Bettah Beach Prodn v. Park Bd Trustees ( 2003 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 01-41340
_____________________
BETTAH BEACH PRODUCTIONS INC; ET AL
Plaintiffs
BETTAH BEACH PRODUCTIONS INC
Plaintiff - Appellee
v.
PARK BOARD OF TRUSTEES OF THE CITY OF GALVESTON; ET AL
Defendants
PARK BOARD OF TRUSTEES OF THE CITY OF GALVESTON
Defendant - Third Party Plaintiff – Appellee
v.
MCLEOD ALEXANDER POWEL & APFFEL
Defendant – Third Party Defendant – Appellant
_________________________________________________________________
Appeal from the United States District Court
for the Southern District of Texas
(98-CV-619)
_________________________________________________________________
January 16, 2003
Before KING, Chief Judge, and JOLLY and HIGGINBOTHAM, Circuit
Judges.
KING, Chief Judge:*
Defendant-Third Party Defendant-Appellant McLeod Alexander
Powel & Apffel (“MAPA”) appeals from the final judgment entered
by the District Court for the Southern District of Texas awarding
Defendant-Third Party Plaintiff-Appellee Park Board of Trustees
of the City of Galveston (“Park Board”) approximately $2 million
as a result of malpractice committed by MAPA during its
representation of the Park Board. MAPA also appeals the court’s
entry of sanctions against them for Rule 11 violations. Because
we hold that the district court erroneously retained supplemental
jurisdiction over this case after the federal claims had been
dismissed, we vacate the district court’s judgment and remand
with instructions to dismiss the case. We also affirm the
district court’s award of Rule 11 sanctions against MAPA for
filing frivolous post-trial motions.
I. FACTS AND PROCEDURAL HISTORY
In 1994, the Park Board solicited proposals for private
management of a section of the waterfront known as East Beach.
Any party seeking management of East Beach would be required to
comply with the regulations promulgated by the Texas General Land
Office (“GLO”). The GLO’s interpretation of the Texas Open
*
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that this opinion should not be published and is not precedent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.
2
Beaches Act (“TOBA”) requires that any revenues received from
beach user fees be applied solely to beach-related services.
Two local residents, George Childress and Allen Flores, and
their company, Bettah Beach Productions, Inc. (“Bettah Beach”),
showed interest in privately managing East Beach. Daniel Vaughn,
the attorney for the Park Board and a partner in MAPA, advised
Flores that he should contact the GLO for information about the
permissible uses of parking and concession revenues. The GLO
replied that whether Bettah Beach could profit from parking
revenues was a matter for the Park Board. Bettah Beach and the
Park Board ultimately reached a deal; the terms of the Concession
Agreement which Vaughn drafted bound Bettah Beach to comply with
“all applicable laws, rules and regulations regarding beach user
fees.”
During the term of the Agreement, questions arose concerning
whether Bettah Beach’s use of parking revenues complied with the
TOBA. Before these questions were resolved, though, a barge
owned by Buffalo Marine Services, Inc. (“Buffalo Marine”) spilled
oil onto East Beach in March 1996. Both Bettah Beach and the
Park Board sought recovery from Buffalo Marine, and both were
represented by MAPA attorneys after initial attempts at
settlement failed. Whether or not this joint representation was
fully disclosed and approved of is in dispute: MAPA claims that
it explained the joint representation fully to both parties,
while the Park Board claims that it had never been asked for and
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had never given permission for joint representation with Bettah
Beach against Buffalo Marine. In November 1997, Buffalo Marine,
under the terms of a settlement, paid the Park Board $165,000 and
Bettah Beach $235,000.
When the time came to renew the Concession Agreement, Bettah
Beach assured the Park Board that it had been complying with all
“applicable” rules and regulations. After renewing the
Agreement, the Park Board met with the GLO to express its
concerns that Bettah Beach was misappropriating beach fees. The
GLO requested quarterly accountings and performed an audit. The
audit revealed questions concerning both whether Bettah Beach
properly allocated the proceeds from the Buffalo Marine
litigation to beach user fees and whether the Park Board had
exercised insufficient supervision over Bettah Beach as its
subcontractor.
In December 1998, Bettah Beach sued the Park Board, arguing
that the Board never said that Bettah Beach could not profit from
its parking revenues. The Board counterclaimed that Bettah Beach
fraudulently misrepresented that it would comply with applicable
laws. The Park Board later filed a third-party complaint against
MAPA, alleging that it had breached its fiduciary duty by its
joint representation in the Buffalo Marine litigation.
In March 2000, the Park Board and Bettah Beach reached a
settlement covering the claims between them. In May, MAPA moved
to have the remainder of the case dismissed on the grounds that
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federal subject matter jurisdiction no longer existed because all
of the federal claims had been resolved as part of the
settlement. The district court, in opting to retain supplemental
jurisdiction over the remaining claims, wrote:
From the beginning, this case has received copious press
coverage. Understandably, the citizens of the City of
Galveston are intensely interested in a suit involving
elements of their local government, the management of a
popular local beach, and the professional competence and
integrity of a prominent local law firm. Consequently,
the Court has determined that it would be inappropriate
to prevent a full and public airing of the grievances
between the parties by granting dispositive relief on
hyper-technical grounds. A trial date has been set for
January 22, 2001. All of these matters of legitimate
public interest will be definitively adjudicated in the
course of open trial.
In October 2000, the Park Board amended its complaint to
include charges that Vaughn had negligently drafted the
Concession Agreement and that he had failed to monitor Bettah
Beach’s use of the beach user revenues to ensure that they
complied with the law. The case went to trial on August 20,
2001. On August 23, the jury reached its verdict. However, MAPA
contends that, while the parties were waiting in the courtroom
for the jury to return and announce the verdict, the two parties
told the court that they had reached a binding settlement. The
Park Board disagrees, saying that the settlement was not binding
unless it was approved by a vote of the full Board. The district
court refused to certify the settlement; the jury returned a
verdict of $1.75 million against MAPA, finding that MAPA had both
committed malpractice and breached their fiduciary duty to the
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Park Board. The district court also added, as part of the final
judgment, attorney’s fees: a refund of the $52,854.21 paid by the
Park Board to MAPA in the Buffalo Marine litigation, and $160,000
(an amount the parties had stipulated to) in attorney’s fees
expended by the Park Board in defending itself in the Bettah
Beach suit.
On August 28, the full Park Board met to discuss the
proposed settlement; the Board unanimously rejected it.
Nevertheless, the next day MAPA filed a Notice of Settlement.
The court rejected the settlement. MAPA then filed a request for
an evidentiary hearing to discuss the settlement and created a
Statement of Proceedings that sought to reconstruct the pre-
verdict courtroom settlement discussions (which had not been
transcribed for the record). MAPA also raised the settlement
issue in its motion opposing the entry of the final judgment. At
a hearing held to discuss the amount of bond MAPA should post
while the judgment was pending on appeal, MAPA mentioned that it
wanted a more complete hearing on the settlement issue; the court
reiterated that it had ruled on the enforceability of the
settlement. Two weeks later, MAPA again moved that the court
recognize the settlement and tried to get admitted its Statement
of Proceedings. The court refused and sanctioned MAPA and its
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counsel in the amount of $2,500 “for the continued filing of
frivolous pleadings.”1
MAPA raises several issues on appeal: (1) the district court
lacked supplemental jurisdiction over the case; (2) the Board
failed to prove that MAPA’s alleged malpractice proximately
caused the damages; (3) the Board failed to prove damages to any
degree of certainty; (4) the statute of limitations barred the
action; (5) the district court made erroneous evidentiary rulings
concerning proffered expert testimony; (6) the district court
judge was openly biased in favor of the Park Board; (7) the award
of attorney’s fees was inappropriate; and (8) the refusal to
enforce the settlement agreement and subsequent sanctioning of
MAPA for pressing the point were erroneous.
II. SUPPLEMENTAL JURISDICTION OVER THE STATE LAW CLAIMS
The district court denied MAPA’s motion to dismiss the
action on the grounds that the court, after the federal claims
had been settled, no longer had supplemental jurisdiction over
the remaining state law claims. This court reviews a decision to
retain supplemental jurisdiction over state law claims for abuse
1
MAPA filed a litany of other motions as well (all of
which the Park Board responded to) that did not directly deal
with the settlement. Ultimately, the court filed an order
denying all future motions, stating that, under “an absolute
blizzard of filings on all sorts of extraneous matters before
this Court,” the parties should save their motions for the
pending appeal.
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of discretion. McClelland v. Gronwaldt, 155 F.3d 507, 511 (5th
Cir. 1998).
District courts have the discretion to exercise supplemental
jurisdiction over claims that, while they have no independent
basis for federal jurisdiction, are “so related to claims in the
action within such original jurisdiction that they form part of
the same case or controversy.” 28 U.S.C. § 1367(a) (2000).
However, a district court may choose to decline that jurisdiction
in certain circumstances; one of these is when “the district
court has dismissed all claims over which it has original
jurisdiction.” Id. § 1367(c)(3). In such a case, the “general
rule is to decline to exercise jurisdiction over pendent state-
law claims . . . [though] this rule is neither mandatory nor
absolute.” Batiste v. Island Records, Inc., 179 F.3d 217, 227
(5th Cir. 1999) (internal quotation and citation omitted). In
such a case, the district court should consider the factors of
“judicial economy, convenience, fairness, and comity” when
weighing whether to exercise pendent jurisdiction. Carnegie-
Mellon Univ. v. Cohill, 484 U.S. 343, 350 (1988).
The Park Board argues that the sheer volume of pleadings and
motions that had come before the district court sufficiently
implicates the notion of judicial economy to make supplemental
jurisdiction appropriate. However, at the time MAPA filed its
motion to dismiss, most of the judicial resources had actually
been expended on the underlying case between the Park Board and
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Bettah Beach. When MAPA moved to dismiss for lack of subject
matter jurisdiction on May 9, 2000, the Park Board had yet to
file its final amended complaint in the case and the actual trial
was more than fifteen months away.2 See Parker & Parsley
Petroleum Co. v. Dresser Indus., 972 F.2d 580, 587 (5th Cir.
1992) (dismissing supplemental jurisdiction because, at the point
the motion was made, the parties were “not ready for trial”).
The Parker court also noted that the fact that the moving party
had, after the district court opted to retain supplemental
jurisdiction, later filed an amended complaint tended to show
that the litigation was in such an early stage that dismissal
would have been appropriate. Id.The district court here made no mention of any of the
factors that it was required by § 1367 and Carnegie Mellon to
consider when deciding whether to retain supplemental
jurisdiction over the pendent state law claims. Instead, the
district court claimed to be doing so out of a sense of the
“intense public interest” of the citizens of Galveston in seeing
the case reach a full and fair conclusion. Whether or not public
interest in the case was high, though, is irrelevant for purposes
2
Of course, by now substantial judicial resources have
been expended on this case, given that it has already gone
through a trial. However, the decision on whether the exercise
of supplemental jurisdiction was appropriate must be made by
looking at the circumstances at the time the party filed its
motion to dismiss for lack of jurisdiction. Parker & Parsley
Petroleum Co. v. Dresser Indus., 972 F.2d 580, 587 (5th Cir.
1992).
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of a district court’s exercise of supplemental jurisdiction; a
strong public interest does not implicate any of the four
Carnegie-Mellon factors. Further, the suggestion implicit in the
district court’s reason for retaining jurisdiction is that the
strong public interest of the citizens of Galveston in seeing the
case reach a full and fair conclusion could not be satisfied in
state court (presumably also in Galveston). That suggestion must
be rejected.
In view of the fact that the district court’s decision to
exercise supplemental jurisdiction over the case did not address
any of the Carnegie-Mellon factors and relied instead on yet
another factor that was simply wrong, we find that the district
court abused its discretion in retaining supplemental
jurisdiction over this case. Section 1367(c), as interpreted by
Carnegie-Mellon, embodies specific factors that a district court
must consider in choosing whether to exercise supplemental
jurisdiction over pendent state law claims. A district court
errs if it fails to consider those factors.
III. THE POST-TRIAL SANCTIONING OF MAPA
While our holding that the district court abused its
discretion by retaining supplemental jurisdiction over this case
also disposes of the majority of MAPA’s remaining claims on
appeal, we must still address MAPA’s claim that the district
10
court erred in sanctioning them $2,500 for their post-trial
actions.
All aspects of Rule 11 sanctions are reviewed for abuse of
discretion. Merriman v. Sec. Ins. Co. of Hartford, 100 F.3d
1187, 1191 (5th Cir. 1996). “A district court necessarily abuses
its discretion in imposing sanctions if it bases its ruling on an
erroneous view of the law or a clearly erroneous assessment of
the evidence.” Elliott v. Tilton, 64 F.3d 213, 215 (5th Cir.
1995). However, a district court’s discretion in this area is
generally very broad. Cooter & Gell v. Hartmarx Corp., 496 U.S.
384, 402 (1990) (“Familiar with the issues and litigants, the
district court is better situated than the court of appeals to
marshal the pertinent facts and apply the fact-dependent legal
standard mandated by Rule 11.”).
The district court, in sanctioning MAPA, stated:
Plaintiff also sought sanctions pursuant to Rule 11 of
the Federal Rules of Civil Procedure. The Court, finds
that, at this time, sanctions are appropriate. It is,
therefore, ordered that Defendant and its counsel be
sanctioned for the continued filing of frivolous
pleadings, and the Court deems that the appropriate
sanction for the filing of such Motion and for its
continuing pattern of conduct in that regard, is
$2,500.00.
Sanctions may be assessed against a party for filing excessive or
frivolous motions. Sheets v. Yamaha Motors Corp., 891 F.2d 533,
538 (5th Cir. 1990). Thus, the district court’s determination
that MAPA’s continued filing of post-trial motions was
“frivolous” forms an appropriate basis for sanctions.
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The district court expressly identified MAPA’s “continuing
pattern of” filing frivolous post-trial motions as the basis for
its decision to impose sanctions. After the full Park Board
rejected the pre-verdict settlement, MAPA filed a notice of
settlement which the court rejected. Had MAPA stopped there,
sanctions would have been inappropriate; in fact, at that time
the court denied the Park Board’s motion for sanctions, finding
that MAPA had pursued the settlement in good faith. However,
after the court rejected the settlement MAPA moved for an
evidentiary hearing, attempted to file a Statement of
Proceedings, and partially reargued the merits of the settlement
in its motion opposing the entry of a final judgment. MAPA then
brought the issue up again at the bond hearing, where the court
expressly stated that it had ruled on the issue. Nevertheless,
MAPA again filed notice to settle and to have the Statement of
Proceedings made part of the record. Given the repeated attempts
to press the same point, even after the court had specifically
told MAPA that the settlement issue had been decided, the court
did not abuse its discretion in sanctioning MAPA for continuing
to beat a dead horse.
IV. CONCLUSION
We VACATE the district court’s judgment and REMAND with
instructions to dismiss the case. We AFFIRM the district court’s
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award of sanctions again MAPA for filing frivolous post-trial
motions. Each party shall bear its own costs.
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