Bailey v. Papa John's USA , 236 F. App'x 200 ( 2007 )

NOT RECOMMENDED FOR PUBLICATION
File Name: 07a0382n.06
Filed: June 11, 2007
Nos. 05-6068/05-6108
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
Gerard Bailey, )
)
Plaintiff-Appellant, )
)
v. ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
Papa John’s USA, Inc. ) WESTERN DISTRICT OF KENTUCKY
)
Defendant-Appellant. )
)
)
BEFORE: Merritt and Moore, Circuit Judges; Collier, District Judge.*
MERRITT, Circuit Judge. Plaintiff Gerard Bailey filed a complaint in this action alleging
(1) termination resulting from racial discrimination in violation of Title VII of the Civil Rights Act
of 1964 and (2) failure to compensate for overtime worked in violation of the Fair Labor Standards
Act. The district court granted summary judgment to defendant Papa John’s USA, Inc. on both
counts. See Bailey v. Papa John’s USA, Inc., No. 04-6499, 2006 WL 3740991 (6th Cir. Dec. 20,
2006). Based on the district court’s ruling, Papa John’s filed a motion for attorney fees, litigation
expenses and costs incurred in defending the case. Plaintiff’s counsel, Robert J. Martin, pursued the
Fair Labor Standards Act claim to summary judgment after the evidence clearly demonstrated that
*
The Honorable Curtis L. Collier, Chief United States District Judge for the Eastern District
of Tennessee, sitting by designation.
Nos. 05-6068/05-6108
Bailey v. Papa John’s
there was no factual basis to support the claim. The district court awarded costs and $5,000 in
attorney fees to defendant. Both parties appeal the ruling. The issues specifically before us in this
appeal are (1) whether the district court abused its discretion in imposing sanctions on Mr. Martin
under Rule 11 and in imposing attorney fees on him under 28 U.S.C. § 1927 and (2) whether costs
were justified under Federal Rule of Civil Procedure 54 and, on defendant’s cross-appeal, (3)
whether the amount of attorney fees awarded was sufficient to reimburse defendant for excessive
attorney fees incurred as a result of plaintiff’s counsel conduct.
We review a district court’s decision to impose sanctions under Rule 11 or attorney fees
under § 1927 for abuse of discretion. Ridder v. City of Springfield, 109 F.3d 288, 293, 298 (6th Cir.
1997). For the reasons set forth below, we affirm the judgment of the district court.
I.
To briefly recap the facts underlying the merits of the action, plaintiff, a former manager at
Papa John’s, alleged two counts in his complaint: (1) termination resulting from racial
discrimination in violation of Title VII and (2) failure to compensate for overtime worked in
violation of the Fair Labor Standards Act. Plaintiff was deposed on October 21, 2003, and conceded
in his deposition that he was an exempt employee under the Fair Labor Standards Act and was
therefore not entitled to overtime pay.1 Based on the lack of evidence supporting the Fair Labor
1
Salaried employees are exempt from the provisions of the Fair Labor Standards Act. The
regulations implementing the Act set forth the “test” for determining whether an employee is paid
“on a salary basis” and therefore exempt from the Act’s provisions:
if under his employment agreement he regularly receives each pay period on a
weekly, or less frequent basis, a predetermined amount constituting all or part of his
-2-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
Standards Act claim at the conclusion of Bailey’s deposition, defendant’s counsel wrote letters on
two different occasions to plaintiff’s counsel asking him to withdraw the Fair Labor Standards Act
claim. Plaintiff’s counsel failed to respond to either letter and did not withdraw the claim. He
explained at oral argument that he was experiencing family difficulties during that time. Defendant
filed its motion for summary judgment four months later, on February 2, 2004. Plaintiff received
several extensions in filing his response to the summary judgment motion and ultimately filed it in
September 2004. The argument in support of the Fair Labor Standards Act claim was only one page.
J.A. at 843.
On November 14, 2004, the district court granted summary judgment to defendant Papa
John’s on both counts. Bailey appealed only the Title VII claim to our Court and specifically waived
his right to appeal his Fair Labor Standards Act claim. We affirmed the district court’s judgment
for defendant; but, because plaintiff did not appeal the Fair Labor Standards Act claim, we did not
discuss the claim in the opinion on the merits. See Bailey v. Papa John’s USA, Inc., No. 04-6499,
2006 WL 3740991 (6th Cir. Dec. 20, 2006).
During the pendency of the appeal on the merits, defendant filed a motion in the district court
for attorney fees totaling about $95,000 and for litigation expenses and costs in the amount of
$3,334.50 (Memorandum in Support of Motion, J.A. at 1026; Bill of Costs, J.A. at 1054). Defendant
sought attorney fees and costs for both the Title VII claim and the Fair Labor Standard Act claim.
compensation, which amount is not subject to reduction because of variations in the
quality or quantity of the work performed.
29 C.F.R. § 541.602(a).
-3-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
The motion was based on three grounds: Federal Rule of Civil Procedure 11, 28 U.S.C. § 1927 and
the district court’s inherent power to award fees as described in Roadway Express, Inc. v. Piper, 447
U.S. 752 (1981). Defendant did not seek attorney fees under the statutory provisions in Title VII or
the Fair Labor Standards Act.
The district court awarded costs to Papa John’s as the prevailing party under Fed. R. Civ. P.
54 (d)(1)2 for the full amount of $3,334.50, and attorney fees in the amount of $5,000 – a little less
than 5% of the defendant’s request. (J.A. at 1112) The attorney fees were awarded pursuant to Rule
11 and 28 U.S.C. § 1927 because the district court found that plaintiff’s counsel knew or should have
known by the completion of plaintiff’s deposition on October 21, 2003, that plaintiff was exempt
from the provisions of the Fair Labor Standards Act and the claim lacked a factual basis, thereby
rendering counsel’s decision to pursue the claim further to the summary judgment stage unreasonable
under the circumstances and in violation of his duty to the court under Rule 11. The district court
did not award the fees pursuant to its inherent power because it did not find that plaintiff’s counsel
acted in bad faith, a requirement for such an award. Nor did the district court award any attorney
fees to defendant for the Title VII claim, finding that the claim was not meritless because it was not
unreasonable under the facts or the law for plaintiff to have pursued that claim through the summary
judgment phase.
II.
2
Rule 54(d)(1) provides in pertinent part: “[C]osts other than attorneys’ fees shall be allowed
as of course to the prevailing party unless the court otherwise directs.”
-4-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
The standard for granting attorney fees to a prevailing employer is more stringent than that
for awarding fees to a prevailing employee. Christiansburg Garment Co. v. EEOC, 434 U.S. 412,
417-18 (1978). The employer may be awarded attorney fees where the plaintiff’s claim was
“frivolous, unreasonable, or without foundation,” or where the plaintiff continued to litigate after it
became clear that his claim was frivolous, unreasonable or without foundation. Id. We first
determine whether any sanctions or attorney fees were warranted under this standard.
Rule 11 requires attorneys to make reasonable inquiries to determine that their pleadings,
motions and other papers are “well grounded in fact” and “warranted by existing law or good faith
argument for the extension, modification or reversal of existing law . . . .” Freeman v. Michigan
Dep’t of State, 808 F.2d 1174, 1180 (6th Cir. 1987). Plaintiff’s opposition to defendant’s motion
for summary judgment constituted a written motion or other paper under Rule 11(b).3 The Fair
3
(b) Representations to Court. By presenting to the court (whether
by signing, filing, submitting, or later advocating) a pleading, written
motion, or other paper, an attorney or unrepresented party is
certifying that to the best of the person's knowledge, information, and
belief, formed after an inquiry reasonable under the circumstances,--
(1) it is not being presented for any improper purpose,
such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions
therein are warranted by existing law or by a
nonfrivolous argument for the extension,
modification, or reversal of existing law or the
establishment of new law;
(3) the allegations and other factual contentions have
evidentiary support or, if specifically so identified, are
likely to have evidentiary support after a reasonable
opportunity for further investigation or discovery; and
(4) the denials of factual contentions are warranted on
-5-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
Labor Standards Act claim relating to the overtime hours did not have the necessary factual support,
which Mr. Martin knew or should have known independently of Bailey’s concession in his
deposition testimony that he was a salaried employee. Bailey’s primary duty at Papa John’s was
management: he regularly directed the work of approximately 37 or 38 other employees;
interviewed, hired and then trained other employees; recommended raises; planned work schedules;
and directed the work of his employees, thereby easily meeting the criteria of an exempt employee
under the Fair Labor Standards Act. Therefore, the district court correctly found that Bailey’s
counsel’s decision to pursue the Fair Labor Standards Act claim to summary judgment was
unreasonable under the circumstances and in violation of his duty to the court under Rule 11.
Similarly, attorney fees under 28 U.S.C. § 19274 are warranted when an attorney objectively
“falls short of the obligations owed by a member of the bar to the court and which, as a result, causes
additional expense to the opposing party.” In re Ruben, 825 F.2d 977, 984 (6th Cir. 1987). The
purpose is to deter dilatory litigation practices. See Jones v. Continental Corp.,789 F.2d 1225, 1230-
the evidence or, if specifically so identified, are
reasonably based on a lack of information or belief.
Federal Rule of Civil Procedure 11.
4
§ 1927. Counsel's liability for excessive costs
Any attorney or other person admitted to conduct cases in any court of the United
States or any Territory thereof who so multiplies the proceedings in any case
unreasonably and vexatiously may be required by the court to satisfy personally the
excess costs, expenses, and attorneys' fees reasonably incurred because of such
conduct.
28 U.S.C. § 1927.
-6-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
31 (6th Cir. 1986). Because Section 1927 imposes an objective standard of conduct on attorneys,
courts need not make a finding of subjective bad faith before assessing monetary sanctions under §
1927. Id. Instead, a district court may impose liability for attorney fees under section 1927 when
it determines that “an attorney reasonably should know that a claim pursued is frivolous.” Id.
While imposition of section 1927 sanctions does not require a showing of subjective bad
faith, something more than negligence or incompetence must be demonstrated. See In Re Ruben,
825 F.2d at 984; Jones, 789 F.2d at 1230 (“we hold that 28 U.S.C. § 1927 authorizes a court to
assess fees against an attorney for ‘unreasonable and vexatious’ multiplication of litigation despite
the absence of any conscious impropriety.”). An attorney becomes sanctionable when he
intentionally abuses the judicial process or knowingly disregards the risk that his actions will
needlessly multiply proceedings. See United States v. Wallace, 964 F.2d 1214, 1220 (D.C. Cir.1992)
(observing that recklessness is a lower standard than bad faith, requiring “deliberate action in the
face of a known risk, the likelihood or impact of which the actor [inexcusably] underestimates or
ignores.”).
In this case, plaintiff filed a two-count complaint. When one count of a multi-count
complaint turns out to be baseless after discovery, as here, that claim should be withdrawn.
However, a claim is not groundless simply because it was ultimately unsuccessful. Christiansburg
Garment Co. v. EEOC, 434 U.S. 412, 421-22 (1978). Whether a case is well-grounded in fact will
sometimes not be evident until a plaintiff has been given a chance to conduct discovery. See Runfola
& Assoc., Inc. v. Spectrum Reporting II, Inc., 88 F.3d 368, 373-74 (6th Cir. 1996) (The “gravaman
of Rule 11 [is not in] the filing of the claim that eventually turns out to be meritless, but rather the
-7-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
persistence in pursuing that claim after the pleader has or should have become aware of its lack of
merit.”). Fee awards become proper only after counsel knew or should have known that the claim
has no factual or legal basis.
In Runfola, the district court imposed sanctions not because plaintiff’s claim was ultimately
meritless, but because plaintiff excessively lengthened the discovery process and then failed
voluntarily to dismiss the action after becoming aware of the inability to assert any competent
evidence to support the claim. We based our decision on plaintiff’s counsel’s discovery abuse and
failure to dismiss the case after becoming aware that it lacked merit, not on bringing the initial claim.
As in Runfola, it is not sanctionable for plaintiff’s counsel to have brought the claim in the first place
because the standard for exemption under the Act is general and open to interpretation, and a valid
basis may have existed prior to discovery. We will not disturb the district court’s exercise of
discretion where, as here, it decided not to award attorney fees back to the time of the filing of the
case.
By failing to acknowledge that Bailey did not have a cognizable Fair Labor Standards Act
claim, Bailey’s attorney prolonged the inevitable at a cost to Papa John’s. By refusing to voluntarily
claim dismissed, counsel unreasonably protracted the proceedings. Accordingly, attorney fees are
warranted.
III.
Once it is established that sanctions are warranted, the district court must determine the
amount. In circumstances such as this, where there is no bad faith and where a claim’s lack of merit
became clear only after discovery, a defendant should be awarded attorney fees only to the extent
-8-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
counsel for defendant worked on the claim after plaintiff knew or should have known the claim was
frivolous and should be withdrawn. If a party or the court is unlikely to have expended significant
cost or incurred significant inconvenience based on a party’s failure to withdraw a meritless claim,
fees are generally not warranted in the absence of bad faith on the part of plaintiff. Lisle v. Metro.
Gov’t of Nashville, Nos. 01-6049, 02-5706, 2003 WL 21580642, at *8 (6th Cir. July 9, 2003).
In awarding the defendant $5,000 in attorney fees, the district court stated “the Court believes
[$5,000] reasonably reflects the amount of time added to the litigation by Plaintiff’s counsel’s
improper decision to pursue the [Fair Labor Standards Act] claim to summary judgment.” Op. at
9, J.A. at 1120. The district court did not explain in detail how it reached the amount of $5,000.
Documents in the record reflect only how many hours defendant’s counsel spent on the entire case,
which includes both claims. We cannot find in the record a document in which either party or the
district court disentangled the costs of defending the Title VII claim from the Fair Labor Standards
Act claim.
Although we would have preferred a more detailed accounting, or some other more specific
explanation from the district court supporting the $5,000 award, in the absence of such an accounting
or explanation, we look to the amount of argument devoted by defendant to the Fair Labor Standards
Act claim in its summary judgment papers. We find that defendant devoted far less space in its
papers to the Fair Labor Standards Act claim than to the Title VII claim. According to our
calculations based on Defendant’s Motion for Attorney Fees, Litigation Expenses, and Costs, Civ.
-9-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
Act. No. 5:02-CV-00076-R (W.D. Ky. filed Dec. 30, 2004),5 during the approximately four-month
time frame between taking Bailey’s deposition on October 21, 2003, and filing the summary
judgment motion on February 2, 2004, defendant expended $19,047 in attorney fees. Looking at the
award from that perspective, the $5,000 award is about one-fourth of the amount expended during
the time period in which the district court found that it was improper for plaintiff’s counsel to have
pursued the Fair Labor Standards Act claim (Date of Bailey’s deposition on October 21, 2003, to
filing of summary judgment motion on February 2, 2004). After studying the facts in the record
obtained by this Court from the district court, we conclude that the district court did not abuse its
discretion in awarding $5,000 in attorney fees or approximately one-fourth of the total amount
expended by defendant during the four-month period between plaintiff’s deposition and the filing
of defendant’s summary judgment motion.
IV.
For the reasons discussed above in denying plaintiff’s appeal, we also deny defendant’s cross-
appeal for reimbursement of all of its attorney fees. The Title VII claim was not meritless, and we
have explained that the claim under the Fair Labor Standards Act did not become recognized as
entirely meritless until the time of plaintiff’s deposition.
Conclusion
5
Exhibit 1 to the Motion is a daily breakdown of the time worked on this case by the attorneys
in defendant’s law firm. The document gives the date, which attorney worked on the case that day,
that attorney’s rate, and the number of hours worked that day. There is no description of the work
and no breakdown as to whether the time was spent on the Title VII claim or the Fair Labor
Standards Act claim.
-10-
Nos. 05-6068/05-6108
Bailey v. Papa John’s
It was clear before the summary judgment stage that the Fair Labor Standards Act claim
lacked the necessary factual basis and was without evidentiary support. Bailey’s attorney either
knew, or reasonably should have known, that the Fair Labor Standards Act claim was meritless and
the district court appropriately found counsel’s conduct in continuing to pursue the claim to summary
judgment violated section 1927 and Rule 11. For the foregoing reasons, we affirm the judgment of
the district court.
-11-