TMF Tool Co., Inc. v. Muller

• Decision Date: 16 August 1990
• Docket Number: Nos. 89-1855 and 89-1881,s. 89-1855 and 89-1881
• Citation: 913 F.2d 1185
• Parties: TMF TOOL CO., INC., Plaintiff-Appellee, Cross-Appellant, and Jack Joseph and Joseph & Myers, Cross-Appellants, v. Hans MULLER, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1185

913 F.2d 1185

17 Fed.R.Serv.3d 615

TMF TOOL CO., INC., Plaintiff-Appellee, Cross-Appellant and Jack Joseph and Joseph & Myers, Cross-Appellants, v. Hans MULLER, Defendant-Appellant, Cross-Appellee.

Nos. 89-1855 and 89-1881.

United States Court of Appeals Seventh Circuit.

Argued Jan. 19, 1990.

Decided Aug. 16, 1990.

Stephen R. Swofford, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Jack Joseph, Joseph & Myers, Chicago, Ill., for plaintiff-appellee, cross-appellant.

Barry S. Alberts, Sam V. Menegas, Schiff, Hardin & Waite, Chicago, Ill., for defendant-appellant, cross-appellee.

Before CUDAHY, MANION, and KANNE, Circuit Judges.

KANNE, Circuit Judge.

This case exclusively concerns the imposition of monetary sanctions under Rule 11 of the Federal Rules of Civil Procedure. The case began simply enough in 1987. TMF Tool Company filed a three-count complaint against a Swiss company, H.M. Financiere & Holding, S.A., and its chief executive officer, Hans Muller. The complaint alleged that an agent of the defendants fraudulently induced TMF to sign and deliver a $350,000 promissory note and a $175,000 post-dated check. Counts I and II of the complaint sought to enjoin negotiation of the note and check, and sought reformation of the instruments. Count III requested an accounting.

After the complaint was filed, defendant Hans Muller, a resident of Switzerland, came to the United States--more particularly Chicago--to discuss the dispute with the plaintiff. When the negotiations proved to be unsuccessful, an attorney for TMF immediately handed Muller a summons and complaint.

Muller moved to dismiss the complaint for lack of personal jurisdiction. In reviewing the motion to dismiss, the court found that TMF had enticed Muller into the jurisdiction in order to serve him with a summons and complaint. Applying the "fraudulent enticement" doctrine, the court held the service of process to be invalid and dismissed the complaint as to Muller on jurisdictional grounds.

H.M. Financiere & Holding moved to dismiss the complaint for the failure of TMF to plead the fraud counts with particularity, and for lack of stating a proper basis to warrant the relief of an accounting. The court agreed. Count III was dismissed with prejudice because an accounting was not an appropriate form of relief under the circumstances. Counts I and II were dismissed without prejudice for failure to plead with particularity, and TMF was granted leave to replead these counts within 20 days. TMF did not file an amended complaint within the 20-day period. Instead, TMF voluntarily dismissed the action under Rule 41(a) of the Federal Rules of Civil Procedure.

Thereafter, both Muller and H.M. Financiere & Holding moved for sanctions under Rule 11. The district court denied H.M. Financiere & Holding's request for Rule 11 sanctions. However, the district court agreed with regard to Muller's request for sanctions against TMF. The court found that TMF either did not research the applicable law regarding fraudulent enticement or chose to ignore the law on that issue when it served process on Muller. The court gave Muller ten days to submit "an affidavit reflecting attorneys fees, costs and expenses incurred in connection with the litigation of the portion of the motion to dismiss for lack of personal jurisdiction."

In response to the court's direction, Muller submitted a petition for attorneys' fees, costs, and expenses in the amount of $9,320. The supporting affidavit made it Within two weeks, TMF moved to vacate the district court's award of fees under Rule 11. The district court granted the motion to vacate its earlier sanctions award finding that Muller's fee petition had been excessive. The court held that the fee petition had not conformed with the court's order because it included, in addition to expenses relating to the portion of the motion to dismiss for lack of personal jurisdiction, expenses incurred in connection with the briefing of the Rule 11 motion. Also, the court determined that a billing rate of $190 per hour for the supervising attorney appeared excessive given the lack of complexity involved regarding the jurisdictional issue. However, the court granted Muller leave to submit an amended petition for fees and costs limited to the initial research and briefing of the personal jurisdiction issue. The court also directed Muller to submit justification or authority to support the rate of $190 per hour for the supervising attorney.

clear that the amount requested included attorneys' time in connection with the portion of the motion to dismiss for lack of personal jurisdiction and for the fees incurred in connection with the briefing of the Rule 11 motion. One day after the petition for fees was submitted the district court granted Muller the amount requested thus setting sanctions against TMF in the sum of $9,320.

The amended petition for attorneys' fees was filed and Muller requested reduced fees in the amount of $6,652. The supporting materials indicated that the amended fee petition did not seek any reimbursement for briefing the Rule 11 motion, and also included comparable fee data and authorities supporting a fee award of $190 per hour for a supervising attorney. TMF opposed the amended petition arguing that the fee was still excessive. The district court agreed with TMF and held that the two fee petitions submitted by Muller warranted sanctioning. Moreover, the court found that Muller's conduct was "equally objectionable" as TMF's conduct regarding the fraudulent enticement issue. It therefore determined that the monetary sanctions for each party would be equal and cancel each other.

Muller appeals the district court's decision denying him monetary sanctions (as requested in the amended petition for attorneys' fees). TMF and its attorneys, Jack Joseph and the law firm of Joseph and Myers, cross-appeal the district court's grant of sanctions in favor of Muller.

DISCUSSION

I. Procedural Issues and Jurisdiction

This is the classic situation of Rule 11 satellite litigation completely engulfing the original action. It is no wonder that the district judge ultimately declared the Rule 11 controversy a wash by effectively denying monetary sanctions to either side. This case also is fraught with a number of procedural failings. No judgment entry was made with regard to the sanctions and there was no specific determination by the court as to imposition of sanctions against counsel. Two things are certain: this litigation should end and no monetary sanctions should be awarded. We turn first to the task of sorting out the jurisdictional problems.

An order granting or denying monetary sanctions against a party or an attorney issued under the provisions of Rule 11 is an appealable decision which constitutes a judgment pursuant to Rule 54 of the Federal Rules of Civil Procedure. Because such an order has the effect of a judgment when a monetary sanction is imposed, it is necessary that the district court's decision clearly specify who is to pay the monetary sanction, who is to receive the monetary sanction and the amount of the monetary sanction. Moreover, under Rule 58 of the Federal Rules of Civil Procedure, a judgment is not effective until it is set forth on a separate document and entered on the district court's civil docket. In this case, the district court issued several orders dealing with sanctions. Its last order was entered on March 23, 1989, and the docket reflects "defendant Hans Muller's amended petition for attorneys' fees, costs and expenses is denied."

No separate document setting out any judgment was entered as required by Rule 58.

The general rule is that there must be a formal judgment entry before a final order is appealable. United States v. Indrelunas, 411 U.S. 216, 221, 93 S.Ct. 1562, 1564, 36 L.Ed.2d 202 (1973). Indeed, the basis for jurisdiction here is 28 U.S.C. Sec. 1291, which permits appeals of "final decisions" of district courts. Therefore, we must determine whether we have jurisdiction over this appeal based on the final order issued by the district court. Principal Mut. Life Ins. Co. v. Cincinnati TV 64 Ltd. Partnership, 845 F.2d 674, 675-76 (7th Cir.1988).

Notwithstanding the clerk's failure to comply with Rule 58, the requirement of a separate judgment may be deemed waived when the final disposition of the district court clearly was intended to be the final decision in the case. Rosser v. Chrysler Corp., 864 F.2d 1299, 1305 (7th Cir.1988) (citing Bankers Trust Co. v. Mallis, 435 U.S. 381, 384-87, 98 S.Ct. 1117, 1119-21, 55 L.Ed.2d 357 (1978)); see also Adams v. Lever Bros. Co., 874 F.2d 393, 394 (7th Cir.1989) ("When nothing remains to be decided in the district court, the order is appealable even if formalities have not been observed"). Here, there is no question that the final order of March 23, 1989 was intended to conclude the matter of sanctions. The underlying claims in the complaint had long been dismissed and the final order was intended to end the ancillary aspect of the original litigation. We therefore conclude that the matter of sanctions is properly before us.

It was the intention of the district judge to reprimand both sides of this litigation under the auspices of Rule 11. However, beyond Muller and TMF, there was no specific designation as to anyone else being sanctioned. At best there can be but an inference drawn from the following language in the district court's final order:

TMF's and Muller's misconduct--or, more accurately, that of their respective attorneys--appear to be equally objectionable. Given the difficulty of ascertaining the precise amount of fees incurred for each wrong, equation of the two is appropriate.

The district judge merely concluded her order by denying Hans Muller any money for the sanctions imposed against TMF, or more precisely, denying his amended petition for attorneys' fees, costs and expenses.

The clear intent of the district court was...