Opinion
Civ. No. 00-0465 (TFH/JMF).
April 4, 2002
MEMORANDUM OPINION
The matter before me, a Motion for Sanctions filed by the defendant Marc R. Labgold ("Labgold"), is the final phase of the dissolution of a friendship into acrimony and rancor. As happens all too frequently in our society, the forum of the denouement is a courtroom, a place built for adversarial combat that, by its nature, lacks the compassionate means to effect the reconciliation and the end of the recrimination that now seems to be deleteriously affecting two families.
The story begins when William J. Healey ("Healey'") and Labgold meet as students pursing their doctorates at Caltech. Both then went to law school and later became associated with the same patent law firm in northern Virginia. Both men ultimately became partners in the firm and began to earn compensation that can only be described by a magistrate judge as humbling.
In January 1998, Healey, a married man with young children, separated from his wife. Exhibit A ¶ 19. He then confided to Labgold that he was homosexual that he had decided to be openly gay, but Labgold advised him not to disclose his homesexuality to the firm. Exhibit A ¶ 20. Healey claims that Labgold confessed to breaching the confidence by informing the members of the firm that Healey was gay. Exhibit A ¶ 21. Healey then became involved in an acrimonious custody battle with his wife. According to Healey, in addition to testifying in favor of Healey's wife, Labgold also testified that he and Healey's wife thought Healey was dangerous. Exhibit A ¶ 38. Healey charges that due to Labgold's "outing" him, the law firm fired Healey in May 1998. At some point thereafter in 1998, Healey declared bankruptcy.
I refer to the exhibits to Labgold's Memorandum in Support of Motion for Sanctions.
On July 26, 1999, Healey filed suit against the members of the firm and Labgold, who had been a partner of the firm when Healey was fired but had since left for another firm. The complaint contained counts of wrongful discharge, breach of contract, breach of fiduciary duty, tortious interference with contract, interference with a business relationship, defamation and infliction of emotional distress. Exhibit A, passim.
On August 16, 1999, the law firm and Labgold moved to dismiss the complaint on the grounds that Healey's bankruptcy filing should have included in its schedules the claims Healey was pressing against them. Before that motion was ruled upon, Healey filed an amended complaint that, inter alia, withdrew the claim for intentional infliction of emotional distress but added a claim for violation of a Virginia Code provision that, according to Healey, barred any conspiracy to injure an individual professionally by firing him and then advising others that he had been fired for cause. Exhibit C ¶¶ 67-74.
On September 10, 1999, the United States District Court for the Eastern District of Virginia granted defendants' motion and Healey appealed. On February 14, 2000, the United States Court of Appeals affirmed, concluding that "Healey lacks standing to bring this action." Exhibit F at 2.
Meanwhile, on November 16, 1999, Healey moved to dismiss the bankruptcy case so that he could press the current lawsuit. On January 19, 2000, the bankruptcy judge in the Eastern District of Virginia denied the motion for voluntary dismissal but also concluded:
The trustee's objection to the debtor's claim of exemptions is sustained in part and overruled in part. The debtor's claimed exemption of the causes of action pleaded in Counts 1, 2, 3, 4 and 5 of his amended complaint in Healey v. Oblon, Spivak, McCelland, Maier Neustadt, P.C. Civil Action No. 99-1105 (E.D. Va.) is disallowed, and those causes of action pleaded in Counts 6 and 8 is allowed, and those causes of action belong to, and may be asserted by, the debtor.
Exhibit H at 5.
The result of the court's ruling was that Healey was only allowed to bring charges for defamation (Count 6) and conspiracy to damage the plaintiff in his business or profession (Count 8). The trustee was permitted to press all remaining counts against the firm. According to Healey, the trustee would ultimately settle that lawsuit for $75,000 from the firm and $10,000 from Labgold. Opposition to Motion for Sanctions ¶ 6.
On March 7, 2000, Healey filed this lawsuit. Labgold charges that counts one through five of the complaint in this case are identical to counts one through five of the complaint and amended complaint in the Eastern District of Virginia case. The other counts in this case are defamation and intentional infliction of distress. Healey had initially advanced the latter in the Eastern District of Virginia but withdrew it to prevent access to his medical records once Magistrate Judge Poretz denied Healey's claim that the records were privileged. Exhibit B, Memorandum in Support at 2.
Labgold moved to dismiss the now amended complaint in the current case, but before the motion was ruled upon, Healey moved to dismiss the case without prejudice as to Labgold. Labgold demanded dismissal with prejudice. The Chief Judge then granted Healey's intervening motion to dismiss with prejudice as to all the other defendants. In addition, the Chief Judge referred the case to me for a Report and Recommendation on whether the case against Labgold should be dismissed with or without prejudice and whether Labgold is entitled to sanctions.
I have determined that I am not able to complete my Report and Recommendation without a hearing and I will therefore order that one be held. I am driven to this conclusion by an analysis of the nature of the sanctioning power and the requisite showing that must be made to invoke it. As I will now explain, each source of sanctioning power focuses on the intent of the party against whom the sanctions are sought and in accordance with settled law the intent with which a person performs an act cannot be ascertained summarily but requires a hearing in which the actor's credibility is assessed.
It is helpful to begin by clearing some brush. That Healey proceeded pro se until recently does not preclude the award of sanctions under the three sources of sanctioning authority: Fed.R.Civ.P. 11(b), 28 U.S.C.A. § 1927 (1994), and the court's inherent authority. Rule 11 speaks of a pleading filed "by an attorney or unrepresented party," i.e., someone like Healy, and it has been held that while § 1927 condemns certain behavior by "[a]ny attorney," it also applies to an attorney who proceeds pro se. Sassower v. Field, 973 F.2d 75, 80 (2d Cir. 1992), cert denied, 507 U.S. 1043 (1993). Finally, the inherent authority of the court to punish litigation misbehavior extends to pro se litigants as it does to lawyers. Roadway Express, Inc. v. Piper, 447 U.S. 752, 766 (1980) (sanctioning authority over attorneys at least as great as authority over litigants). See Di Silvestro v. U. S., 767 F.2d 30, 32 (2d Cir),cert. denied, 474 U.S. 862 (1985) (award of sanction against pro se plaintiff within district court's power). Thus, Healey, as both pro se litigant and attorney, is eligible for sanctions under all three sources of authority.
That both lawsuits resulted in settlements that favored Healey's bankrupt estate or Healey personally does not, in itself, preclude the award of sanctions. First, Rule 11 focuses on the filing of a document and there is nothing in the rule or its interpretation that could possibly excuse a violation because the litigation ultimately ends favorably for the party charged with the violation. Melrose v. Shearson/American Express Inc., 898 F.2d 1209, 1215 (7th Cir. 1990). Similarly, under § 1927, "`even a winner may have to pay obstinacy fees.'" Lipsig v. Nat'l Student Mktg. Corp., 663 F.2d 178, 182 (D.C. Cir. 1980) (citations omitted). Section 1927 does not distinguish between winners and losers; it is concerned instead with abuse of the court's processes. Roadway Express, 447 U.S. at 762. See In re Akros Installations Inc., 834 F.2d 1526, 1532 (9th Cir. 1987);Westinghouse Elec. Corp. v. NLRB, 809 F.2d 419, 425 (7th Cir. 1987); Lone Ranger T.V., Inc. v. Program Radio Corp., 740 F.2d 718, 727 (9th Cir. 1984).
Contrary to appellant's belief, the final disposition of this case does not compel a finding that their conduct in filing the summary judgment motion and supporting memoranda could not have been deemed to be a violation of Rule 11. Shearson's counsel are reminded that "Rule 11 fees may be awarded even against a prevailing party," Szabo Food Service, Inc. v. Canteen Corp., 823 F.2d 1073, 1077 (7th Cir. 1987), cert. dismissed, 485 U.S. 901, 108 S. Ct. 1101, 99 L. Ed. 2d 229 (1988). See also Mars Steel Corp., 880 F.2d at 932 ("Rule 11 focuses on inputs rather than outputs, conduct rather than result"). The violation, if any, was complete when the motion and supporting memoranda were filed.Id. at 1215.
Finally, counsel can be sanctioned under the court's inherent authority even if her client prevails. In re TCI, Ltd., 769 F.2d 441, 445 (7th Cir. 1985). Cf. MacArthur Area Citizens Ass'n v. Republic of Peru, 809 F.2d 918, 923-924 n. 6, vacated in part on other grounds, 823 F.2d 606 (D.C. Cir. 1987).
Since Healey is therefore eligible for sanctions, the questions presented are:
1. In filing the complaint in this case, did Healey do so for an improper purpose such as to harass or to cause unnecessary delay or needless increase in the cost of litigation? Fed.R.Civ.P. 11(b)(1).
2. In filing that complaint, did Healey multiply the proceedings in this case unreasonably and vexatiously? 28 U.S.C.A. § 1927 (1994).
3. Should the court exercise its inherent authority to sanction Healey for what he did?
As is obvious, all of these questions involve ascertaining the intent with which Healey filed this lawsuit. As I have explained, subsection (b) of Rule 11 focuses on why the pleading was filed. While the standards governing the imposition of sanctions under § 1927 differ among the Circuits, the most authoritative treatise on the subject suggests that the words "unreasonably and vexatiously" in § 1927 mean, at a minimum, reckless indifference to the case's lack of merit combined with a primary intent to obstruct the orderly progress of a litigation. Gregory P. Joseph,Sanctions: The Federal Law of Litigation Abuse at 398 (1994). Finally, "[a] finding of bad faith is sine qua non to the imposition of inherent power sanction." Id. at 426 citing Roadway Express, Inc., 447 U.S. at 765-66.
Given these standards, resolution on the current record of the questions I have identified is impossible, for the record consists only of the known facts and counsel's characterization of why Healey did what he did. According to Labgold's counsel, Healey knew very well that the bankruptcy judge had concluded that the trustee owned counts one through five of the complaint yet Healey pressed them anyway. Healey's counsel, on the other hand, insists that Healey had the right to assert the other counts of the complaint, that the bankruptcy judge may have been wrong in his determination, and that Healey did nothing more than preserve his claims from a statute of limitations defense. Healey's counsel, noting that the case against the law firm was promptly settled, insists that Healey would likewise dismiss the action against Labgold if Labgold would simply consent to a dismissal without prejudice so that Healey could resurrect the case if Labgold should come after him.
I cannot possibly resolve this case by picking one of these two characterizations, as it were, out of a hat. Since I must determine the intent with which Healey acted, I must hold an evidentiary hearing in order to assess Healey's credibility as to his intentions when he filed the lawsuit. Courts invariably refuse to grant summary relief when a party's state of mind is truly at issue:
It has been established in this court that summary judgment is improper if factual issues necessary for decision involve the state of mind of a party. Croley v. Matson Navigation Co., 434 F.2d 73, 77 (5th Cir. 1970); NLRB v. Smith Industries, 403 F.2d 889, 895 (5th Cir. 1968); Riley-Stabler Constr. Co. v. Westinghouse Electric Co., 396 F.2d 274, 277 (5th Cir. 1968), rehearing denied 401 F.2d 526 (5th Cir. 1968); Marsden v. Patane, 380 F.2d 489 (5th Cir. 1967); Alabama Great So. R.R. Co. v. Louisville and Nashville R.R., 224 F.2d 1 (5th Cir. 1955). Thus, "where motive, intent, subjective feelings and reactions, consciousness and conscience [are] to be searched, and examination and cross-examination [are] necessary instruments in obtaining the truth," summary judgment is inappropriate. Alabama Great So. R.R. Co. v. Louisville and Nashville R.R. Co., supra at 5.Irwin v. United States, 558 F.2d 249, 252 (5th Cir. 1977) (motivation of taxpayer). Accord: Dewey v. Clark, 180 F.2d 766, 773 (D.C. Cir. 1950) (motivation of landlord in evicting tenant).See Hunt v. Cromartie, 526 U.S. 541, 553 n. 9 (1999), citing Charles Alan Wright, Arthur R. Miller May Kay Kane, Federal Practice and Procedure, § 2730 (1998).
Likewise, I cannot possibly determine Healey's motivation in filing this lawsuit without assessing the credibility of his explanation and hearing that explanation subjected to cross-examination.
We shall therefore have an evidentiary hearing on May 21, 2002. While I have discussed the sanctioning questions in this Opinion, the parties should be prepared to address the issue of dismissal with or without prejudice at the hearing. A word of caution: I notice that counsel for the parties could not resist the opportunity to engage in a little mud slinging at each other in the pleadings. I would like to deem that a temporary fall from grace by lawyers who have excellent reputations and whom I respect. I know that it will now come to a stop as we all focus objectively on the legal and factual issues that I must resolve.
Finally, in their pleadings, counsel interject what they did or did not do in the history of this case. At this point, I cannot assess the significance of counsel's behavior. I only note that if counsel intend to testify at the hearing, they will have to withdraw from the representations of their clients. D.C. Rules of Professional Conduct, Rule 3.7 (1991).
An Order accompanies this Memorandum Opinion.