840 F.2d 427 (7th Cir. 1988), 87-1386, Walter v. Fiorenzo

Docket Nº:87-1386.
Citation:840 F.2d 427
Party Name:William M. WALTER, et al., Plaintiffs-Appellants, v. Oscar FIORENZO, et al., Defendants-Appellees. Appeal of ESLER, STEPHENS & BUCKLEY, an Oregon partnership, Esler & Schneider, an Oregon partnership, Jacobs, Burns, Sugarman & Orlove, an Illinois partnership.
Case Date:February 08, 1988
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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840 F.2d 427 (7th Cir. 1988)

William M. WALTER, et al., Plaintiffs-Appellants,


Oscar FIORENZO, et al., Defendants-Appellees.

Appeal of ESLER, STEPHENS & BUCKLEY, an Oregon partnership,

Esler & Schneider, an Oregon partnership, Jacobs,

Burns, Sugarman & Orlove, an Illinois partnership.

No. 87-1386.

United States Court of Appeals, Seventh Circuit

February 8, 1988

Argued Sept. 21, 1987.

As Amended Feb. 17, 1988.

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Kim T. Buckley, Esler, Stephens & Buckley, Portland, Or., for plaintiffs-appellants.

Andrew T. Staes, Jeffrey Neal Cole, Ltd., Chicago, Ill., for defendants-appellees.

Before CUDAHY, POSNER and KANNE, Circuit Judges.

KANNE, Circuit Judge.

Nearly four years after instituting this action plaintiffs-appellants' counsel, Esler, Stephens & Buckley, Esler & Schneider, and Jacobs, Burns, Sugarman & Orlove (collectively "plaintiffs' counsel" or "counsel") were unable to articulate a factual basis for plaintiffs' claim against defendant-appellee, Oscar Fiorenzo ("Fiorenzo"). During that four-year period, three other defendants, in virtually the same position as Fiorenzo, obtained summary judgments in their favor. The last defendant had requested, but was denied sanctions. Ultimately, Fiorenzo followed suit and sought summary judgment alleging he was not involved with the sale of the securities in question. Plaintiffs' counsel--after a delay for additional discovery--did not file any affidavits opposing Fiorenzo's summary judgment motion. The district court granted Fiorenzo's motion for summary judgment and awarded attorneys' fees to Fiorenzo for the cost of the entire case, chargeable to plaintiffs' counsel. Counsel then sought reconsideration of both the motion for summary judgment and the award of fees. In support of the motion to reconsider, plaintiffs' counsel introduced an affidavit purporting to tie Fiorenzo to the fraudulent security sales. Although not obligated to do so, the district court vacated summary judgment and reconsidered plaintiffs' complaint in light of the newly filed affidavit. The court did not, however, vacate its previous order imposing attorneys' fees. Upon reconsideration, the court ruled that the facts in the affidavit did not support plaintiffs' claims that Fiorenzo participated or was a substantial factor in the sale of the securities. However, rather than reinstating its order granting summary judgment in favor of Fiorenzo, the court dismissed the complaint without prejudice for failure to plead securities fraud with particularity. With respect to its previous award of fees, the court indicated that the disruption caused by the belated affidavit would, in any event, result in assessments against plaintiffs' counsel. However, the court gave counsel the opportunity to avoid all other sanctions previously imposed by either alleging sufficient facts to sustain a claim against Fiorenzo under the theories contained in the complaint or by explaining under what other theory Fiorenzo might have been held liable given the facts in the complaint. Plaintiffs' counsel neither refiled against Fiorenzo nor proffered any theory under which Fiorenzo could have been sued in the first place. Accordingly, the court's order, imposing sanctions against plaintiffs' counsel for the costs of the entire suit, remained in effect. This appeal followed.

We affirm the imposition of sanctions against counsel under 28 U.S.C. Sec. 1927 not only for needlessly multiplying these proceedings but for counsels' repeated inability to articulate a viable claim against Fiorenzo after nearly four years of discovery and after the dismissal of three other similarly situated defendants.


On October 19, 1982, William Walter and thirty-nine other plaintiffs filed a five-count complaint against Black Diamond, Inc., Midas Truck Body, Inc., Midas International

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Corporation, and several other corporate and individual defendants, including Oscar Fiorenzo. Plaintiffs claimed that the defendants violated federal and Oregon state securities regulations and that all defendants, including Fiorenzo, participated in the sale of "trailer investment contracts" using "the means and the instrumentalities of interstate commerce in connection with the offer and the sale of these unregistered securities to the plaintiffs...." The unregistered investment contracts were allegedly sold by REL Leasing, Inc. ("REL") and Richard Leader ("Leader"), 1 but the individual defendants purportedly participated in the sale of the trailer investments by disseminating false or misleading information. The complaint did not specify how or what information each individual defendant disseminated in connection with the sale of the "investment contracts". Importantly, the allegedly fraudulent sales of trailer investment contracts began in or before 1981.

On September 7, 1983, two defendants, Leonard Smith and Lennard Carlson, filed motions for summary judgment and supporting affidavits, arguing that they could not possibly have participated in the pre-1982 sale of REL investment contracts since they did not become directors of REL Leasing, Inc., until early 1982.

In response to a court order directing them to conduct the necessary discovery to answer Smith's and Carlson's motions for summary judgment, plaintiffs filed a number of document production requests and took the depositions of both Smith and Carlson. Two days before their responses to defendants' motions were due, plaintiffs filed a request for an extension of time. The district court granted the request and gave plaintiffs until March 15, 1984 to respond. When no response was filed on that date, defendants Carlson and Smith renewed their motions for summary judgment. On June 6, 1984, the court granted their unopposed motions after plaintiffs admitted they had insufficient facts upon which to base claims against Smith and Carlson.

On February 27, 1985, another defendant, Joseph A. Roberto, also filed a motion for summary judgment and requested that sanctions be imposed against plaintiffs for naming him in the complaint. Like Carlson and Smith, Roberto filed an affidavit explaining that he became an employee of REL in March, 1982, but was never associated with REL as a director, shareholder, or controlling person and therefore could not have participated in the sale of trailer investment contracts beginning in or before 1981. Roberto claimed he made these facts known to plaintiffs' counsel as early as March, 1983, but that counsel nevertheless refused to dismiss him from this action. Roberto further alleged that because counsel knew, before instituting plaintiffs' suit (or at a minimum, shortly thereafter), that Roberto could not have been involved in the sale of unregistered securities, counsels' failure to dismiss him was vexatious and violated Fed.R.Civ.P. 11. On February 27, 1985, the district court granted Roberto's uncontested motion for summary judgment but did not impose sanctions.

Less than one month later, on March 6, 1985, Fiorenzo filed his motion for summary judgment and request for attorneys' fees. Like the other individual defendants, Fiorenzo filed an affidavit stating he was not a director of REL Leasing. The affidavit also stated that Fiorenzo neither participated in the business of REL Leasing nor in the sale of trailer investment contracts. Fiorenzo's only connection with REL arose in January, 1982, when he became a 3 percent shareholder of REL. Like the others, Fiorenzo argued he could not have participated in the sale of investment securities by REL beginning in or before 1981. Fiorenzo also requested that plaintiffs be sanctioned as a "pre-filing inquiry into the facts or any post-filing discovery would have revealed that Mr. Fiorenzo should not have been sued."

Plaintiffs were given until March 20, 1985, to respond to Fiorenzo's motion. On that day, one of the attorneys for plaintiff, Kim T. Buckley, filed an affidavit stating that further discovery would be necessary

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to file an adequate response to Fiorenzo's motion.

On July 19, 1985, more than three months after Fiorenzo's motion was filed and almost three years after the complaint was filed, plaintiffs filed their response to Fiorenzo's motion. Plaintiffs alleged first, that summary judgment was inappropriate because certain documentary evidence suggested that Fiorenzo actually became a 3 percent shareholder in REL in late 1981 and not early 1982 and second, that the imposition of sanctions was inappropriate because amended Rule 11 did not apply to pre-1983 pleadings and "plaintiffs' attorneys believed to the best of their knowledge and information, that there was a good ground to support the complaint."

In their memorandum opposing Fiorenzo's motions, plaintiffs conceded that the key issue in proving Fiorenzo's liability under the various securities laws, was "whether he was a 'substantial factor' in causing the securities sales to occur." Yet, despite the fact that Fiorenzo's affidavit stated that he did not participate in the operation of REL Leasing and therefore could not have been a "substantial factor" in the allegedly fraudulent investment contract sales, plaintiffs presented no contravening evidence. Rather, plaintiffs' counsel argued that Fiorenzo's credibility had been called into question and that his entire affidavit should therefore be discredited. More specifically, counsel pointed to a discrepancy between Fiorenzo's assertion that he became a 3 percent shareholder of REL in early 1982 and a stock certificate, produced to plaintiffs by Fiorenzo, which showed that Fiorenzo acquired his 3 percent ownership in REL in late 1981. Counsel claimed this discrepancy was sufficient to raise a genuine issue of fact and accordingly, because Fiorenzo appeared to have lied about his acquisition of REL stock, his other assertion that he did not participate in the sale of REL investment contracts was also subject to...

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