Knorr Brake Corp. v. Harbil, Inc.

• Decision Date: 29 June 1984
• Docket Number: No. 83-1318,83-1318
• Citation: 738 F.2d 223
• Parties: KNORR BRAKE CORP., a Delaware corporation, Plaintiff-Appellee, v. HARBIL, INC., an Illinois corporation, and P.E.P. Industries, Ltd., Defendants. Appeal of Kirkpatrick W. DILLING, Dennis M. Gronek, and Robert E. Armstrong, Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 223

738 F.2d 223

KNORR BRAKE CORP., a Delaware corporation, Plaintiff-Appellee, v. HARBIL, INC., an Illinois corporation, and P.E.P Industries, Ltd., Defendants Appeal of Kirkpatrick W. DILLING, Dennis M. Gronek, and Robert E. Armstrong, Appellants.

No. 83-1318.

United States Court of Appeals Seventh Circuit.

Argued Feb. 23, 1984.

Decided June 29, 1984.

Kirkpatrick W. Dilling, Dilling, Dilling & Gronek, Chicago, Ill., for appellant.

Michael J. Garvey, Baker & McKenzie, Chicago, Ill., for plaintiff-appellee.

Before PELL, and FLAUM, Circuit Judges, and HENLEY, Senior Circuit Judge. ^*

FLAUM, Circuit Judge.

This appeal raises the issue of whether the district court abused its discretion in assessing attorneys' fees against the appellant attorneys pursuant to 28 U.S.C. Sec. 1927 (1982). We conclude that the record is not adequate to support an award of fees, and thus, we reverse the judgment and remand for a new determination of whether an award of attorneys' fees is appropriate.

I

On December 8, 1981, Knorr Brake Corporation brought a breach of contract suit against Harbil, Inc., and P.E.P. Industries, Ltd. Mr. Dilling, Mr. Gronek, and Mr. Armstrong, appellants here, entered their appearances as counsel for the defendants. Defendants answered the complaint and Harbil simultaneously filed a countercomplaint against Knorr Brake and Knorr-Bremse GmbH, Knorr Brake's West German corporate parent (hereinafter collectively "Knorr"). Harbil alleged, inter alia, breach of fiduciary duty, and it sought damages and equitable relief. Knorr moved to dismiss the countercomplaint; the motion later was converted to one for summary judgment pursuant to Rule 12(b) of the Federal Rules of Civil Procedure.

On August 12, 1982, Harbil filed its First Amended Countercomplaint, designating seven proposed individual counterdefendants. The seven individuals were employees of Knorr; six were aliens and one was a citizen of Maryland. That same day, Harbil filed a motion to join the additional counterdefendants.

Count V of the amended complaint contained the allegation against the individuals:

[T]he corporate and individual counterdefendants have conspired, agreed and acted in concert, the individuals proceeding therein as individuals, to cause the consequences, injury and damages specified in Counts I, II, III, and IV hereof to occur.

Count V also alleged that the actions complained of were at the instigation of and for the benefit of two other Knorr corporations, Knorr-Bremse/South Africa and Knorr-Bremse/Brazil. The amended countercomplaint alleged that Knorr-Bremse GmbH had engaged in specified activities within Illinois and that each individual counterdefendant was subject to personal jurisdiction either by doing acts within Illinois and/or by causing such acts to be done within Illinois.

On August 17, 1982, the court held a status hearing. At that time, the court instructed Harbil's counsel that before it would grant leave to add the individual defendants, counsel

ought to be in a position to make at least some threshold showing about the potential jurisdiction over the group of individuals that you are now seeking to add, and also dealing with the question whether a claim for conspiracy will lie when we are dealing with a group of individuals and their corporation, that is, in what amounts to an intracorporate conspiracy ....

Transcript of August 17 Status Hearing at 2. The court established a briefing schedule.

On September 1, 1982, Harbil's counsel filed a memorandum in support of its motion to add the individuals. That memorandum did not discuss the issue of personal jurisdiction; it did discuss cases relating to conspiracy. On September 13, Knorr filed its responsive memorandum and a motion for attorneys' fees. Knorr claimed that the cases cited by Harbil had been overruled. The district court ordered Harbil to respond to the memorandum and to the motion.

Harbil filed its reply memorandum. Harbil stated that it would not respond at that time to Knorr's motion for fees because the district court had not yet ruled on the motion to add the additional parties. As to jurisdiction, Harbil cited provisions of the Illinois long-arm statute, repeated the allegations of its countercomplaint, and named two of the proposed defendants as being present in Illinois to execute the underlying agreement. Harbil also cited an Illinois case regarding personal jurisdiction as to co-conspirators. Harbil distinguished the cases cited by Knorr.

On October 27, 1982, the district court denied Harbil's motion to add the additional counterdefendants. Knorr Brake Corp. v. Harbil, Inc., 550 F.Supp. 476 (N.D.Ill.1982) [hereinafter cited as Knorr I ]. The court held that Harbil had not supported personal jurisdiction under the Illinois long-arm statute. The court also held that Harbil had not supported its claim of intracorporate conspiracy.

The appellants withdrew as Harbil's counsel in the case for all purposes except as to the motion for attorneys' fees. The parties then briefed the attorneys' fees issue. The district court did not hold a hearing before deciding to impose fees. The district court awarded attorneys' fees to Knorr and ordered appellants personally to satisfy the award. Knorr Brake Corp. v. Harbil, Inc., 556 F.Supp. 484 (N.D.Ill.1983) [hereinafter cited as Knorr II ]. The court fixed the amount of the award at $6,914.50. At some later point, Knorr and Harbil settled the underlying lawsuit.

On appeal, appellants argue that the court abused its discretion in awarding fees. Appellees argue that fees were appropriate because the motion to join the individuals was frivolous, and appellants miscited precedent and failed to comply with the district court's specific orders.

II

We first must address the issue of our jurisdiction to hear this appeal. Knorr argues that an order awarding attorneys' fees in a non-common fund case is not appealable where there has been no judgment on the merits of the underlying lawsuit. Appellants argue that the order here is appealable as a collateral order.

This court recently accepted the proposition that an order assessing attorneys' fees against a party's former counsel was appealable when entered even though there had been no judgment on the merits. Tamari v. Bache & Co. (Lebanon) S.A.L., 729 F.2d 469 (7th Cir.1984). Tamari involved an assessment of attorneys' fees under Rule 37 of the Federal Rules of Civil Procedure for failure to comply with a discovery order.

Other circuits have held that an order assessing fees under section 1927 is appealable when entered. Cheng v. GAF Corp., 713 F.2d 886, 887, 888-90 (2d Cir.1983); Mesirow v. Pepperidge Farm, Inc., 703 F.2d 339, 345 (9th Cir.), cert. denied, --- U.S. ----, 104 S.Ct. 83, 78 L.Ed.2d 93 (1983). We agree.

To be appealable as a collateral order, an order must meet three criteria. "[T]he order must conclusively determine the disputed question, resolve an important issue completely separate from the merits of the action, and be effectively unreviewable on appeal from a final judgment." Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2458, 57 L.Ed.2d 351 (1978). The order here, assessing attorneys' fees and setting the amount of fees, was a conclusive determination. The fee award is completely separate from the merits of the case. The Supreme Court has noted, "[F]ee requests are not inherently or necessarily subsumed by a decision on the merits." White v. New Hampshire Department of Employment Security, 455 U.S. 445, 451 n. 13, 102 S.Ct. 1162, 1166 n. 13, 71 L.Ed.2d 325 (1982). Here, the award was assessed against nonparties who no longer have any connection to the case, and as such, it is unconnected to the merits of the underlying lawsuit. Finally, the fee award is not effectively reviewable on appeal from the final judgment on the underlying suit. When the fees were assessed, there was a possibility that the appellants' former client ultimately would prevail on the merits or that the case would be settled. It is not clear that in either event the appellant attorneys, who are no longer connected to the merits of this case, would be able to appeal from the final judgment. Thus, we conclude that the award of attorneys' fees here is appealable as a collateral order.

III

The district court assessed attorneys' fees against appellants based on 28 U.S.C. Sec. 1927 (1982). Section 1927 provides:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct.

Section 1927 clearly is punitive and thus must be construed strictly. Badillo v. Central Steel & Wire Co., 717 F.2d 1160, 1166 (7th Cir.1983). A court may impose section 1927 fees only to sanction needless delay by counsel. Reid v. United States, 715 F.2d 1148, 1154 (7th Cir.1983). The purpose of section 1927 is to penalize attorneys who engage in dilatory conduct. House Conf.Rep. No. 1234, 96th Cong., 2d Sess. 8, reprinted in 1980 U.S.Code Cong. & Ad.News 2781, 2782 ("Conference Report"). To be liable under section 1927, counsel must have engaged in "serious and studied disregard for the orderly process of justice." Overnite Transportation Co. v. Chicago Industrial Tire Co., 697 F.2d 789, 795 (7th Cir.1983) (quoting Kiefel v. Las Vegas Hacienda, Inc., 404 F.2d 1163, 1167 (7th Cir.), cert. denied, 395 U.S. 908, 89 S.Ct. 1750, 23 L.Ed.2d 221 (1969)). Where, as here, counsel's alleged misconduct was the filing and arguing of a claim, ¹ it is not sufficient that the claim be found meritless; the claim must be without a plausible legal or factual basis and lacking in justification. Overnite Transportation Co. v. Chicago Industrial Tire Co., 697 F.2d at 794-95; see Tuf-Flex Glass v. NLRB, 715 F.2d 291, 298 (...