We Heritage Ins Co v. Robertson ( 2000 )

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________
No. 99-10294
__________________
WESTERN HERITAGE INSURANCE COMPANY,
Plaintiff-Appellee,
versus
STEVE ROBERTSON; ET AL.,
Defendants,
STEVE ROBERTSON,
Defendant-Appellant,
and
JEFFREY R. SECKEL,
Appellant.
_________________________________________________________________
Appeals from the United States District Court
for the Northern District of Texas
(4:96-CV-250-Y)
_________________________________________________________________
June 19, 2000
Before REAVLEY, DAVIS, and BARKSDALE, Circuit Judges.
PER CURIAM:1
Steve Robertson and his attorney, Jeffrey R. Seckel, contest
the attorney’s fees awarded Western Heritage Insurance Co. under
1
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
the district court’s Declaratory Judgment Act equitable powers, 28
U.S.C. § 2202 (“[f]urther necessary or proper relief based on a
declaratory judgment ... may be granted”), and awarded, in the
alternative, against Seckel under 28 U.S.C. § 1927 (attorney who
unreasonably and vexatiously multiplies proceedings may be liable
for attorney’s fees). Finding no abuse of discretion, we AFFIRM.
I.
This action arises out of an automobile accident in August
1995, when Robertson’s automobile was hit by a vehicle owned by
North American Wholesale Motors and driven by Jones (the vehicle).
In the light of the post-accident photographs of Robertson’s
vehicle, the damage appears to have been extremely minor. In any
event, law enforcement officers were not summoned. By handwritten
statement at the scene of the accident, Jones admitted fault and
stated he was employed by “Hearn Transport at the time” of the
accident.
Shortly thereafter, Western was notified about the accident.
It had issued a garage policy to Bob Hearn, Sr., d/b/a Bob Hearn
Transport. The policy covered owned vehicles and listed employees.
But, the vehicle driven by Jones in the accident was neither owned
by Bob Hearn, Sr., nor his company, Bob Hearn Transport.
Additionally, Jones was not listed in the policy as an employee.
Based on its investigation, Western informed Hearn, Sr., that
the claim was denied, because the vehicle was owned by North
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American Wholesale Motors. It further informed Hearn, Sr., that
Robertson would be advised his claim was being denied.
On 29 December 1995, Robertson, represented by Seckel, filed
suit in Texas state court against Jones and “Bob Hearn, d/b/a Bob
Hearn Transport”, alleging that the vehicle operated by Jones was
owned by Bob Hearn d/b/a Bob Hearn Transport. Bob Hearn, Jr., not
Bob Hearn, Sr., was served. And, he was served at home, not at the
address given for Bob Hearn Transport.
Hearn, Jr., did not answer the state court suit; and, on 26
February 1996, a default judgment for approximately $900,000 was
taken. Jones was non-suited the same day, because he allegedly
could not be located for service of process.
Shortly thereafter, on 7 March, Robertson, still represented
by Seckel, filed a state court action against Jones, based on the
same automobile accident. The following day, Jones was served.
When served, Jones received a letter for his signature, requesting
Western assume his defense pursuant to its policy covering Bob
Hearn Transport. The letter had been prepared by Seckel. Western
received Jones’ defense-request letter, ghostwritten by Seckel, in
the same envelope as a demand for $295,000, submitted by Seckel.
The defense-request stated:
Please be advised that on March 7, 1996,
I was served with process in connection with
the above-referenced suit. Attached hereto
for your review and reference, is a copy of
the suit papers. I am requesting that you
assume the defense of this matter pursuant to
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the obligations which Western Heritage
undertook in connection with the issuance of
policy AGP 0230911, which was issued to Bob
Hearn d/b/a Bob Hearn Transport.
(Emphasis added.)
Meanwhile, Appellants sought, and the state court appointed,
a receiver for Bob Hearn d/b/a Bob Hearn Transport. On 1 April
1996, Seckel, representing the receiver, filed a coverage action in
state court against Western. It was served on 15 April.
Western had provided a defense in certain portions of the
state court proceedings. And, on 8 April, prior to receiving
service for the state court coverage action, Western filed this
declaratory judgment action in federal district court against
Robertson, Jones, and Bob Hearn d/b/a Bob Hearn Transport. Western
claimed, inter alia, it was not liable to Robertson. S e c k e l
answered for Robertson only.
That June, Appellants and Hearn, Jr., signed a settlement
agreement by which Hearn, Jr., agreed not to contest the state
court default judgment and, in return, would receive one-third of
any recovery from Western. The district court later found that the
agreement formally established Seckel as Hearn, Jr.’s, attorney.
Western, in the declaratory judgment action at hand, sought
discovery of this settlement agreement. Appellants did not produce
it. In fact, the district court later found they denied it even
existed. Eventually, in March 1998, Hearn, Jr., revealed its
existence.
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In August 1996, Hearn, Jr., filed a pro se motion to set aside
a default judgment taken against Bob Hearn d/b/a Bob Hearn
Transport in the federal declaratory judgment action. (The motion
was stricken, because he failed to conference with opposing
counsel.) On Hearn, Jr.’s, motion was document identification
number “661-1594-0001-60080-653”. This number also appears on
Robertson’s papers filed by Seckel in federal district court. The
district court later found that Seckel had prepared this motion for
Hearn, Jr.
Earlier, in June 1996, Appellants had moved to have the
federal court abstain, pursuant to Wilton v. Seven Falls Co., 515
U.S. 277, 282 (1995). The motion was denied in February 1997.
In August 1997, the district court granted Western summary
judgment, holding that Robertson had failed to produce any
competent summary judgment evidence that Jones was an employee of
Bob Hearn Transport or that Bob Hearn, Jr., was an insured. It
awarded Western attorney’s fees, pursuant to the Texas Declaratory
Judgment Act, against Robertson and Bob Hearn d/b/a Bob Hearn
Transport.
Robertson appealed the summary judgment and the fees award.
Our court affirmed the judgment, but held fees could not be awarded
under the Texas Declaratory Judgment Act. Western Heritage Ins.
Co. v. Robertson, No. 97-11306 (5th Cir. 19 Aug. 1998)
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(unpublished). The action was remanded to allow the district court
to determine whether to award fees on other grounds. Id.The district court, on Western’s post-remand motion, and based
upon detailed findings of fact and conclusions of law, awarded fees
against Robertson and Seckel, pursuant to its 28 U.S.C. § 2202declaratory judgment equitable powers, as well as against Seckel,
pursuant to 28 U.S.C. § 1927. Approximately $52,000, together with
prospective fees, was awarded.
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II.
As discussed infra, the fees award under each basis — § 2202
and § 1927 — is reviewed only for abuse of discretion. In this
regard, Appellants fall far short of demonstrating that the
district court’s underlying, and exhaustive, findings of fact are
clearly erroneous. Nor have they shown error in the accompanying
conclusions of law.
A.
The award of attorney’s fees pursuant to the district court’s
equitable powers under 28 U.S.C. § 2202 is reviewed only for abuse
of discretion. Cf. Chambers v. NASCO, Inc., 501 U.S. 32, 55 (1991)
(court’s inherent powers to award attorney’s fees). Such § 2202
awards are permitted in “cases of bad faith, vexation, wantonness,
or oppression relating to the filing or maintenance of the action”.
Mercantile Nat’l Bank v. Bradford Trust Co., 850 F.2d 215, 218 (5th
Cir. 1988).2 Because conduct is sanctionable under one of the
Federal Rules of Civil Procedure does not mean that the court
cannot, under another basis, impose sanctions against that conduct.
See Woodson v. Surgitek, Inc., 57 F.3d 1406, 1418 (5th Cir. 1995).
1.
2
Notwithstanding the district court stating the award was
pursuant to § 2202, the parties’ briefs refer to the award as being
an exercise of the court’s inherent powers. For purposes of this
appeal, it is a distinction without a difference.
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Appellants contend that the district court did not make an
explicit finding of bad faith. The court stated, however, that
Western reasonably incurred approximately $52,000 in attorney’s
fees as a result of Robertson and Seckel’s “bad faith and vexatious
litigation”.
2.
Appellants next maintain there was insufficient evidence of
bad faith conduct in the district court to support sanctions. They
claim they are being sanctioned for conduct outside the federal
court proceedings. Appellants point to the district court’s
findings of fact, which detail their conduct in state court. These
findings establish, however, that: their claim was meritless; they
should have realized it; they did everything they possibly could to
maintain it; and it should have been dismissed voluntarily.
Several examples follow.
The September 1995 letter from Western denying coverage states
that the vehicle was owned by North American Wholesale Motors. The
vehicle’s title states the same thing. Yet, Seckel initiated and
maintained suits against, or concerning, Bob Hearn d/b/a Bob Hearn
Transport on the grounds that he owned the vehicle. Seckel knew,
or at least certainly should have known after early and reasonable
investigation, that this was not correct.
Additionally, as he admitted at oral argument here, Seckel had
the insurance policy no later than when the declaratory judgment
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action was filed (8 April 1996). He requested a copy from Western
by letter dated 11 March 1996, shortly after he filed the second
state court action — against Jones. He referenced that action in
the letter
Correspondingly, Seckel knew, or certainly should have known,
that Jones was not a listed operator. And, in his numerous
conversations with the unrepresented Bob Hearn, Jr., Seckel did not
verify that Hearn, Jr., was the policyholder. The policy listed
the address, date of birth, and driver’s license number for Bob
Hearn, Sr. Seckel did not verify any of these facts.
Of course, the failure to adequately investigate Robertson’s
claim and its factual basis is sanctionable. FED. R. CIV. P. 11;
see Blue v. United States Dep’t of the Army, 914 F.2d 525, 542 (4th
Cir. 1990).
Furthermore, the district court determined that Seckel failed
to respond to Western’s discovery request to produce the settlement
agreement between Robertson and Hearn, Jr. Of course, discovery
violations are sanctionable. FED. R. CIV. P. 37; see Carroll v.
Jaques Admiralty Law Firm, P.C., 110 F.3d 290, 293-94 (5th Cir.
1997).
In responding to Western’s summary judgment motion, Robertson
maintained it did not matter which Bob Hearn was served, claiming
both were covered under the policy. He did so even after Seckel
knew, or certainly should have known, that: the policy only
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covered owned vehicles and listed operators; the vehicle was not an
owned vehicle; and Bob Hearn, Jr., was neither the policyholder nor
a listed operator. In awarding summary judgment to Western, the
district court found “patently ludicrous” Robertson’s claim that,
even though the wrong Bob Hearn was served, Robertson had a viable
claim.
Moreover, at oral argument here, Seckel admitted that: in
December 1996, when Western moved for summary judgment, he knew
there were two Bob Hearns; and he had sued and served the wrong
Hearn. Nevertheless, he continued with the actions, contending
both Bob Hearns were insureds. Of course, continuing to prosecute
a meritless action is sanctionable. See Edwards v. General Motors
Corp., 153 F.3d 242, 246 (5th Cir. 1998).
Furthermore, at oral argument here, Seckel admitted preparing
Jones’ request for defense under Western’s insurance policy.
Restated, he admitted preparing correspondence for the person he
was suing.
Additionally, the 19 digit file number on Bob Hearn, Jr.’s,
pro se motion, filed in federal court, to vacate the default
judgment is identical to the file number on papers filed by Seckel
on Robertson’s behalf in federal court. As noted, Seckel prepared
this motion for Hearn, Jr.
Each of these abuses, standing alone, is sufficient to impose
sanctions. Taken collectively, they reflect the district court did
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not abuse its discretion in finding that: Appellants engaged in
bad-faith, sanctionable conduct in federal district court; the
proceedings, in state and federal court, were unwarranted; and, as
a result, Appellants should be assessed all of Western’s attorney’s
fees.
3.
Concerning the amount of the award, Appellants claim that,
because the district court did not limit the award to identified
bad faith conduct, the amount is excessive. Full fees, however,
may be awarded if the frequency and severity of the abuses so
warrant to insure such abuses are not repeated. Chambers, 501 U.S.
at 56. As discussed supra, and given the wide range of abuses, the
district court did not abuse its discretion.
B.
The award of attorney’s fees pursuant to 28 U.S.C. § 1927 is
in the discretion of the district court; we again review only for
abuse of that discretion. Travelers Ins. Co. v. St. Jude Hosp. of
Kenner, La., Inc., 38 F.3d 1414, 1417 (5th Cir. 1994). Section
1927 states:
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.
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Because § 1927 is penal in nature, it is strictly construed.
Travelers, 38 F.3d at 1416. Therefore, the court must find the
offending conduct unreasonable and vexatious. Id. at 1416-17.
This requires evidence of bad faith, improper motive, or reckless
disregard of the duty owed the court. Id. at 1417. It goes
without saying that, in reviewing the imposition of sanctions, we
do not substitute our judgment for that of the district court.
E.g., Topalian v. Ehrman, 3 F.3d 931, 935 (5th Cir. 1993).
As discussed, the district court found: Seckel acted in bad
faith; he brought vexatious litigation; and the claim was
frivolous. Obviously, keeping alive a meritless action in the
hopes of obtaining a nuisance settlement is unreasonable. Edwards,
153 F.3d at 246. Counsel’s failure to reasonably investigate
plaintiff’s claim or material produced in discovery, which would
have revealed the claim’s lack of merit, is bad faith litigation.
Blue, 914 F.2d at 542. For the same reasons noted in Part II. A.,
the entire litigation was unwarranted, unreasonable, vexatious, and
in bad faith. In short, the district court did not abuse its
discretion in awarding fees pursuant to § 1927.
III.
Having found no abuse of discretion, the award of attorney’s
fees against Robertson and Seckel is
AFFIRMED.
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