Beeman v. Fiester, 87-2390

• Decision Date: 05 July 1988
• Docket Number: No. 87-2390,87-2390
• Citation: Beeman v. Fiester, 852 F.2d 206 (7th Cir. 1988)
• Parties: 128 L.R.R.M. (BNA) 3052, 110 Lab.Cas. P 10,934, 11 Fed.R.Serv.3d 1146, RICO Bus.Disp.Guide 6988 Robert N. BEEMAN, Plaintiff-Appellee, v. James F. FIESTER, James F. Mazzulia, Jack Richards, Peter Kuttner, William Birch, Richard Clarkson, and Paul Vom Brack, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 206

852 F.2d 206

128 L.R.R.M. (BNA) 3052, 110 Lab.Cas. P 10,934,

11 Fed.R.Serv.3d 1146, RICO Bus.Disp.Guide 6988

Robert N. BEEMAN, Plaintiff-Appellee, v. James F. FIESTER, James F. Mazzulia, Jack Richards, Peter Kuttner, William Birch, Richard Clarkson, and Paul Vom Brack, Defendants-Appellants.

No. 87-2390.

United States Court of Appeals Seventh Circuit.

Argued April 1, 1988.

Decided July 5, 1988.

Jane B. McCullough, Winston & Strawn, Chicago, Ill., for defendants-appellants.

Bruce A. Beeman, Scott, Beeman & Scott, P.C., Springfield, Ill., Aaron J. Kramer, Schiff Hardin & Waite, Chicago, Ill., for plaintiff-appellee.

Before BAUER, Chief Judge, POSNER and FLAUM, Circuit Judges.

FLAUM, Circuit Judge.

Robert Beeman, President of Local 666 of the International Alliance of Theatrical Stage Employees and Moving Picture Machine Operators of the United States and Canada ("Local 666") and a member of Local 666's executive board, filed suit in federal district court alleging that other members of Local 666's executive board (the defendants) engaged in conduct that violated the Racketeer Influenced and Corrupt Organizations Act (RICO). 18 U.S.C. Sec. 1961 et seq. The district court determined that the complaint failed to state a claim upon which relief could be granted and dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6). The defendants moved to amend the judgment to include sanctions under Federal Rule of Civil Procedure 11. The district court, after conducting a hearing, denied the defendants' motion to amend the judgment. The district court also denied defendants' motion to reconsider its ruling on this issue. We affirm the district court's decision denying sanctions under Rule 11.

I.

Beeman filed his RICO suit against the defendants on May 29, 1986. Beeman's complaint was a hefty 46 pages in length. The complaint alleged that the defendants wanted to require all Local 666 members to pay minimum annual membership dues of $200. The minimum dues, in Beeman's view, were part of defendants' plan to "dump" Local 666's present attorney and hire defendant, James F. Mazzulla, as both legal counsel and a full time business agent at an inflated salary. In order to attain this objective, the defendants allegedly issued voting ballots which were accompanied by financial information which was known by the defendants to be false. The complaint also claimed that Beeman had once been wrongfully unseated as president of Local 666, was reinstated by the union's international office, but was then threatened by the defendants with physical injury if he did not resign as president. The thrust of the complaint therefore was that the defendants sought to oust their opposition and use their positions on the executive board for their own purposes and to the union's detriment. The complaint sought both injunctive relief and damages.

On June 20, 1986 the defendants' counsel sent a letter to Beeman's attorney stating that he believed that the complaint was not well-grounded in fact or warranted by existing law. The letter advised that if the plaintiff had no legal authority to support the complaint, then the plaintiff should voluntarily dismiss it. The letter further advised that if the complaint was not dismissed the defendants would "spare no expense in holding you and the plaintiff personally responsible under Rule 11."

Plaintiff's counsel responded in writing to this letter on June 26, 1986, denying that the complaint was frivolous or unwarranted by existing law. In addition, he included a seven page legal memorandum, apparently prepared by his firm, which he believed supported the validity of the complaint. This letter also requested that defendants' counsel, after reviewing the complaint and the enclosed material, provide the legal authority that supported his view that the complaint was frivolous. The defendants' counsel did not directly respond, but rather moved to dismiss the complaint under Rule 12(b)(6).

On February 6, 1987 the district court issued a memorandum opinion granting defendants' motion to dismiss and using language which can only be labelled as highly critical of the plaintiff's complaint. The district court stated that "what plaintiff has alleged is a good old-fashioned local union fight" and that the complaint was a "paroxysm of RICO rage." Beeman v. Fiester, No. 86 C 3831, mem. op. at 1, 2 (N.D.Ill. Feb. 6, 1987) . The district court concluded:

Plaintiff's complaint does not state a RICO claim. Plaintiff has not alleged an enterprise. He has not alleged a pattern of racketeering. He has not adequately alleged predicate acts. He proceeds improperly by way of information and belief. He purports to allege extortion but fails to do so. The complaint is really nothing other than a nightmare.

Id. at 3.

The defendants moved pursuant to Federal Rule of Civil Procedure 59(e) to amend the judgment to include sanctions under Rule 11, including attorneys' fees of $13,473.96. The district court conducted a hearing on the appropriateness of Rule 11 sanctions on March 23, 1987. At this hearing the district court judge indicated that he had "grave doubts" about whether the suit was filed for a proper purpose, and therefore requested additional information. The plaintiff submitted material both before and after the hearing which included his own affidavit as well as affidavits from his counsel and from two attorneys from the firm of Schiff, Hardin & Waite ("Schiff") who were acting as local counsel. Plaintiff's affidavit explained in detail why he brought the suit and the alternatives he explored before filing the suit. His counsel's affidavit indicated that he had requested that attorneys from Schiff review the complaint before it was filed, that at least three attorneys from that firm had done so, and that they determined that it was warranted by existing law. This was re-affirmed by the affidavits of Schiff's attorneys.

On July 21, 1987 the district court denied the defendants' motion to amend the judgment. The district court stated that it would "not undertake to recharacterize plaintiff's complaint other than as we already have in dismissing it." Beeman v. Fiester, No. 86 C 3831 (N.D.Ill. July 21, 1987) (order denying motion to amend judgment). The district court further stated:

This lawsuit was brought in retaliation for some bareknuckle union infighting. It was not well grounded in fact and was not supported by existing law. But we are unable to conclude that plaintiff's counsel lacked a good faith belief that RICO could be extended to embrace the sort of intraunion tactics disclosed by the complaint. Upon reflection, while we have disapproved the lawsuit we conclude Rule 11 sanctions are not called for.

Id. The defendants moved for reconsideration of the denial of sanctions, arguing that the district court employed the wrong legal standards in its July 21, 1987 order. This motion was denied without explanation on August 3, 1987.

II.

The defendants' argument is straightforward. They claim that the district court specifically made the findings necessary to conclude that Rule 11 was violated, but refused to impose sanctions. Rule 11 is composed of three prongs. First, the person who signs a pleading, motion or other paper ("the paper") certifies that the paper was not "interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation (the "improper purpose clause")." Fed.R.Civ.P. 11. Second, the signer warrants that to the best of his or her "knowledge, information, and belief formed after a reasonable inquiry" that the paper is "well grounded in fact." Id. Finally, the signer also certifies that he or she has conducted a reasonable inquiry and that the paper is "warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law." Id. If any one of these three prongs has been violated, Rule 11 sanctions must be imposed. Brown v. Federation of State Medical Bds., 830 F.2d 1429, 1433 (7th Cir.1987).

On appeal, we review findings of fact made by the district court under a clearly erroneous standard. Brown, 830 F.2d at 1434. We have frequently stated that the legal conclusion as to whether a violation has occurred on the specific facts is subject to de novo review, id., but the application of this standard has proven more difficult than stating it. See Federal Deposit Insurance Corp. v. Tekfen Construction and Installation Co., 847 F.2d 440, 442 (7th Cir.1988) (noting conflicting statements in this circuit as to our standard of review in Rule 11 cases). For example, we recently observed:

[T]he decision whether there has been a violation is a judgment call. The Rule speaks of "reasonable" prefiling inquiry, the language of tort law. And although the definition of a frivolous legal position is itself a question of law, there will often be factual questions concerning the actual position the litigant took--questions on which the court of first instance has the leading role.

In the Matter of Central Ice Cream Co., 836 F.2d 1068, 1072 (7th Cir.1987) (citations omitted).

Implementing these standards in the present case is particularly difficult. The defendants legitimately argue that there is a discrepancy between what the district court seems to have said and its refusal to amend its judgment to include Rule 11 sanctions. They claim that the district court explicitly found that two of Rule 11's three prongs were violated but did not impose sanctions and that the district court applied an incorrect standard in its evaluation of the third prong. We cannot escape from the district court's language; it is the type of language which usually accompanies the imposition of sanctions. But because we find ample support for the denial of sanctions in this case and do not believe that the district court was merely disregarding our precedent, we affirm the district court's judgment.

A.

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