Lebovitz v. Miller
| Citation | 856 F.2d 902 |
| Decision Date | 06 September 1988 |
| Docket Number | No. 88-1030,88-1107,88-1030 |
| Parties | , RICO Bus.Disp.Guide 7031 Sheila LEBOVITZ, Plaintiff, v. Willie J. MILLER, Defendant-Appellee, Cross-Appellant, Appeal of Jerome H. TORSHEN and Jerome H. Torshen, Ltd., Appellants, Cross- Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Jerome H. Torshen, Torshen, Schoenfield and Spreyer, Ltd., Chicago, Ill., for plaintiff.
Robert W. Queeney, McBride, Baker & Coles, Chicago, Ill., for defendant-appellee, cross-appellant.
Before BAUER, Chief Judge, CUMMINGS, and CUDAHY, Circuit Judges.
The issues presented by this appeal and cross-appeal deal with (1) the district court's imposition of Rule 11 sanctions, see Fed.R.Civ.P. 11, against an attorney and his law firm for failing to undertake a reasonable inquiry before filing a complaint and (2) the court's refusal to impose additional sanctions against the attorney and his firm for opposing and losing defendant Miller's motion to disqualify them as counsel. We reverse the judgment insofar as it imposes sanctions and affirm the judgment insofar as it declines to award additional sanctions.
This lawsuit involved the award of a food service concession from the City of Chicago for its building at 510 N. Peshtigo Court formerly occupied by the Kraft food company. Torshen (Attorney Jerome H. Torshen and his firm, Jerome H. Torshen, Ltd.), represented Sheila Lebovitz, whose bid for the contract ultimately lost, and filed a complaint on her behalf. The complaint named as defendants two city officials, Acting Purchasing Agent William R. Spicer and Deputy Purchasing Agent Charles Banks, and an individual, businessman Willie J. Miller, the only defendant involved in this appeal. Count I alleged a RICO claim, see Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Sec. 1961 et seq., while Count II alleged an Illinois state law claim of tortious interference with legitimate business expectations. The complaint was dismissed after the defendants successfully moved to disqualify Torshen and Lebovitz was ultimately unable to retain new counsel.
Six months after the complaint was filed, Miller filed a motion for Rule 11 sanctions on the ground that the complaint against him was baseless. Magistrate Lefkow, to whom the case had been referred, recommended that Torshen and his firm not be sanctioned. Judge Plunkett disagreed, concluding Torshen had failed to conduct a reasonable pre-filing inquiry as to Miller's role, and Miller was therefore awarded $7,340 attorney's fees and $958 costs. App. 15. 1 Judge Plunkett agreed with the magistrate's recommendation that Torshen not be sanctioned for opposing the motion seeking to disqualify him. Torshen appeals from the award of sanctions and Miller cross-appeals from the denial of further sanctions and also seeks attorney's fees and costs on appeal. Torshen requests sanctions for having to defend Miller's motion for sanctions.
The City of Chicago solicited bids for a food service concession in the Kraft building. Lebovitz alleged that after submitting a bid
she had been given assurances by City officials that she would receive the subject contract. The assurances were intercepted, however, when authority for letting the contract was shifted from one department of the City to another. The new officials reopened the bids and plaintiff was again informed that her bid was the most qualified. Thereafter, however, the officials demanded that plaintiff form a joint venture with Miller....
Supp.App. 1-2. Miller was one of three partners in Ann's & Company's Famous Pizza & Caterers ("Ann's") which had submitted a bid after the bids had been reopened. However, only Miller was to be part of the proposed joint venture with Lebovitz. Banks told Lebovitz, in Miller's presence, that she had to form a joint venture with Miller in order to get the contract. Miller also reiterated this to Lebovitz.
[Lebovitz] accepted the ultimatum because of fear that she would lose the contract entirely. She worked out an arrangement with Miller. Then the officials demanded that [Lebovitz] withdraw her joint venture agreement from the City Council Committee where it was then pending and threatened that if she did not, "you'll get dirtied up."
Supp.App. 2. After Lebovitz refused to give up, the joint venture agreement was withdrawn by Spicer and Banks. Eventually the Kraft contract was awarded to a third party.
Lebovitz contacted Torshen during the bidding process. Among the things he discovered while attempting to learn the status of Lebovitz's bid was that, of the three partners in Ann's, Miller appeared to lack experience in the food service business. In addition, Ann's food license, obtained only one month before its bid was submitted, was issued to one of Miller's partners, not Miller. Moreover, the partnership's written partnership agreement, submitted with its bid, was dated one day after the bid was submitted.
We recently discussed the standard appropriate for reviewing a district court's decision to deny or award sanctions under Rule 11, see generally Federal Deposit Insurance Corp. v. Tekfen Const. and Installation Co., 847 F.2d 440, 442-43 (7th Cir.1988), noting that this Circuit has applied "one of two mutually inconsistent two-pronged tests." Id. at 443. Although it is agreed that factual determinations underlying an award of sanctions are subject to review only for clear error, id., some cases hold that the legal determination that sanctions are proper is reviewable only for an abuse of discretion, see, e.g., In re Ronco, 838 F.2d 212, 217 (7th Cir.1988), while others hold that the legal determination that Rule 11 has been violated is reviewable de novo, see, e.g., Brown v. Federation of State Medical Boards, 830 F.2d 1429, 1434 (7th Cir.1987). Most recently, we reiterated that the decision on whether Rule 11 has been violated is a judgment call to which we apply a deferential standard of review. Tekfen, 847 F.2d at 443; Fred A. Smith Lumber Co. v. Edidin, 845 F.2d 750, 751 (7th Cir.1988). In any event, "although the definition of a frivolous legal position is itself a question of law, there will often be factual questions concerning the actual position the litigant took--questions on which the court of first instance has the leading role." In the Matter of Central Ice Cream Co., 836 F.2d 1068, 1072 (7th Cir.1987). As in Tekfen, we find it unnecessary to reconcile these differing standards. Even according deference to Judge Plunkett's conclusion, the award of sanctions was improper.
The complaint alleged that Miller conspired with Spicer and Banks to deprive Lebovitz of the Kraft contract. As the magistrate and district court agreed, "The gist of Miller's motion [for sanctions] is that there is no evidence that Miller, who was not a city official, but only a fellow bidder, did anything wrongful and therefore the suit is wholly unfounded against him." Supp.App. 3; App. 5.
Under Rule 11, a lawyer signing a document certifies, among other things, that after reasonable inquiry, the document is well-grounded in fact.
Rule 11 imposes an affirmative duty of reasonable investigation on an attorney signing any court paper. Whether the pre-filing investigation was reasonable depends on the circumstances of each case, S.A. Auto Lube, Inc. v. Jiffy Lube International, Inc., 842 F.2d 946, 948 (7th Cir.1988), and the signer's investigation need not be carried to the point of certainty. Nemmers v. United States, 795 F.2d 628, 632 (7th Cir.1986).
Fred A. Smith Lumber, 845 F.2d at 751. The use of discovery to bring out essential facts is of course permitted under a system of notice pleading. Nemmers, 795 F.2d at 632. The amount of time available to investigate and the probability that more investigation would turn up important evidence dictate the amount of investigation required by the rule, which "does not require steps that are not cost-justified." Szabo Food Service, Inc. v. Canteen Corp., 823 F.2d 1073, 1083 (7th Cir.1987), certiorari dismissed, --- U.S. ----, 108 S.Ct. 1101, 99 L.Ed.2d 229 (1988).
Whether or not a reasonable inquiry has been made depends on several factors:
Whether the signer of the documents had sufficient time for investigation; the extent to which the attorney had to rely on his or her client for the factual foundation underlying the pleading, motion, or other paper; whether the case was accepted from another attorney; the complexity of the facts and the attorney's ability to do a sufficient pre-filing investigation; and whether discovery would have been beneficial to the development of the underlying facts.
Brown, 830 F.2d at 1435. The conclusion that a reasonable inquiry has or has not been made thus involves both legal and factual determinations.
Because the merits of Lebovitz's complaint have never been tested and Miller's role has not been legally determined, this Court is at a slight disadvantage in assessing the overall reasonableness of Torshen's investigation. This is not a case where we can simply compare the facts as alleged in the complaint with the facts as they existed. Compare, e.g., Medical Emergency Services, S.C. v. Foulke, 844 F.2d 391 (7th Cir.1988) (). As a result, the factors outlined in Brown (amount of time available to investigate, source of information, ability to investigate, etc.) are not particularly helpful here.
Therefore, although the district court characterized the basis for the sanctions as Torshen's failure to undertake a reasonable inquiry before joining Miller in the suit, the sanctions really involve the reasonableness of inferring, from the facts...
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