Mark Industries, Ltd. v. Sea Captain's Choice, Inc.

• Citation: 50 F.3d 730
• Decision Date: 21 March 1995
• Docket Number: Nos. 93-35028,93-35173,s. 93-35028
• Parties: MARK INDUSTRIES, LIMITED, a Washington corporation, Plaintiff-Appellee, v. SEA CAPTAIN'S CHOICE, INC., an Alaska corporation, et al., Defendants, Gregory L. Bertram, Esq., and Gregory L. Bertram & Associates, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 730

50 F.3d 730

31 Fed.R.Serv.3d 823

MARK INDUSTRIES, LIMITED, a Washington corporation, Plaintiff-Appellee, v. SEA CAPTAIN'S CHOICE, INC., an Alaska corporation, et al., Defendants Gregory L. Bertram, Esq., and Gregory L. Bertram &amp Associates, Appellant.

Nos. 93-35028, 93-35173.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 9, 1994.

Decided March 21, 1995.

John T. Dalton, Merrick, Hofstedt & Lindsey, Seattle, WA, for appellant.

No appearance, for plaintiff-appellee.

Appeals from the United States District Court for the Western District of Washington.

Before: POOLE, BRUNETTI and KLEINFELD, Circuit Judges.

POOLE, Circuit Judge:

Gregory L. Bertram, Esq. (Bertram), appeals the district court's orders imposing Rule 11 and inherent power sanctions for entering into and filing a stipulated order of dismissal without the consent of his client, Mark Industries, Ltd. (Mark Industries). We affirm on the basis that the district court had inherent powers to sanction Bertram for his conduct, but vacate and remand regarding the amount of the sanction.

I. FACTUAL AND PROCEDURAL BACKGROUND

On July 27, 1990, Bertram filed a civil complaint against Sea Captain's Choice in the Western District of Washington on behalf of Mark Industries, Ltd. Bertram directed the case through substantial discovery. Trial was set for September 29, 1992.

Slightly more than one month before trial Bertram moved to withdraw, primarily because of disputes over fees. Judge William Dwyer denied the motion on September 18, 1992. Four days later, on September 22, 1992, Bertram lodged with the court a stipulated dismissal of Mark Industries' complaint and defendant's counterclaims, without prejudice. The following day Bertram's client filed a motion pro se to vacate the dismissal because he had not been consulted about the dismissal. At a hearing on October 5, 1992, Judge Jack E. Tanner found that Bertram had not notified his client of the dismissal and ordered Bertram to return all attorney fees paid to him by Mark Industries in this case as a sanction. Bertram and his client were ordered to submit an accounting to the court.

Bertram filed a motion for reconsideration on October 19, 1992, which was denied on December 4, 1992. Bertram filed his notice of appeal from that order on December 31, 1992. On January 26, 1993 Judge Tanner issued a written order requiring Bertram to pay Mark Industries all attorney's fees, costs, and proceeds received by Bertram during the course of this litigation which totalled $23,489.49. A notice of appeal on that appended order was filed on February 12, 1993.

Bertram's appeals were consolidated in this court on April 12, 1993. The owner of Mark Industries, Kenneth Rosenberg, has attempted to challenge Bertram's appeal in this court on a pro se basis. Because Rosenberg has failed to comply with several orders of this court he has been barred from filing any documents in this case.

II. DISCUSSION

A. Jurisdiction and Standard of Review

The district court's order requiring attorney Bertram to pay sanctions to his former client was a conclusively determined question completely separate from the merits of the underlying action and effectively unreviewable from a final judgment in that matter. Accordingly, 28 U.S.C. Sec. 1291 review is appropriate under the collateral order exception to Sec. 1291's finality requirement. See Estate of Bishop v. Bechtel Power Corp., 905 F.2d 1272, 1274 (9th Cir.1990).

We review the district court's order imposing sanctions under Federal Rule of Civil Procedure 11 for abuse of discretion. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 2460, 110 L.Ed.2d 359 (1990); United States v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir.1992). A district court abuses its discretion in imposing sanctions when it bases its decision "on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Cooter & Gell, 496 U.S. at 405, 110 S.Ct. at 2461.

We review the district court's imposition of sanctions pursuant to its inherent powers for abuse of discretion. Chambers v. NASCO, Inc., 501 U.S. 32, 55, 111 S.Ct. 2123, 2138, 115 L.Ed.2d 27 (1991).

B. Rule 11

Bertram argues that Rule 11 does not authorize sanctions in favor of a party against its own attorney. Bertram contends that the purpose of Rule 11 is to deter abuses of the litigation process which have the potential of harming the interests of the opponent, not to discipline attorneys for breaches of duty to their own clients.

We agree with Bertram's argument regarding Rule 11. The rule says that if a paper is filed violating it, the court "shall impose ... an appropriate sanction, which may include an order to pay to the other party or parties the amount of reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee." Fed.R.Civ.P. 11 (emphasis added).

The express reference to "the other party" implies that sanctions are payable to adversaries, not by a violating lawyer to his own client. This construction is supported by the Advisory Committee Notes on the 1983 amendment. The Notes say that the rule expands the doctrine providing for payment "to a litigant whose opponent acts in bad faith." Fed.R.Civ.P. 11 Advisory Committee Notes to 1983 Amendment (emphasis added) See In re Rolls Constr. Co. v. Johnson, 108 B.R. 807, 808 (Bankr.S.D.Fla.1989).

C. Inherent Powers

Nevertheless, the district court also ordered sanctions pursuant to its inherent powers. In Chambers v. NASCO, Inc., when the court determined that Rule 11 and 28 U.S.C. Sec. 1927 did not apply, it nonetheless determined that sanctions were appropriate as an exercise of the court's inherent powers. 501 U.S. at 41-42, 50, 111 S.Ct. at 2030-31, 2136 ("[I]f in the informed discretion of the court, neither the statute nor the Rules are up to the task, the court may safely rely on its inherent power."). Courts have power to discipline the members of the bar who appear before it. Id. at 43, 111 S.Ct. at 2132; Ex parte Burr, 22 U.S. (9 Wheat.) 529, 6 L.Ed. 152 (1824). The district court had discretion to discipline Bertram pursuant to its inherent powers for willful abuse of the judicial process or bad faith conduct. In re Itel Securities Litigation, 791 F.2d 672, 675 (9th Cir.1986), cert. denied, 479 U.S. 1033, 107 S.Ct. 880, 93 L.Ed.2d 834 (1987). "For purposes of imposing sanctions under the inherent power of the court, a finding of bad faith 'does not require that the legal and factual basis for the action prove totally frivolous; where a litigant is substantially motivated by vindictiveness, obduracy, or mala fides, the assertion of a colorable claim will not bar the assessment of attorney's fees.' " Id. (quoting Lipsig v. National Student Marketing Corp., 663 F.2d 178, 182 (D.C.Cir.1980)).

Bertram argues that he did not enter into the stipulated dismissal of his client's claim in bad faith. The district court, however, explicitly found that Bertram "acted in bad faith by: 1. filing a stipulation which he knew his client had no knowledge of, and had neither discussed nor approved; ... 3. misrepresenting to the Court that the dismissal was stipulated to in an attempt to circumvent United States District Court Judge William Dwyer's Order Denying Mr. Bertram's previous motion to withdraw." Bertram would have us focus on the substantive concerns he claims he had for his client's imminent trial which lay behind his stipulating to dismissal without prejudice. We note, however, that this stipulation was negotiated within hours of having unsuccessfully attempted to withdraw from representation. It was well within the district court's discretion to consider Bertram's unauthorized negotiation and stipulation a bad faith attempt to skirt the court's order.

Bertram's focus on the fact that the stipulation was to dismiss without prejudice is misplaced. Whether or not Mark Industries' rights were compromised, Bertram effectively circumvented a district court's order. The district court did not abuse its discretion by sanctioning Bertram pursuant to its inherent powers.

D. Amount of Sanction

Bertram argues that even if sanctions apply it is inappropriate to have him reimburse all fees and costs collected from his client during the course of this litigation. Bertram relies primarily upon Rule 11 cases which have determined that the appropriate sanction is the actual cost of the opposing party's response to a frivolous or vexatious motion. See, e.g., Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 406-07, 110 S.Ct. 2447, 2461, 110 L.Ed.2d 359 (1990)...