Crockett & Brown, P.A. v. Wilson

• Decision Date: 19 June 1995
• Docket Number: No. 94-1307,94-1307
• Citation: Crockett & Brown, P.A. v. Wilson, 901 S.W.2d 826, 321 Ark. 150 (Ark. 1995)
• Court: Arkansas Supreme Court
• Parties: CROCKETT & BROWN, P.A. and C. Richard Crockett, Appellants, v. William R. WILSON, Jr., Gary D. Corum, and John R. Byrd, Appellees.

Page 826

901 S.W.2d 826

321 Ark. 150

CROCKETT & BROWN, P.A. and C. Richard Crockett, Appellants, v.William R. WILSON, Jr., Gary D. Corum, and John R. Byrd, Appellees.

No. 94-1307.

Supreme Court of Arkansas.

June 19, 1995.

John P. Gill, C. Richard Crockett, Little Rock, for appellants.

Gary D. Corum, Little Rock, for appellees.

GLAZE, Justice.

Crockett & Brown, P.A.(C & B) brings its third appeal concerning issues surrounding its efforts to recover attorney's fees in connection with its representation of Richard Courson in a negligence suit filed against Thomas Averette, who had shot Courson in the eye with a shotgun.SeeCrockett & Brown, P.A. v. Courson, 312 Ark. 363, 849 S.W.2d 938(1993)(C & B I);Crockett & Brown P.A. v. Wilson, 314 Ark. 578, 864 S.W.2d 244(1993)(C & B II).

In C & B I, this court affirmed the Ashley Circuit Court's decision that, under C & B's and Courson's original July 5, 1989 employment contract, C & B was entitled to the reasonable value for its services to the date of discharge even though Courson had terminated C & B for cause before a final settlement had been obtained.The court further held, however, that C & B was not entitled to the statutory lien under Ark.Code Ann. §§ 16-22-301-304(Supp.1991) because that lien provision applied only where an attorney was terminated without cause.Id., 312 Ark. 377A, 849 S.W.2d 938.The court also upheld as reasonable the Ashley Circuit Court's award of attorney's fees and costs in the sum of $17,541.29.

C & B II resulted from a second lawsuit filed by C & B against Courson in the Pulaski Chancery Court.This second suit was filed after C & B appealed the Ashley Circuit Court's decision in C & B I. C & B based this subsequent suit upon the theory that it was entitled to $100,000 in attorney's fees from Courson based upon a one-third contingency employment contract Courson purportedly agreed to after, and in substitute of, the parties' original agreement.Because Courson eventually obtained a $300,000 settlement, C & B claimed entitlement to one-third of it plus an attorney's lien in the same amount pursuant to Ark.Code Ann. § 16-22-301(Supp.1991).In this Pulaski County suit, C & B joined as defendants Courson's new attorneys, Wilson, Corum and Brown (Wilson), Averette and Averette's insurer, Allstate Insurance Company.In C & B II, this court upheld the Pulaski Chancery Court's ruling that C & B's second suit was barred by res judicata and collateral estoppel.In sum, the court held that C & B could not relitigate its fee since that issue already had been decided in the Ashley Circuit Court case.

After this court's decision in C & B II, the Pulaski Chancery Court imposedARCP Rule 11 sanctions against C & B and its attorney, C. Richard Crockett, in the sum of $15,000.In imposing sanctions, the chancery court found, contrary to C & B's contention, the Ashley Circuit Court's adjudication of the attorney's fee issue was a final one when C & B filed its Pulaski County action.The chancellor also found that it was unreasonable for C & B to believe it could seek fees under the parties' July 5 contract and its purported amended or substituted contract in separate actions.She pointed out that either the original contract was enforceable because it had not been replaced by the amended version or the amended contract was valid since it had replaced the July 5 contract.In addition, the chancellor found that, contrary to C & B's suggestion, the Ashley Circuit Court was well aware of, and considered, the final $300,000 settlement entered into by Courson and Averette when the court awarded attorney's fees, and C & B had acknowledged it could have enforced its contract rights against the new defendant attorneys in the Ashley County case.

C & B first argues that the chancery court abused its discretion by imposing Rule 11 sanctions.Under Rule 11, an attorney signing a pleading, motion, or other paper on behalf of a party constitutes a certificate that (1) the attorney made a reasonable inquiry into the facts supporting the document or pleading, (2)he or she made a reasonable inquiry into the law supporting that document to ensure that it is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and (3) the attorney did not interpose the document for any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.Ward v. Dapper Dan Cleaners & Laundry, Inc., 309 Ark. 192, 828 S.W.2d 833(1992).When a violation of Rule 11 occurs, the Rule makes sanctions mandatory.Id.Whether a violation occurred is a matter for the court to determine, and this determination involves matters of judgment and degree, and in reviewing a trial court's Rule 11 determination, we do so under an abuse of discretion standard.Id.;see alsoMiller v. Leathers, 311 Ark. 372, 843 S.W.2d 850(1992);Miles v. Southern, 297 Ark. 280-A, 763 S.W.2d 656(1989)(supplemental opinion denying rehearing).

C & B contends the facts alleged in its complaint filed in the Pulaski County action were true and the record is devoid of any indication that C & B failed to make a reasonable inquiry into the law.C & B asserts that, before filing the Pulaski County complaint, it made an exhaustive research of the law, and based upon that research, C & B's Pulaski County action was appropriate.Wilson rejoins, stating C & B relied upon a "tortured" interpretation of statutory and appellate law in an effort to explain why C & B was justified in "relitigating" the same claim in the Pulaski County action that had already been litigated in Ashley Circuit Court.In sum, Wilson urges that C & B's Pulaski Chancery Court action involved the identical cause of action earlier decided by the Ashley Circuit Court, and therefore, the second lawsuit violated the fundamental principles of finality and issue preclusion.

In fact, this court held in Crockett & Brown, P.A. v. Wilson, 314 Ark. 578, 864 S.W.2d 244, that C & B was precluded by res judicata and collateral estoppel in its Pulaski County action from obtaining a fee pursuant to §§ 16-22-301 to 16-22-304 because the Ashley Circuit Court previously resolved those issues involving C & B's quest for fees.Even so, Rule 11 is not intended to permit sanctions just because the court later decides that the lawyer was wrong.Rachel v. Banana Republic, Inc., 831 F.2d 1503(9th Cir.1987).Instead, the trial court, in exercising its discretion under Rule 11, is expected to avoid using the wisdom ofhindsight and should test the signer's conduct by inquiring what was reasonable to believe at the time the pleading, motion, or other paper was submitted.Eavenson, Auchmuty & Greenwald v. Holtzman, 775 F.2d 535(3rd Cir.1985);see alsoTeamsters Local Union No. 430 v. Cement Exp., Inc., 841 F.2d 66(3rd Cir.1988).Put in other terms, Rule 11 does not require that the legal theory espoused in a filing prevail.The essential issue is whether signatories of the document fulfilled their duty of reasonable inquiry into the relevant law, and the indicia of reasonable inquiry into the law include the plausibility of the legal theory espoused and the complexity of the issues raised.CJC Holdings, Inc. v. Wright & Lato, Inc., 989 F.2d 791(5th Cir.1993).The CJC Holdings decision admonished that a trial court should not impose Rule 11 sanctions for advocacy of a plausible legal theory, particularly when the law is arguably unclear.Id. at 794.

In the present case, C & B filed its Pulaski County complaint on July 2, 1992, which was nearly eight months before this court in C & B II decided C & B's second lawsuit had been barred by the Ashley Circuit Court's decision.Nonetheless, we must decide whether C & B made a reasonable inquiry into the law before, and at the time, it filed its Pulaski County action.In reviewing the Pulaski Chancery Court's decision imposing Rule 11 sanctions, we consider the complexity of the issues and the plausibility of the legal theory C & B advanced when filing its Pulaski County complaint.

C & B's justification for filing its Pulaski County action depends upon its assertion that Courson and Averette entered into their $300,000 settlement after the Ashley Circuit Court had ruled C & B was not entitled to a fee pursuant to § 16-22-301.It argues Averette, his insurer, Courson and Wilson then entered into a $300,000 settlement without considering C & B's interests.Under the rationale and holding in Lockley v. Easley, 302 Ark. 13, 786 S.W.2d 573(1990), C & B states it believed it could pursue its fee contract rights in Pulaski County since Wilson and Averette's insurer had not been made parties in the Ashley County litigation.The Lockley case is clearly distinguishable from the situation here since there, the attorney had not been discharged for cause, and was awarded his contractual contingent fee pursuant to §§ 16-22-301-310(1989).Even so, we do not consider C & B's different interpretation of Lockley significant when deciding whether the Pulaski chancery judge erred in imposing Rule 11 sanctions.If our decision depended merely upon whether C & B had made an honest misinterpretation of case law, we likely would find merit in C & B's argument.Instead, we find the Pulaski Chancery Court's factual and legal findings are most relevant in supporting its imposition of sanctions and in reviewing them, we conclude those findings clearly support the chancellor's holding that C & B violated Rule 11.

The chancery court went into much detail and offered objective reasons for imposing sanctions.Significantly, it emphasized that, in the Ashley Circuit case, C & B had filed a motion for new trial wherein it related that Courson and Averette had settled for $300,000.C & B moved that the Ashley County Circuit Court open up its judgment and make additional findings and conclusions.Thereafter, the Ashley Circuit Court held a hearing...