Cooter Gell v. Hartmarx Corporation
Respondents, the defendants in a District Court suit instituted by petitioner law firm on behalf of a client, filed a motion to dismiss the complaint as having no basis in fact and a motion for sanctions under Federal Rule of Civil Procedure 11 on the ground that the firm had not made sufficient prefiling inquiries to support the complaint's allegations. Rule 11-after specifying, inter alia, that an attorney's signature on a pleading constitutes a certificate that he has read it and believes it to be well grounded in fact and legally tenable-provides that, if a pleading is signed in violation of the Rule, the court "shall" impose upon the attorney or his client "an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, . . . including a reasonable attorney's fee." Following petitioner's notice of voluntary dismissal of the complaint under Rule 41(a)(1)(i), the court held that petitioner's prefiling inquiries were grossly inadequate and imposed monetary sanctions upon it and its client. The Court of Appeals affirmed, holding that the voluntary dismissal did not divest the District Court of jurisdiction to rule upon the Rule 11 motion; that that court's determination that petitioner had violated Rule 11 was substantially justified; and that an appellant that successfully defends a Rule 11 award is entitled to recover its reasonable attorney's fees on appeal. The court therefore remanded the case for the District Court to determine the amount of such fees and to enter an appropriate award.
1. A voluntary Rule 41(a)(1)(i) dismissal does not deprive a district court of jurisdiction over a Rule 11 motion. This view is consistent with Rule 11's purposes of deterring baseless filings and streamlining federal court procedure and is not contradicted by anything in that Rule or Rule 41(a)(1)(i). Pp. 393-398.
(a) Rule 41(a)(1) permits a voluntary dismissal without prejudice only if the plaintiff files a notice of dismissal before the defendant files an answer or summary judgment motion and the plaintiff has never previously dismissed an action "based on or including the same claim." Once the defendant has responded to the complaint, the plaintiff may dismiss only by stipulation or by order "upon such terms and conditions as the court deems proper." Moreover, a dismissal "operates as an adjudication on the merits" if the plaintiff has previously dismissed the claim. Pp. 393-394.
(b) The district court's jurisdiction, invoked by the filing of the underlying complaint, supports consideration of both the action's merits and the Rule 11 motion arising from that filing. As the Rule 11 violation is complete when the paper is filed, a voluntary dismissal does not expunge the violation. In order to comply with the Rule's requirement that it "shall" impose sanctions, the court must have the authority to consider whether there has been a violation of the signing requirement regardless of the dismissal. Pp. 394-395.
(c) The language of Rules 11 and 41(a)(1) is compatible. Like the imposition of costs, attorney's fees, and contempt sanctions, a Rule 11 sanction is not a judgment on the action's merits, but simply requires the determination of a collateral issue, which may be made after the principal suit's termination. Because such a sanction does not signify a merits determination, its imposition does not deprive the plaintiff of his Rule 41(a) right to dismiss without prejudice. Pp. 395-397.
(d) Because both Rule 41(a)(1) and Rule 11 are aimed at curbing abuses of the judicial system, their policies are completely compatible. Rule 41(a)(1) was designed to limit a plaintiff's ability to dismiss an action in order to curb abuses of pre-existing state and federal procedures allowing dismissals as a matter of right until the entry of the verdict or judgment. It does not codify any policy that the plaintiff's right to one free dismissal also secures the right to file baseless papers. If a litigant could purge his Rule 11 violation merely by taking a dismissal, he would lose all incentive to investigate more carefully before serving and filing papers. Pp. 397-398.
2. A court of appeals should apply an abuse-of-discretion standard in reviewing all aspects of a district court's decision in a Rule 11 proceeding. Petitioner's contention that the Court of Appeals should have applied a three-tiered standard of review-a clearly erroneous standard for findings of historical fact, a de novo standard for the determination that counsel violated Rule 11, and an abuse-of-discretion standard for the choice of sanction-is rejected. Pp. 399-405.
(a) Appellate courts must review the selection of a sanction under an abuse-of-discretion standard, since, in directing the district court to impose an "appropriate" sanction, Rule 11 itself indicates that that court is empowered to exercise its discretion. Moreover, in the absence of any language in the Rule to the contrary, courts should adhere to their usual practice of reviewing the district court's findings of fact under a deferential standard. In the present context, the abuse-of-discretion and clearly erroneous standards are indistinguishable: A court of appeals would be justified in concluding that a district court had abused its discretion in making a factual finding only if the finding were clearly erroneous. Furthermore, the court of appeals must defer to the district court's legal conclusions in Rule 11 proceedings, since those conclusions are rooted in factual determinations rather than purely legal inquiries, and the district court, familiar with the issues and litigants, is better situated to marshal the pertinent facts and apply the necessary fact-dependent legal standard. If the district court based its conclusion on an erroneous view of the law, the appellate court would be justified in concluding that it had abused its discretion. Pp. 400-402.
(b) Pierce v. Underwood, 487 U.S. 552, 108 S.Ct. 2541, 101 L.Ed.2d 490-which held that a District Court's determination under the Equal Access to Justice Act that "the position of the United States was substantially justified" should be reviewed for an abuse of discretion-strongly supports applying a unitary abuse-of-discretion standard to all aspects of a Rule 11 proceeding. Pp. 403-404.
(c) Adoption of an abuse-of-discretion standard is also supported by Rule 11's policy goals of deterrence and streamlining the judicial process. The district court is best situated to determine whether a sanction is warranted in light of the local bar's litigation practices, and deference to that court's determination will enhance its ability to control litigants, free appellate courts from the duty of reweighing evidence, and discourage litigants from pursuing marginal appeals. Pp. 404-405.
(d) The Court of Appeals' determination that the District Court "applied the correct legal standard and offered substantial justification for its finding of a Rule 11 violation" was consistent with the deferential standard of review adopted here. P. 405.
3. Rule 11 does not authorize a district court to award an attorney's fee incurred on appeal. Pp. 405-409.
(a) Neither the language of the Rule's sanctions provision when read in light of Rule 1's statement that the Rules only govern district court procedure-nor the Advisory Committee Note suggests that the Rule could require payment for appellate proceedings. Respondents' interpretation that the provision covers any and all expenses incurred "because of the filing" is overbroad. A more sensible reading permits an award only of those expenses directly caused by the filing-logically, those at the trial level-and considers the expenses of defending the award on appeal to arise from the award itself and the taking of the appeal, not from the initial filing of the complaint. Pp. 2461-2462.
(b) Federal Rule of Appellate Procedure 38-which authorizes courts of appeals to "award just damages and single or double costs to the appellee" upon determining that an appeal is frivolous-places a natural limit on Rule 11's scope. If a Rule 11 appeal is frivolous, as it often will be given the district court's broad discretion to impose sanctions, Rule 38 gives the appellate court ample authority to award expenses. However, if the appeal is not frivolous, Rule 38 does not require the appellee to pay the appellant's attorney's fees. P. 407.
(c) Limiting Rule 11's scope to trial court expenses accords with the policy of not discouraging meritorious appeals, since many valid challenges might not be filed if unsuccessful appellants were routinely required by the very courts which originally imposed sanctions to shoulder the appellee's fees. Moreover, including such fees in a Rule 11 sanction might have the undesirable effect of encouraging additional satellite litigation, since a losing party subjected to fees on remand might again appeal the award. Even if disallowing a Rule 11 appellate attorney's fees award would discourage litigants from defending the award when appellate expenses were likely to exceed the sanction's amount, the risk of expending the value of one's award while defending it is a natural concomitant of the American Rule, i.e., that the prevailing litigant is ordinarily not entitled to collect an attorney's fee. Pp. 408-409.
277 U.S.App.D.C. 333, 875 F.2d 890 (CADC 1989), affirmed in part and reversed in part.
O'CONNOR, J., delivered the opinion for a unanimous Court with respect to Parts I, II, IV, and V, and the opinion of the Court with respect to Part III, in which REHNQUIST, C.J., and BRENNAN, WHITE, MARSHALL, BLACKMUN, SCALIA, and KENNEDY, JJ., joined. STEVENS, J., filed an opinion concurring in part and dissenting in part, post, p. 409.
Stephen A. Saltzburg, Charlottesville, Va., for petitioner.
Richard J. Favretto, Washington, D.C., for respondents.
Justice O'CONNOR delivered the opinion of the Court.