Kanarek v. Hatch

• Decision Date: 17 September 1987
• Docket Number: No. 86-2578,86-2578
• Citation: 827 F.2d 1389
• Parties: Jules KANAREK and Valley House, Inc., Plaintiffs-Appellees, v. Gary HATCH and Barbara Hatch, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1389

827 F.2d 1389

Jules KANAREK and Valley House, Inc., Plaintiffs-Appellees, v. Gary HATCH and Barbara Hatch, Defendants-Appellants.

No. 86-2578.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 13, 1987.

Decided Sept. 17, 1987.

Arthur K. Trask, Jr., Lihue, Hawaii, for the non-party defendants-appellants.

Dennis M. Lombardi, Honolulu, Hawaii, for plaintiffs-appellees.

Harold Bronstein, Honolulu, Hawaii, for Arthur K. Trask.

Appeal from the United States District Court for the District of Hawaii.

Before HUG, NELSON and NOONAN, Circuit Judges.

HUG, Circuit Judge:

This is an appeal from an order compelling Trask, the Hatches' attorney, to pay attorneys' fees and costs to plaintiffs ("Kanarek") under 28 U.S.C. Sec. 1927 (1982). Trask was sanctioned for filing a motion for summary judgment, which the district court found contained substantially the same arguments as an earlier motion to dismiss that had been denied.

Trask raises the following issues: (1) whether the district court's factual and legal conclusions supporting the imposition of sanctions are proper; (2) whether Trask was denied due process because sanctions were imposed without allowing him an opportunity to respond or to have a hearing; and (3) whether the district court's determination of the amount of the sanction was improper because it failed to make necessary findings to support the amount of the award.

We reverse the district court's imposition of sanctions, and need not reach the due process issue or the issue concerning the amount of the award.

I.

In levying the sanctions under section 1927 ¹, District Judge Ideman stated:

The Court finds that the Defendants' Motion for Summary Judgment is based on jurisdictional arguments already expressly rejected by another federal judge in this case, and a res judicata argument based on a state court order expressly refusing to rule on the issues in this case. Plaintiffs' request for attorneys fees and costs is granted under 28 U.S.C Sec. 1927 (1976). Plaintiffs are to submit an order granting costs and declarations supporting the costs to this Court by August 15, 1986.

The district judge ultimately ordered that Kanarek recover from Trask $3,365.05. This order compelling a non-party, such as Trask, to pay attorneys' fees and costs is a final order reviewable under 28 U.S.C. Sec. 1291 (1982). Liew v. Breen, 640 F.2d 1046, 1048 (9th Cir.1981).

The imposition of sanctions under section 1927 requires a finding that the attorney acted recklessly or in bad faith. Toombs v. Leone, 777 F.2d 465, 471 (9th Cir.1985); United States v. Associated Convalescent Enterprises, Inc., 766 F.2d 1342, 1346 (9th Cir.1985). However, "[a] district court's failure to make express findings does not require a remand if 'a complete understanding of the issues may be had [from the record] without the aid of separate findings.' " Optyl Eyewear Fashion Int'l. Corp. v. Style Companies, Ltd., 760 F.2d 1045, 1051 (9th Cir.1985), quoting Swanson v. Levy, 509 F.2d 859, 861 (9th Cir.1975). The district court's order makes it clear that the court considered Trask's motion for summary judgment to be completely without merit and duplicative of matters previously ruled upon, and thus to have been submitted recklessly or in bad faith. We review the district court's factual findings upon which the sanctions are based under a clearly erroneous standard. Associated Convalescent Enterprises, Inc., 766 F.2d at 1345. We therefore turn to a consideration of the facts and the legal arguments made by Trask in the motion for summary judgment to determine if they are so lacking in merit as to justify a conclusion that they were submitted recklessly or in bad faith and thus constituted a willful abuse of judicial processes.

II.

The underlying controversy involved two related law suits. The first suit (the "state action") was an action in Hawaii state court by Kanarek, an owner of a large tract of land on the Island of Kauai in Hawaii, against Gary Hatch and his wife. Hatch had been hired by Kanarek as the foreman of a building project on Kanarek's land, and moved from California to Kauai. The suit was brought by Kanarek in the state circuit court on the Island of Kauai, apparently to remove the Hatches from the Valley House on the premises. Hatch counterclaimed for money that was due to him. The suit was settled by a stipulation executed by the parties that provided that the judge would enter a permanent injunction directing the Hatches to remove themselves and their goods from Kanarek's property and providing that Kanarek pay to the Hatches the sum of $93,000 over a period of several years. The first payment of $10,000 was due January 1, 1985. The stipulation also provided that the court was to order compliance and to "reserve jurisdiction to enter such further orders as may be necessary or appropriate to carry out this Stipulation and Order...." The Stipulation and Order was entered May 16, 1984. The Hatches departed from the property and returned to California.

On September 17, 1984, Kanarek filed a three-count complaint in the federal district court in Honolulu, on the Island of Oahu (the "federal action"). The first count of the complaint was labeled "Breach of Contract" and stated that Kanarek and the Hatches had entered into a "Stipulation and Order" that had been filed with the Fifth Circuit Court of the State of Hawaii and "adopted as an order of the State Court." The complaint further alleged that the Hatches had breached the agreement set forth in the Stipulation and Order, (1) by disclosing the terms of the settlement, in violation of a provision that the terms of the settlement would be kept confidential; and (2) by removing from the premises articles of property other than those authorized by the Stipulation and Order. In the first count, Kanarek sought a declaration that the Hatches had materially breached the agreement entitling Kanarek to suspend payments and awarding damages of $100,000 for the breach. The second count of the complaint alleged a claim for defamation, contending that the Hatches had made slanderous statements about Kanarek after the date of the settlement. The third count of the complaint was a claim for intentional infliction of emotional distress based on the same alleged statements. The complaint sought compensatory damages of $50,000 and punitive damages of $100,000 on the second and third counts.

The Hatches filed a motion to dismiss the federal action on December 17, 1984, for lack of personal and subject matter jurisdiction. One of the grounds for this motion was that the federal court lacked subject matter jurisdiction because the Stipulation and Order reserved jurisdiction for its enforcement in the state court.

While the motion to dismiss was pending in the federal action, the Hatches filed a motion for specific performance of the Stipulation and Order in the state court. The reason for this motion was that Kanarek had failed to make the first payment under the agreement, due January 1, 1985. This motion for specific performance was discussed with the district judge during the hearing on the motion to dismiss the federal action.

District Judge Quackenbush ruled orally at the hearing on February 8, 1985, that there was personal and subject matter jurisdiction and denied the motion to dismiss. He stated:

I am satisfied that there is jurisdiction in this court, and I will deny the Motion to Dismiss for lack of jurisdiction. However, I want it made clear--well, let me also state that I feel that the fact that the settlement agreement said that it may be enforced in state court does not preclude this action; it does not provide for exclusive jurisdiction in the state court. But let me also make it clear so that the state court judge will understand that I do not feel that this court has exclusive jurisdiction whatsoever, and that I feel it is appropriate for the state court to proceed with the hearing on the Motion to Compel. On the other hand, the personal tort claims clearly are not so connected to the settlement agreement that they should not be pursued in this court. Obviously this court has jurisdiction.

What I am saying in summary is that if the state court determines to enforce the agreement, then I would feel that that state court decision is res judicata as to the breach of contract claims, breach of the settlement agreement claims as to those issues decided by the state court.

It should be noted that this ruling was simply a ruling that the district court had jurisdiction. The...