Merrill Lynch Relocation Management, Inc., In re

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: Before ANDERSON, HUG and CANBY; CANBY
• Citation: Merrill Lynch Relocation Management, Inc., In re, 812 F.2d 1116 (9th Cir. 1987)
• Decision Date: 12 March 1987
• Docket Number: No. 85-4255,85-4255
• Parties: In re Proceedings By MERRILL LYNCH RELOCATION MANAGEMENT, INC. Jack CLOPPER, Plaintiff-Appellant, v. MERRILL LYNCH RELOCATION MANAGEMENT, INC., Defendant-Appellee, v. John M. BERMAN, individually, Appellant.

Page 1116

812 F.2d 1116

55 USLW 2525

In re Proceedings By MERRILL LYNCH RELOCATION MANAGEMENT, INC.

Jack CLOPPER, Plaintiff-Appellant, v. MERRILL LYNCH RELOCATION MANAGEMENT, INC., Defendant-Appellee, v. John M. BERMAN, individually, Appellant.

No. 85-4255.

United States Court of Appeals Ninth Circuit.

Argued and Submitted November 6, 1986.

Decided March 12, 1987.

John M. Berman, Beaverton, Or., for plaintiff-appellant.

Norman J. Wiener, Thomas C. Sand, and Gregory A. Chaimov, Portland, Or., for defendant-appellee.

Appeal from the United States District Court for the District of Oregon.

Before ANDERSON, HUG and CANBY, Circuit Judges.

CANBY, Circuit Judge:

INTRODUCTION

This is a case of first impression. The district court adjudged attorney John Berman in contempt for failing to pay costs taxed against his client, a nonresident plaintiff, pursuant to an Oregon statute. Berman and his client, Jack Clopper, appeal, challenging the contempt order and the underlying order holding Berman liable for costs. We have jurisdiction under 28 U.S.C. Sec. 1291 and we affirm.

FACTS

Clopper filed suit in state court for breach of contract and violation of the Oregon Unlawful Trade Practices Act against defendant-appellee Merrill Lynch Relocation Management, Inc. ("Merrill Lynch"). Neither party was an Oregon resident. Merrill Lynch removed to the federal court for the District of Oregon, where the plaintiff won a jury verdict of $264,207.44. The district court entered a judgment n.o.v., which we affirmed in an unpublished disposition. Clopper v. Merrill Lynch Relocation Mgmt., Inc., 749 F.2d 36 (9th Cir.1984), cert. denied, --- U.S. ----, 106 S.Ct. 76, 88 L.Ed.2d 62 (1985). Merrill Lynch filed a cost bill and the district court clerk awarded costs of $2,498.52 to defendant.

Berman represented Clopper throughout the proceedings. Until the underlying judgment was entered and the cost bill filed, Berman prosecuted Clopper's claim as a member of the law firm of Spears, Lubersky, Campbell, Bledsoe, Anderson and Young. After the Clerk's cost award, Berman assumed representation of Clopper individually in place of the Spears, Lubersky firm. Berman filed his Notice of Substitution on June 7, 1985, to be effective June 13, 1985.

On June 7, 1985, Merrill Lynch wrote a letter demanding that Spears, Lubersky pay the cost award. In two later letters, on June 19 and August 1, Merrill Lynch demanded that Berman pay the sum. Merrill Lynch then filed a motion pursuant to Sec. 20.160 of the Oregon Revised Statutes, to enforce payment by Berman as Clopper's attorney or hold him in contempt. After argument, the district court entered an order declaring that Berman was obligated to pay the bill, had refused to pay, and thus, was in contempt. The contempt order was to take effect approximately thirty days after the ruling.

Appellant contends that the district court erred by applying Or.Rev.Stat. Sec. 20.160 to this federal diversity action. Berman also contends that the statute violates his and Clopper's rights under the equal protection clause, interstate privileges and immunities clause, commerce clause, and due process clause (right to travel) of the United States Constitution. Finally, appellant argues that even if the statute constitutionally applies to a federal court case, he improperly was held liable for plaintiff's costs because he was substituted as counsel of record after the judgment taxing costs for defendant was entered.

STANDARD OF REVIEW

We review de novo the district court's legal conclusions, including its interpretation of state law. Triangle Mining Co. v. Stauffer Chem. Co., 753 F.2d 734, 738 (9th Cir.1985); Matter of McLinn, 739 F.2d 1395, 1398 (9th Cir.1984) (en banc).

DISCUSSION

I. Application of Or.Rev.Stat. Sec. 20.160 by the District Court

If the underlying order holding Berman liable for plaintiff's costs is in error, the contempt order must fall. Cf. Scott & Fetzer Co. v. Dile, 643 F.2d 670 (9th Cir.1981) (considering civil contempt order for violation of remedial injunction).

A. Federal Rule of Civil Procedure 69(a)

Merrill Lynch contends that the district court was bound by Fed.R.Civ.P.Rule 69(a) to apply the Oregon statute. Rule 69(a) requires district courts to follow state procedures in collecting a judgment:

Process to enforce a judgment for the payment of money shall be a writ of execution, unless the court directs otherwise. The procedure on execution, in proceedings supplementary to and in aid of judgment, and in proceedings on and in aid of execution shall be in accordance with the practice and procedure of the state in which the district court is held ... except that any statute of the United States governs to the extent that it is applicable.

Thus, if the practice outlined in Or.Rev.Stat. Sec. 20.160 is "supplementary to and in aid of judgment," or "in aid of execution," the district court was bound by Rule 69(a) to apply it.

Or.Rev.Stat. Sec. 20.160 provides:

Liability of attorney of nonresident or foreign corporation plaintiff; security for costs. The attorney of a plaintiff who resides out of the state or is a foreign corporation, against whom costs are adjudged in favor of a defendant, is liable to the defendant therefor; and if the attorney neglects to pay the same, upon the information of the defendant shall be punished as for a contempt. The attorney may relieve or discharge the attorney from such liability by filing an undertaking at the commencement of the action or suit, or at any time thereafter before judgment or decree, for the payment to the defendant of the costs and disbursements that may be adjudged to the attorney, executed by one or more sufficient sureties. ¹

We have been unable to find any reported decisions interpreting the scope of Or.Rev.Stat. Sec. 20.160.

State law has been applied under Rule 69(a) to garnishment, mandamus, arrest, contempt of a party, and appointment of receivers. 12 Wright & Miller, Federal Practice and Procedure: Civil Sec. 3012 at 66-68 (1973 & Supp. 1986). It has also been applied to determine liability of a successor corporation. Id. at 68. We conclude that the cost provisions of Or.Rev.Stat. Sec. 20.160 are sufficiently similar to these categories to be applicable under Rule 69(a). The statute also falls within the plain words of Rule 69, for it clearly is in "aid of execution" of judgments awarding costs to defendants.

Berman resists this conclusion because the Oregon statute does not stop at supplementing or aiding judgment. It alters the court's judgment by rendering the attorney personally liable for costs taxed against a nonresident plaintiff, ² on pain of contempt. Even if this fact were to take the statute out of Rule 69(a), however, it would not aid Berman. The creation of primary liability in the attorney favors the conclusion that Or.Rev.Stat. Sec. 20.160 is a substantive provision of state law, applicable in this diversity action by reason of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

B. Or.Rev.Stat. Sec. 20.160 As a Substantive Law Provision

Appellee notes that Sec. 20.160 resembles the statute considered by the Supreme Court in Cohen v. Beneficial Industrial Loan Corporation, 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). The Cohen statute required small stockholders in derivative suits to post security for expenses upon request by the defendant corporation. Although procedural in some respects, the statute was determined to be an integral part of state policy. See id. at 555-56, 69 S.Ct. at 1229-30. Under the Erie-doctrine case of Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945), the Court affirmed the district court's use of the New Jersey statute:

Even if we were to agree that the New Jersey statute is procedural, it would not determine that it is not applicable. Rules which lawyers call procedural do not always exhaust their effect by regulating procedure. But this statute is not merely a regulation of procedure. With it or without it the main action takes the same course. However, it creates a new liability where none existed before.... Such liability is not usual and it goes beyond payment of what we know as "costs."

Cohen, 337 U.S. at 555, 69 S.Ct. at 1230. The creation of this new liability was clearly substantive. The Court continued, however, noting that the new liability would be meaningless

if it resulted in nothing but a judgment for expenses at or after the end of the case. Therefore, a procedure is prescribed by which the liability is insured.... We do not think a statute which so conditions the stockholder's action [on posting security] can be disregarded by the federal court as a mere procedural device.

Id. at 556, 69 S.Ct. at 1230.

We find this language in Cohen applicable here. Although Or.Rev.Stat. Sec. 20.160 does not condition a plaintiff's action on posting security, we think it clearly is not procedural; instead it is an integral part of state policy. Consequently, under the Erie doctrine the district court was bound to apply Or.Rev.Stat. Sec. 20.160 so long as it did not conflict with federal rules, statutes, or policies. Walker v. Armco Steel Corp., 446 U.S. 740, 749-52, 100 S.Ct. 1978, 1984-86, 64 L.Ed.2d 659 (1980); Hanna v. Plumer, 380 U.S. 460, 469-71, 85 S.Ct. 1136, 1142-44, 14 L.Ed.2d 8 (1965); Byrd v. Blue Ridge Rural Elec. Cooperative, Inc., 356 U.S. 525, 538-40, 78 S.Ct. 893, 901-02, 2 L.Ed.2d 953 (1958).

Federal courts have inherent authority to require plaintiffs to post security for costs. In re American President Lines, Inc., 779 F.2d 714, 716-17 (D.C.Cir.1985); Hawes v. Club Ecuestre el Comandante, 535 F.2d 140, 143 (1st Cir.1976); Soo Hardwoods, Inc. v. Universal Oil Prods. Co., 493 F.Supp. 76, 77 (D.C.Mich.1980); contra Trophy Productions, Inc. v. Sperling, 17 F.R.D. 416, 419-20 (D.C.Cal.1955) (holding that district court had no power to require plaintiff to furnish security for costs in absence of federal...