Smith v. Our Lady of the Lake Hosp., Inc.

• Decision Date: 29 April 1992
• Docket Number: No. 91-3260,91-3260
• Citation: 960 F.2d 439
• Parties: , RICO Bus.Disp.Guide 8011 Prentiss E. SMITH, M.D., Plaintiff-Appellant, Phillip A. Wittmann, et al., Movants-Appellants, v. OUR LADY OF THE LAKE HOSPITAL, INC., etc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 439

960 F.2d 439

22 Fed.R.Serv.3d 1043, RICO Bus.Disp.Guide 8011

Prentiss E. SMITH, M.D., Plaintiff-Appellant Phillip A. Wittmann, et al., Movants-Appellants, v. OUR LADY OF THE LAKE HOSPITAL, INC., etc., et al Defendants-Appellees.

No. 91-3260.

United States Court of Appeals Fifth Circuit.

April 29, 1992.

J. Ogden Middleton, II, Charles S. Weems, III, Gold, Weems, Bruser, Sues & Rundell, Alexandria, La., Nathan Lewin, David S. Cohen, Miller, Cassidy, Larroca & Lewin, Washington, D.C., for Wittmann, Landis, Smith and Winsberg.

Kevin Patrick Monahan, Baton Rouge, La., for Prentiss Smith, MD.

Tom F. Phillips, Lloyd J. Lunceford, Baton Rouge, La., for Cranor, et al.

T. Mac Womack, Durrett, Hardin, Hunter, Dameron & Fritchie, Baton Rouge, La., for Our Lady of the Lake Hosp., et al.

Leon Gary, Jr., William C. Kaufman, III, Gary, Fieldy, Landry & Dornier, Donald T. Phelps, J. Rodney Ryan, Jr., Seale, Smith & Phelps, Baton Rouge, La., for Berry.

Appeal from the United States District Court for the Middle District of Louisiana.

Before POLITZ, Chief Judge, BROWN and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Dr. Prentiss Smith and his attorneys appeal sanctions imposed under Fed.R.Civ.P. 11 and 26(g), 28 U.S.C. § 1927, and the inherent power of the court. See Smith v. Our Lady of the Lake Hosp., 135 F.R.D. 139 (M.D.La.1991). They also argue that the district judge should have been disqualified under 28 U.S.C. § 455(a) because of his relationship with the defendant hospital and a defendant physician. We reverse the imposition of sanctions and thus need not reach the issue of recusal.

I.

Smith was a cardiovascular surgeon associated with Our Lady of the Lake Hospital ("the hospital") in Baton Rouge, Louisiana. In 1982 the hospital's executive committee began investigating complaints from recovery room nurses about Smith's medically improper and personally abusive and offensive conduct. The ad hoc committee established for the review gave Smith two months to resolve his problems or his hospital privileges would be terminated; this probation was later extended for a year.

During the following year, the hospital began to review the mortality rates of patients undergoing certain cardiac and thoracic procedures, including those on whom Smith had operated. One element of this review was a statistical table comparing the mortality rates for certain surgical procedures of several doctors, including Smith. The table apparently was prepared by Smith's principal competitor, Dr. B. Eugene Berry, and indicated that Smith had a relatively high mortality rate for several procedures, although as Smith points out, the table did not include data about the relative difficulty of each individual operation or about the doctors who allegedly had higher mortality rates than did he. ¹

After the hospital's cardiovascular staff reviewed Smith's level of care and did not find it inadequate, the executive committee asked the independent Society of Thoracic Surgeons ("the society") to study the data, informing the society that the doctor's mortality rates were unacceptable. During the course of the society's review, representatives of the hospital and the executive committee contacted the society by mail and telephone, although nothing in the record indicates that those communications were inherently fraudulent. The hospital suspended Smith's surgical privileges in March 1985, and in May the society's ethics committee stated that Smith's level of care was substandard. At Smith's request, two other hospital committees reviewed his record and found it wanting.

After he was suspended, Smith pursued the hospital's appeal process, during which a nonbinding ad hoc committee reported to the executive committee that the evidence presented to them was insufficient to support the suspension. The committee did conclude that all of Smith's surgeries should be pre-approved by another surgeon, that another surgeon should be present whenever Smith operated, and that his behavior was shameful. His privileges were terminated permanently on June 27, 1986.

Smith then consulted Donald Bivens, an Arizona attorney specializing in physician-hospital disputes. Bivens interviewed five doctors at the hospital, including a member of the executive committee, and the hospital's outside counsel. He also compiled a seventy-eight-page chronology of the proceedings surrounding Smith's suspension and termination. The interviews and chronology included information indicating that factors other than Smith's professional competence--such as his personal character--had caused his termination and that the hospital did not follow its bylaws in the termination process.

Ten months after the firing, Smith turned to the New Orleans law firm of Stone, Pigman, Walther, Wittmann & Hutchinson ("Stone, Pigman"), because he wanted local counsel. ² During the next two months, according to an uncontested affidavit, lawyers and law clerks for the firm spent more than two hundred hours investigating the factual foundation and potential legal theories for Smith's claim, including interviewing Smith and the attorney who represented him during the suspension proceedings and examining the materials Bivens had prepared.

II.

In June 1987, represented by the Stone, Pigman lawyers, Smith filed a civil Racketeer Influenced & Corrupt Organizations Act ("RICO") suit against the hospital, six doctors who were members of the executive committee, five members of the board of trustees, and Berry. The suit charged the defendants with, among other claims, using the mails to execute a scheme to defraud Smith of his livelihood and using the pretense of challenging his professional competence to lull him into inaction regarding the actual bases for his termination, i.e., greed and personal dislike, and by ruining his reputation, eliminating him as a competitor in the Baton Rouge market for cardiovascular surgery. The complaint charged that Berry's professional corporation was a RICO enterprise under 18 U.S.C. §§ 1962(a) and (b), that the hospital was an enterprise under id. § 1962(d), and that the written and telephone communications between the defendants and the society constituted the necessary pattern of racketeering activity as mail and wire fraud under 18 U.S.C. §§ 1341 and 1343.

In September 1987, the plaintiffs moved to disqualify the district judge because he was a patient of one of the defendant doctors, urologist Redfield Bryan. The judge denied the motion but stated that it could be renewed if the judge had to return to Bryan for treatment. We denied the plaintiffs leave to take an interlocutory appeal from that decision.

In August 1987, the parties began discovery under a joint discovery plan. The following April, the district court stayed discovery, pending a hearing on Smith's motion to amend and the defendants' motion to dismiss. After the hearing, the court denied Smith's motion but did not act on the motion to dismiss. In September, with discovery still stayed, Smith voluntarily dismissed his federal suit. A state law action, filed at the same time as his federal one, apparently is still pending.

In January 1989, the defendants filed a joint motion for sanctions against Smith and attorneys Wittmann, Landis, and Randall Smith under Fed.R.Civ.P. 11 and 26(g), 28 U.S.C. § 1927, and the inherent power of the court. Because the district judge had undergone outpatient surgery at the hospital in October 1987, ten days after ruling on the prior recusal motion, and had undergone a physical examination by Bryan in August 1989, Smith filed a second disqualification motion in August 1990.

The court denied the motion to recuse and, after another hearing, imposed sanctions against Smith and his attorneys. The court ordered Smith and Wittmann, Landis, and Randall Smith to pay over $300,000 in monetary sanctions for the defendants' RICO and rule 11 attorneys' fees and expenses; the court further publicly reprimanded all four attorneys. Smith and the attorneys appeal, arguing that the judge should have been recused and that the court should not have imposed sanctions.

III.

The primary basis for the sanctions order was Fed.R.Civ.P. 11, which requires that attorneys and parties not file wasteful, frivolous papers. Rule 11 provides,

Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney's individual name, whose address shall be stated.... The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper, that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.... If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction....

The district court found that Smith's attorneys made insufficient legal and factual investigation before filing the RICO suit, otherwise they would have found that no basis for such a suit existed. The court concluded as follows:

Had Dr. Smith and his counsel made a reasonable inquiry as required by Rule 11, they would and should have concluded that this RICO suit was totally frivolous and without merit. It would not have taken much of an inquiry to discover this fact. It is obvious to the Court that Dr. Smith and his attorneys filed this suit for the sole purpose of delaying, harassing, and otherwise embarrassing and intimidating the hospital from enforcing its decision to terminate Dr....