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

• Decision Date: 02 December 1993
• Docket Number: No. 13654,13654
• Citation: 867 P.2d 421,1993 NMCA 149,116 N.M. 751
• Parties: STATE of New Mexico, ex rel., NEW MEXICO STATE HIGHWAY AND TRANSPORTATION DEPARTMENT, Petitioner-Appellant, v. Edward BACA, Respondent-Appellee.
• Court: Court of Appeals of New Mexico

Page 421

867 P.2d 421

116 N.M. 751

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

No. 13654.

Court of Appeals of New Mexico.

Dec. 2, 1993.

Certiorari Granted Jan. 12, 1994.

[116 N.M. 752] Arthur J. Waskey, Gen. Counsel, Richard Ferrary, Deputy Gen. Counsel, Sp. Asst. Attys. Gen., Santa Fe, for petitioner-appellant.

Jane Bloom Yohalem, Morton S. Simon, Law Offices of Simon & Oppenheimer, Santa Fe, for respondent-appellee.

OPINION

PICKARD, Judge.

This case involves the circumstances under which a district court may award attorney fees as an exception to the usual "American Rule," pursuant to which the parties to litigation bear their own attorney fees. The district court awarded over $86,000 in fees and costs to the attorneys for a state employee (Baca). Baca was fired from his job by the State Highway Department and was reinstated after an administrative hearing by the State Personnel Board. The Highway Department twice appealed Baca's reinstatement to the district court. On the first appeal the district court remanded the matter to the Personnel Board for consideration of exceptions filed by the Highway Department. The second appeal resulted in an affirmance of the Personnel Board's decision reinstating Baca to his job. The district court granted Baca's request for all attorney fees incurred in seeking his reinstatement, whether those fees were incurred for proceedings before the Personnel Board or for the appellate proceedings before the district court.

We canvass the authority that could support the award of fees in this case and the various exceptions to the American Rule to determine whether there exists any authority for the fee award. We determine that the exception which allows courts to award attorney fees as part of their inherent power to control bad faith, vexatious, and abusive litigation practices is the only authority that could be applicable. However, a court's power to award fees under this 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. Moreover, the inherent power exception should be used sparingly. Finally, inasmuch as the rationale for the inherent power exception is punitive, attorney fees imposed pursuant to it may not be collected against the state. Accordingly, we reverse the award of attorney fees. However, we affirm the award of costs, which is also challenged by the Highway Department.

We first address the general rule governing attorney fees and its exceptions. Because the right to recover attorney fees as part of the costs of litigation did not exist at common law, the general rule is that such fees are not recoverable in the absence of statute, rule, or agreement expressly authorizing the recovery. Gurule v. Ault, 103 N.M. 17, 19, 702 P.2d 7, 9 (Ct.App.1985). There is no statute, rule, or agreement authorizing the award of fees in this case. There are, however, several recognized exceptions to the general rule. See id. In Aboud v. Adams, 84 N.M. 683, 691-92, 507 P.2d 430, 438-39 (1973), our Supreme Court listed some of them: fees necessarily expended to dissolve an injunction, fees expended to successfully prevent unlawful disposition of the property of a semi-public corporation, fees expended by a corporation to determine the rights of stockholders and directors, and fees expended in creation of a large common fund. None of these exceptions is applicable in this case.

In Bassett v. Bassett, 110 N.M. 559, 564, 798 P.2d 160, 165 (1990), our Supreme Court recognized yet another exception. Based on the statutory fiduciary duty that partners owe toward one another, the Court held that attorney fees were recoverable as part of the lower court's equitable jurisdiction on dissolution of the partnership by a partner aggrieved by fraud. Baca argues that this exception applies because the Highway Department, as his employer, owed him a duty of good faith and fair dealing because dismissing him without just cause was statutorily prohibited by NMSA 1978, Section 10-9-18(F) (Repl.Pamp.1992). See Melnick v. State Farm Mut. Auto. Ins. Co., 106 N.M. 726, 730-31, 749 P.2d 1105, 1109-10 (1988) (implied covenant of good faith and fair dealing does not apply to at-will employment contract), cert. denied, 488 U.S. 822, 109 S.Ct. 67, 102 L.Ed.2d 44 (1988).

We believe that Baca's argument stretches the Bassett exception too far. Bassett was based on specific statutes requiring partners to account to one another, to hold profits as trustees, and to indemnify the aggrieved partner. Although the statutes did not mention attorney fees, Bassett did not stretch them beyond their obvious intent in the context of a dissolution action, normally thought of as an equitable remedy, to rule that partners needed to make each other whole. We believe that Bassett is a far cry from this case, in which there are neither specific nor general statutes requiring accountings, assumption of the duties of a trustee, or indemnification and in which the district court was proceeding as an appellate court.

Baca next contends that the district court properly awarded fees under an exception allowing fee shifting when a party acts in bad faith, vexatiously, wantonly, or for oppressive reasons. Although no New Mexico case has yet adopted this exception, we do so in this case. This exception has found its most recent comprehensive explication in Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). In addition to the bad faith exception, Chambers discussed the American Rule that is followed in the federal courts, which is similar to New Mexico's, and discussed two exceptions to it, the common fund exception and the exception allowing attorney fees to be awarded as part of the fine for contempt, both of which are recognized by New Mexico cases. See Aboud, 84 N.M. at 691-92, 507 P.2d at 438-39; Hall v. Hall, 114 N.M. 378, 387, 838 P.2d 995, 1004 (Ct.App.), cert. denied, 114 N.M. 314, 838 P.2d 468 (1992). In light of the similarities in federal and New Mexico law on this issue, and in light of the Supreme Court's willingness to approve fee shifting in the instance of bad faith expressed in Bassett, we adopt the reasoning of Chambers. Thus, a New Mexico court may award attorney fees when fraud has been practiced upon it, when "the very temple of justice has been defiled," when a party shows bad faith by disrupting litigation or hampering enforcement of court orders, or when it is necessary to vindicate judicial authority and make the prevailing party whole for expenses caused by an opponent's obstinacy under circumstances in which the opponent's behavior is characterized by bad faith or vexatious oppression. Chambers, 501 U.S. at ----, 111 S.Ct. at 2133 (quoting prior cases).

It is important in these cases, however, to recognize that there are limits on the exercise of a court's inherent power. Much has been written, in both New Mexico cases and others, on the appropriateness of the imposition of sanctions under a bad faith standard, including how courts should be careful that their actions not inhibit vigorous and responsible advocacy or the advancement of new issues, how doubts should be resolved against the imposition of sanctions, and how the discretion to award fees as part of inherent power should be exercised with restraint in light of the fact that the use of inherent powers is shielded from direct democratic controls. See, e.g., Roadway Express, Inc. v. Piper, 447 U.S. 752, 764, 100 S.Ct. 2455, 2463, 65 L.Ed.2d 488 (1980); Holt County Coop. Ass'n v. Corkle's, Inc., 214 Neb. 762, 336 N.W.2d 312, 316 (1983); Sandoval v. Martinez, 109 N.M. 5, 9, 780 P.2d 1152, 1156 (Ct.App.), cert. denied (July 27, 1989); LTown Ltd. Partnership v. Sire Plan, Inc., 108 A.D.2d 435, 489 N.Y.S.2d 567, 573-74 (1985), rev'd, 69 N.Y.2d 670, 511 N.Y.S.2d 840, 503 N.E.2d 1377 (1986).

We proceed to determine whether the fee award fits within the inherent power doctrine. The Highway Department first contends that there is simply no power for a district court sitting as an appellate court pursuant to the statutory authority of Section 10-9-18(G) to award attorney fees. According to the Highway Department, the district court's jurisdiction under Section 10-9-18(G) was limited to affirming or reversing the decision of the Personnel Board. Having determined that courts may impose sanctions for misconduct by an award of attorney fees, the question we address is whether the power to impose sanctions for misconduct in this way applies equally to appellate courts. We hold that it does.

Although there is authority to the contrary, In re A.G. Ship Maintenance Corp., 69 N.Y.2d 1, 511 N.Y.S.2d 216, 503 N.E.2d 681 (1986) (per curiam) (sanctions should be addressed by statute or plenary rule rather than ad hoc judicial decision), we believe the more persuasive authorities are those holding that appellate courts, like any other courts, 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." Martinez v. Internal Revenue Serv., 744 F.2d 71, 73 (10th Cir.1984); see also Trohimovich v. Commissioner, 776 F.2d 873, 875 (9th Cir.1985); LTown Ltd. Partnership, 489 N.Y.S.2d at 572-73. As stated by the court in LTown Limited Partnership, the inherent authority of the courts is long recognized. Id. at 573. Because courts must maintain their calendars and "keep the house of the law in order," the LTown court had "no difficulty in concluding" that sanctions could be imposed in appropriate cases as part of an appellate court's inherent power. Id. (quoting Gair v. Peck, 6 N.Y.2d 97, 188 N.Y.S.2d 491, 501, 160 N.E.2d 43, 51 (1959)). We agree with that reasoning and,...