U.S. v. Alexander , 981 F.2d 250 ( 1993 )

United States Court of Appeals,
Fifth Circuit.
No. 92-7038.
UNITED STATES of America, Plaintiff-Appellee,
v.
U.T. ALEXANDER, et al., Defendants.
MALONE TRUCKING COMPANY, Defendant-Cross Claimant-Appellant,
and
Eugene B. Wilshire, Jr., Appellant,
v.
JOC OIL EXPLORATION CO., INC., formerly known as Velsicol Chemical Corp., Southern
Pacific Transportation Co., Chromalloy American Corp., Borden, Inc., Texas City Terminal Railway,
Cross Defendants-Appellees.
Jan. 21, 1993.
Appeals from the United States District Court for the Southern District of Texas.
Before DAVIS and JONES, Circuit Judges and PARKER1, District Judge.
W. EUGENE DAVIS, Circuit Judge:
Appellant challenges the district court's Rule 11 sanctions order. 771 F.Supp. 830. We
conclude that the district court abused its discretion in imposing sanctions and vacate its order.
I.
In 1986, the government filed suit against appellant Malone Trucking Company (Malone) and
over two dozen other defendants under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (CERCLA), 42 U.S.C.A. 9601, et seq. (West 1983 & West Supp.1992).
The government sued Malone as one of the "responsible parties" for the cleanup of a hazardous waste
site. The government alleged that Malone transported hazardous materials to the site on behalf of
others who owned the materials. In 1987, the government entered into a settlement with some of the
defendants relieving them of liability for onsite cleanup and costs. Malone was not among the settling
1
Chief Judge of the Eastern District of Texas, sitting by designation.
defendants.
The defendants who settled with the government (settling defendants) were divided into two
groups: the non-premium settling defendants and the premium or de minimus settling defendants.
The government released the premium or de minimus settling defendants for any liability relating to
cleanup and release of hazardous substances at the waste site. The settlement agreement , by its
express terms, did not apply to claims for cleanup of substances beyond the Matco site, such as offsite
contamination or groundwater contamination. The government's release of the premium or de
minimus defendants was to be void if reliable future evidence showed that any such defendant
generated more than one percent of the total residual material at the waste site. The settlement
documents and decree further provided that the non-premium settling defendants assumed any liability
of the premium settling defendants including liability for offsite and subsurface and groundwater
contamination.
The case proceeded against Malone and others as remaining defendants. Judge Kent issued
a docket control order requiring that all cross- and counter-claims be filed by May 1, 1991. On that
day, Malone filed a cross-claim for contribution and indemnity against the defendants, including
defendants who had settled with the government four years earlier. On July 24, the district court
issued an order stating that it intended to dismiss the cross-claim and that it believed the filing violated
Rule 11. The court gave Malone six days to respond and ordered that the response not exceed five
pages in length. Malone filed a timely response.
On August 8, the district court issued a twenty-five page sanctions order, finding that
Malone's cross-claim was meritless and filed in bad faith with respect to the premium settling
defendants. The court found that the cross-claim was either "an obvious attempt to forestall" the end
of litigation that had lasted five years o r an effort to "coerce Malone's dismissal by creating mass
confusion only weeks before trial." Additionally, it found that "service, when ultimately effected on
many of the other defendants, was sloppy, improperly handled, and in many instances deficient." It
concluded that the cross-claim was "calculated to do nothing more than delay an already long,
drawn-out litigation process." In the course of its opinion, the district court conceded that Malone's
right to contribution under state law presented an issue of first impression in this circuit, and the court
disavowed an opinion of a New York district court that arguably supported Malone's position.
The district court imposed sanctions of $10,000 against Malone and $10,000 against Malone's
lawyer. It also required Malone and its counsel to pay all the premium settling defendants' costs and
attorney's fees related to their response to the cross-claim. The court instructed the parties to submit
affidavits establishing their costs, and ordered Malone to pay by September 20 or "face contempt
citation and additional sanctions." The court ordered Malone not to file any pleadings on any issue
related to the sanctions order. Malone complied, paying out almost $14,000 in fees and costs to the
other parties, plus $20,000 in sanctions. Malone timely lodged this appeal from the sanctions order.
II.
Rule 11 provides that a pleading must be "warranted by existing law or a good faith argument
for the extension, modification, or reversal of existing law." Fed.R.Civ.P. 11. In Thomas v. Capital
Sec. Servs., Inc., 836 F.2d 866, 873 (5th Cir.1988), we concluded that we should defer to the trial
court's factual findings underlying its ruling on sanctions. We also determined that we should review
the district court's decision to impose sanctions under an abuse of discretion standard. Id. at 872-73.
The United States Supreme Court later adopted this view. See Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 405, 110 S.Ct. 2447, 2460-61, 110 L.Ed.2d 359 (1990).
In Thomas we also examined what Rule 11 requires of attorneys who sign pleadings. Rule
11 demands that the actions of the attorney be objectively, not just subjectively, reasonable under the
circumstances. An attorney's subjective good faith is not enough. Thomas, 836 F.2d at 873.
In this case, Malone contends that its contribution rights were not extinguished against the
premium settling defendants because the government had not fully released those defendants from
all liability. We agree that the government's release of these defendants was not comprehensive. The
settlement agreement, by its express terms, was limited to onsite remediation costs. Offsite costs
were not expressly covered by the settlement agreement. Although the non-premium settling
defendants agreed to assume the liability of the premium settling defendants for offsite migration, this
assumption did not include a covenant not to sue. The release therefore did not prevent the
government from suing the premium settling defendants for cleanup of waste that migrated offsite.
Because the government is not precluded from suing the premium settling defendants for offsite
cleanup, Malone has a plausible argument that those premium settling defendants are not shielded
from Malone's contribution claim. The district court did not address how the agreement by the
non-premium settling defendants to indemnify the premium settling defendants would affect Malone's
contribution claim. It may be that the non-premium settling defendants will assume the defenses of
the premium settling defendants or that Malone will dismiss its contribution claim against the
premium settling defendants after the non-premium settling defendants acknowledge their indemnity
obligation. But, we are not persuaded that Malone's contribution action directly against the premium
settling defendants is legally insupportable.
The district court seemed to believe that the settlement agreement shielded the premium
settling defendants from all claims for contribution because of 42 U.S.C.A. §§ 9613(f)(2) and
9622(g)(5) (West Supp.1992). These sections were adopted when Congress enacted the SARA
amendments in 1986. Sections 9613(f)(2) and 9622(g)(5) shield settling defendants from a
subsequent suit "for contribution regarding matters addressed in the settlement." (emphasis added).
Thus, neither section, on its face, protects settling defendants from claims for contribution for matters
not addressed in the settlements. The district court did not address this plausible argument, which
was justified from the face of the statute and the text of the settlement agreement. Thus, it cannot
be said that the claim had no basis in law. In reversing a portion of a sanctions order in another case,
we concluded that the absence of authority in this circuit combined with the complexity of the issue
was enough to bar Rule 11 sanctions. Vatican Shrimp Co. v. Solis, 820 F.2d 674, 681 (5th Cir.),
cert. denied, 484 U.S. 953, 108 S.Ct. 345, 98 L.Ed.2d 371 (1987).
Malone also argued that SARA's provisions did not bar claims for contribution arising under
state law. To support this view, it cited United States v. Hooker Chems. & Plastics Corp., 739
F.Supp. 125, 129 (W.D.N.Y.1990), which held that a party liable for damages under CERCLA was
not barred fro m pursuing contribution for those damages under state law. The district court
concluded that "[t]his appears to be a case of first impression in the Fifth Circuit" and that Hooker
plausibly supported Malone's view. United States v. Alexander, 771 F.Supp. 830, 841
(S.D.Tex.1991). The district court then rejected Hooker as incorrect and concluded that it was
bound to interpret CERCLA "in the spirit of and within the anticipated mandates provided by the
Fifth Circuit." Id. The district court cited no Fifth Circuit authority supporting its view that SARA
bars state law claims for contribution.
Parties who argue points of first impression in a circuit are not ordinarily the recipients of a
Rule 11 sanctions order. Coghlan v. Starkey, 852 F.2d 806, 811 n. 8 (5th Cir.1988) (per curiam);
Brubaker v. Richmond, 943 F.2d 1363, 1378 (4th Cir.1991); Securities Indus. Ass'n v. Clarke, 898
F.2d 318, 321-22 (2nd Cir.1990). Of course, a claim that is utterly insupportable may be sanctionable
even if the circuit has not addressed the issue. However, Malone's contribution claim had reasonable
support under the plain words o f SARA and the settlement agreement. Its claim for contribution
under state law had the direct support of one district court opinion. Thus, Malone's legal view, even
if not correct, was at least plausible.
The district court also found that the claim was filed for impermissible reasons, i.e., to delay
the proceedings or to avoid liability. It is true that mere legal and factual support will not rescue a
pleading filed for an impermissible reason. Sheets v. Yamaha Motors Corp., U.S.A., 891 F.2d 533,
538 (5th Cir.1990). Still, where the filing enjoys reasonable factual and legal support, it is not
sanctionable absent "unusual circumstances." Id. The district court here did not cite any "unusual
circumstances" that warranted sanctions. The court merely asserted the view that the claim was filed
for an improper purpose. Even though detailed findings are not required to uphold an award of
sanctions, there must be some record to review. Here, there was none.
The district court cites one final reason for its order. It asserts that Malone's service of the
claim on the other defendants was "sloppy." We are aware of no authority supporting the view that
"sloppy" service may render an otherwise legally and factually justifiable filing sanctionable under
Rule 11. Rule 11 does not impose continuing obligations on attorneys. As we observed in Thomas,
the focus of Rule 11 is on the document signed by the attorney and on the objectively reasonable
nature of the filing at the time of the filing. Thomas, 836 F.2d at 875. Sloppy service should not be
the basis for sanctions under Rule 11 without more indicia of bad faith in the filing of the claim.
For the above reasons we conclude that Malone's third party complaint, which was filed within
the district court's deadline, was suppo rted by plausible legal arguments. Additionally, the record
demonstrates no objective bad faith or improper purpose of Malone or its attorney in filing the
complaint. The district court therefore abused its discretion in imposing sanctions against Malone.
Accordingly, we vacate the sanctions order and remand this case to the district court for further
proceedings.
VACATED and REMANDED.