Opinion
Civ. No. 02-4112 (JNE/JGL)
April 15, 2004
Richard A. Lockridge, Esq., Gregg M. Fishbein, Esq., Lockridge Grindal Nauen P.L.L.P., Vernon J. Vander Weide, Esq., and Thomas V. Seifert, Esq., Head Seifert Vander Weide, Karl L. Cambronne, Esq., and Jeffrey Bores, Esq., Chestnut Cambronne, John A. Cochrane, Esq., Cochrane Bresnahan, P.A., Garrett D. Blanchfield, Jr., Esq., Reinhardt Wendorf Blanchfield, Arthur T. Susman, Esq., and Charles R. Watkins, Esq., Susman Watkins, and C. Phillip Curley, Esq., and Joyce A. Pollack, Esq., Robinson Curley Clayton, P.C., for Plaintiff Professional Management Associates, Inc. Employees' Profit Sharing Plan.
Thomas B. Hatch, Esq., Randall Tietjen, Esq., Douglas R. Boettge, Esq., Robins, Kaplan, Miller, Ciresi L.L.P., for Defendant KPMG LLP.
ORDER
This case is before the Court to impose sanctions because Professional Management Associates, Inc. Employees' Profit Sharing Plan (PMA) brought a frivolous action, one that PMA's counsel should have known was barred under the "well-settled law of res judicata under the circumstances in this case," in violation of Federal Rule of Civil Procedure 11(b). Prof'l Mgmt. Assocs. v. KPMG LLP, 345 F.3d 1030, 1032-33 (8th Cir. 2003) (per curiam). KPMG LLP seeks an award of attorney fees and costs in the amount of $76,329.55. For the reasons set forth below, the Court orders PMA's counsel to pay to KPMG reasonable attorney fees and costs in the amount of $73,890.
I. BACKGROUND
PMA brought an action ( PMA I) against KPMG. The Court dismissed PMA's first amended complaint pursuant to the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. § 77p(b)-(c), 78bb(f)(1)-(2) (2000), and denied PMA's request for leave to file a second amended complaint. After the entry of final judgment and before appealing in PMA I, PMA commenced this action ( PMA II) using the proposed second amended complaint from PMA I. In P MA II, the Court granted KPMG's motion to dismiss and denied KPMG's request for sanctions. The parties appealed.After the dismissal of PMA II, the appeal in PMA I reached the Eighth Circuit. The dismissal of PMA I and the denial of leave to amend were affirmed. Prof'l Mgmt. Assocs. v. KPMG LLP, 335 F.3d 800, 801 (8th Cir. 2003). Less than three months later, the Eighth Circuit affirmed the dismissal of PMA II, reversed the denial ofKPMG's request for sanctions, and remanded for imposition of sanctions. Prof'l Mgmt. Assocs., 345 F.3d at 1032-33.
II. DISCUSSION
Rule 11(b)(2) provides in part:
By presenting to the court . . . a pleading . . . an attorney . . . is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, the claims, defenses, and other legal contentions are warranted by existing law or by a nonfiivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.
In this case, PMA's counsel violated Rule 11(b)(2) by presenting a frivolous complaint to the Court. Id.
The parties dispute whether the Court should apply 15 U.S.C. § 78u-4(c) (2000) to determine the appropriate sanction. That section mandates the imposition of sanctions in accordance with Rule 11 upon a finding that an attorney violated any requirement of Rule 11(b) in any private action "arising under this chapter." 15 U.S.C. § 78u-4(c)(1)-(2). According to KPMG, the Court should apply section 78u-4(c) to determine the appropriate sanction because the section applies to all actions arising under SLUSA, see id., and the Eighth Circuit cited section 78u-4(c)(2) for the proposition that a `"court shall impose sanctions' for violations of Rule 11 inactions arising under SLUSA," see Prof I Mgmt. Assocs., 345 F.3d at 1032. PMA responds that the Eighth Circuit gave "no indication that the District Court is supposed to use [section 78u-4(c)] as a basis for awarding fees" and that the Complaint did not arise under "this chapter" within the meaning of section 78u-4(c).
PMA's arguments have no merit. A court must impose sanctions for violations of Rule 11 in actions arising under SLUSA. 15 U.S.C. § 78u-4(c); Prof'l Mgmt. Assocs., 345 F.3d at 1032. PMA II was removed from state court pursuant to SLUSA. The Court dismissed the action under SLUSA. In addition to holding that PMA I barred PMA II, the Eighth Circuit noted that PMA II was properly dismissed under SLUSA. Prof'l Mgmt. Assocs., 345 F.3d at 1033. Accordingly, the Court will apply section 78u-4(c) to determine the appropriate sanction in this case.
Under section 78u-4(c), a court presumes that the appropriate sanction for substantial failure of a complaint to comply with any requirement of Rule 11(b) is an award to the defendant of the reasonable attorney fees and other expenses incurred in the action. 15U.S.C. § 78u-4(c)(3)(A)(ii). The presumption maybe rebutted only upon proof by the party or attorney against whom sanctions are to be imposed that the award "will impose an unreasonable burden on that party or attorney and would be unjust, and the failure to make such an award would not impose a greater burden on the party in whose favor sanctions are to be imposed," or that the violation of Rule 11(b) was de minimis. Id. § 78u-4(c)(3)(B). Given that this action was frivolous and that PMA's counsel should have known that PMA I barred PMA II, the Court finds that the Complaint in this case substantially failed to comply with Rule 11(b)(2). The Court therefore presumes that the appropriate sanction is an award to KPMG of the reasonable attorney fees and costs incurred in the action. Because monetary sanctions may not be imposed on a represented party for violations of Rule 11(b)(2), Fed.R.Civ.P. 11(c)(2)(A), the presumption applies against PMA's counsel.
PMA's counsel argues neither that an award to KPMG of reasonable attorney fees and costs will impose an unreasonable burden nor that the violation of Rule 11(b)(2) was de minimis. Instead, PMA's counsel contends that the Court should consider the reasonableness of its conduct in light of the case law that existed before the Eighth Circuit affirmed PMAII. PMA's counsel professes that it does not seek to "reargue the appeal" or to contest the Eighth Circuit's conclusion that PMA's counsel should have known that PMA I barred PMA II. PMA's counsel nevertheless devotes approximately four pages of the memorandum in opposition to KPMG's motion for fees and costs to a discussion of the case law upon which the Court of Appeals relied. PMA's counsel closes the discussion: "The four cases upon which the [Eighth Circuit] relied certainly do not make the application of res judicata here an obvious conclusion. Indeed, they show that res judicata should not apply . . . [N]or can it be said that PMA II was not `warranted by existing law.'"
PMA actually used the term "panel," which this Court has replaced in the brackets with "Eighth Circuit." A panel decision announces the law of the Eighth Circuit, binds other panels, and may only be reconsidered and overruled by the Court of Appeals en banc. Jenkins v. Missouri, 73 F.3d 201, 205 (8th Cir. 1996).
It maybe that PMA advances this argument inhopes of persuading the Court that counsel's actions were not outrageous, thereby mitigating its sanctions. Such an argument, however, does not address the factors relevant to rebut the statutory presumption. The argument that PMA II cannot be said to have been "not warranted by existing law" is an invitation to this Court to disregard the Eighth Circuit's holdings that PMA II was not warranted and that counsel should have known as much. That invitation is audacious and especially baffling in light of the Eighth Circuit's denial of PMA's petition for rehearing and rehearing en bane. The Court of Appeals spoke clearly: "Given the well-settled law of res judicata under the circumstances in this case, PMA's counsel should have known PMA II was barred by PMA I." Prof'l Mgmt. Assocs., 345 F.3d at 1033. This Court does not have the power, nor would it have the inclination, to second-guess the Eighth Circuit's opinion. Having failed to rebut the statutory presumption, PMA's counsel shall pay KPMG's reasonable attorney fees and costs incurred in this action.
KPMG seeks attorney fees and costs in the amount of $76,329.55. Costs account for $2,685.55 of the amount sought by KPMG; attorney fees incurred in proceedings before this Court from October 2002 to April 2003 account for $42,811; attorney fees incurred in proceedings before the Eighth Circuit from January to August 2003 account for $28,883; and attorney fees to prepare the instant motion account for $1,950. The Court will consider the costs and fees in turn.
KPMG incurred costs for computer-based legal research, courier and express delivery services, appellate filing fees, and a transcript of a hearing before this Court. "[T]he law of this Circuit is that computer-based legal research must be factored into the attorneys' hourly rate, hence the cost of the computer time may not be added to the fee award." Standley v. Chilhowee R-IV Sch. Dist., 5 F.3d 319, 325 (8th Cir. 1993); see Warren v. Prejean, 301 F.3d 893, 906 n. 4 (8th Cir. 2002). Under Standley, KPMG is not entitled to recover the $2,161.37 incurred for computer-based legal research. As to the costs incurred for courier services, they account for $224.50 of KPMG's costs. The Court is unable to determine whether use of the services was reasonable in the absence of an explanation of why KPMG chose to use them. The Court therefore concludes that KPMG is not entitled to recover the costs incurred for courier services. KPMG also incurred costs in the amount of $53.68 for express delivery services. The billing records reveal KPMG used express delivery services to submit materials to the Eighth Circuit. The Court is unable to determine whether KPMG's use of express delivery services was reasonable in the absence of an explanation of why less expensive means were not employed. Accordingly, the Court declines to award KPMG the costs incurred for express delivery services. KPMG's remaining costs are reasonable. For these reasons, the Court awards $246 in costs to KPMG.
To calculate an award of reasonable attorney fees, a court uses as a starting point "the number of hours reasonably expended on the litigationmultipliedbya reasonable hourly rate." Hensley v. Eckerhart, 461 U.S. 424, 433 (1983). Any hours not "reasonably expended" must be excluded from the initial calculation:
Cases may be overstaffed, and the skill and experience of lawyers vary widely. Counsel for the prevailing party should make a good faith effort to exclude from a fee request hours that are excessive, redundant, or otherwise unnecessary, just as a lawyer in private practice ethically is obligated to exclude such hours from his fee submission.Id. at 434. The court may adjust the fee calculation based on several factors: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the "undesirability" of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases. Id. at 434 n. 9. The initial calculation usually accounts for many of the factors. Id. Explicit and exhaustive analysis of the factors is not required in every case. Griffin v. Jim Jamison, Inc., 188 F.3d 996, 997 (8th Cir. 1999).
With regard to the attorney fees incurred in proceedings before this Court from October 2002 to April 2003, PMA's counsel does not argue that the number of hours expended was unreasonable or that the hourly rates were unreasonable. The billing records submitted by KPMG include time spent reviewing the Complaint, removing the action from state court, drafting a motion to dismiss and for sanctions, responding to PMA's motion to remand, responding to PMA's request for permission to file a motion to reconsider, reviewing an amended complaint, responding to PMA's renewed motion to remand, and respondingto PMA's motion to amend the judgment under Federal Rule of Civil Procedure 59(e). Having reviewed the billing records, the Court finds that the number of hours spent by KPMG's counsel on the litigation was reasonable and that the hourly rates charged were reasonable. Accordingly, the Court awards $42,811 to KPMG for attorney fees incurred inproceedings before this Court from October 2002 to April 2003.
As to the attorney fees incurred in proceedings before the Eighth Circuit from January to August 2003, again, PMA's counsel does not dispute the number of hours expended or the hourly rates. Instead, PMA's counsel maintains that KPMG is not entitled to the fees because KPMG moved for them before the Eighth Circuit under Federal Rule of Appellate Procedure 38 and 28 U.S.C. § 1912, 1927 (2000) and was unsuccessful in that application. According to PMA's counsel, KPMG's request for its attorney fees incurred on appeal "is squarely at odds with the law of the case doctrine." KPMG responds that the law of the case doctrine does not apply because the Eighth Circuit did not decide the issue of whether KPMG is entitled to the fees under section 78u-4(c).
"All issues decided by an appellate court become the law of the case. This rule extends not only to actual holdings but also to issues implicitly settled in prior rulings." Jones v. United States, 255 F.3d 507, 510 (8th Cir. 2001). Here, the Eighth Circuit did not address whether KPMG is entitled to its attorney fees incurred on appeal under section 78u-4(c). Instead, the Eighth Circuit remanded the case to this Court for the imposition of sanctions under that section. Accordingly, the Court concludes that the denial of KPMG's motion by the Eighth Circuit does not preclude KPMG from recovering the fees under section 78u-4(c).
Under section 78u-4(c), KPMG is entitled to recover the reasonable attorney fees "incurred in the action." 15 U.S.C. § 78u-4(c)(3)(A)(ii). Attorney fees incurred on appeal in the pursuit of sanctions are "incurred in the action." See Gurary v. Nu-Tech Bio-Med, Inc., 303 F.3d 212, 225 (9th Cir. 2002) (dictum). The billing records submitted by KPMG include time spent drafting its briefs, and responding to PMA's cross-appeal. Having reviewed the billing records, the Court finds that the number of hours spent by KPMG's counsel on appeal was reasonable and that the hourly rates charged were reasonable. Accordingly, the Court awards $28,883 to KPMG for attorney fees incurred in proceedings before the Eighth Circuit from January to August 2003.
Finally, KPMG seeks to recover the fees incurred in preparing the instant motion. PMA's counsel contends that the fees are excessive because "substantial components of the relief requested . . . are patently prohibited." The Court disagrees. As set forth above, KPMG is entitled to almost all of the relief requested. The Court finds that the number of hours spent by KPMG's counsel to prepare the instant motion and the hourly rate charged were reasonable. Accordingly, the Court awards $1,950 to KPMG for attorney fees incurred in preparing the instant motion.
In short, KPMG is entitled to $73,890, which consists of attorney fees in the amount of $73,644 and costs in the amount of $246. The Court expects that the various counsel for PMA will be able to agree among themselves how to apportion the payment to KPMG. Should this expectation be disappointed, the Court shall make such further determinations as are necessary to apportion the payment.
III. CONCLUSION
Based on the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED THAT:
1. KPMG's motion for attorney fees and costs [Docket No. 39] is GRANTED.
2. PMA's counsel shall pay to KPMG $73,890.
3. Within ten (10) days of the date of this Order, PMA's counsel shall inform the Court in writing whether an agreement has been reached as to the apportionment of the payment to KPMG.
4. Payment shall be made to KPMG within ten (10) days of the date of this Order if an agreement under Paragraph 3 is reached.