Julio Antonio Silva v. Pro Transport, Inc. , 898 F.3d 1335 ( 2018 )


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  •              Case: 17-12744     Date Filed: 08/10/2018      Page: 1 of 14
    [PUBLISH]
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE ELEVENTH CIRCUIT
    ________________________
    No. 17-12744
    Non-Argument Calendar
    ________________________
    D.C. Docket No. 1:15-cv-23028-RNS
    JULIO ANTONIO SILVA,
    and all others similarly situated under 29 U.S.C. 216(b),
    Plaintiff - Appellant,
    versus
    PRO TRANSPORT, INC.,
    OSCAR ACHARANDIO,
    TONY MENENDEZ,
    Defendants - Appellees.
    ________________________
    Appeal from the United States District Court
    for the Southern District of Florida
    ________________________
    (August 10, 2018)
    Case: 17-12744        Date Filed: 08/10/2018   Page: 2 of 14
    Before WILLIAM PRYOR, JILL PRYOR and ANDERSON, Circuit Judges.
    PER CURIAM:
    Plaintiff Juan Antonio Silva appeals a district court order assessing sanctions
    against him and his attorneys. Silva sued his employer, Pro Transport, Inc., and its
    owners, Oscar Acharandio and Tony Menendez, to recover unpaid overtime wages
    under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-19. The district
    court granted summary judgment to the defendants, concluding that judicial
    estoppel barred Silva’s FLSA claim because he had failed to disclose it as an asset
    in his Chapter 13 bankruptcy. The district court then sanctioned Silva and his
    attorneys because it found that they acted in bad faith in litigating Silva’s FLSA
    claim when it was clear under our precedent that judicial estoppel barred the claim.
    While Silva’s appeal of the sanctions award was pending in our Court, we issued
    an en banc opinion clarifying the standard for applying judicial estoppel. See
    Slater v. U.S. Steel Corp., 
    871 F.3d 1174
    (11th Cir. 2017) (en banc). Because
    Slater makes clear that Silva and his attorneys did not act in bad faith in litigating
    the FLSA claim, we reverse the district court’s award of sanctions.
    I.      BACKGROUND
    This dispute arises out of Silva’s claim that Pro Transport failed to pay him
    overtime wages. Silva alleged that Pro Transport paid him for working only 40
    hours per week, even though he was required to work 70 hours.
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    In 2014, Silva consulted with attorney Zandro Palma about his claim for
    unpaid overtime wages. Palma sent a letter to Pro Transport demanding payment
    on the ground that it had violated the FLSA by failing to pay Silva overtime wages.
    But when Pro Transport was unwilling to settle with Silva, Palma ceased
    representing Silva.
    Later that year, Silva, facing foreclosure on his home, filed a petition for
    Chapter 13 bankruptcy. In the bankruptcy proceeding, Silva was represented by a
    different attorney. In the bankruptcy petition, Silva was required to disclose his
    assets. He failed to list his FLSA claim against Pro Transport and its owners as a
    contingent and unliquidated claim. In April 2015, the bankruptcy court confirmed
    Silva’s Chapter 13 plan.
    In August 2015, Silva’s mother saw an advertisement by attorney J.H.
    Zidell. At his mother’s urging, Silva met with Zidell about his potential claim for
    unpaid wages. At the meeting, Zidell had Silva complete an intake form that asked
    whether Silva had any pending legal matters. Silva did not identify his pending
    bankruptcy proceeding because he did not think that it was relevant. Zidell did not
    ask Silva in person whether he had any pending legal matters. After the meeting,
    Zidell filed this action on Silva’s behalf. When the action was filed, Silva did not
    update his bankruptcy disclosures to reflect that he had filed the lawsuit.
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    The defendants in the FLSA action moved for summary judgment, asserting
    that judicial estoppel barred Silva’s FLSA claim because he had taken inconsistent
    positions regarding the existence of that claim by bringing the civil action and
    failing to disclose the claim in his bankruptcy proceeding and because Silva acted
    with an intent to manipulate the judicial process. Regarding Silva’s intent, the
    defendants relied on our precedent holding that a plaintiff who fails to disclose a
    civil claim in a bankruptcy proceeding acts intentionally because he has a motive
    to conceal the claim from his creditors to avoid having the proceeds from the
    lawsuit become the property of the bankruptcy estate.
    In response to the summary judgment motion, Silva argued that judicial
    estoppel was unwarranted because he had never intended to manipulate or make a
    mockery of the judicial system; rather, he had merely made a mistake. Silva
    explained that due to his lack of sophistication he had not understood the
    importance of telling Ziddell about his bankruptcy proceeding or informing his
    bankruptcy counsel of his FLSA lawsuit. Silva also pointed out that he was
    attempting to correct the error by amending his bankruptcy disclosures, as was
    permitted under the bankruptcy rules. His bankruptcy attorney successfully
    amended Silva’s bankruptcy schedules to disclose the pending FLSA claim as an
    asset.
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    The district court granted summary judgment to the defendants, finding that
    Silva had intended to make a mockery of the judicial system and concluding that
    judicial estoppel barred his FLSA claim. The district court explained that under
    existing Circuit precedent Silva had acted intentionally because he had a motive to
    conceal his FLSA claim in his bankruptcy proceedings. The district court
    dismissed as “insufficient,” “irrelevant[,] and immaterial” Silva’s attempt to
    correct the non-disclosure by amending his bankruptcy schedules. Doc. 38 at 2. 1
    After the district court entered judgment in the defendants’ favor, they
    moved for sanctions against Silva and his attorneys, seeking to recover their
    attorney’s fees and costs. They argued that the district court should award
    sanctions pursuant to its internal authority, 28 U.S.C. § 1927, and Federal Rule of
    Civil Procedure 11 because Silva and his attorneys had acted unreasonably and in
    bad faith in litigating the FLSA claim when they knew or should have known that
    judicial estoppel barred the action. Silva and his attorneys opposed the motion for
    sanctions, contending that they had a good faith basis for arguing that judicial
    estoppel should not apply, especially given that Silva amended his bankruptcy
    disclosures upon learning of the omission.
    The district court referred the sanctions motion to a magistrate judge. After
    a hearing, the magistrate judge recommended that the district court impose
    1
    Citations to “Doc. #” refer to numbered entries on the district court’s docket.
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    sanctions against Silva and his attorneys. The magistrate judge found that Silva
    and his attorneys had acted unreasonably and in bad faith in bringing the FLSA
    claim because “the case law in the Eleventh Circuit is clear that when a debtor fails
    to disclose a pending lawsuit to the bankruptcy court, while having knowledge of
    the lawsuit and a motive to conceal it, the doctrine of judicial estoppel bars the
    undisclosed action from proceeding.” Doc. 61 at 14 (internal quotation marks
    omitted). The magistrate judge determined that Silva’s attorneys had failed to
    perform an adequate investigation before filing the lawsuit. Although Zidell asked
    Silva on an intake form whether he had any other pending actions, the magistrate
    judge found that Zidell was required to ask Silva at their meeting whether he had
    any pending litigation or to search the PACER system to verify that Silva had no
    other pending federal actions.2
    Although Silva and his attorneys objected to the magistrate judge’s Report
    and Recommendation, the district court adopted it and granted the motion for
    sanctions. While the parties were litigating over the amount of the sanctions
    award, our Court agreed to rehear Slater en banc to address judicial estoppel in the
    context of a debtor’s failure to disclose an asset in a Chapter 13 bankruptcy. Silva
    asked the district court to stay the case pending the en banc decision in Slater. The
    2
    The magistrate judge also noted that Silva gave inconsistent testimony at the evidentiary
    hearing about whether his first attorney, Palma, told him that he had no overtime case and about
    the identity of the attorneys who represented him in his bankruptcy proceedings. But the
    magistrate judge did not rely on these inconsistencies to find that Silva acted in bad faith.
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    district court refused to stay the case and ultimately awarded the defendants
    sanctions in the amount of $50,756 in attorney’s fees and $445.43 in costs holding
    Silva and his attorneys jointly and severally liable for the sanctions award.
    This is Silva’s appeal. 3 We note that Silva appeals only the district court’s
    decision to impose sanctions and not the underlying grant of summary judgment.
    II.     STANDARD OF REVIEW
    We review a district court’s imposition of sanctions for abuse of discretion.
    See Nicholson v. Shafe, 
    558 F.3d 1266
    , 1270 (11th Cir. 2009) (applying abuse of
    discretion standard to review sanctions imposed under Rule 11 and 28 U.S.C.
    § 1927); Barnes v. Dalton, 
    158 F.3d 1212
    , 1214 (11th Cir. 1998) (applying abuse
    of discretion standard to review sanctions imposed pursuant to district court’s
    inherent power). “An abuse of discretion occurs if the judge fails to apply the
    proper legal standard or to follow proper procedures in making the determination
    or bases an award . . . upon findings of fact that are clearly erroneous.” Mut. Servs.
    Ins. Co. v. Frit Indus., Inc., 
    358 F.3d 1312
    , 1322 (11th Cir. 2004) (internal
    quotation marks omitted). “Under clear error review, we will reverse only if after
    viewing all the evidence, we are left with the definite and firm conviction that a
    3
    After filing a notice of appeal, Silva filed a motion in our Court to stay the appeal
    pending our en banc decision in Slater. We granted the motion. The parties submitted their
    briefs once the Slater en banc decision issued.
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    mistake has been committed.” Sciarretta v. Lincoln Nat’l Life Ins. Co., 
    778 F.3d 1205
    , 1213 (11th Cir. 2015) (internal quotation marks omitted).
    III.   DISCUSSION
    Silva contends that the district court abused its discretion when it imposed
    sanctions against him and his attorneys pursuant to its inherent power, 28 U.S.C.
    § 1927, and Federal Rule of Civil Procedure 11. Before addressing whether the
    district court abused its discretion in imposing sanctions, we pause to discuss our
    Circuit’s law regarding judicial estoppel after our decision in Slater.
    Judicial estoppel applies when (1) a party takes an inconsistent position
    under oath in a separate proceeding, and (2) the party’s inconsistent positions were
    “calculated to make a mockery of the judicial system.” 
    Slater, 871 F.3d at 1181
    (internal quotation marks omitted). In Slater, we addressed how judicial estoppel
    applies when a plaintiff brings a civil claim that he failed to disclose in his
    bankruptcy proceeding. 
    Id. at 1176.
    We acknowledged that such a plaintiff has
    taken an inconsistent position “by asserting in the civil lawsuit that he has a claim
    against the defendant while denying under oath in the bankruptcy proceeding that
    the claim exists.” 
    Id. We focused
    our analysis in Slater on the evidence required
    for a court to infer that the plaintiff intended to make a mockery of the judicial
    system. 
    Id. 8 Case:
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    Prior to Slater, we endorsed an inference that a plaintiff who failed to
    disclose a civil claim intended to make a mockery of the judicial system because
    she knew about the existence of her civil claim and possessed a motive to conceal
    it. 
    Id. at 1184.
    We treated as irrelevant the fact that the plaintiff subsequently
    corrected her bankruptcy disclosures because a party should not be permitted to
    “‘back-up, re-open the bankruptcy case, and amend his bankruptcy filings’ after
    [her] adversary raises judicial estoppel.” 
    Id. at 1183
    (quoting Burnes v. Pemco
    Aeroplex, Inc., 
    291 F.3d 1282
    , 1288 (11th Cir. 2002)). Under our prior precedent,
    then, a defendant could establish as a matter of law that the plaintiff intended to
    make a mockery of the judicial system simply by showing that she failed to
    disclose a civil claim in her bankruptcy proceedings; a court was not required to
    consider all of the circumstances of the particular case to determine whether the
    plaintiff acted with the requisite intent. 
    Id. at 1184.
    In Slater we overruled our precedent that “permit[ted] a district court to infer
    intent to misuse the courts without considering the individual plaintiff and the
    circumstances surrounding the nondisclosure.” 
    Id. at 1177.
    We held instead that
    to find that a plaintiff who failed to disclose a civil claim in his bankruptcy
    proceedings intended to make a mockery of the judicial system, a district court
    must consider “all the facts and circumstances of the particular case” including:
    the plaintiff’s level of sophistication, whether and under what
    circumstances the plaintiff corrected the disclosures, whether the
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    plaintiff told his bankruptcy attorney about the civil claims before
    filing the bankruptcy disclosures, whether the trustee or creditors were
    aware of the civil lawsuit or claims before the plaintiff amended the
    disclosures, whether the plaintiff identified other lawsuits to which he
    was party, and any findings or actions by the bankruptcy court after
    the omission was discovered.
    
    Id. at 1185.
    We explained that it was inappropriate to infer in all cases that a
    debtor who failed to disclose a lawsuit intended to make a mockery of the judicial
    system because less sophisticated debtors “may not realize that a pending lawsuit
    . . . must be disclosed” in bankruptcy. 
    Id. at 1186.4
    With Slater’s holding in mind, we turn to whether the district court erred in
    imposing sanctions in this case. A district court may impose sanctions pursuant to
    its inherent authority, 28 U.S.C. § 1927, and under Federal Rule of Civil Procedure
    11 if the plaintiff acted in bad faith by pursuing a claim that was plainly barred by
    existing precedent and there was no reasonable chance of success in changing the
    law.
    If these conditions are met, a district court may impose sanctions pursuant to
    its inherent authority because a court is permitted to exercise its inherent power to
    impose sanctions when it finds that a party litigated a case in bad faith. 
    Barnes, 158 F.3d at 1214
    . We have recognized that a finding of bad faith is warranted
    when “an attorney knowingly or recklessly raises a frivolous argument.” 
    Id. 4 Of
    course, a factfinder ultimately “may determine that a plaintiff’s testimony that he
    misunderstood the disclosure obligations is not credible.” 
    Slater, 871 F.3d at 1186
    n.12.
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    (internal quotation marks omitted); see In re Evergreen Sec., Ltd., 
    570 F.3d 1257
    ,
    1274 (11th Cir. 2009) (recognizing that “continually advancing [a] groundless and
    patently frivolous litigation is tantamount to bad faith” (internal quotation marks
    omitted)).
    Likewise, when a plaintiff pursues a frivolous claim in bad faith, a district
    court is permitted to award sanctions against her attorney under 28 U.S.C. § 1927.
    A district court may impose sanctions under § 1927 against an attorney who
    “multiplies the proceedings in any case unreasonably and vexatiously.” 28 U.S.C.
    § 1927. An attorney unreasonably and vexatiously multiplies the proceedings
    when he “willfully abuse[s] the judicial process by conduct tantamount to bad
    faith.” Schwartz v. Millon Air, Inc., 
    341 F.3d 1220
    , 1225 (11th Cir. 2003) (internal
    quotation marks omitted). And an attorney acts in bad faith when she “knowingly
    or recklessly pursues a frivolous claim.” 
    Id. A district
    court may also impose sanctions pursuant to Rule 11 when a party
    files a legal action that is based on a legal theory that has no reasonable chance of
    success. Rule 11 provides that when an attorney files a pleading, written motion,
    or other paper, he certifies that “to the best of [his] knowledge, information, and
    belief, formed after an inquiry reasonable under the circumstances” that the
    pleading “is not being presented for any improper purpose, such as to harass, cause
    unnecessary delay, or needlessly increase the cost of litigation”; “the claims . . . are
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    warranted by existing law or by a nonfrivolous argument for extending, modifying,
    or reversing existing law or for establishing new law;” and there is “evidentiary
    support” for the factual contentions. Fed. R. Civ. P. 11(b)(1)-(3). A district court
    thus may impose sanctions under Rule 11 when a party files a pleading that “(1)
    has no reasonable factual basis; (2) is based on a legal theory that has no
    reasonable chance of success . . . ; [or] (3) is filed in bad faith for an improper
    purpose.” Baker v. Alderman, 
    158 F.3d 516
    , 524 (11th Cir. 1998).
    The magistrate judge found—and the district court accepted—that it was
    appropriate to impose sanctions in this case because “Eleventh Circuit case law is
    clear that Silva’s failure to disclose the overtime wages claim in the bankruptcy
    proceedings precluded him from bringing this action.” Doc. 61 at 15 n.12. The
    district court concluded that our judicial estoppel precedent foreclosed Silva’s
    FLSA claim and thus that his action was frivolous. By filing a frivolous lawsuit,
    Silva and his attorneys acted in bad faith, making sanctions appropriate.
    But the magistrate judge and the district court relied on our pre-Slater cases,
    which held that a plaintiff who failed to disclose a civil action in bankruptcy
    proceedings necessarily acted with an intent to make a mockery of the judicial
    system because he had a potential motive to conceal a claim. In Slater we
    overruled this precedent and rejected the argument that judicial estoppel must be
    applied when a plaintiff failed to disclose a civil claim in his bankruptcy
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    proceeding. We held that a district court must consider all the facts and
    circumstances of the case to find that the plaintiff acted with the requisite intent to
    make a mockery of the judicial system. See 
    Slater, 871 F.3d at 1185
    .
    In light of Slater, we are left with a definite and firm conviction that the
    district court made a mistake in determining that Silva and his attorneys took a
    frivolous position and had no reasonable chance of success in arguing that judicial
    estoppel did not apply. 5 As Slater illustrates, Silva and his attorneys had
    reasonable arguments that judicial estoppel should not apply given, among other
    things, Silva’s lack of sophistication and the fact that the bankruptcy court
    permitted Silva to amend his bankruptcy schedules to add the FLSA claim. See
    
    Slater, 871 F.3d at 1185
    (identifying “the plaintiff’s level of sophistication” and
    “whether . . . the plaintiff corrected the disclosures” as factors relevant to whether
    the plaintiff intended to make a mockery of the judicial system). Because the facts
    do not support that Silva and his attorneys acted in bad faith or took legal action
    5
    The defendants argue that because Silva appealed only the imposition of sanctions, not
    the grant of summary judgment, he may not relitigate whether the district court properly applied
    judicial estoppel. We agree that the question of whether the district court properly granted
    summary judgment based on judicial estoppel is not before us in this appeal. But to review the
    sanctions order, we must assess whether the district court clearly erred in finding that Silva and
    his attorneys acted in bad faith and for an improper purpose when they brought the FLSA claim.
    This question requires us to consider whether it was frivolous for Silva to assert that judicial
    estoppel did not apply. See 
    Schwartz, 341 F.3d at 1225
    ; 
    Baker, 158 F.3d at 524
    . And although
    Slater was issued after the district court imposed sanctions, Slater’s reasoning is relevant to
    determining whether Silva took a reasonable position in the litigation when he contended that
    judicial estoppel should not apply.
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    that had no reasonable chance of success, we conclude that the district court
    abused its discretion in imposing sanctions. 6
    IV.     CONCLUSION
    For the foregoing reasons, we reverse the district court’s award of sanctions
    to the defendants.
    REVERSED.
    6
    The district court found in the alternative that even if judicial estoppel did not apply,
    Silva and his attorneys acted in bad faith because Silva lacked standing to assert the FLSA claim.
    But this finding was also clearly erroneous because the district court misunderstood a debtor’s
    standing to pursue a civil claim. It is true that in a Chapter 7 bankruptcy generally only the
    trustee, not the debtor, has standing to pursue a civil legal claim. See 
    Slater, 871 F.3d at 1180
    .
    But in a Chapter 13 bankruptcy, the debtor retains standing to continue to pursue the civil claim.
    See 
    id. (citing 11
    U.S.C. § 1303; Fed. R. Bankr. P. 6009)).
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