Hilton Hotels Corp. v. Banov

• Decision Date: 23 March 1990
• Docket Number: Nos. 89-7045,89-7046,s. 89-7045
• Citation: 899 F.2d 40
• Parties: HILTON HOTELS CORPORATION d/b/a Capital Hilton Hotel v. Alan BANOV, Appellant. HILTON HOTELS CORPORATION d/b/a Capital Hilton Hotel, Appellant, v. Alan BANOV.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 40

899 F.2d 40

283 U.S.App.D.C. 232

HILTON HOTELS CORPORATION d/b/a Capital Hilton Hotel v. Alan BANOV, Appellant.

HILTON HOTELS CORPORATION d/b/a Capital Hilton Hotel, Appellant, v. Alan BANOV.

Nos. 89-7045, 89-7046.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 6, 1990.

Decided March 23, 1990.

Appeals from the United States District Court for the District of Columbia (Civil Action No. 85-01470).

Alan Banov, pro se, in No. 89-7045 and appellee in 89-7046.

Anita Barondes, with whom Deborah A. Folloni and Christopher A. Weals, Washington, D.C., were on the brief, for appellee in No. 89-7045 and cross-appellant in 89-7046.

Before WALD, Chief Judge, EDWARDS and SILBERMAN, Circuit Judges.

Opinion for the Court filed by Circuit Judge HARRY T. EDWARDS.

HARRY T. EDWARDS, Circuit Judge:

In these consolidated appeals, appellant/cross-appellee Alan Banov and appellee/cross-appellant Hilton Hotels Corporation ("HHC") challenge different components of the District Court's imposition of a Rule 11 sanction against Banov. Banov represented a former HHC employee in a defamation action against HHC arising from the employee's discharge. After entering summary judgment for HHC, the court imposed a $5,000 sanction on Banov under Rule 11. The court found both that Banov had failed to make a reasonable inquiry into the basis of the employee's claim before filing suit and that Banov had unreasonably continued his representation after learning that the employee's suit was without merit. Banov now appeals from the determination that he should be sanctioned, HHC from the court's decision not to award HHC a greater fraction of the attorney fees incurred in defending against the former employee's suit.

We find each party's appeal to be without merit. The record amply supports the District Court's finding that Banov failed to conduct a reasonable prefiling inquiry and we affirm the court's sanction order on that ground alone. Because Rule 11 appears to authorize sanctions only for unreasonable filings of pleadings, motions or other papers, we do not rest our judgment on any claim that Banov unreasonably failed to withdraw or amend the suit when postfiling contingencies revealed it to be unfounded. However, because Banov did not raise the question whether Rule 11 imposes ongoing duties on counsel to discontinue prosecuting a case once it is shown to be meritless, we offer no final judgment on this point. Finally, we find that the District Court acted within its discretion in determining that a $5,000 sanction award would best advance the purposes of Rule 11 in this case.

I. BACKGROUND

The contested sanction order arises from Banov's unsuccessful representation of Gmo Rice, a former employee of HHC. After the District Court granted HHC's motion for a more definite statement, Rice submitted (and Banov signed) an amended complaint alleging that HHC employees made twelve defamatory statements about Rice concerning the circumstances under which Rice was discharged. Extensive discovery disclosed virtually no support for these claims. HHC tried on several occasions to induce Banov to settle the case, but Banov always declined, allegedly because Rice refused to drop the suit. After the District Court advised Banov at the summary judgment hearing that it was contemplating Rule 11 sanctions, Banov sought to withdraw from his representation but was ordered not to do so by the court. The court ultimately granted summary judgment for HHC, finding that eleven of the alleged defamatory statements were never made and that the twelfth was absolutely privileged.

Shortly thereafter, the District Court granted HHC's motion for Rule 11 sanctions against Banov. ¹ The trial court ruled that Banov should be sanctioned "for his failure to make a reasonable inquiry before filing the amended complaint and for his belligerence in pursuing a worthless action." Rice v. Hilton Hotel Corp., Civ.Action No. 85-1470, slip op. at 2, 1987 WL 16851 (D.D.C. Sept. 2, 1988) ("Rice I "), reprinted in Joint Appendix ("J.A.") 18. The trial judge found that Banov had failed to conduct an adequate prefiling inquiry because "[e]ither Banov relied solely on plaintiff's unverified hearsay statement when he drafted the amended complaint or he knew that the claims lacked basis in fact." Id. The trial court also found that Banov acted unreasonably in continuing to represent Rice after filing the amended complaint, for, "by the close of discovery, Banov well knew or should have known that his client's entire case was meritless." Id. at 3, reprinted in J.A. 19. Recounting the repeated settlement offers by HHC, and the court's own admonition at the summary judgment hearing, the District Court concluded that "[t]he message could not [have] be[en] clearer to Banov that he should stop prosecuting plaintiff's unwarranted allegations or be prepared to pay sanctions for refusing to do so." Id. at 4, reprinted in J.A. 20.

In a second order, however, the District Court declined to award HHC full compensation for its claimed $68,000 in attorney fees. Emphasizing Banov's limited assets and HHC's "vast" expenditures to defend against Rice's claim, the trial judge determined that a $5,000 award would be equitable as well as sufficient to deter future litigation abuse. See Rice v. Hilton Hotel Corp., Civ.Action No. 85-1470, slip op. at 4-5 (D.D.C. Dec. 9, 1988) ("Rice II "), reprinted in J.A. 26-27.

These appeals ensued. Banov contests the District Court's determinations that Rice's claims did not have reasonable foundation in fact and in law. HHC maintains that the District Court abused its discretion in failing to consider HHC's asserted interest in being fully compensated for the expense of defending against Rice's frivolous suit. In addition, HHC seeks a ruling that it is entitled to the fees incurred in defending the District Court's sanction order.

II. ANALYSIS

A. The Sanction Order

The District Court based its sanction order on two findings: first, that "Banov was unreasonable in filing the amended complaint without first making reasonably certain that it could be supported in fact and law"; and second, that Banov unreasonably continued the "litigation for over a year and one-half when virtually each passing day confirmed that the complaint had no merit." Rice I, slip op. at 5, reprinted in J.A. 21. We affirm on the basis of the first finding alone.

1. Banov's Failure to Conduct an Adequate Prefiling Inquiry

We review for abuse of discretion a finding that a "pleading, motion, or other paper" was not "well grounded in fact," Fed.R.Civ.P. 11, ² affording great weight to the views of the trial court because of its intimate familiarity with the underlying litigation. See Westmoreland v. CBS, Inc., 770 F.2d 1168, 1174 (D.C.Cir.1985). The District Court in this case determined that Banov failed to conduct an adequate prefiling inquiry because he made no attempt independently to corroborate Rice's second-hand account of the alleged defamations. See Rice I, slip op. at 2, reprinted in J.A. 18. We can find no basis to overturn this determination.

Although we do not believe that it is invariably sanctionable to rely solely on the client's word before filing suit, see, e.g., Kamen v. American Tel. & Tel. Co., 791 F.2d 1006, 1012 (2d Cir.1986), ³ we conclude that the District Court stood on firm ground in deeming it unreasonable for Banov to do so here. Banov should have realized that Rice could not possibly prevail at trial unless one or more persons could be found to testify to having received the alleged defamations. Nor was this a case in which "the relevant information was largely in the control of the defendant[ ]," Kamen, 791 F.2d at 1012, for at least ten of the recipients identified in the amended complaint were not associated with HHC. Banov maintains that he had reason to credit Rice's allegations because an HHC employee testified at Rice's unemployment hearing that HHC fired Rice for theft. HHC's willingness to accuse Rice of misconduct in one, privileged setting, however, does not support the inference that HHC defamed Rice in various, specifically identified nonprivileged settings.

In sum, Banov does not come close to showing that the District Court abused its discretion in finding that he failed to make a reasonable inquiry into the factual basis of the amended complaint. And that finding by itself is sufficient to uphold the trial court's imposition of Rule 11 sanctions. See Danik, Inc. v. Hartmarx Corp., 875 F.2d 890, 896 (D.C.Cir.), cert. granted sub. nom. Cooter & Gell v. Hartmarx Corp., --- U.S. ----, 110 S.Ct. 275, 107 L.Ed.2d 256 (1989). ⁴

2. Banov's Alleged Unreasonable Failure to Abandon the Suit When Postfiling Contingencies Revealed It to Be Unfounded

We specifically do not rely on the District Court's second finding--that Banov unreasonably continued his representation of Rice after postfiling contingencies revealed Rice's amended complaint to be without merit. Although we asked the parties at oral argument to address the question of whether Rule 11 imposes postfiling obligations on the signer of a particular pleading, we decline for two reasons definitively to resolve that issue now. First, as we have explained, the trial court's finding that Banov failed to conduct a reasonable prefiling inquiry is sufficient to uphold the imposition of Rule 11 sanctions. Indeed, once the District Court made this finding, it was obliged to sanction Banov, see Westmoreland, 770 F.2d at 1175, making the court's views on Banov's postfiling conduct immaterial.

Second, although HHC defended the District Court's finding that Banov should be sanctioned for continuing to represent Rice, ⁵ Banov did not raise or brief the specific question of whether Rule 11 imposes ongoing duties on the signer of a pleading, motion or other paper. Consequently, this issue is not fit for disposition on appeal. See, e.g., Maryland People's Counsel v. FERC, 760...