Golden Eagle Distributing Corp. v. Burroughs Corp.
| Decision Date | 09 October 1986 |
| Docket Number | No. 84-2602,84-2602 |
| Citation | 801 F.2d 1531 |
| Parties | , 5 Fed.R.Serv.3d 737 GOLDEN EAGLE DISTRIBUTING CORPORATION, Plaintiff-Appellee, v. BURROUGHS CORPORATION, Defendant, and Kirkland & Ellis, Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Jeffrey Alan Miller, Perez, McNabb & Cook, Orinda, Cal., for plaintiff-appellee.
James J. Brosnahan, Morrison & Foerster, San Francisco, Cal., for appellant.
Appeal from the United States District Court for the Northern District of California.
Before SCHROEDER, REINHARDT, and BEEZER, Circuit Judges.
This is an appeal from the imposition of sanctions under Rule 11 of the Federal Rules of Civil Procedure as amended in 1983. The appellant, a major national law firm, raises significant questions of first impression.
The relevant portions of the amended Rule provide:
Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in his individual name, whose address shall be stated. A party who is not represented by an attorney shall sign his pleading, motion, or other paper and state his address.... The signature of an attorney or party constitutes a certificate by him that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. If a pleading, motion, or other paper is not signed, it shall be stricken unless it is signed promptly after the omission is called to the attention of the pleader or movant. If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee.
The appellant Kirkland & Ellis is the law firm that represented the defendant Burroughs in the underlying litigation. The sanctions which we review here stemmed from an unsuccessful motion for summary judgment filed by appellant on Burroughs' behalf.
After denying the motion for summary judgment, the district court entered an order, on its own motion, calling for briefs as to whether sanctions should be imposed for violation of Rule 11. After reviewing the briefs and hearing argument, it imposed the sanction of attorneys' fees on the appellant and explained its reasons for doing so in a published opinion. Golden Eagle Distributing Corp. v. Burroughs Corp., 103 F.R.D. 124 (N.D.Cal.1984).
The district court held that the positions taken by the appellant in its motions papers were supportable, both legally and factually. The district court concluded, however, that in these papers the appellant had engaged in misleading conduct which contravened the court's interpretation of the requirements of Rule 11. Specifically, the court held that the appellant should have stated that a position it was taking was grounded in a "good faith argument for the extension, modification, or reversal of existing law" rather than implying that its position was "warranted by existing law." Second, the court held that the appellant's moving papers had failed to cite contrary authority in violation of the ABA's Model Rules of Professional Conduct, and that this breach constituted a violation of Rule 11.
In this appeal, we must decide whether the district court correctly interpreted Rule 11.
Golden Eagle Distributing Corporation filed the underlying action in Minnesota state court for fraud, negligence, and breach of contract against Burroughs, because of an allegedly defective computer system. Burroughs removed the action to the federal district court in Minnesota. Burroughs then moved pursuant to 28 U.S.C. Sec. 1404(a) to transfer the action to the Northern District of California. The district court granted the motion, noting that all of the sources of proof, including the relevant documents and the computer system at issue, and almost all of the witnesses, were located in California.
Burroughs next filed the motion for summary judgment which gave rise to the sanctions at issue here. It argued that the California, rather than the Minnesota, statute of limitations applied and that all of Golden Eagle's claims were time-barred under California law. It also contended that Golden Eagle's claim for economic loss arising from negligent manufacture lacked merit under California law. Golden Eagle filed a response, arguing that Minnesota law governed the statute of limitations question and that Burroughs had misinterpreted California law regarding economic loss. Burroughs subsequently filed a reply memorandum addressing Golden Eagle's arguments and Golden Eagle followed with a sur-reply.
After a hearing, the district judge denied Burroughs' motion and directed the Kirkland & Ellis attorney who had been responsible for the summary judgment motion to submit a memorandum explaining why sanctions should not be imposed under Rule 11. After receiving memoranda on this issue from both sides, Judge Schwarzer held that Burroughs' memoranda in support of its motion for summary judgment violated Rule 11 and imposed sanctions of attorney's fees in the amount of $3,155.50 against Kirkland & Ellis. Golden Eagle, 103 F.R.D. 124.
Proper understanding of this appeal requires some comprehension of the nature of Burroughs' arguments and the faults which the district court found with them. They are set forth in more detail in the district court's opinion. We here endeavor only to capture their essence.
Kirkland & Ellis's opening memorandum argued that Golden Eagle's claims were barred by California's three-year statute of limitations. The question was whether the change of venue from Minnesota to California affected which law applied. Kirkland & Ellis essentially argued that under Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964), California's law applied because a Minnesota court would have dismissed the action on forum non conveniens grounds. Its memorandum in support of the motion for summary judgment stated:
In Van Dusen, the Supreme Court declined to state a per se rule requiring a transferee court to apply the original forum's choice-of-law rules under all circumstances. Although the Court held that in that case the transferee court should apply the state law that would have applied had there been no change of venue, the Court stated specifically that the original state's law should not necessarily apply "if it was contended that the transferror State would simply have dismissed the action on the ground of forum non conveniens." This case falls squarely within the forum non conveniens exception noted by the Court in Van Dusen.
(Citation omitted.)
In imposing sanctions, the district court held that Kirkland & Ellis's argument was "misleading" because it suggested that there already exists a forum non conveniens exception to the general rule that the transferor's law applies. Golden Eagle, 103 F.R.D. at 126-28. Van Dusen raised the issue but did not decide it. 376 U.S. at 640, 84 S.Ct. at 821.
Kirkland & Ellis's corollary argument, that a Minnesota court would have dismissed the case on forum non conveniens grounds, was found to be "misleading" because it failed to note that one prerequisite to such a dismissal is that an alternative forum be available. See Bongards' Creameries v. Alfa-Laval, Inc., 339 N.W.2d 561, 562 (Minn.1983). Burroughs had pointed out in its Rule 11 memorandum, however, that the meaning of the term "available forum" is not settled. Compare Wasche v. Wasche, 268 N.W.2d 721, 723 (Minn.1978) () with Hill v. Upper Mississippi Towing Corp., 252 Minn. 165, 89 N.W.2d 654 (1958) ().
The district court, in awarding sanctions for violation of Rule 11, compared the plaintiff's original motion papers with the brief that the plaintiff filed after it had lost the motion and had been asked to show cause why sanctions should not be imposed. The court held that the argument presented in the Rule 11 memorandum was a worthy one to advance, and indicated that had it been made in that form in the first place, sanctions would not have been appropriate because the argument would have qualified under Rule 11 as a "good faith argument for the extension ... of existing law." The court imposed sanctions because Kirkland & Ellis did not make the argument in the same way in its original motions papers. The court thus looked not to the merits of the position originally taken by the plaintiff, but to the manner in which the position was advocated.
Kirkland & Ellis also argued that Golden Eagle's claim for negligent manufacture lacked merit because Golden Eagle sought damages for economic loss, and such damages are not recoverable under California law. Kirkland & Ellis relied on Seely v. White Motor Co., 63 Cal.2d 9, 403 P.2d 145, 45 Cal.Rptr. 17 (1965). In Seely, the California Supreme Court limited recovery in negligence and strict liability tort actions to damages for personal injuries and harm to physical property.
The district court sanctioned Kirkland & Ellis for not citing three cases whose holdings it concluded were adverse to Seely: the California Supreme Court's opinion in ...
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