Mario Lopez Garza v. Citigroup Inc , 881 F.3d 277 ( 2018 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 17-1039
MARIO ALBERTO LOPEZ GARZA,
The Executor of the estate of Hans Jorg Schneider Sauter
v.
CITIGROUP INC,
Appellant
________________
On Appeal from the United States District Court
for the District of Delaware
(Civil Action No. 1-15-cv-00537)
District Judge: Honorable Sue L. Robinson
________________
Argued September 27, 2017
Before: AMBRO, KRAUSE, Circuit Judges,
and CONTI, * Chief District Judge
*
Honorable Joy Flowers Conti, Chief Judge of the
United States District Court for the Western District of
Pennsylvania, sitting by designation.
(Opinion filed: February 2, 2018)
Amy L. Barton, Esquire
Bruce A. Birenboim, Esquire (Argued)
Paul Weiss Rifkind Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019
Stephen P. Lamb, Esquire
Paul Weiss Rifkind Wharton & Garrison
500 Delaware Avenue, Suite 200
Wilmington, DE 19899
Counsel for Appellant
Susan L. Burke, Esquire (Argued)
1611 Park Avenue
Baltimore, MD 21217
Thomas G. Macauley, Esquire
300 Delaware Avenue, Suite 760
Wilmington, DE 19801
Counsel for Appellee
___________
OPINION OF THE COURT
___________
CONTI, Chief District Judge
Under Federal Rule of Civil Procedure 41(d), a district
court may order a plaintiff who voluntarily dismisses an action
2
and files a second action against the same defendant based
upon a claim asserted in the first action to pay the “costs”
incurred by the defendant in the first action. The issue
presented (one of first impression in this Court) is whether a
district court may award attorneys’ fees as “costs” under Rule
41(d). We conclude that attorneys’ fees may only be awarded
as “costs” under Rule 41(d) when the substantive statute under
which the lawsuit was filed defines costs to include attorneys’
fees. Because no such statute is involved here, and no other
basis upon which attorneys’ fees may be awarded was properly
raised with the United States District Court for the District of
Delaware, 1 we will affirm the decision of the District Court
denying the request for attorneys’ fees.
I. FACTUAL AND PROCEDURAL HISTORY
A. The lawsuit filed in the Southern District
of New York
On July 29, 2014, the estate of Mexican national Hans
Jorg Schneider Sauter (the “Estate”) filed a complaint in the
United States District Court for the Southern District of New
York 2 against Citigroup Inc. (“Citigroup”), El Banco Nacional
De Mexico S.A. (“Banamex”) and Banamex U.S.A. The
1
We will refer to the United States District Court for the
District of Delaware, which is the court from which this appeal
arises, as the “District Court.”
2
We will refer to the United States District Court for the
Southern District of New York as the “New York District
Court.”
3
complaint contained various claims, 3 and the Estate requested,
among other things, the following relief: “That the Court order
Citibank, Banamex, and Banamex USA to turn over
information pertaining to all accounts of Hans Jorg Schneider
Sauter immediately….” (S.D.N.Y. Civ. Action No. 14-5812
(ECF No. 1 at 13).)
The Estate filed an amended complaint that added
Grupo Financiero Banamex, S.A. De C.V. (“Grupo
Financiero”) as a defendant and added a claim for “Racketeer
Influenced and Corrupt Organizations Act (‘RICO’)
Infractions, 18 U.S.C. §§ 1961-1968.” (S.D.N.Y. Civ. Action
No. 14-5812 (ECF No. 13 at 1, 21).) Citigroup, Banamex,
Banamex U.S.A., and Grupo Financiero filed a motion to
dismiss the amended complaint. The Estate did not respond to
that motion; rather, on November 10, 2014, it filed a motion to
amend/correct the amended complaint.
The New York District Court held a hearing, denied the
Estate’s motion to amend/correct the amended complaint, and
ordered the Estate to advise whether it intended to withdraw
any of the claims in the amended complaint. On December 12,
2014, the Estate filed a notice of voluntary withdrawal
pursuant to Rule 41(a)(1)(A)(i).
3
The original complaint filed in the Southern District of
New York contained the following claims for relief: (1)
“Fraudulent Conversion in Defiance of Court Orders That
Justifies Piercing the Corporate Veil against Citigroup and
Other Defendants[;]” (2) “Alien Tort Claims Act, 28 U.S.C.
§ 1350[;]” (3) “The Expedited Funds Availability Act, 12
U.S.C. §§ 4001-4010[;]” and (4) “New York State Law for
Enforcement of Money Judgments, N.Y. CLS CPLR
§ 5201[.]” (S.D.N.Y. Civ. Action No. 14-5812 (ECF No. 1 at
10, 12, 13).)
4
The Estate’s current counsel entered her appearance on
behalf of the Estate in substitution for its former counsel.
Citigroup, Banamex, Banamex U.S.A., and Grupo Financiero
filed a motion to vacate the notice of voluntary dismissal and
to dismiss the case with prejudice. They also requested
sanctions against the Estate pursuant to: (1) 28 U.S.C. § 1927,
which allows a court to tax excess costs to an attorney who
“multiplies the proceedings in any case unreasonably and
vexatiously[,]” 28 U.S.C. § 1927; and (ii) the court’s “inherent
powers to impose sanctions as a deterrent against continued
vexatious litigation[,]” (S.D.N.Y. Civ. Action No. 14-5812
(ECF No. 63 at 2)). The Estate filed a declaration from its
former counsel in which he averred that he represented the
Estate because he was asked to do so by a “long-time friend[,]”
and that litigation “had not been a major focus of…[his]
practice.” (S.D.N.Y. Civ. Action No. 14-5812 (ECF No. 72
¶¶ 1, 2).)
The motion to vacate was denied and the notice of
voluntary dismissal was held to be valid. The request for
sanctions was denied because the Estate’s conduct did “not rise
to the level of bad faith.” Estate of Sauter v. Citigroup, Inc.,
No. 14 Civ. 05812, 2015 WL 3429112, at *4 (S.D.N.Y. May
27, 2015). The New York District Court explained:
[T]he Federal Rules of Civil Procedure provide
safeguards for Defendants if Plaintiff does
commence a second action, including by barring
Plaintiff from voluntarily dismissing the case
without prejudice a second time and by
permitting the court in the subsequent action to
order Plaintiff to pay all of Defendants’ costs and
fees in this dismissed action. Fed. R. Civ. P.
41(a)(1)(B), (d).
Id. at *5.
5
B. The Lawsuit Filed in the District of
Delaware
On June 25, 2015, the Estate filed a complaint in the
District Court. The Estate named only Citigroup in the
complaint and asserted a state-law demand for “an accounting
of any and all funds deposited and withdrawn from bank
accounts of a now-deceased man named Hans Jorg Schneider
Sauter.” (D. Del. Civ. Action No. 15-537 (ECF No. 1 ¶ 1).)
Citigroup filed a motion for costs and a stay pursuant to
Rule 41(d). Citigroup asserted it was entitled to the costs,
including attorneys’ fees, it incurred in defending the lawsuit
filed in the Southern District of New York because the Estate
voluntarily dismissed that action and then filed a complaint
asserting a similar, if not identical, claim for relief in the
District of Delaware.
The District Court granted the motion for costs and a
stay, but concluded that because the plain language of Rule
41(d) does not provide for an award of attorneys’ fees,
Citigroup could not be awarded attorneys’ fees as costs under
the rule. It granted a stay of the proceedings pending the Estate
paying the costs to Citigroup. The District Court later lifted the
stay and the litigation continued.
Citigroup filed a motion for judgment on the pleadings.
The District Court granted that motion and denied the Estate
leave to amend. The Estate filed a motion for reconsideration,
which was denied. The Estate appealed those orders, which we
will affirm in an opinion and judgment issued separately from
this opinion.
6
Citigroup timely cross-appealed the denial of its request
for attorneys’ fees as “costs” under Rule 41(d). That appeal is
the subject of this Opinion.
II. JURISDICTION AND STANDARD OF
REVIEW
The District Court’s diversity jurisdiction originated
under 28 U.S.C. § 1332. We have appellate jurisdiction under
28 U.S.C. § 1291. We review the District Court’s interpretation
of the Federal Rules of Civil Procedure, which is a legal issue,
de novo. EBC, Inc. v. Clark Bldg. Sys., Inc., 618 F.3d 253, 264
(3d Cir. 2010).
III. DISCUSSION
A. Whether costs awarded under Rule 41(d)
may include attorneys’ fees
Under Federal Rule of Civil Procedure 41(d), when a
plaintiff has voluntarily dismissed a case, and later files a case
with the same claim against the same defendant, the district
court in the later action may order the plaintiff to pay of the
“costs” of the voluntarily dismissed case. 4 Neither the rule nor
4 The rule provides:
Rule 41. Dismissal of Action
…
(d) Costs of a Previously Dismissed Action. If
a plaintiff who previously dismissed an action in
any court files an action based on or including
the same claim against the same defendant, the
court:
7
the Advisory Committee Notes define the term “costs.”
Citigroup appeals the decision of the District Court declining
to award it attorneys’ fees as costs under Rule 41(d). Our sister
Courts of Appeals that have analyzed whether attorneys’ fees
may be awarded as costs under Rule 41(d) have arrived at three
different conclusions about how the rule should be interpreted:
(1) attorneys’ fees may always be awarded as costs under Rule
41(d), Evans v. Safeway Stores, Inc., 623 F.2d 121, 122 (8th
Cir. 1980) (per curiam) (the “Always Awardable
Interpretation”); (2) attorneys’ fees may never be awarded as
costs under Rule 41(d), Rogers v. Wal-Mart Stores, Inc., 230
F.3d 868, 874 (6th Cir. 2000) (the “Never Awardable
Interpretation”); and (3) attorneys’ fees may be awarded as
costs under Rule 41(d) only where the underlying substantive
statute defines “costs” to include attorneys’ fees, Andrews v.
Am.’s Living Ctrs., LLC, 827 F.3d 306, 310 (4th Cir. 2016)
(quoting Esposito v. Piatrowski, 223 F.3d 497, 501 (7th Cir.
2000)) (the “Underlying Substantive Statute Interpretation”).
We will examine each interpretation to determine which will
be adopted by our Court.
1. The Always Awardable Interpretation
Citigroup advocates that attorneys’ fees may always be
awarded as costs under Rule 41(d) and cites the decision of the
Eight Circuit Court of Appeals in Evans to support its position.
The interpretation of Rule 41(d) in Evans, however, runs afoul
(1) may order the plaintiff to pay all or
part of the costs of that previous action;
and
(2) may stay the proceedings until the
plaintiff has complied.
FED. R. CIV. P. 41(d).
8
of the “‘bedrock principle known as the American Rule…[that]
[e]ach litigant pays its own attorneys’ fees[.]’” Baker Botts
L.L.P. v. ASARCO LLC, 135 S.Ct. 2158, 2164 (2015)
(quoting Hardt v. Reliance Standard Life Ins. Co., 560 U.S.
242, 252-53 (2010)). Before a court can shift a party’s legal
fees to another party, it must find a reason to depart from this
bedrock rule. Id. (citing Buckhannon Bd. & Care Home, Inc.
v. W. Va. Dep’t of Health and Human Res., 532 U.S. 598, 602
(2001)). The plain text of Rule 41(d) does not define “costs” to
include attorneys’ fees and the Advisory Committee Notes are
silent with respect to the issue. The court in Evans did not point
to any express authorization by Congress to provide for an
award of attorneys’ fees under Rule 41(d) or otherwise explain
its decision to affirm the district court’s award of attorneys’
fees under the rule.
Citigroup relies upon the purpose of Rule 41(d) to
convince us to provide an exception to the American Rule in
this case. The purpose of awarding costs to a defendant in the
circumstances described by Rule 41 is “to deter forum
shopping and vexatious litigation.” Esposito, 223 F.3d at 501
(citing Simone v. First Bank Nat’l Ass’n, 971 F.2d 103, 108
(8th Cir. 1992)); see Andrews, 827 F.3d at 309. The rule
prevents a plaintiff from “‘gain[ing] any tactical advantage by
dismissing and refiling’” the lawsuit. Rogers, 230 F.3d at 874(quoting Sewell v. Wal-Mart Stores, Inc., 137 F.R.D. 28, 29
(D. Kan. 1991)). Citigroup argues that Rule 41(d) “costs”
should include attorneys’ fees in all cases, without regard to
the underlying substantive statute, because otherwise the
deterrent effect of the rule would be thwarted. In other words,
a plaintiff should never be off the hook for the bulk of the
expenses incurred by a defendant. The Supreme Court,
however, explained in Alyeska Pipeline Service Co. v.
Wilderness Society, 421 U.S. 240, 247 (1975), that courts are
not permitted to engage in this policymaking exercise. It
rejected a similar attempt to craft judicially an exception to the
9
American Rule based upon public policy because only
Congress “has the power and judgment to pick and choose
among statutes and to allow attorneys’ fees under some, but not
others.” Id. at 263–64, 269.
Nothing in the text of Rule 41(d) can be construed as an
express authorization for a district court to award attorneys’
fees. We lack the authority “to jettison the traditional rule
against nonstatutory allowances to the prevailing party and to
award attorneys' fees whenever the courts deem the public
policy furthered by a particular statute important enough to
warrant the award.” Alyeska, 421 U.S. at 263. We are not
persuaded that Citigroup’s policy arguments give us the
authority to hold that attorneys’ fees are always awardable as
costs under Rule 41(d). Thus, we must reject an interpretation
of Rule 41(d) that permits attorneys’ fees to always be
awardable as costs under the rule.
2. The Never Awardable Interpretation
The District Court relied upon the interpretation of Rule
41(d) by the Sixth Circuit Court of Appeals in Rogers to
conclude that Citigroup was not entitled to attorneys’ fees as
costs in this case because the plain text of Rule 41(d) does not
provide for an award of costs. We decline to follow this
interpretation of the rule because the Supreme Court of the
United States has recognized that “costs” is an ambiguous term
subject to “varying definitions.” Marek v. Chesny, 473 U.S. 1,
8 (1985). The drafters of Rule 41 chose to leave the term
“costs” undefined in both the rule and the Advisory Committee
Notes, making no reference to attorneys’ fees. While we will
affirm the decision of the District Court to deny Citigroup’s
request for attorneys’ fees, the analysis undertaken by the
District Court was incomplete. An analysis beyond the plain
language of Rule 41(d) is required to determine whether
Congress intended for “costs” to include attorneys’ fees under
the rule.
10
3. The Underlying Substantive Statute
Interpretation
We find most persuasive the interpretation of Rule
41(d) set forth by the Seventh Circuit Court of Appeals in
Esposito and followed by the Fourth Circuit Court of Appeals
in Andrews. Those courts relied upon Marek to conclude that
“attorneys’ fees are not generally awardable under Rule 41(d)
‘unless the substantive statute which formed the basis of the
original suit allows for the recovery of such fees as costs (or
unless such fees are specifically ordered by the court).’”
Andrews, 827 F.3d at 310 (quoting Esposito, 223 F.3d at 501).
In Marek, the Supreme Court addressed whether attorneys’
fees are awardable under Federal Rule of Civil Procedure 68,
which allows for the imposition of “costs” when a plaintiff
rejects a settlement offer that turns out to be greater than the
ultimate judgment at trial. Marek, 473 U.S. at 4, 8; FED. R. CIV.
P. 68. As with Rule 41(d), the drafters of Rule 68 neither
defined the term “costs” nor explained its intended meaning,
and made no reference to attorneys’ fees. Marek, 473 U.S. at
8-9. After examining the plain text of Rule 68, the Court
concluded legal fees may be awarded under Rule 68, but only
where expressly authorized by some applicable statute or other
authority. Id. at 9. This holding recognized the continued
vitality of the American Rule and reaffirmed that there must be
statutory authority or other authority to award attorneys’ fees.
Marek built upon the Court’s decision in Alyeska by
applying the analysis in Alyeska to the question whether the
unadorned term “costs” in a Federal Rule of Civil Procedure
should be interpreted to include attorneys' fees. The Court in
Marek explained that the drafters of the Federal Rules of Civil
Procedure were well aware of the American Rule, the ways in
which Congress had long been making statutory exceptions to
it, and the varied formulations by which it was done. Id.Congress well knew how to explicitly define “costs” to include
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attorneys’ fees, as it had done with other statutes. Id. at 8–9.
Thus, when the drafters left the word “costs” in the Rule 68
undefined, it was “very unlikely that the omission was mere
oversight.” Id. at 9. The intention was to maintain that rule’s
generality and allow Congress to tailor the manner in which the
rule would apply to various cases through “specific and explicit
provisions for the allowance of attorneys’ fees.” Alyeska, 421
U.S. at 260. 5 In this way, the drafters left Congress free to
“pick and choose among its statutes and to allow attorneys’
fees under some, but not others.” Id. at 263.
Marek, in addition to reaffirming the American Rule,
provides a consistent rationale for why the drafters of Rule
41(d) chose to leave “costs” undefined. Citigroup’s argument
that attorneys’ fees should be included within “costs,” and thus
recoverable under the rule in every case is out of step with the
policy of allowing the legislature to fine tune the claims for
which attorneys’ fees may be recovered. Contrary to
Citigroup’s position, the drafters of Rule 41(d) left the
definition of costs open-ended in the rule and only by statutory
authority can it be expanded to include attorneys’ fees. Just as
the Supreme Court explained in the Rule 68 context, we
conclude that “the most reasonable inference” is that the term
“costs” in Rule 41(d) “was intended to refer to all costs
properly awardable under the relevant substantive statute or
other authority.” Marek, 473 U.S. at 9. 6 We therefore adopt
5
By 1985, Congress had enacted over 100 attorneys’ fees
statutes, in many variations. Appendix to Opinion of Brennan,
J. (Dissenting), Marek, 473 U.S. at 43–50.
6
There is a need to examine closely the underlying
statutory authority to assess the standards under which
attorneys’ fees can be awarded. For example, there is the
traditional asymmetry between prevailing plaintiffs and
12
the Underlying Substantive Statute Interpretation of Rule 41(d)
and hold that “costs” in Rule 41(d) includes attorneys’ fees
only “where the underlying statute defines ‘costs’ to include
attorneys’ fees.” Id. Because in this case there is no applicable
underlying substantive statute that defines “costs” as including
attorneys’ fees, the District Court’s Order denying the award
of those fees will be affirmed.
B. Whether Citigroup waived its right for us to
consider whether it is entitled to attorneys’
fees under the bad faith exception to the
American Rule
The unavailability of attorneys’ fees under Rule 41(d)
does not leave a defendant in the position of Citigroup without
a remedy. District courts have “inherent power” to award
attorneys’ fees in certain situations, including “when the losing
party has ‘acted in bad faith, vexatiously, wantonly, or for
oppressive reasons….’” Alyeska, 421 U.S. at 258–59 (quoting
F. D. Rich Co. v. United States ex rel. Indus. Lumber Co., Inc.,
417 U.S. 116, 129 (1974)). A district court under 28 U.S.C.
§ 1927 also may order an
prevailing defendants in § 1983 actions. Esposito, 223 F.3d at
501. That is, while under § 1988, prevailing plaintiffs in § 1983
actions “should ordinarily recover an attorney’s fee unless
special circumstances would render such an award unjust,”
Newman v. Piggie Park Enters., Inc., 390 U.S. 400, 402 (1968)
(per curiam), prevailing defendants are only entitled to
attorneys’ fees where the plaintiff’s claim was “frivolous,
unreasonable, or groundless,” Christiansburg Garment Co. v.
EEOC, 434 U.S. 412, 422 (1978). Thus, a defendant in a § 1983
action would need to show that the plaintiff’s prior action was
“frivolous, unreasonable, or groundless” in order to recover
attorneys’ fees under Rule 41(d).
13
attorney “who so multiplies the proceedings in any case
unreasonably and vexatiously” to pay a party’s attorneys’ fees.
28 U.S.C. § 1927.
In the District Court, however, Citigroup moved for
costs and attorneys’ fees only pursuant to Rule 41(d), and not
on the basis of bad faith. While during oral argument Citigroup
represented that it also sought costs and fees in the District
Court on the basis of bad faith, Tr. of Oral Arg. 31:16–32:4, a
review of Citigroup’s submissions to that Court with respect to
its motion for costs and a stay shows that it did not raise that
argument.
To preserve a matter for appellate review, a party “must
unequivocally put its position before the trial court at a point
and in a manner that permits the court to consider its merits.”
Shell Petroleum, Inc. v. United States, 182 F.3d 212, 218 (3d
Cir. 1999). “It is well established that arguments not raised
before the District Court are waived on appeal.” DIRECTV,
Inc. v. Seijas, 508 F.3d 123, 125 n.1 (3d Cir. 2007); John
Wyeth & Bro. Ltd. v. CIGNA Int’l Corp., 119 F.3d 1070, 1076
n.6 (3d Cir. 1997) (“arguments raised in passing (such as, in a
footnote), but not squarely argued, are considered waived”). A
review of the record in this case shows that Citigroup did not
request attorneys’ fees from the District Court based upon the
District Court’s inherent authority, § 1927, or any other
exception to the American Rule. In other words, the only issue
before the District Court that Citigroup properly preserved for
appeal to this Court was whether Citigroup was entitled to
attorneys’ fees as “costs” under Rule 41(d).
Even had it preserved the issue in the District Court,
Citigroup argued for the first time in its reply brief that we
should remand so the District Court can decide whether the
Estate's decision to refile amounted to bad faith. Raising an
issue in a reply brief is too late, for “[a]s a general matter, an
14
appellant waives an argument in support of reversal if it is not
raised in the opening brief.” In re: Asbestos Prod. Liab. Litig.
(No. VI), 873 F.3d 232, 237 (3d Cir. 2017) (citing McCray v.
Fidelity Nat’l Ins. Co., 682 F.3d 229, 241 (3d Cir. 2012)).
“[W]here an issue is raised for the first time in a reply brief, we
deem it insufficiently preserved for review before this court.”
Kost v. Kozakiewicz, 1 F.3d 176, 182 (3d Cir. 1993) (citing
Lunderstadt v. Colafella, 885 F.2d 66, 78 (3d Cir. 1989)).
IV. CONCLUSION
Rule 41(d) does not provide a basis for ordering the
Estate to pay Citigroup’s attorneys’ fees incurred in connection
with the litigation in the Southern District of New York. It only
permits a district court to award attorneys’ fees as costs when
the underlying statute defines costs to include attorneys’ fees,
and the underlying statute here did not do so. Citigroup also
did not properly raise any applicable exception to the American
Rule by which the District Court could order the Estate to pay
its attorneys’ fees. Thus, the Order of the District Court
denying Citigroup’s request for those fees will be affirmed.
15