Century Products, Inc. v. Sutter
| Decision Date | 28 September 1987 |
| Docket Number | No. 86-1546,86-1546 |
| Citation | 837 F.2d 247 |
| Parties | CENTURY PRODUCTS, INC., Plaintiff, Owen E. Perry, Attorney-Appellant, v. Lidiann SUTTER and Lidiann's Incorporated, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Owen E. Perry, Reising, Ethington, Barnard, Perry & Milton, Troy, Mich., for attorney-appellant.
Ernest I. Gifford, Thomas E. Anderson, Gifford, Groh, VanOphem, Sheridan, Sprinkle & Dolgorukov, Birmingham, Mich., for defendants-appellees.
Before MARTIN and NELSON, Circuit Judges, and CONTIE, Senior Circuit Judge.
Owen E. Perry, attorney for Century Products, Inc., appeals from the district court's judgment imposing sanctions pursuant to Federal Rule of Civil Procedure 11. For the following reasons, we reverse the district court's judgment.
Plaintiff below, Century Products, Inc. (Century), through appellant Perry and attorney Katherine C. Spelman, filed a complaint for declaratory judgment against Lidiann Sutter and Lidiann's, Inc., a Michigan corporation, (Sutter and Lidiann's respectively) in district court on November 14, 1985. Plaintiff alleged that 28 U.S.C. Secs. 1332, 1338(a), and 2201 conferred jurisdiction on the court below. In substance, plaintiff alleged that defendants had already or were then considering filing suit against plaintiff claiming unfair advantage and unjust enrichment, although plaintiff had not been served with an action lodged by defendants. Plaintiff further alleged that no unfair competition or unjust enrichment had occurred, but that plaintiff would be exposed to a likelihood of public disparagement unless its rights were declared. Plaintiff prayed for a declaration that it remains free to manufacture and sell its 3-way folding high chair and that such manufacture and sale does not infringe or otherwise interfere with defendants' rights, and for the district court permanently to enjoin defendants from instituting legal action or otherwise threatening plaintiff or any of its customers respecting the sale and manufacture of plaintiff's 3-way folding high chair.
Sutter and Lidiann's filed a motion to dismiss the complaint in the district court. Movants invoked 28 U.S.C. Sec. 2201 and Federal Rules of Civil Procedure 12(b)(7) and 19 in support of their motion arguing that a currently pending previously filed state court action would dispose of this case, and that plaintiff had not joined Gerber Products Co., a necessary party, because joinder would defeat jurisdiction.
Century failed to respond directly to defendants' motion to dismiss. Instead, Century responded with a motion to stay proceedings on defendants' motion to dismiss until discovery is instituted in state court. In support of its motion, plaintiff argued that
Century makes this motion in the interests of judicial economy. A procedural dispute regarding this matter has been temporarily resolved in [state court]. It is pointless to proceed with time consuming procedural maneuvering in this court, when a stay would not prejudice either party, and will very likely lead to an out of court resolution of the issues raised in the Motion to Dismiss pending before this court. However, it is Century's position that this court should not dismiss, but rather stay these proceedings pending the outcome of discovery or the issues raised in defendant's motion.
Plaintiff expressly requested that an oral hearing on its motion not be held, contending that the issues raised in its motion appeared so straightforward that a hearing was unnecessary.
Sutter and Lidiann's filed a response to plaintiff's motion to stay the proceedings. Defendants argued that further discovery was not necessary to shed light on the issues raised on defendants' motion to dismiss, and that immediate dismissal would best serve the interests of judicial economy. Additionally, defendants argued that the previously filed state court action would be dispositive of all issues raised by plaintiff, and that plaintiff was using this action as an attempt to force defendants into submission by forcing defendants to maintain two separate actions thereby placing a severe burden on defendants' lesser resources.
A hearing took place in the district court on January 10, 1986. The transcript indicates that early in the hearing appellant attempted but was not permitted to present supplemental authority in support of his practice in the district court. The district court conceded that it had the power to stay any action before it, but maintained that it was an abuse to request a stay in this case. The district court concluded: "I am clearly going to decline the exercise jurisdiction [sic] in this case, and I will clearly grant Defendant's [sic] Motion to Dismiss, and I am going to award costs, whatever you spent on the motion to stay and Rule 11."
Accordingly, on February 27, 1986, the district court issued an order granting the defendants' motion to dismiss and denying plaintiff's motion to stay the proceedings. Pursuant to Federal Rule of Civil Procedure 11, appellant was ordered to pay defendants' reasonable expenses of $125 incurred because of the filing of plaintiff's motion to stay the proceedings. Perry motioned to amend the district court's order by vacating that part of the order which imposed sanctions on him, and requested that the district court schedule a hearing to afford him an opportunity to oppose the imposition of Rule 11 sanctions. In the brief in support of this motion he argued that the summary imposition of sanctions under Rule 11, sua sponte and without notice, did not comport with due process. The brief also stated that, "[i]f plaintiff's counsel is allowed to be heard on this issue, as required by Rule 11, plaintiff's counsel will respectfully show that Rule 11 sanctions are singularly inappropriate in this case."
On May 27, 1986, the district court issued a second order, denying Perry's motion to amend the court's February 27 order by vacating that part of the order which imposed sanctions on appellant. Initially, the district court found that Rule 11 "specifically reads that the court shall impose appropriate sanctions 'upon motion or upon its own initiative.' " (Emphasis in district court's order.) The district court also found that
[i]n light of the factual background of this action, the court is amply satisfied that its imposition of a $125 sanction against counsel comports with due process requirements. The court held a January 10, 1986 hearing at which time counsel was afforded an opportunity to explain why he failed to respond to defendant's [sic] motion to dismiss and instead filed a motion for stay. The manner through which this sanction was imposed is completely consistent with Congress' intent that Rule 11 sanctions be part of the court's responsibility for securing the system's effective operation.
Appellant filed this timely appeal from only that part of the order which imposed Rule 11 sanctions. The issue before this court is whether the district court abused its discretion by imposing Rule 11 sanctions in this case.
Federal Rule of Civil Procedure 11, as amended effective August 1, 1983, provides in part:
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.... 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 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 Notes of Advisory Committee on Rules provide:
The new language is intended to reduce the reluctance of courts to impose sanctions ... by emphasizing the responsibilities of the attorney and reenforcing those obligations by the imposition of sanctions....
The new language stresses the need for some prefiling inquiry into both the facts and the law to satisfy the affirmative duty imposed by the rule. The standard is one of reasonableness under the circumstances.... This standard is more stringent than the original good faith formula and thus it is expected that a greater range of circumstances will trigger its violation....
The Notes caution, however:
The rule is not intended to chill an attorney's enthusiasm or creativity in pursuing factual or legal theories....
In his brief, Perry argues that the district court should not impose sanctions lightly because of the impact sanctions have on both an attorney's and a party's reputation. Appellant also urges that a clear dispute existed concerning whether federal jurisdiction existed on the basis of either diversity or federal question, and that the mere lack of success on the merits cannot alone justify sanctions. Appellant argues that the obligation of the federal courts to exercise the jurisdiction given to them precludes the imposition of Rule 11 sanctions as punishment for merely requesting a stay in this case, and that to hold that a mere request to exercise discretionary power to stay can result in the imposition of Rule 11 sanctions would have a chilling effect on advocacy.
Sutter and Lidiann's argue that Century's institution of...
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