Milltex Industries Corp. v. Jacquard Lace Co., Ltd.

• Decision Date: 31 March 1995
• Docket Number: No. 934,D,934
• Citation: 55 F.3d 34
• Parties: MILLTEX INDUSTRIES CORP., Plaintiff-Appellee, v. JACQUARD LACE COMPANY, LTD., Defendant, Avrom R. Vann, Esq., Appellant. ocket 94-7498.
• Court: U.S. Court of Appeals — Second Circuit

Page 34

55 F.3d 34

MILLTEX INDUSTRIES CORP., Plaintiff-Appellee, v. JACQUARD LACE COMPANY, LTD., Defendant Avrom R. Vann, Esq., Appellant.

No. 934, Docket 94-7498.

United States Court of Appeals Second Circuit.

Argued Feb. 10, 1995.

Decided March 31, 1995.

Avrom R. Vann, Vann & Slavin, New York City, for appellant.

David Gikow, Lehman & Gikow, P.C., New York City (Arthur R. Lehman, of counsel), for appellee.

Before OAKES, KEARSE and CABRANES, Circuit Judges.

JOSE A. CABRANES, Circuit Judge:

Avrom R. Vann, counsel for Jacquard Lace Company, Ltd. ("Jacquard"), appeals a judgment of the United States District Court for the Southern District of New York (Thomas P. Griesa, Chief Judge), holding him and Jacquard jointly and severally liable for $21,510.23 in attorney's fees and costs incurred by appellee Milltex Industries Corp. ("Milltex") in bringing the underlying action. ¹ The question presented is whether the district court abused its discretion in imposing the sanctions on Vann pursuant to its inherent powers. We hold that it did. Under standards well established by Circuit precedent, Vann's conduct must have been "entirely without color" and motivated by "improper purposes" to justify the imposition of sanctions. United States v. International Bhd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir.1991); Oliveri v. Thompson, 803 F.2d 1265, 1272 (2d Cir.1986), cert. denied sub nom. Suffolk County v. Graseck, 480 U.S. 918, 107 S.Ct. 1373, 94 L.Ed.2d 689 (1987). The district court--never referring to these standards--concluded that Vann acted in bad faith. Because the district court's factual findings do not support its ultimate finding of bad faith, we reverse and remand the cause with instructions to strike the part of the judgment imposing sanctions against Vann.

I. FACTS

The problems in this case began when Milltex and Jacquard decided to pursue their claims in different forums. On March 7, 1988, Jacquard filed suit in Alabama in the Circuit Court of Madison County to recover payment for 20,000 pounds of lace fabric that it manufactured and delivered to Milltex (the "Alabama action"). Two months later, Milltex filed suit in the Southern District of New York, contending that Jacquard breached a contract to supply 40,000 pounds of the fabric. The parties counterclaimed in each action, making the issues the same in each. On January 20, 1989, the Alabama court notified the parties that the case was slated for trial on February 21, 1989. In the meantime, the parties had completed discovery in the federal action. On February 7, 1989, the federal district court scheduled the bench trial to begin on February 15, 1989.

Trial sessions were held for part of each day on February 15 and 16, 1989. During the afternoon session on Thursday, February 16, Jacquard's chief operating officer and principal witness, Panis Diamantis, told the district court that he had rescheduled his return flight to Alabama from Thursday night to Friday the 17th at 2:30 p.m. when it became apparent that the trial would not be completed on the 16th. According to Diamantis, this was the only flight he could find that would permit him to return to Alabama for the holiday weekend. The district judge stated that he wanted to resume the trial at 11:30 a.m. on Friday and told Diamantis that he could leave at 1:00 p.m.

On Friday, Vann began the trial session by moving for a mistrial on the ground that the court had improperly interfered with the examination of his client. Concerned that it might be difficult for Diamantis to return to New York, the district judge urged Vann to defer argument on such a motion in order to allow Diamantis to complete his testimony before 1:00 p.m. Vann responded that "I am not concerned about his returning to New York....[H]e will return if necessary to New York. That is not an issue." Appellant's Br. at 7. Vann then agreed to defer argument on the motion and to resume the trial promptly. The cross-examination of Diamantis could not be completed, however, and the court adjourned the trial at 1:00 p.m. on the understanding that a date for the completion of the trial would be set in a conference call on Tuesday, February 21, 1989. No one mentioned to Judge Griesa that the Alabama court had scheduled the Alabama trial to begin on February 21, 1989. ²

In the Alabama court on February 21, 1989, Milltex's Alabama counsel, James B. Schrimsher, moved for a continuance of the trial there, pointing out that the trial in New York was almost complete. Opposing the request, Vann's counterpart in Alabama, William Sanderson, argued that "considerable testimony" remained to be heard in New York. The Alabama court denied Milltex's motion and set the trial to begin the following day.

Upon realizing that Jacquard intended to pursue the Alabama action immediately, Milltex's New York counsel, Lehman, sought a temporary restraining order (TRO) in New York barring Jacquard from proceeding with the Alabama action. Instead of holding the anticipated conference call to discuss scheduling the end of the New York trial, the district judge held a hearing on February 21, 1989, to consider Milltex's TRO application. With both Vann and Lehman present, he granted the application. The same day, Milltex served a copy of the order on Sanderson in Alabama. On February 22, 1989, the Alabama court gave Jacquard the choice of whether to proceed, stating that "this court has a perfect right ... to proceed with this." While voicing his concern that the federal court would hold his client in contempt of its order, Sanderson requested that the court decide Jacquard's pending summary judgment motion. The Alabama court agreed and, on the same day, granted Jacquard's motion for summary judgment and dismissed Milltex's counterclaim. ³

In spite of the Alabama judgment, Milltex continued to pursue its application to the district court to enjoin Jacquard from proceeding in Alabama. The district court entered a preliminary injunction, preventing Jacquard from enforcing the Alabama judgment. After rejecting Jacquard's repeated attempts to have the court in effect recognize the Alabama judgment, the district court completed the federal trial, entering judgment in favor of Milltex on October 30, 1989.

On January 4, 1991, we reversed the judgment of the district court, holding that it had erred in refusing to accord the Alabama judgment full faith and credit. Milltex Indus. Corp. v. Jacquard Lace Co., 922 F.2d 164 (2d Cir.1991). In that decision we noted that "[t]his disposition does not preclude the district court from taking disciplinary action if it deems such action appropriate." Id. at 168. Soon thereafter Milltex filed a motion for sanctions against Vann and Jacquard for their alleged misconduct before the district court. On October 23, 1992, 153 F.R.D. 44, the district court held that Vann and Jacquard "engaged in the most serious misconduct which requires sanctions," Opinion of Oct. 23, 1992, at 26, 153 F.R.D. at 52, but reserved decision on the amount of sanctions and whether to order Jacquard and Vann to pay sanctions to the court in addition to Milltex. On February 2, 1994, acting pursuant to the court's inherent power, the district judge directed that a judgment be entered in favor of Milltex. He held Vann and Jacquard jointly and severally liable for the sum of $21,510.23, and declined to order any payment to the court or the U.S. Treasury. Opinion of Feb. 2, 1994, at 3, 153 F.R.D. 54, 55. This sum represented the attorney's fees and costs Milltex incurred in prosecuting its action in federal court until February 22, 1989--the day the Alabama judgment rendered the federal proceedings meaningless.

II. DISCUSSION

Pursuant to its inherent power, the district court imposed sanctions against Vann and Jacquard for acting in bad faith. ⁴ We review this exercise of power for abuse of discretion, Chambers v. NASCO, Inc., 501 U.S. 32, 50, 111 S.Ct. 2123, 2135, 115 L.Ed.2d 27 (1991), and with the understanding that "[b]ecause of their very potency, inherent powers must be exercised with restraint." Id. at 44, 111 S.Ct. at 2132. ⁵

It is settled law that a court may impose attorney's fees under its inherent power as a penalty for misconduct during the course of litigation. See Chambers, 501 U.S. at 49-50, 111 S.Ct. at 2135. Our Circuit has characterized this exercise of power as the "bad faith exception to the 'American Rule'." ⁶ United States v. International Bhd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir.1991). Although we have suggested that only the losing party may be sanctioned under the exception, see Hirschfeld v. Board of Elections, 984 F.2d 35, 40 (2d Cir.1992) (exception to American Rule permits reasonable attorney's fees against losing party), the Supreme Court has made it clear that a court may sanction either the winner or the loser. See Chambers, 501 U.S. at 53, 111 S.Ct. at 2137 ("[T]he imposition of sanctions under the bad-faith exception depends not on which party wins the lawsuit, but on how the parties conduct themselves during the litigation.").

Thus, we will not upset an award of sanctions on the sole ground that it was imposed against the prevailing party or its lawyer. Nevertheless, sanctions are not appropriate unless the challenged actions are (1) "entirely without color" and (2) motivated by "improper purposes," such as harassment or delay. Oliveri, 803 F.2d at 1272 (internal quotation marks and citations omitted). In addition, the court's factual findings of bad faith must be characterized by "a high degree of specificity." Id. (internal quotation marks omitted).

Although the district court made several factual findings to support its decision to impose sanctions on Vann, these findings do not justify the conclusion that Vann acted in bad faith under the standards established by the law of our Circuit. The misconduct identified by the district court falls into two categories: (1) Vann's failure to disclose to the court the...