McShares, Inc. v. Barry

• Decision Date: 18 December 1998
• Docket Number: No. 80,527,80,527
• Citation: 266 Kan. 479,970 P.2d 1005
• Parties: , 1999-1 Trade Cases P 72,445 McSHARES, INC., Appellant, v. Donald D. BARRY, et al., Appellees.
• Court: Kansas Supreme Court

Page 1005

970 P.2d 1005

266 Kan. 479, 1999-1 Trade Cases P 72,445

McSHARES, INC., Appellant, v. Donald D. BARRY, et al., Appellees.

No. 80,527.

Supreme Court of Kansas.

Dec. 18, 1998.

Syllabus by the Court

1. Absent an express statement by Congress that state law is preempted, preemption occurs where there is an actual conflict between federal and state law, where compliance with both federal and state law is, in effect, physically impossible, where Congress has occupied the entire field of regulation and leaves no room for states to supplement federal law, or when the state law stands as an obstacle to the accomplishment and execution of the full objectives of Congress.

2. Federal Rule of Civil Procedure 11 is a procedural tool to sanction counsel for frivolous or abusive litigation; it does not exclude the filing of a state action for malicious prosecution and abuse of process arising out of Sherman Antitrust Act, 15 U.S.C. 1 et seq. (1994), litigation.

Dianne M. Hansen and Thomas M. Bradshaw, of Armstrong, Teasdale, Schlafly & Davis, of Kansas City, Missouri, argued the cause, and J. Stan Sexton, of Hampton Royce Engleman & Nelson, of Salina, was with them on the briefs for appellant.

Arlen L. Tanner, of Wallace, Saunders, Austin, Brown & Enochs, Chartered, of Overland Park, argued the cause, and Norman I. Reichel, of the same firm, and Norman R. Kelly, of Norton, Wasserman, Jones & Kelly, of Salina, were with him on the brief for appellees Donald D. Barry and Anthony S. Barry.

Stephen J. Torline, of Blackwell Sanders Matheny Weary & Lombardi, LLP, of Overland Park, argued the cause, and James D. Griffin, of the same firm, was with him on the brief for appellee David H. Weinstein.

Catherine M. Walberg, of Goodell, Stratton, Edmonds & Palmer, L.L.P., of Topeka, argued the cause, and Wayne T. Stratton, of the same firm, was with her on the brief for appellees Barrack, Rodos & Bacine, a General Partnership, P.C.; Leonard Barrack, Leonard Barrack, P.C.; Gerald J. Rodos, P.C.; Daniel E. Bacine, P.C.; and Anthony J. Bolognese.

Richard T. Foster and Robert G. Martin, of McDonald, Tinker, Skaer, Quinn & Herrington, P.A., of Wichita, were on the brief for appellees Kohn, Swift & Graf, P.C.; Joseph C. Kohn, Esq.; and Steven A. Ashen, Esq.

ALLEGRUCCI, J.:

This is an appeal from the district court's dismissal of the petition of McShares, Inc., (McShares) for damages for alleged malicious prosecution and abuse of process. The defendants/appellees are individual attorneys and law firms who represented claimants against McShares in a prior federal court class action under the Sherman Antitrust Act, 15 U.S.C. 1 et seq. (1994), which concluded with a jury verdict in favor of McShares. The appeal was transferred from the Court of Appeals to this court.

The district court dismissed the petition in the present case on the ground that the subject matter is preempted by operation of federal law and procedure. The sole issue in this appeal is whether the state court claims of malicious prosecution and abuse of process arising out of the Sherman Antitrust Act litigation are preempted by federal law.

Material facts are not in dispute. The district court's journal entry of judgment recites that defendants had filed various motions requesting judgment on the pleadings, dismissal of the action, and summary judgment. The district court had requested the parties to file proposed findings of fact and conclusions of law, and the journal entry of judgment contains findings of fact and conclusions of law. It does not appear that all the district court's findings of fact are from the pleadings. For this reason, the trial court's action will be deemed to be an entry of summary judgment in favor of defendants/appellees and against McShares. K.S.A. 60-212(b) and (c).

There is nothing in the record, docketing statement, or briefs to indicate that any challenges have been or are being raised to the district court's findings of fact. The district court's determinations of fact, therefore, are final and conclusive. Justice v. Board of Wyandotte County Comm'rs, 17 Kan.App.2d 102, 109, 835 P.2d 692, rev. denied 251 Kan. 938 (1992).

The district court's findings of fact are as follows:

"1. On or about November 27, 1996, Plaintiff filed a Petition for damages against the Defendants herein alleging claims for malicious prosecution and abuse of process.

"2. Plaintiff alleges that the Defendants acted without probable cause and with malice, and improperly and for an ulterior purpose and motive in filing against and continued prosecution of Plaintiff in Albert City Elevator Co. v. Pestcon Sys., Inc., et al., Case No 93-CV-2496, in the United States District Court for the District of Kansas.

"3. The Defendants are individual attorneys and law firms who represented the claimants against the Plaintiffs herein in the prior Federal Court action.

"4. The prior Federal Court action against Plaintiff was premised solely upon alleged civil violations of Federal anti-trust laws, specifically the Sherman Anti-Trust Act, 15 U.S.C. § 1, et seq.

"5. Without detailing the somewhat convoluted procedural history of the prior Federal Court case, the action consisted of several individual class action lawsuits against various parties filed pursuant to the Federal Rules of Civil Procedure, which cases were eventually consolidated and tried under procedures set forth in the Federal Court Manual for Management of Complex Litigation.

"6. After extensive pre-trial proceedings, the Federal case was tried to a jury which returned, inter alia, a verdict in favor of Plaintiff herein against the claims of the parties represented by the Defendants herein.

"7. No motion or other action was filed by the Plaintiff herein in the prior Federal case suggesting that any pleading filed by any of the Defendants herein was frivolous, unwarranted or filed for any improper purpose."

Summary judgment is appropriate when there is no genuine issue as to any material fact and the movants are entitled to judgment as a matter of law. K.S.A.1997 Supp. 60-256(c). On appeal of a case like the present one where there is no dispute as to the material issues, this court's review of the district court's conclusions of law is unlimited. Gillespie v. Seymour, 250 Kan. 123, 129, 823 P.2d 782 (1991).

The district court reasoned that because federal courts have exclusive jurisdiction of Sherman Act antitrust actions, a state court is preempted from entertaining abusive litigation claims arising from an antitrust action. In its conclusions of law, the district court stated that adjudication of McShares' malicious prosecution and abuse of process claims would require resolution of complex issues under the Sherman Act, would create potential for impermissible conflict in interpretation and application of a complex federal act, might obstruct accomplishment and execution of Congress' purposes in enacting the Act, and might have a chilling effect on persons exercising their rights under the Act because a subsequent state court action effectively would constitute a collateral attack on the federal court proceeding. The district court cited East-Bibb Twiggs Neighborhood v. Macon-Bibb Plan., 674 F.Supp. 1475 (M.D.Ga.1987), and Edmonds v. Lawrence Nat'l Bank & Tr. Co., 16 Kan.App.2d 331, 823 P.2d 219 (1991), for the principle that state court remedies are preempted by the combined operation of federal law and procedure. Citing Edmonds, the district court declared: "Kansas clearly recognizes that where Congress has preempted a particular field by an award of exclusive jurisdiction, Federal Rule of Civil Procedure No. 11 preempts any state cause of action for abuse of process or malicious prosecution arising out of cases so exclusively reserved." The district court distinguished Business Guides v. Chromatic Comm., 498 U.S. 533, 111 S.Ct. 922, 112 L.Ed.2d 1140 (1991), Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3d Cir.1993), and Cohen v. Lupo, 927 F.2d 363 (8th Cir.1991).

On appeal, McShares contends that the district court's reliance on Edmonds and East-Bibb Twiggs was in error. McShares would distinguish Edmonds and the cases cited therein on the ground that the underlying federal action was in bankruptcy. McShares would distinguish East-Bibb Twiggs on the ground that the underlying federal action was a civil rights action. Bankruptcy has the double distinction of being a field that is completely occupied by federal law and of containing its own remedy for frivolous or malicious proceedings. Civil rights is a field in which federal and state law operate concurrently, but federal civil rights legislation, unlike the Sherman Act, includes a remedy for frivolous or malicious proceedings.

In Edmonds, the district court entered summary judgment in favor of the defendant bank, holding that Fed. R. Civ. Proc. 11 and Fed. R. Bankr.Proc. 9011 preempted any state action for malicious prosecution or abuse of process that arose from the bank's filing of a complaint to revoke the Edmondses' discharge granted by the U.S. Bankruptcy Court. 16 Kan.App.2d at 331-32, 823 P.2d 219. The Court of Appeals affirmed.

The Court of Appeals considered but passed on East-Bibb Twiggs and Cohen, which had been cited by the Edmondses for the proposition that Rule 11 is a procedural tool that cannot alter or eliminate substantive state law. The court settled on Gonzales v. Parks, 830 F.2d 1033 (9th Cir.1987), as a more persuasive federal case. Barbara Parks held a deed of trust, which she sought to foreclose, on the Gonzaleses' real property. The sale was halted when the Gonzaleses filed a petition in bankruptcy. In California state court, Parks filed an action claiming that the bankruptcy filing constituted an abuse of process. The Gonzaleses filed an adversary proceeding in the bankruptcy court against Parks and her counsel, Jerome Parks, seeking relief from the state court action. The bankruptcy court granted...