LaPrade v. Kidder Peabody & Co., Inc.

• Decision Date: 23 June 1998
• Docket Number: No. 97-7107,97-7107
• Citation: 146 F.3d 899
• Parties: Linda E. LaPRADE, Liddle & Robinson, L.L.P, Appellant, v. KIDDER PEABODY & CO., INCORPORATED, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 899

146 F.3d 899

330 U.S.App.D.C. 386

Linda E. LaPRADE, Liddle & Robinson, L.L.P, Appellant, v. KIDDER PEABODY & CO., INCORPORATED, Appellee.

No. 97-7107.

United States Court of Appeals District of Columbia Circuit.

Argued May 15, 1998.

Decided June 23, 1998.

Appeal from the United States District Court for the District of Columbia (No. 91cv03330).

Jacob A. Stein argued the cause for appellant, with whom George A. Fisher was on the briefs.

Andrew J. Schaffran argued the cause for appellee, with whom Kathy B. Houlihan was on the brief.

Before: WILLIAMS, RANDOLPH and ROGERS, Circuit Judges.

ROGERS, Circuit Judge:

In June 1992, the district court stayed an action brought by Linda E. LaPrade against her former employer, Kidder Peabody & Co., because the dispute was covered by a valid arbitration agreement. Due to various delays, the first set of arbitration sessions did not take place until May and June of 1995 and the next set was not scheduled to begin until November 1996. The day before the arbitration was to resume, LaPrade's counsel, appellant Liddle & Robinson, L.L.P., obtained an ex parte order from a New York state court staying the arbitration. Liddle & Robinson did not inform that court of the district court's earlier order staying the original action and retaining jurisdiction. On the motion of Kidder Peabody, the district court lifted the stay imposed by the state court, imposed sanctions against Liddle & Robinson under 28 U.S.C. § 1927 for its "vexatious and dilatory tactics," and awarded Kidder Peabody $74,951.14 in attorneys' fees. On appeal, Liddle & Robinson contends that the district court did not have jurisdiction to enter this order and that it abused its discretion by imposing sanctions. We affirm.

I.

On December 31, 1991, LaPrade filed suit against Kidder Peabody in the United States District Court for the District of Columbia. She asserted various common law and statutory claims arising from her employment and termination by Kidder Peabody; jurisdiction was based on diversity of citizenship under 28 U.S.C. § 1332. Because LaPrade and Kidder Peabody had entered into an arbitration agreement, Kidder Peabody moved to stay the action pursuant to section 3 of the Federal Arbitration Act ("Arbitration Act"), which directs that the court "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3 (1994). On June 24, 1992, the district court granted Kidder Peabody's motion to stay the action pending arbitration and retained jurisdiction, instructing "the parties [to] notify the Court once arbitration is completed as to what further proceedings in this Court are appropriate."

Arbitration did not proceed smoothly. After appealing the initial stay order unsuccessfully and filing a second action in the district court against Kidder Peabody, which was consolidated with the first and likewise stayed pending arbitration, ¹ LaPrade finally commenced arbitration before the National Association of Securities Dealers ("NASD") on September 30, 1993. After extensive discovery and repeated scheduling conflicts, the NASD held twelve hearing sessions in New York City between May 1 and June 21, 1995, almost three years after the initial stay order by the district court. Additional scheduling conflicts and a dispute among the members of the arbitration panel resulted in further delays, and the next round of hearings was not scheduled to begin until November 20, 1996.

The day before the hearings were set to recommence, however, Liddle & Robinson, whom LaPrade had retained to represent her before the NASD, filed an action in New York state court seeking an ex parte order that "the arbitration hearings ... be stayed and the parties referred to their court remedies, or in the alternative, that the NASD be ordered to disqualify the present arbitration panel, and for such other and further relief as may be just and proper." Notably, Liddle & Robinson did not notify the New York state court that the federal district court had earlier entered an order staying LaPrade's action pending arbitration but retaining jurisdiction. The New York state court issued the requested ex parte order staying the arbitration, and the series of nine arbitration sessions scheduled to begin the next day was canceled.

Informed of Liddle & Robinson's ex parte actions before the New York state court only after the stay was granted, Kidder Peabody returned to the district court on November 25, 1996, requesting an emergency order directing LaPrade to withdraw her petition in New York state court, holding Liddle & Robinson in contempt, and imposing sanctions pursuant to 28 U.S.C. § 1927. The district court denied the request for a temporary restraining order, but subsequently issued a preliminary injunction and granted Kidder Peabody's other requests for relief. The New York state court action, the district court found, "constitutes an interference with the arbitration currently pending between the parties ... [and] an interference with the jurisdiction of this Court." Thus, the district court enjoined LaPrade and her counsel from engaging in further proceedings before the New York state court, lifted the stay imposed by that court, and entered sanctions against Liddle & Robinson. On this last point, the district court ordered that:

plaintiff's counsel, the law firm of Liddle & Robinson, ... shall compensate Kidder, Peabody & Co., for the vexatious and dilatory tactics of plaintiff's counsel in filing ex parte papers in the State Court proceeding, without any notice to the State Court of the actions pending before this Court, and without any notice to the State Court of this Court's arbitration orders, all of which multiplied the proceedings.

The district court directed Kidder Peabody to file a statement of "the attorneys' fees, costs, and other expenses reasonably incurred as a result of the improper activities of plaintiff's counsel." Thereafter, Kidder Peabody submitted a figure of $83,279.04, based on a total of 333.5 hours of work by six partners, seven associates, two legal assistants, and four other staffers of Kidder Peabody's counsel. Eighty-six percent of the hours worked by partners was attributable to one partner, however, and eighty-nine percent of the hours worked by associates was attributable to three particular associates. Liddle & Robinson objected to both the district court's decision to grant attorneys' fees and the amount sought by Kidder Peabody. In particular, Liddle & Robinson claimed that the award of fees was inappropriate because its pursuit of an ex parte state court order was a tactic previously approved by the Second Circuit in McMahon v. Shearson/American Express, Inc., 896 F.2d 17 (2d Cir.1990); that the attorneys' fees statement showed that Kidder Peabody's counsel performed duplicative and excessive work (although Liddle & Robinson did not challenge the reasonableness of the rate charged per hour); that there was no proof that Kidder Peabody had actually "incurred" the claimed expenses; and that an evidentiary hearing was necessary to determine which fees and expenses were reasonably incurred.

The district court rejected Liddle & Robinson's attempts to reargue the merits of the sanctions award but agreed that Kidder Peabody's proposed figure for attorneys' fees required some adjustment. The court found that Kidder Peabody's counsel had expended an unreasonable number of hours on the project; thus, the district court reduced the award from the requested figure of $83,279.04 to a figure ten percent lower: $74,951.14.

II.

Liddle & Robinson first contends that the district court lacked jurisdiction to enter the sanctions order. Although the district court clearly intended to retain jurisdiction over the stayed actions, Liddle & Robinson maintains that it could not do so under the Arbitration Act. The district court only stayed the actions and never actually ordered the parties to enter arbitration. Hence, Liddle & Robinson contends, it had no jurisdiction over the arbitration proceedings in New York City, and thus no jurisdiction to impose sanctions based on Liddle & Robinson's conduct related to those proceedings.

Liddle & Robinson's contention turns on the distinction between sections 3 and 4 of the Arbitration Act. Section 3 empowers a district court only to stay an action, leaving to the claimant the choice of arbitrating the claims or abandoning them. ² See 9 U.S.C. § 3; see also The Anaconda v. American Sugar Refining Co., 322 U.S. 42, 45, 64 S.Ct. 863, 88 L.Ed. 1117 (1944). Section 4 allows the court to issue orders directing arbitration. ³ See 9 U.S.C. § 4 (1994). The district court stayed the actions brought by LaPrade against Kidder Peabody under section 3, and did not direct arbitration under section 4; hence, Liddle & Robinson contends that the district court had "no power to superintend and direct the pending arbitration in New York City."

However, the district court did not have to rely upon the Arbitration Act for jurisdiction. The district court's jurisdiction derived from the original diversity suit, which was only stayed (not dismissed) pending the results of arbitration. While Liddle & Robinson is correct that section 3 of the Arbitration Act was not itself a source of jurisdiction for the district court to consider Kidder Peabody's motion for sanctions, see Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), it also did not divest the district court of jurisdiction over the case: "The section obviously envisages action in a court on a cause of action and does not oust the court's jurisdiction of the action, though the parties have agreed to arbitrate." The Anaconda, 322 U.S. at 44, 64 S.Ct. 863; accord Morris v. Morgan Stanley & Co., 942 F.2d 648, 653-54 (9th Cir.1991); Transportes Caribe, S.A. v....