State ex rel. New Mexico State Highway and Transp. Dept. v. Baca

• Citation: 120 N.M. 1,896 P.2d 1148,1995 NMSC 33
• Decision Date: 08 May 1995
• Docket Number: No. 21826,21826
• Parties: STATE of New Mexico, ex rel., NEW MEXICO STATE HIGHWAY AND TRANSPORTATION DEPARTMENT, Plaintiff-Respondent, v. Edward BACA, Defendant-Petitioner.
• Court: Supreme Court of New Mexico

Page 1148

896 P.2d 1148

120 N.M. 1

STATE of New Mexico, ex rel., NEW MEXICO STATE HIGHWAY AND TRANSPORTATION DEPARTMENT, Plaintiff-Respondent, v. Edward BACA, Defendant-Petitioner.

No. 21826.

Supreme Court of New Mexico.

May 8, 1995.

[120 N.M. 2] The Law Offices of Simon & Oppenheimer, Jane Bloom Yohalem, Morton S. Simon, Santa Fe, for petitioner.

Tom Udall, Atty. Gen., Arthur J. Waskey, Gen. Counsel, Richard Ferrary, Deputy Gen. Counsel, Santa Fe, for respondent.

OPINION

MINZNER, Justice.

This appeal concerns the question of whether a district court may award attorney's fees against the State as a sanction for bad-faith litigation. We conclude that such a sanction may be proper under some circumstances, that the record does not support the award made, but that there may have been an evidentiary basis for a different award. We therefore affirm the Court of Appeals' reversal of the fee award, but we remand for further proceedings.

I. FACTS

Plaintiff Edward Baca ("Baca") worked for the State Highway and Transportation Department ("Department") from 1971 until he was dismissed in 1987. During most of this period, Baca was active in and served as a chapter officer for the union that represents Department employees. Baca's duties with the Department involved frequent travel around the state, and, until 1984, he claimed Albuquerque as his home of record. In 1984, the Department transferred Baca to the newly-created District VI office, located in the Grants-Milan area. Thereafter he notified the Department that he had moved his home of record to Milan, and he received a one-time moving allowance. Although the Department later challenged the propriety of this payment, Department officials eventually agreed that Baca was entitled to it. Baca paid rent, received mail, and maintained a telephone number and bank account in Milan.

In 1986, the Department conducted an internal investigation into alleged per diem abuses associated with the creation and staffing of the District VI office. A committee formed to investigate the matter focused on sixteen employees, including Baca, who had never moved their spouses to the Grants-Milan area but who claimed a change in their home of record. The committee determined that Baca and others had actually continued to reside in Albuquerque and had thus wrongfully collected per diem when they worked within thirty-five miles of Albuquerque. The committee recommended several employees, including Baca, for discipline. The chairman of the committee, D.K. Moore, stated that what an employee knows or believes to be true was pertinent to a disciplinary action. He later testified that the committee probably did not consider the employees' good faith. He also testified that it was impossible to define "home of record" in a manner that would apply to all situations.

In 1987, Baca's supervisor, Michael Barnes ("Barnes"), terminated Baca's employment. As grounds for the termination, Barnes cited Baca's submission of "claims for reimbursement that have been found to be in violation of the Per Diem and Mileage Act, Department Policy and the collective bargaining agreement." The Department's position was that, because of Baca's length of service, he should have known the correct application of the per diem rules. In a pre-termination hearing, Baca requested a judicial determination of the meaning of "home of record." Barnes did not act upon this request, nor did he attempt to determine whether Baca had in fact acted in good faith. Of the three employees who were determined to have received improper per diem payments, one employee immediately agreed to pay a fine and another resigned. Only Baca was dismissed.

Baca appealed his termination to the State Personnel Board pursuant to NMSA 1978, Section 10-9-18(A) (Repl.Pamp.1992). Prior to the Personnel Board hearing, the Department sought and obtained a writ of mandamus from the district court, which directed the Personnel Board hearing officer to quash an order compelling discovery. It was, however, subsequently quashed by the district court as improvidently granted.

Following a hearing on the merits, the Personnel Board hearing officer concluded that Baca's termination had been without just cause. Her report noted that Baca was an active union officer and that the Department had failed to discipline other employees who were also alleged to have wrongfully received per diem. The Personnel Board adopted the hearing officer's findings and conclusions in toto and ordered Baca reinstated. The Department appealed the Personnel Board's decision to the district court pursuant to Section 10-9-18(G), asserting four grounds for appeal. In the first appeal, the Department asserted that the following errors had occurred: (1) the Board failed to apply the applicable legal and contractual framework; (2) the recommended decision denied the Department due process of law; (3) evidence concerning the issue of the moving allowance was inadmissible; and (4) the Board erred in failing to consider the Department's exceptions. The district court reversed on the ground that the Personnel Board had erroneously refused to consider the Department's exceptions to its ruling. The court did not consider the merits of the other three asserted errors that comprised the Department's appeal.

On remand, the Personnel Board again adopted the hearing officer's findings and conclusions and ordered Baca's reinstatement. In addition, the Personnel Board found that "[t]he Department made no attempt to determine whether [Baca] met the criteria for having his home of record in Grants.... [and] acted unreasonably under all the circumstances." The Department again appealed to the district court, this time relying upon the three claimed errors that the district court had not considered in the first appeal. The district court affirmed the Personnel Board and, in addition, found that the Department treated Baca differently and more severely because of his role as a union activist. Alternatively, it held that Baca had not violated per diem requirements. The court concluded that the Department's bad faith justified an award of attorney's fees. Following a hearing on the attorney's fee issue, the trial court entered supplemental findings and conclusions and awarded Baca $86,403.68 in attorney's fees. This award compensated Baca for fees incurred during both the administrative and district court proceedings.

The Department appealed the fee award to the Court of Appeals. In its opinion, the Court of Appeals reached at least three distinct holdings. First, it held that a New Mexico court may invoke its inherent power and award attorney's fees for bad faith litigation. State ex rel. N.M. State Highway & Transp. Dep't v. Baca, 116 N.M. 751, 754, 867 P.2d 421, 424 (Ct.App.1993), cert. granted, 116 N.M. 801, 867 P.2d 1183 (1994). Second, it held that in an appeal to district court from an administrative proceeding, a district court's inherent power would not permit the court to award attorney's fees for "the work done in the administrative proceedings." Id. at 755, 867 P.2d at 425. The Court of Appeals agreed with the Department that the district "court's power to award fees under [the bad faith] exception extends only to fees incurred in defending against the abusive practices in court and does not extend to any other fees incurred in connection with the cause of action or case being litigated." Id. at 753, 867 P.2d at 423. Accordingly, the Court of Appeals vacated the portion of the fee award that reimbursed Baca for fees incurred during the administrative proceedings. Id. at 755, 867 P.2d at 425. The Court of Appeals also determined that this Court's decision in Torrance County Mental Health Program, Inc. v. New Mexico Health & Environment Department, 113 N.M. 593, 830 P.2d 145 (1992), precluded any award of attorney's fees against the State, in the absence of enabling legislation, because such awards are punitive in nature. Baca, 116 N.M. at 756, 867 P.2d at 426. The Court of Appeals therefore vacated the balance of the fee award.

We affirm the first two holdings. We reverse the third and remand.

II. DISCUSSION

In reaching its first holding, the Court of Appeals determined that the bad-faith exception to the American Rule is consistent with the jurisprudence of New Mexico, and it embraced that doctrine. Id. at 754, 867 P.2d at 424. We recognize that the courts in a number of jurisdictions award attorney's fees as a sanction for bad faith or frivolous litigation. See generally Western United Realty, Inc. v. Isaacs, 679 P.2d 1063, 1067 n. 3 (Colo.1984) (en banc). Moreover, we agree with the Court of Appeals that similarities between New Mexico and federal law in this area warrant adoption of the rationale articulated by the United States Supreme Court in Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991).

A. Inherent Power

As the Court of Appeals recognized, both trial and appellate courts must have " 'inherent power to impose a variety of sanctions on both litigants and attorneys in order to regulate their docket, promote judicial efficiency, and deter frivolous filings.' " Baca, 116 N.M. at 754, 867 P.2d at 424 (quoting Martinez v. Internal Revenue Serv., 744 F.2d 71, 73 (10th Cir.1984)). It has long been recognized that a court must be able to command the obedience of litigants and their attorneys if it is to perform its judicial functions. Such powers inhere in judicial authority and exist independent of statute:

Certain implied powers must necessarily result to our courts of justice, from the nature of their institution.... To fine for contempt, imprison for contumacy, enforce the observance of order, &c., are powers which cannot be dispensed with in a court, because they are necessary to the exercise of all others: and so far our courts, no doubt, possess powers not immediately derived from statute....

United States v. Hudson, 11 U.S. (7 Cranch) 32, 34, ...