White v. General Motors Corp., Inc.

• Decision Date: 19 July 1990
• Docket Number: 89-3182,Nos. 89-3159,s. 89-3159
• Citation: 908 F.2d 675
• Parties: , 6 Indiv.Empl.Rts.Cas. 236 Frederick Lawrence WHITE, Jr.; Benjamin L. Staponski, Jr., Plaintiffs-Appellants, and Gwen G. Caranchini, Appellant, v. GENERAL MOTORS CORPORATION, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 675

908 F.2d 675

17 Fed.R.Serv.3d 384, 6 Indiv.Empl.Rts.Cas. 236

Frederick Lawrence WHITE, Jr.; Benjamin L. Staponski, Jr., Plaintiffs-Appellants, and Gwen G. Caranchini, Appellant, v. GENERAL MOTORS CORPORATION, INC., Defendant-Appellee.

Nos. 89-3159, 89-3182.

United States Court of Appeals,

Tenth Circuit.

July 19, 1990.

Gwen G. Caranchini, Kansas City, Mo. (Linda Scott Skinner, Overland Park, Kan., with her on the briefs), for plaintiffs-appellants.

Paul Scott Kelly, Jr. (R. Kent Sellers with him on the brief) of Gage & Tucker, Kansas City, Mo., for defendant-appellee.

Before LOGAN, McWILLIAMS, and BRORBY, Circuit Judges.

LOGAN, Circuit Judge.

In a related appeal, White v. General Motors Corp., 908 F.2d 669 (10th Cir.1990) (White I ), entered today we have affirmed the district court's grant of summary judgment in favor of General Motors Corporation (GM) on the merits of claims filed against it by former employees Frederick Lawrence White, Jr. and Benjamin L. Staponski, Jr. In the instant appeal White, Staponski and their attorneys ¹ (hereinafter collectively "plaintiffs") challenge the district court's award of Fed.R.Civ.P. 11 sanctions against them, jointly and severally, in the amount of $172,382.19. See White v. General Motors Corp., 126 F.R.D. 563 (D.Kan.1989).

Plaintiffs make essentially five arguments on appeal: (1) the district court erred in imposing sanctions because plaintiffs' conduct satisfied Rule 11 and their arguments were meritorious; (2) the district court's order imposing sanctions was insufficiently specific to allow meaningful appellate review; (3) the amount of sanctions imposed was excessive; (4) the district court erroneously denied plaintiffs a hearing on sanctions; and (5) the district court erred in refusing to grant plaintiffs' Fed.R.Civ.P. 60(b) motion to reconsider its summary judgment order in favor of GM.

All of the issues raised are subject to review under an abuse of discretion standard. Cooter & Gell v. Hartmarx Corp., --- U.S. ----, 110 S.Ct. 2447, 2460-61, 110 L.Ed.2d 359 (1990) (across the board abuse of discretion standard in Rule 11 cases); Valmont Indus. Inc. v. Enresco, Inc., 446 F.2d 1193, 1195 (10th Cir.1971), cert. denied, 405 U.S. 922, 92 S.Ct. 960, 30 L.Ed.2d 793 (1972) (Rule 60(b) motion subject to abuse of discretion review standard).

I

The facts are more fully set out in White I, and we only briefly summarize here. White and Staponski were long-time GM employees terminated under GM's Special Incentive Separation Program (SISP). They each received approximately $60,000 cash and other benefits under the separation program. They were in the age group protected by the Age Discrimination in Employment Act (ADEA). At the time of their termination, however, they each signed a release discharging GM from all claims "known or unknown" based upon their cessation of employment, including ADEA, the Civil Rights Act of 1964, and "any other federal, state, or local law, order, or regulation, or the common law relating to employment and any claims for breach of employment contract, either express or implied." I R. tab 10, exs. 2-A, 2-B. Allegedly White and Staponski thought they were among the GM employees singled out to be terminated because they had previously complained to management about defective brake work being done in their plant. White also thought that when he gave GM as an employment reference to Westlake Hardware, to which he was submitting a job application, GM reported that he was a "troublemaker." White and Staponski consulted lawyer Gwen G. Caranchini, and she filed suit on their behalf against GM.

An attorney's signature on the complaint or other pleading in a suit in federal court constitutes a certificate

"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."

Fed.R.Civ.P. 11. If there is a violation the court can sanction the lawyer, the client, or both. Id. These sanctions may include payment of the other party's "reasonable expenses incurred because of the filing ... including a reasonable attorney's fee." Id.

The portions of Rule 11 relevant to determining whether sanctions are justified in the instant case are its requirements of "reasonable inquiry" and "good faith argument" based on at least an extension of existing law, and its requirement that the filing was "not interposed for any improper purpose." Id.

The lawsuit plaintiffs filed made no ADEA claim. It was filed as a diversity case for wrongful discharge, breach of implied contract of employment, and slander under Kansas law. The original complaint made no mention of signed releases.

The district court found, as one basis for its award of sanctions, that although GM's lawyers advised attorney Caranchini of the releases, she never obtained copies before filing the complaint. 126 F.R.D. at 565. To Caranchini's allegation that she and her clients were unable to locate copies of the releases, the district court responded that a reasonable attorney would have waited to acquire them before filing suit, because there were no statute of limitations problems. Id.

On the slander count, the complaint did not name the GM employee who allegedly committed the slander, nor the Westlake employee who allegedly asked for the reference. GM attorneys acquired the Westlake employee's name, obtained the employee's affidavit that she did not call GM for a reference on White, and then asked Caranchini to dismiss the claim. This the attorney refused to do despite having no other evidence to contradict the Westlake employee's affidavit. This led the district court to conclude that plaintiffs conducted no investigation of the slander claim, thereby violating the "reasonable inquiry" requirement of Rule 11. Id. at 566.

The court also found that plaintiffs violated the Rule 11 requirement that claims advanced must be warranted at least by a "good faith argument for the extension, modification, or reversal of existing law," because plaintiffs' attorney insisted that "the court's application of the black letter law set out in Hastain ² was in error," and "that whether a certain set of facts constitutes duress is a question of fact for the jury." Id. The court also found plaintiffs' argument that the releases were ambiguous to be "specious." Id. The fraud and unconscionability claims were found to be without merit but were not used as a basis for Rule 11 sanctions. Id.

The court also found violation of Rule 11 because the action was advanced for an improper purpose and because plaintiffs needlessly increased the costs of litigation. Plaintiffs had made prefiling threats to contact the media and government agencies about the allegedly defective brake work being done at the plant if settlement demands were not met. As to this, the court stated the following:

"In light of the fact that this court has found plaintiffs failed to make a reasonable inquiry into the facts in this case, and that plaintiffs pursued claims which were not warranted by existing law, the court finds that plaintiffs' threats to publicize those baseless claims and their subsequent filing of the lawsuit were improper and in violation of Rule 11."

Id. at 567. Additionally, the court found a Rule 11 violation in that "voluminous discovery requests" plaintiffs filed were unwarranted "since plaintiffs' claims were not well-founded in fact or in law." Id.

The court ordered "plaintiffs and their attorneys" to pay GM's costs and attorney's fees in defending the entire case, as well as in its pursuit of sanctions. Id. After GM filed an affidavit and exhibits detailing its expenses and attorney's fees incurred, the court rejected plaintiffs' motions to strike, for discovery, and for a hearing. It rejected plaintiffs' affidavits claiming that they were unable to pay any amount of sanctions, finding that they consisted of "bald assertions" that did not show what assets or income plaintiffs and their counsel had. III R. tab 145, at 2-3. It found the affidavit of GM's principal lawyer, which sought attorney's fees at an average hourly rate of $115.00, to be reasonable, and awarded all fees and expenses claimed, a total amount of $172,382.19. Id. at 3.

II

A. Objective Standard

As a preliminary matter, plaintiffs challenge the district court's imposition of sanctions on the ground that the court applied a subjective rather than objective standard in evaluating plaintiffs' conduct. This circuit has adopted the view that an attorney's actions must be objectively reasonable in order to avoid Rule 11 sanctions. Adamson v. Bowen, 855 F.2d 668, 673 (10th Cir.1988). A good faith belief in the merit of an argument is not sufficient; the attorney's belief must also be in accord with what a reasonable, competent attorney would believe under the circumstances. Id. In addition, it is not sufficient for an offending attorney to allege that a competent attorney could have made a colorable claim based on the facts and law at issue; the offending attorney must actually present a colorable claim. See Calloway v. Marvel Entertainment Group, 854 F.2d 1452, 1470 (2d Cir.1988) (focus on whether an objectively reasonable basis for claim "was demonstrated"), rev'd in part on other grounds, --- U.S. ----, 110 S.Ct. 456, 107 L.Ed.2d 438 (1989). Thus, plaintiffs may not shield their own incompetence by arguing that, while they failed to make a colorable argument, a competent attorney would have done so. See Gaiardo v. Ethyl Corp., 835 F.2d 479, 482 (3d Cir.1987) (Rule 11 intended to prevent abuses arising from bad faith, negligence, and to some extent, professional incompetence).

The district court recited the correct...