Danik, Inc. v. Hartmarx Corp., 88-7089

• Decision Date: 19 May 1989
• Docket Number: No. 88-7089,88-7089
• Parties: , 57 USLW 2735, 1989-1 Trade Cases 68,588, 15 Fed.R.Serv.3d 491 DANIK, INC., D.C. Corporation, on behalf of self and others similarly situated, Cooter & Gell, Appellant, v. HARTMARX CORPORATION, a Delaware corporation, et al. Appeal of COOTER & GELL.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 890

875 F.2d 890

277 U.S.App.D.C. 333, 57 USLW 2735,

1989-1 Trade Cases 68,588, 15 Fed.R.Serv.3d 491

DANIK, INC., D.C. Corporation, on behalf of self and others similarly situated Cooter & Gell, Appellant, v. HARTMARX CORPORATION, a Delaware corporation, et al. Appeal of COOTER & GELL.

No. 88-7089.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 23, 1989.

Decided May 19, 1989.

Appeal from the United States District Court for the District of Columbia (Civil Action No. 83-03568).

Dale A. Cooter, with whom Joseph M. Cahill, Washington, D.C., was on the brief, for appellant.

Mark W. Ryan, with whom Richard J. Favretto and Evan M. Tager, Washington, D.C., were on the brief, for appellees. Kenneth S. Geller and Douglas K. Mayer, Washington, D.C., also entered appearances for appellees.

Before STARR, WILLIAMS and D.H. GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge D.H. GINSBURG.

D.H. GINSBURG, Circuit Judge:

This appeal arises from an antitrust action that appellants Cooter & Gell, a law firm, brought on behalf of their client, Danik, Inc., a Washington, D.C. discount clothing retailer. The defendants in that action are appellees here: Hartmarx Corp. and its subsidiaries, Hickey-Freeman Co. (HF) and Hart, Schaffner & Marx (HSM)--collectively, the Hartmarx Group--manufacturers and distributors of men's clothing. After appellants voluntarily dismissed their case, the district court found that both attorney and client had violated Fed.R.Civ.P. 11 by failing to make a reasonable inquiry, prior to the filing of their complaint, into the facts alleged therein. The court awarded sanctions of $21,402.52 against Cooter & Gell and $10,701.26 against Danik.

Danik, which is now bankrupt, has not filed a brief in this court; by separate order, we dismiss its appeal for failure to prosecute. With respect to Cooter & Gell, we affirm the judgment in all respects and remand to the district court for it to award appellees the expenses they incurred on appeal.

I. BACKGROUND

Litigation between Danik and Hartmarx goes back to June 1983, when Intercontinental Apparel, Inc., another Hartmarx subsidiary, filed a breach of contract action in the district court, claiming that Danik had failed to pay for approximately $100,000 of Intercontinental merchandise. Danik, represented by Cooter & Gell, counterclaimed, alleging that Intercontinental had engaged in price discrimination in violation of the Robinson-Patman Act. In March 1984, the district court granted summary judgment in favor of Intercontinental on the contract claim, and we affirmed. In February 1985, a jury found for Intercontinental on the antitrust counterclaim, and once again, we affirmed.

Meanwhile, in November 1983, while the above-described litigation was going forward, Cooter & Gell prepared two additional antitrust complaints--both class actions--against appellees and others. Dale Cooter, Esq., of Cooter & Gell, "presented counsel [for Intercontinental] with draft copies of those complaints and outlined a settlement offer which encompassed the collection suit and the two class actions." Cooter Affidavit at p 7. After Intercontinental rejected the settlement offer, Danik filed the two class action complaints.

The first complaint, on behalf of all men's retail clothing merchants in seven metropolitan areas, charged Hartmarx and three of its subsidiaries with price discrimination in violation of the Robinson-Patman Act. The district court stayed that action, pending resolution of the price discrimination counterclaim in the original Intercontinental contract action. In July 1986, Danik voluntarily dismissed this class action.

Danik's second class action complaint, which forms the background of the present dispute, was filed on behalf of "all men's retail clothing merchants in the United States other than ... [Hartmarx's allegedly] exclusive agents...." Danik claimed that the Hartmarx Group had established "an exclusive retailer agent policy" whereby Hartmarx sold men's suits made by HF and HSM to only one retailer in each major metropolitan area of the country, either upon the condition or by agreement that the retailer would sell at Hartmarx's "suggested retail price or at an artificially high price." According to the complaint, appellees thereby unlawfully fixed resale prices, allocated retail markets, and refused to deal with the plaintiff, in violation of the Sherman and Clayton Antitrust Acts.

Hartmarx filed a motion to dismiss this second suit, supported by affidavits in which HF and HSM executives denied the existence of any "exclusive retailer agent policy" and showed that, although each brand was distributed by only one retailer in Washington and one in Baltimore, it was in fact the defendants' general practice to sell to more than one retailer in each major metropolitan area. Indeed, these executives reported that each brand was sold to as many as 20 different retailers in some markets. Hartmarx also moved for sanctions under Rule 11, which, in relevant part, states that:

The signature of an attorney or party constitutes a certificate by him that he has read the pleading ...; 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 ... 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 expenses reasonably incurred because of the filing of the pleading, motion, or other paper including a reasonable attorney's fee.

(Emphases added.)

In response to the Rule 11 motion, Cooter & Gell submitted two affidavits describing their pre-filing investigation into the facts they had alleged. Joseph Cahill, Esq. stated that he "asked Faye Reid, a secretary at this firm, to telephone the better known clothing retailers in the Washington, D.C. area to inquire of them whether they sold [HSM] suits, and if not, whether they knew who did." Ms. Reid's affidavit, in turn, confirms that she spoke with "salespeople" at eight such retailers and with people in unspecified positions at two others. Based upon these conversations, Cahill concluded that "not one retailer besides Raleigh's appeared to sell [HSM] suits in the Washington, D.C. area." After he had made several calls to menswear stores in Baltimore, with like results, Reid conducted a similar inquiry of Philadelphia and New York retailers. On this basis, Cahill concluded that only one retailer in each of these areas sold HSM suits. In the course of their pre-filing investigation, Cooter & Gell at no time asked anyone at Hartmarx about its distribution practices generally or for the names of the retailers that sold its suits in any metropolitan area.

In April 1984, while the defendants' motions to dismiss and for sanctions were pending before the district court, Danik dismissed the antitrust action voluntarily pursuant to Fed.R.Civ.P. 41(a)(1)(i). In June, counsel argued the Rule 11 motion. Cooter stated that the impetus for the complaint had come from the president of Danik, who told Cooter that Danik had been unable to purchase HF and HSM suits, that only one retailer in the Washington, D.C. area carried those brands, and "that it was his understanding that that was a nation-wide practice" on the part of Hartmarx. The district court then took the Rule 11 motion under advisement.

More than three and one-half years later, in February 1988, the district court granted the motion, identifying several fundamental deficiencies in Cooter & Gell's prefiling inquiry, 120 F.R.D. 439 (1988). First, counsel's inquiry concentrated solely on HSM "and thus in no way justified the claim of exclusive retail agency arrangements for [HF] apparel." Second, counsel limited their pre-filing investigation to "four eastern cities" and, consequently, had "no support for the allegation that exclusive arrangements existed in every major metropolitan area." (Emphasis in original.)

Third, the court concluded that "counsel's random telephone investigation is far removed from the type of systematic inquiry needed to conclude that allegations of the severity alleged by plaintiff are 'well grounded in fact.' " Specifically, the court observed that "counsel contacted only a few retailers in cities where dozens of retailers were in business [and] sought the opinion of salesmen instead of management personnel who might have personal knowledge of the alleged exclusive retail agency policy." Finally, the court noted that "exclusive retail agency policies, by themselves, are not per se violative of antitrust laws." To prevail under the Rule of Reason, a plaintiff must, in addition, "plead, and show, anticompetitive effects ..., such as price-fixing or retail price maintenance, in order to prevail." Counsel's investigation had neither sought nor revealed anything of that sort.

The court then turned to the calculation of costs and attorney's fees and concluded that the $61,917.99 requested by Hartmarx was "excessive." The court found that defendants' counsel had devoted substantial time to research "not reasonably necessary to achieve dismissal of the case." The court concluded that an award of $32,103.78 would serve as an appropriate Rule 11 sanction, two-thirds to be paid by Cooter & Gell and one-third by Danik, which had "authorized the prosecution of this lawsuit albeit on the advice of counsel...."

II. JURISDICTION

Appellants argue initially that their client's voluntary dismissal of the class action that gave rise to the Rule 11 motion divested ...