Divane v. Krull Elec. Co.

• Citation: 319 F.3d 307
• Decision Date: 11 February 2003
• Docket Number: No. 01-3495.,01-3495.
• Parties: William T. DIVANE Jr., et al., Plaintiffs-Appellees, v. KRULL ELECTRIC CO., Defendant, and John J. Curry Jr., Respondent-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

319 F.3d 307

William T. DIVANE Jr., et al., Plaintiffs-Appellees, v. KRULL ELECTRIC CO., Defendant, and John J. Curry Jr., Respondent-Appellant.

No. 01-3495.

United States Court of Appeals, Seventh Circuit.

Argued September 24, 2002.

Decided February 11, 2003.

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David R. Shannon (Argued), Tenney & Bentley, Chicago, IL, for Plaintiffs-Appellees.

Kenneth A. Fedinets, Gesas, Pilati & Gesas, Chicago, IL, for Defendant.

John J. Curry, Jr. (Argued), Foran, Nasharr & O'Toole, Chicago, IL, for Appellant.

Before BAUER, POSNER, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

Three years ago, we upheld the district court's imposition of Rule 11 sanctions against John J. Curry Jr. for filing an answer and counterclaim that (i) denied certain facts that Curry's client, Krull Electric Company, previously had admitted in companion litigation and (ii) asserted a frivolous counterclaim for which Curry never provided any evidentiary support, despite the frequent opportunities to do so during the underlying litigation's "tortuous three-year road to trial." Divane v. Krull Electric Co., Inc., 200 F.3d 1020, 1022 (7th Cir.1999) [hereinafter Divane I]. We remanded the case to the district court to determine the appropriate amount of sanctions, vacating the district court's initial blanket award of attorney's fees and costs because it necessarily included some amount that did not directly result from Curry's sanctionable conduct. Id. Dissatisfied with the district court's decision on remand, Curry appeals the sanction award once again, arguing this time that the district court abused its discretion by ignoring certain elements of our mandate and disregarding governing principles in fashioning an appropriate award. Because the district court acted within its discretion in reducing the amount of the original sanction award by a figure representing a reasonable estimate of what the plaintiffs' attorney's fees and costs would have been absent Curry's sanctionable conduct, we affirm.

HISTORY

The sanctions were imposed in a case that began in October 1995, when plaintiffs-appellees William T. Divane Jr., et al., known collectively as the Electrical Insurance Trustees, filed a complaint against defendant Krull Electric Company claiming that the defendant owed them delinquent benefit-fund contributions under the terms of a collective bargaining agreement ("CBA"). For ease of later explanation, we will refer to this case as Krull Electric II. Specifically, in Krull Electric II, the Trustees alleged that Krull Electric was an electrical employer employing electricians pursuant to an October 1984 letter of assent that Krull Electric had executed to a CBA originally entered into between Local 134 of the International Brotherhood of Electrical Workers and the Electrical Contractors' Association of the City of Chicago. Under the terms of the CBA, Krull Electric (as an employer) agreed to pay certain wages and to file a monthly payroll report and make corresponding monthly contributions to the Trustees (as the duly appointed representatives of Local 134 and the Association) to cover certain fringe benefits for Krull Electric's employees. The Trustees alleged that Tan Lee—an electrician employed by Krull Electric and husband of its president, Pamela Lee—had testified in a September 1995 deposition (taken in a related case, which is explained below) that he had been working forty hours a week for the company. This was news to the Trustees; Krull Electric had stopped making contributions in October 1994, filing monthly payroll reports that claimed that no contributions were due because no "clock hours" had been logged by any of its electricians. Citing provisions of the CBA and its related agreements, which granted the Trustees the power to demand and collect delinquent contributions on the Fund's behalf, the Trustees brought suit under ERISA and the Labor Management Relations Act to recover the delinquent funds.

Krull Electric denied liability, claiming it had no payment obligation because it was no longer a signatory to the CBA, and filed a counterclaim alleging that the Trustees' demand for payment constituted a violation of section 302 of the LMRA. 29 U.S.C. § 186 et seq. (1995) (prohibiting the collection of payments without the requisite provisions of services or benefits). In its answer, Krull Electric denied knowledge of various CBA and related-agreement provisions, denied knowledge that Tan Lee had testified to working forty hours a week, and although it admitted that it had not made any fringe-benefit contributions since October 1994, denied that it had any obligation to make them. It asserted four affirmative defenses: (1) that it was not bound by any agreement to pay benefit-fund contributions; (2) that the Trustees suffered no loss; (3) that the amounts claimed by the Trustees were excessive; and (4) that the Trustees' demands for payment were unlawful. In its corresponding single-count counterclaim, Krull Electric explained why it was no longer obligated to make benefit-fund contributions despite its October 1984 assent to the CBA: Krull Electric alleged that in October 1994, Local 134 determined that the company was no longer a signatory of the CBA. And since the Trustees knew (or should have known) of Local 134's determination, their demand to compel payment violated the LMRA.

Krull Electric's denials and counterclaim allegations frustrated and confused the Trustees. First, the denials directly contradicted admissions the company had made just months earlier in response to another, related complaint the Trustees had filed against Krull Electric. In that case, which had been pending before Judge Kocoras since April 1995, the Trustees claimed that Krull Electric had been underreporting the amount of hours Tan Lee had worked each week for the years 1992 and 1993 in order to minimize the amount of fringe-benefit contributions the company was responsible for making under the CBA. Since it was filed first (even though it is discussed second here), we will call this case Krull Electric I. The Trustees' Krull Electric I complaint had set forth some of the same CBA and related-agreement provisions that were alleged in Krull Electric II. But in its Krull Electric I answer, the company had admitted knowledge of these provisions and to being a signatory to the agreement. (Tellingly, Krull Electric filed a motion on May 15, 1996—five days after filing its answer in Krull Electric II—seeking to amend its Krull Electric I answer in order to remove its admissions regarding its knowledge of the CBA provisions and to refute its status as a signatory. Judge Kocoras denied the motion.) Second, it was in the course of discovery for Krull Electric I that Tan Lee's deposition had been taken, revealing the post-October 1994 hours worked that formed the core of the Trustees' cause of action in Krull Electric II. And as such, the Trustees were perplexed over how Krull Electric—who, as a party in Krull Electric I, attended the Tan Lee deposition and was entitled to the same copy of the deposition transcript that the Trustees had received—could credibly claim lack of knowledge over what Tan Lee had testified to. Finally, at Pamela Lee's deposition on May 24, 1996, the Trustees inquired into the factual underpinnings of the counterclaim: namely, the alleged Local 134 determination. Over objections by Curry, Pamela claimed she didn't know what Local 134 might have done in October 1994 and, strangely, that if she did, the information about it was privileged. After the deposition, the Trustees informed Curry that if he could not provide support for Krull Electric's counterclaim allegations, they would seek sanctions.

Curry never did. He deposed several Local 134 members, but never was able to drum up any support for the notion that the union had repudiated its agreement with Krull Electric. So on September 13, 1996, the Trustees sent Curry a motion requesting that he withdraw the counterclaim and amend his answer by October 4, 1996, or face sanctions. Judge Lindberg denied the motion to strike, noting that by alleging the October 1994 repudiation by Local 134, Krull Electric had raised an issue of fact. But the court warned Curry that if he could not substantiate his claim, he would face sanctions. Discovery concluded, and the case went to bench trial in December 1997. In his trial brief, Curry advanced a couple of new arguments as to why the company was not obligated to pay contributions as required by the CBA. Finding these last-minute arguments as equally unsupported by the evidence as the October 1994 repudiation allegation, the district court found in favor of the Trustees and awarded just over $54,000 in damages.

In post-trial proceedings, the Trustees renewed their Rule 11 motion, requesting the court to award $25,000 as a flat sanction. Simultaneously, they filed a fee petition against Krull Electric under ERISA's fee-shifting provision. In a March 27, 1998 order addressing both motions, the district court first found Curry's conduct sanctionable, observing that the answer and counterclaim had been filed without any evidentiary support (or reasonable inquiry) and were intended for the improper purposes of incurring unnecessary delay and needlessly increasing the costs of litigation. As such, Curry's sanctionable conduct had infected the entire proceeding, pressing an otherwise straightforward, routine, and, for that matter, meritorious case (because, after all, Krull Electric never was able to produce any viable defense to the Trustees' claim) all the way to trial, imposing en route undue burdens on the Trustees and the court. As a sanction, the district court ordered Curry to pay a $5000 penalty to the court, and, should Krull Electric not be able to satisfy its judgments, to pay the roughly $37,645 in attorney's fees and $2526.07 in costs prayed for by the Trustees in their ERISA fee petition—reasoning that the...