elliot v. Tilton, 64 F.3d 213, 217 (5th Cir. 1995) (internal quotations and citations omitted). There must be a finding of bad faith; the Court's mere displeasure is not enough. See id.; Kipps v. Caillier, 197 F.3d 765, 770 (5th Cir. 1999) (reversing lower court because it failed to make specific finding of bad faith and imposed sanctions in face of magistrate's finding that counsel's actions were not bad faith attempt to disrupt or delay proceedings).
Here, plaintiff seeks sanctions pursuant to the Court's inherent power against defense counsel, Nancy J. Marshall, for unprofessional conduct. Specifically, plaintiff seeks sanctions because Marshall used the language "scum" in an e-mail and "fucking assholes" during a phone conference, made accusations of dishonesty, and made snide comments and was inattentive during depositions.
In Carroll v. The Jacques Admiralty Law Firm, the Fifth Circuit affirmed the district court's imposition of sanctions under its inherent powers against a lawyer for his abusive conduct at a deposition. 110 F.3d 290 (5th Cir. 1997). The lawyer in Carroll had been sued for fraud and, at his deposition, he cursed plaintiffs' counsel and stated that he "ought to be punched in the goddamn nose." Id. at 291. `In Carroll, counsel repeatedly used profanity and made physical threats during a deposition, which is a formal court proceeding. Id.; see also Hutcheson v. Texas, 980 S.W.2d 237, 238 (Tex.App.-Eastland 1999) (stating that "there is no dispute that a `deposition' is an official proceeding"). The Court finds this case distinguishable from Carroll. Marshall's abusive language, although regrettable in any situation, was not physically threatening and did not occur during a formal judicial proceeding. Nor was her inappropriate language recurrent during the litigation. As to her conduct during depositions, the Court does not find that any of the challenged behavior sinks to the level involved in Carroll or otherwise warrants sanctions.
Additionally, the Carroll court found that the vulgar words and the physical threats, which resulted in the termination of the deposition, constituted bad faith. 110 F.3d at 293. Here, the plaintiff does not argue that the challenged conduct arose from bad faith. In fact, plaintiff cites to Republic of Philippines v. Westinghouse Electric Corp. to support her assertion that no finding of bad faith is required to sanction counsel under the court's inherent powers unless the sanction involves fee shifting. 43 F.3d 65, 74, n. 11 (3d. Cir. 1994). The Fifth Circuit, however, has made it clear that in this Circuit, a finding of "bad faith" is required. See Dawson v. United States, 68 F.3d 886, 895 (5th Cir. 1995). Although the Court finds that Marshall should have exercised more self-control, the Court does not find that her actions amounted to bad faith. Accordingly, the Court declines to impose sanctions pursuant to its inherent power.
2. Defendants' motions for sanctions
Defendants seek sanctions under Rule 11 against plaintiff for bringing a frivolous lawsuit with no evidentiary support and without making a reasonable inquiry into the law. For the following reasons, the Court denies defendants' motions.
The Court may impose appropriate sanctions, including attorney's fees and costs, on an attorney who files a pleading in violation of Rule 11 of the Federal Rules of Civil Procedure. See Mercury Air Group, Inc. v. Mansour, 237 F.3d 542, 548 (5th Cir. 2001). Rule 11 provides that when an attorney submits a pleading to the court, she certifies to the best of her knowledge, information, and belief that (1) the pleading is not interposed for any improper purpose, such as harassment, unnecessary delay, or increased costs of litigation; (2) the pleading is warranted by existing law or a good faith argument for modification of existing law; and (3) the allegations and other factual contentions have evidentiary support, or if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery. Fed.R. CIV. P. 11(b); Childs v. State Farm Mutual Ins. Co., 29 F.3d 1018, 1023 (5th Cir. 1994); American Airlines, Inc. v. Allied Pilots Ass'n, 968 F.2d 523, 529 (5th Cir. 1992). An attorney must make a reasonable inquiry into the facts and law of a case at the time when she affixes her signature on any papers submitted to the Court. Mercury Air, 237 F.3d at 548. Thus, the Court may impose Rule 11 sanctions for attaching to a pleading an affidavit not well grounded in fact and the truth of which the attorneys have not adequately investigated. Akin v. 0-L Investments, Inc., 959 F.2d 521, 534 (5th Cir. 1992).
A party who seeks Rule 11 sanctions must notify the offending party 21 days before presenting the motion to the court so that the offending party can withdraw the claim or correct its defects. FED. R. CIV. P. 11(c)(a). Defendants provided Bergquist with this opportunity.
Although the Court dismissed Bergquist's federal securities claims for failure to state a claim and remanded her state law claims for lack of jurisdiction, the Court does not find any improper purpose underlying Plaintiff's complaint. Although the Court has found the federal claims legally groundless, "the Court is convinced that [their] filing . . . is the product of ineptitude and misguided legal research, rather than a failure to attempt a reasonable inquiry into the law or an intent to harass." Cross v. Cross, No. CIV. A. 98-1144, 1998 WL 690978, at *4 (E.D. La. 1998). Nor will the Court impose sanctions for what the Court finds to be "a clearly erroneous assessment of the evidence." Childs, 29 F.3d at 1023. Moreover, the Court did not consider plaintiff's state law claims and cannot state that the claims are necessarily without merit or brought with the intent to harass. Accordingly, the motion for Rule 11 sanctions is denied.
Defendants also seek sanctions pursuant to 28 U.S.C. § 1927. Section 1927 provides:
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonable and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.28 U.S.C. § 1927. Because section 1927 sanctions are penal in nature, courts strictly interpret the statute in order to not "dampen the legitimate zeal of an attorney in representing his client." See Travelers Ins. Co. v. St. Jude Hosp. of Kenner, 38 F.3d 1414, 1416 (5th Cir. 1994). Before imposing sanctions, the Court must determine that the offending attorney's multiplication of the proceedings was both "unreasonable" and "vexatious." See id. at 1416 (citing Federal Deposit Ins. Corp. v. Conner, 20 F.3d 1376, 1384 (5th Cir. 1994)). The latter requirement is met by evidence of recklessness, bad faith, or improper motive. See id. (citing Hogue v. Royse City, Tex., 939 F.2d 1249, 1256 (5th Cir. 1991). Sanctions may not be imposed for counsel's mere negligence. See Baulch v. Johns, 70 F.3d 813, 817 (5th Cir. 1995).
Here, the Court finds that the actions of the plaintiff and her counsel, although less than diligent, do not rise to the level of recklessness required by the courts in imposing sanctions. Nor are they the product of bad faith or improper motive. Because the Court does not find bad faith, it also declines to impose sanctions under its inherent power. Accordingly, the Court denies defendants' motions for sanctions.
III. CONCLUSION
For the foregoing reasons, the Court DENIES all motions for sanctions.