Thomas J. Lyons v. Credit Acceptance ( 1999 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 98-3010
___________
Kenneth Ray Lee; Lisa Jeanne Ertle; *
Brenda Osen; Juan Martinez; Amy *
Schwandt; Glenda Richards; Michael *
O’Donnell; John Kant; Kim Swanson, *
on behalf of themselves and all others *
similarly situated, *
*
Plaintiffs, *
*
Thomas J. Lyons & Associates, *
*
Appellant, * Appeals from the United States
* District Court for the
v. * District of Minnesota.
*
L.B. Sales, Inc., doing business as *
Continental Motors, a Minnesota *
corporation, *
*
Defendant, *
*
Credit Acceptance Corporation, *
a Michigan corporation, *
*
Defendant/Appellee, *
*
Community Credit Co., *
a Minnesota corporation, *
*
Defendant, *
*
Bankers & Shippers Insurance *
Company, a Connecticut corporation; *
First Lenders Insurance Services, Inc., *
a foreign corporation, *
*
Defendants/Appellees, *
*
John Doe; Mary Roe, *
*
Defendants. *
___________
No. 98-3014
___________
Kenneth Ray Lee; Lisa Jeanne Ertle; *
Brenda Osen; Juan Martinez; Amy *
Schwandt; Glenda Richards; Michael *
O’Donnell; John Kant; Kim Swanson, *
on behalf of themselves and all others *
similarly situated, *
*
Plaintiffs, *
*
Thomas J. Lyons & Associates, *
*
Appellee, *
*
v. *
*
L.B. Sales, Inc., doing business as *
Continental Motors, a Minnesota *
corporation, *
*
Defendant, *
*
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Credit Acceptance Corporation, *
a Michigan corporation, *
*
Defendant/Appellant, *
*
Community Credit Co., a Minnesota *
corporation; Bankers & Shippers *
Insurance Company, a Connecticut *
corporation; First Lenders Insurance *
Services, Inc., a foreign corporation; *
John Doe; Mary Roe, *
*
Defendants. *
___________
No. 98-3016
___________
Kenneth Ray Lee; Lisa Jeanne Ertle; *
Brenda Osen; Juan Martinez; Amy *
Schwandt; Glenda Richards; Michael *
O’Donnell; John Kant; Kim Swanson, *
on behalf of themselves and all others *
similarly situated, *
*
Plaintiffs, *
*
Thomas J. Lyons & Associates, *
*
Appellee, *
*
v. *
*
L.B. Sales, Inc., doing business as *
Continental Motors, a Minnesota *
corporation; Credit Acceptance *
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Corporation, a Michigan corporation; *
Community Credit Co., a Minnesota *
corporation, *
*
Defendants, *
*
Bankers & Shippers Insurance *
Company, a Connecticut corporation, *
*
Defendant/Appellant, *
*
First Lenders Insurance Services, Inc., *
a foreign corporation; John Doe; *
Mary Roe, *
*
Defendants. *
___________
No. 98-3017
___________
Kenneth Ray Lee; Lisa Jeanne Ertle; *
Brenda Osen; Juan Martinez; Amy *
Schwandt; Glenda Richards; Michael *
O’Donnell; John Kant; Kim Swanson, *
on behalf of themselves and all others *
similarly situated, *
*
Plaintiffs, *
*
Thomas J. Lyons & Associates, *
*
Appellee, *
*
v. *
*
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L.B. Sales, Inc., doing business as *
Continental Motors, a Minnesota *
corporation; Credit Acceptance *
Corporation, a Michigan corporation; *
Community Credit Co., a Minnesota *
corporation; Bankers & Shippers *
Insurance Company, a Connecticut *
corporation, *
*
Defendants, *
*
First Lenders Insurance Services, Inc., *
a foreign corporation, *
*
Defendant/Appellant, *
*
John Doe; Mary Roe, *
*
Defendants. *
___________
Submitted: March 10, 1999
Filed: June 2, 1999
___________
Before FAGG and WOLLMAN,1 Circuit Judges, and WEBBER,2 District Judge.
___________
1
Roger L. Wollman became Chief Judge of the United States Court of Appeals
for the Eighth Circuit on April 24, 1999.
2
The Honorable E. Richard Webber, United States District Judge for the Eastern
District of Missouri, sitting by designation.
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WOLLMAN, Chief Judge.
Thomas J. Lyons & Associates appeals from a district court order affirming the
magistrate judge’s3 award of sanctions under 28 U.S.C. § 1927 in favor of Credit
Acceptance Corporation, Bankers & Shippers Insurance Company, and First Lenders
Insurance Services (Defendants). Defendants cross-appeal, claiming that the amount
of sanctions ordered by the court was too low. Because neither the magistrate judge
nor the district court entered findings to support the sanctions award, we vacate the
award and remand to the district court for further proceedings.
II.
Lyons, Richard G. Nadler, and Steven T. Appelget served, at varying times, as
counsel for the plaintiffs in the action underlying this litigation. Nadler signed the
original complaint in July of 1994, and all three attorneys were listed on the signature
block. See Compl. at 41, Appellant’s Appx. at 153. After Defendants moved to
dismiss the action under Fed. R. Civ. P. 12(b)(6), Nadler filed an amended complaint
for the plaintiffs in January of 1995. Nadler’s was the only name listed on the signature
block. See Am. Compl. at 43, Appellant’s Appx. at 196. In February of 1995, the
district court sua sponte ordered the plaintiffs to file a second amended complaint. This
complaint was signed by Appelget and listed Appelget and Nadler on the signature
block. See Second Am. Compl. at 66, Appellant’s Appx. at 262. The second amended
complaint asserted a variety of state and federal claims and survived the motion to
dismiss. It also purported to be a class action. See Second Am. Compl. ¶¶ 12-21,
Appellant’s Appx. at 200-02.
3
To whom the determination of sanctions had been referred pursuant to 28
U.S.C. § 636(b)(1)(A) and Local Rule 72.1(b).
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According to Lyons, in early 1995 he and Nadler “parted company” and “Nadler
& Associates” continued to represent the plaintiffs. Appellant’s Br. at 2; cf. Am.
Pretrial Schedule of Apr. 13, 1995, Appellant’s Appx. at 104 (listing Nadler and
Appelget as counsel for the plaintiffs). In July of 1995, Nadler filed a motion for class
certification on behalf of the plaintiffs. In September of 1995, Lyons’ new firm
(“Lyons Sawicki Neese & Phelps, P.A.”) replaced Appelget and Nadler & Associates
as counsel of record for the plaintiffs. See Substitution of Attorneys, Appellant’s Appx.
at 108. Shortly thereafter, Lyons withdrew the motion to certify the class. See
Appellant’s Appx. at 272. Defendants moved for summary judgment, which the district
court granted in August of 1996. See Tr. of Summ. J. Hr’g, Appellant’s Appx. at 34.
In January of 1997, Lyons’ firm became “Lyons & Associates.”
Defendants moved for sanctions under 28 U.S.C. § 1927 “because of plaintiffs’
unreasonable and vexatious conduct.” See Defs.’ Motions for Fees and Expenses,
Appellant’s Appx. at 25-26, 30-31, 32. The magistrate judge determined that sanctions
were warranted and ordered Defendants to submit affidavits on their attorney fees to
assist in calculating the proper amount of the sanction. See Order of February 28,
1997, at 2. Finding that Defendants’ fee affidavits did not provide enough detail to
justify higher awards, the magistrate judge ordered Lyons & Associates to pay each
Defendant $15,000. See Order of March 18, 1998, at 5. The district court summarily
affirmed the magistrate judge’s decision, finding that it was neither clearly erroneous
nor contrary to law. See Order of June 22, 1998, at 1. Lyons & Associates and
Defendants appeal.
II.
The District of Minnesota’s local rules require parties to appeal a magistrate
judge’s decision to the district court within ten days. D. Minn. L.R. 72.1(b)(2).
Defendants argue that Lyons & Associates waived the right to appeal the magistrate
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judge’s February 1997 order awarding sanctions because it did not file an appeal until
after the March 1998 order fixing the amount of sanctions.
In reviewing the magistrate judge’s decision, the district court stated that “[t]he
parties appeal an Order issued March 18, 1998 . . . ordering [Lyons & Associates] to
pay [Defendants] each the sum of $15,000. The parties timely filed their appeals,
pursuant to D. Minn. L.R. 72.1(b)(2).” Order of June 22, 1998, at 1. The court did not
address Defendants’ contention that Lyons & Associates waived its right to appeal the
award of sanctions.
We have held that a district court order awarding sanctions is not final and
appealable if it reserves the determination of the amount of the sanction. See Hill v. St.
Louis Univ., 123 F.3d 1114, 1120-21 (8th Cir. 1997); accord Kennedy v. Applause,
Inc., 90 F.3d 1477, 1483 (9th Cir. 1996); Travelers Ins. Co. v. St. Jude Hosp. of
Kenner, La., Inc., 38 F.3d 1414, 1416 (5th Cir. 1994); Discon, Inc. v. NYNEX Corp.,
4 F.3d 130, 132-33 (2d Cir. 1993); Walter v. Fiorenzo, 840 F.2d 427, 433 n.6 (7th Cir.
1988). But cf. Kansas Pub. Employees Retirement Sys. (KPERS) v. Reimer & Koger
Assocs., 165 F.3d 627, 629-30 (8th Cir. 1999) (finding that a party waived its right to
appeal a sanctions award when it did not respond to the initial sanctions motion or
move to amend the award within ten days). Because the magistrate judge’s 1997
decision to award sanctions reserved the determination of the amount of the sanction,
it was not appealable until entry of the March 1998 order fixing the amount of
sanctions. Thus, Lyons & Associates did not waive its right to appeal the decision to
award sanctions.
III.
We review the district court’s factual findings for clear error and its decision
affirming the award of sanctions under section 1927 for an abuse of discretion. See
KPERS, 165 F.3d at 630-31; Gundacker v. Unisys Corp., 151 F.3d 842, 849 (8th Cir.
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1998), cert. denied, 119 S. Ct. 801 (1999); accord Aerotech, Inc. v. Estes, 110 F.3d
1523, 1528 (10th Cir. 1997); Trulis v. Barton, 107 F.3d 685, 692 (9th Cir. 1995); In
re TCI Ltd., 769 F.2d 441, 448 (7th Cir. 1985); see also O’Connell v. Champion Int’l
Corp., 812 F.2d 393, 395 (8th Cir. 1987) (holding that a district court’s decision to
award sanctions is entitled to “substantial deference”); Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 405 (1990) (reviewing an award of sanctions under Fed. R. Civ.
P. 11 for an abuse of discretion). But see Perkins v. Spivey, 911 F.2d 22, 36 (8th Cir.
1990) (reviewing de novo the court’s legal conclusion that sanctions were warranted
under section 1927). Although we will not substitute our judgment for the district
court’s, we must reverse if the court based its decision “on an erroneous view of the
law or on a clearly erroneous assessment of the evidence.” Cooter & Gell, 496 U.S.
at 405.
Section 1927 provides for sanctions against an attorney who “multiplies the
proceedings in any case unreasonably and vexatiously.” 28 U.S.C. § 1927. Courts
have interpreted this statute to warrant sanctions when attorney conduct, “‘viewed
objectively, manifests either intentional or reckless disregard of the attorney’s duties
to the court.’” Perkins, 911 F.2d at 36 (quoting Braley v. Campbell, 832 F.2d 1504,
1512 (10th Cir. 1987)). Because section 1927 is penal in nature, it should be strictly
construed so that it does not “dampen the legitimate zeal of an attorney in representing
his client.” Travelers, 38 F.3d at 1416; see also H.R. Conf. Rep. No. 96-1234, at 8
(1980), reprinted in 1980 U.S.C.C.A.N. 2716, 2781-82. “The imposition of sanctions
is a serious matter and should be approached with circumspection.” O’Connell, 812
F.2d at 395.
A district court must enter findings of fact in ruling on a motion for sanctions.
See Williams v. Giant Eagle Mkts., Inc., 883 F.2d 1184, 1191 (3d Cir. 1989); Braley,
832 F.2d at 1513; Lewis v. Brown & Root, Inc., 722 F.2d 209, 210 (5th Cir. 1984).
See also KPERS, 165 F.3d at 631; Trulis, 107 F.3d at 692; Walter, 840 F.2d at 436 (all
implying that a district court must enter findings in support of a determination of
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sanctions). Findings ensure that the sanctions address the excess costs resulting from
the misconduct, provide the sanctioned party an adequate opportunity to respond, and
facilitate meaningful appellate review. See Braley, 832 F.2d at 1513.
In imposing sanctions, the magistrate judge stated, “Based upon the files,
records, and proceedings herein, . . . [Defendants’] motion is granted.” See Order of
February 28, 1997, at 2. The magistrate judge did not enter findings of fact or hold that
Lyons & Associates had acted unreasonably and vexatiously. Similarly, the district
court’s order stated only that “[t]he court has reviewed the record and proceedings
below and finds no grounds to justify setting aside the Magistrate’s order.” See Order
of June 22, 1998, at 1.
We conclude that the magistrate judge’s and the district court’s comments do not
provide us with an adequate basis for reviewing the determination that sanctions were
warranted. Nor do they inform Lyons & Associates of the conduct for which it is being
sanctioned. Indeed, it appears that Lyons & Associates was not counsel of record
when some of the actions that Defendants complain of occurred. See Appellee’s Br.
at 12-13. The district court must identify the conduct that is sanctionable under section
1927 with specificity if the sanctions are to have any effect on the conduct of the
sanctioned parties in the future and if we are to conduct a meaningful review of the
appropriateness of those sanctions. Accordingly, we vacate the sanctions award and
remand to the district court for further proceedings consistent with this opinion.
It is so ordered.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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