Federal Deposit Insurance v. Conner , 20 F.3d 1376 ( 1994 )

United States Court of Appeals,
Fifth Circuit.
Nos. 92-1666, 93-1343.
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Capital
National Bank, Plaintiff-Appellant,
and
Charles W. Sartain, individually and as attorney for the Federal
Deposit Insurance Corporation, etc., Appellant,
v.
William C. CONNER, et al., Defendants,
Charles Hillard, et al., Defendants-Appellees.
May 25, 1994.
Appeals from the United States District Court for the Northern
District of Texas.
Before GOLDBERG, DAVIS, and DeMOSS, Circuit Judges.
GOLDBERG, Circuit Judge:
The Federal Deposit Insurance Corporation ("FDIC") filed this
suit against seven former directors of Capital National Bank of
Fort Worth ("Capital"), alleging that, in their management of the
bank, the defendants were negligent, breached their fiduciary
duties, and violated express and implied agreements that they had
with the institution. In these consolidated appeals, we are called
upon to review several of the district court's orders: the
dismissal of the FDIC's claims against five of the seven defendants
as a sanction for violating a discovery order, two monetary
sanctions levied personally against one of the FDIC's attorneys
(one imposed pursuant to Federal Rule of Civil Procedure 37(b)(2)
and the other imposed pursuant to 28 U.S.C. § 1927), and the denial
1
of the FDIC's motion to amend its original complaint. We reverse
the dismissal of the FDIC's claims and the denial of the motion to
amend, vacate the sanction imposed on the FDIC's attorney pursuant
to 28 U.S.C. § 1927, and affirm the sanction imposed on the FDIC's
attorney pursuant to Rule 37(b)(2).
I. The Discovery Sanctions
A. Background
On September 15, 1988, the Comptroller of the Currency
declared Capital insolvent. The FDIC was thereafter appointed
receiver of the bank. Almost three years later, on September 13,
1991, the FDIC filed the present suit against seven of the former
directors of the failed institution. The directors named in the
original complaint were William C. Conner, Deborah Conner Norris,
Charles Hillard, Marshall Robinson, Terrance Ryan, Richard I.
Stevens, and Harry H. Whipp. In its original complaint, the FDIC
alleged that the defendants engaged in various "unsafe, unsound,
imprudent or unlawful acts and omissions ... with respect to the
management, conduct, supervision and direction of the Bank." These
acts and omissions allegedly constituted negligence, breached the
defendants's fiduciary duties, violated express and implied
agreements that the defendants had with the institution, and caused
Capital to wrongfully approve twenty-one specified loans to
specified borrowers. The wrongful approval of these loans
allegedly caused the bank to lose in excess of $2.8 million.
On November 12, 1991, five of the defendants—Hillard,
2
Robinson, Ryan, Stevens, and Whipp—filed a joint answer. 1 On the
same day, each of these defendants served on the FDIC a separate
set of written interrogatories. See Fed.R.Civ.P. 33. Except for
the name of the person about which information was sought, each set
of interrogatories was identical. Each set tracked the allegations
made in the FDIC's complaint and contained forty-five principal
questions; however, many questions had extensive sub-parts. The
FDIC calculates that there were 1,615 questions in all. On
December 16, 1991, the FDIC filed a motion for a protective order
pursuant to Federal Rule of Civil Procedure 26(c). The FDIC
claimed that the defendants's interrogatories were oppressive and
burdensome and "were filed more to harass and annoy the FDIC than
to enable the Defendants to prepare their case for trial." The
defendants who served the interrogatories opposed the FDIC's motion
and explained their need for the information sought.
On January 13, 1992, the district court denied the FDIC's
motion for a protective order. The court's order also contained
the following language:
The court further ORDERS that plaintiff shall deliver ... on
or before January 30, 1992, full and complete responses to
each of defendants' interrogatories. The court further ORDERS
that such responses shall be fully self-contained, that is,
they shall not incorporate by reference or merely refer to any
other interrogatory response, document or thing, and that such
answers shall be verified in the manner contemplated by the
Federal Rules of Civil Procedure. Failure to comply with this
order will result in the imposition of sanctions, including,
if appropriate, the striking of plaintiff's complaint in this
action.
1
Deborah Conner Norris filed her answer on November 22,
1991. The proceedings regarding the remaining defendant, William
C. Conner, are discussed in Part II.
3
Approximately ten days later, the district court granted a motion
by the FDIC for an extension of time within which to answer the
disputed interrogatories. On February 11, 1992, the date on which
the responses to the interrogatories were due, the FDIC served its
answers and objections on Hillard, Robinson, Ryan, Stevens, and
Whipp. The defendants were unhappy with the FDIC's responses.
Thus, on May 14, 1992, they filed a motion for sanctions, alleging
that the FDIC failed to comply with the district court's January 13
order. The FDIC opposed this motion and filed a response. Later,
on May 29, 1992, the FDIC served on the defendants a set of amended
and supplemental interrogatory answers. Still dissatisfied with
the FDIC's responses, the defendants continued to press their
motion for sanctions. The district court held a hearing on this
motion on July 17, 1992.
At the hearing, the district court found that the FDIC's
responses to the defendants's interrogatories violated the January
13 discovery order in several respects. First, the court held that
the FDIC violated the January 13 order by including in its
responses objections to the defendants's interrogatories.
Believing that the time for making objections had expired and
interpreting the January 13 order to forbid the raising of any
objections to the interrogatories, the district court chided the
FDIC for including in its responses both general objections to the
interrogatories as a whole and specific objections to several
individual questions. Second, the court found that the FDIC
disregarded the directive of the January 13 order that the
4
interrogatory answers be fully self-contained. Each set of the
FDIC's responses to the interrogatories violated this portion of
the January 13 order by repeatedly referring to other interrogatory
answers and other documents. Finally, the district court concluded
that the FDIC disobeyed the portion of the January 13 order that
required interrogatory answers to be full and complete because some
of the interrogatory answers merely stated general legal
conclusions without stating the facts upon which those conclusions
were based.
The district court found that the FDIC's violations of the
January 13 discovery order were conscious, deliberate, and willful.
The court did "not accept as credible or worthy of belief the
explanations of forgetfulness and the like given by [FDIC attorney
Charles W.] Sartain as excuses for failures to obey the order."
The court then considered what sanctions would be appropriate to
impose on the FDIC for its violations of the January 13 order. The
court found that the FDIC's conduct amounted to bad faith and
stated that it had considered alternative sanctions short of
dismissal. The court thus invoked its authority under Federal Rule
of Civil Procedure 37(b)(2) and dismissed the FDIC's claims against
Hillard, Robinson, Ryan, Stevens, and Whipp. Finding that the
FDIC's violations of the discovery order were not substantially
justified and that there were no other circumstances that would
make an award of expenses unjust, the court then ordered Sartain to
pay the reasonable expenses, including attorney's fees, that the
defendants incurred in their motion for sanctions. The court thus
5
ordered Sartain to pay Hillard, Robinson, Ryan, Stevens, and Whipp
$6,045.00 for the FDIC's failure to comply with the January 13
order. The court required Sartain to pay this sum from his
personal funds and forbade him from seeking reimbursement from the
FDIC. The court then entered a final judgment as to Hillard,
Robinson, Ryan, Stevens, and Whipp, dismissing the FDIC's claims
against them.
B. Discussion
Federal Rule of Civil Procedure 37(b)(2) empowers a district
court to impose "just" sanctions on parties who disobey a discovery
order. For the violation of a discovery order, a district court
can, among other things, order the dismissal of a claim and the
payment of the opposing party's expenses, including attorney's
fees.2 Rule 37 also grants a district court considerable, but not
2
The portion of Federal Rule of Civil Procedure 37(b)(2)
that is pertinent to this appeal provides as follows:
If a party ... fails to obey an order to provide or
permit discovery, ... the court in which the action is
pending may make such orders in regard to the failure
as are just, and among others the following:
(C) An order striking out pleadings or parts thereof,
or staying further proceedings until the order is
obeyed, or dismissing the action or proceeding or any
part thereof, or rendering judgment by default against
the disobedient party;
In lieu of any of the foregoing orders or in
addition thereto, the court shall require the party
failing to obey the order or the attorney advising that
party or both to pay the reasonable expenses, including
attorney's fees, caused by the failure, unless the
court finds that the failure was substantially
justified or that other circumstances make an award of
expenses unjust.
6
unlimited, discretion in fashioning appropriate penalties for those
who disobey such an order. Chilcutt v. United States, 4 F.3d 1313,
1320 (5th Cir.1993). We thus begin our review of the proceedings
below mindful that the question presented to us is not whether we
would have imposed the same sanction as the district court; it is
whether the district court abused its discretion in imposing that
sanction. National Hockey League v. Metropolitan Hockey Club,
Inc., 427 U.S. 639, 642, 96 S. Ct. 2778, 2780, 49 L. Ed. 2d 747 (1976)
(per curiam); Topalian v. Ehrman, 3 F.3d 931, 934 (5th Cir.1993).
We will discuss the dismissal of the claims against Hillard,
Robinson, Ryan, Stevens, and Whipp and the monetary sanction levied
against Sartain separately.
1. The Dismissal of the FDIC's Claims
Because the law favors the resolution of legal claims on the
merits, In re Dierschke, 975 F.2d 181, 183 (5th Cir.1992), and
because dismissal is a severe sanction that implicates due process,
Brinkmann v. Abner, 813 F.2d 744, 749 (5th Cir.1987), we have
previously deemed dismissal with prejudice to be a "draconian
remedy" and a "remedy of last resort." Batson v. Neal Spelce
Associates, Inc., 765 F.2d 511, 515 (5th Cir.1985). Although the
Supreme Court has admonished that "the most severe in the spectrum
of sanctions provided by statute or rule must be available to the
district court in appropriate cases," National Hockey League, 427
U.S. at 643, 96 S.Ct. at 2781, we are also instructed by our
precedents that "sanctions should not be used lightly, and should
be used as a lethal weapon only under extreme circumstances."
7
E.E.O.C. v. General Dynamics Corp., 999 F.2d 113, 119 (5th
Cir.1993); see also Hornbuckle v. Arco Oil & Gas Co., 732 F.2d
1233, 1237 (5th Cir.1984) ("When lesser sanctions have proved
futile, a district court may properly dismiss a suit with
prejudice.") (footnote omitted).
With these considerations in mind, we have articulated several
factors that must be present before a district court may dismiss a
case as a sanction for violating a discovery order. First, we have
explained that "dismissal with prejudice typically is appropriate
only if the refusal to comply results from willfulness or bad faith
and is accompanied by a clear record of delay or contumacious
conduct." Coane v. Ferrara Pan Candy Co., 898 F.2d 1030, 1032 (5th
Cir.1990). Further, we have noted that the violation of the
discovery order must be attributable to the client instead of the
attorney. Id. We have also held that the violating party's
misconduct "must substantially prejudice the opposing party." Id.3
3
The defendants observe that we have written that "[w]hile
perhaps relevant to the type of sanction imposed, a party need
not always be prejudiced by its opponent's discovery abuses prior
to the imposition of sanctions." Chilcutt, 4 F.3d at 1324 n. 30.
We see no inconsistency between this statement and the statement
in Coane that to justify dismissal, "the misconduct must
substantially prejudice the opposing party." Coane, 898 F.2d at
1032. Simply put, while lesser sanctions may be imposed without
a showing of prejudice, more severe sanctions are justified only
if the opposing party has suffered some palpable prejudice.
Since dismissal is one of the harshest sanctions that a district
court can impose, we require a showing of substantial prejudice
before such a penalty is warranted. In contrast, the sanctions
that we have approved without a showing of prejudice have been
among the least harsh in the spectrum of available possibilities.
In Chilcutt, the district court's sanction was to establish
certain facts against the government. See Fed.R.Civ.P.
37(b)(2)(A). We affirmed the imposition of this penalty although
there was no showing that the opposing party had been prejudiced
8
Finally, we have indicated that dismissal is usually improper if a
less drastic sanction would substantially achieve the desired
deterrent effect. Id.; see also Brinkmann, 813 F.2d at 749.
Of course, our review of a district court's sanction for the
violation of one of its discovery orders also "necessarily includes
a review of the underlying discovery order." Hastings v. North
East Indep. School Dist., 615 F.2d 628, 631 (5th Cir.1980).
However, our review of the underlying discovery order is
deferential: "The trial court's exercise of discretion regarding
discovery orders will be sustained absent a finding of abuse of
that discretion to the prejudice of a party." Id.
Applying these criteria to the case before us, we hold that
the district court abused its discretion when it dismissed the
FDIC's claims against Hillard, Robinson, Ryan, Stevens, and Whipp
for the FDIC's failure to comply with the January 13 discovery
order. Even assuming the propriety of all facets of the district
court's discovery order, the circumstances of this case do not
warrant dismissal as a sanction for the FDIC's conduct.
First, we cannot find a record of delay or contumacious
conduct sufficient to warrant dismissal of the FDIC's claims.
While the FDIC did file a motion for a protective order that the
district court found to be groundless and a motion for an extension
of time within which to answer the interrogatories, the plaintiff
timely served responses to most of the interrogatories, although in
by the government's discovery abuses because the sanction imposed
was "one of the least harsh sanctions available to courts under
Rule 37(b)." Chilcutt, 4 F.3d at 1320 n. 17.
9
a manner that violated the January 13 order.4 Moreover, before the
district court's hearing on the motion for sanctions, the FDIC
served on the defendants supplemental answers that provided all of
the requested information. The FDIC's conduct admittedly violated
the January 13 order, caused a slight delay in the defendants's
preparation of their defense, and therefore exposed the FDIC to the
imposition of some sort of Rule 37(b) sanction. However, taking
all of the circumstances of this case into account, we conclude
that the FDIC's conduct did not exhibit the degree of delay or
contumacy that justifies the dismissal of its claims. Cf. S.E.C.
v. First Houston Capital Resources Fund, 979 F.2d 380 (5th
Cir.1992).
We also find that the FDIC's conduct did not cause the
defendants to suffer substantial prejudice. The defendants
complain that the delay caused by the FDIC's failure to comply with
the January 13 discovery order prejudiced them. An examination of
the record, however, reveals that the discovery dispute arose in
the initial stages of this litigation. The FDIC served its
supplemental responses to the defendants's interrogatories in May
of 1992. In its opposition to the motion for sanctions and at the
sanctions hearing, the FDIC explained that after it served its
supplemental answers, no information was withheld on account of the
4
In this set of responses, the FDIC objected to and
therefore did not answer the interrogatories that sought
information that related to the FDIC's management of Capital's
loan portfolio after the FDIC was appointed receiver of the bank.
The FDIC's objections were based on the assertion that such
information was irrelevant.
10
FDIC's objections. Given that the period for discovery was not to
close until over a year later, July 30, 1993, and that the trial
was set for the October 3, 1993, the FDIC's conduct did not prevent
the defendants's "timely and appropriate preparation for trial."
Coane, 898 F.2d at 1033. The defendants also assert that the
continued presence of this suit prejudiced their business affairs.
However, such a claim cannot suffice to justify dismissal of a
suit. The FDIC's violation of the January 13 discovery order did
not substantially prejudice the defendants.
This case involves a question of life or death, or to be or
not to be. We resurrect the FDIC's claims, although we are not
unconscious of the FDIC's miscreant behavior. The absence of delay
and prejudice identified above, taken together, satisfy us that the
district court abused its discretion when it dismissed the FDIC's
claims against Hillard, Robinson, Ryan, Stevens, and Whipp. We
therefore reverse the district court's order dismissing the FDIC's
claims against these defendants.
2. The Rule 37(b)(2) Monetary Sanction Levied Against Sartain
We now turn to the district court's order that the FDIC's
attorney, Charles W. Sartain, pay the attorney's fees incurred by
the defendants as a result of the FDIC's failure to obey the
January 13 discovery order. As we stated, the district court found
that the FDIC violated the January 13 order in several ways. The
district court also found that the FDIC's violations of the January
13 order were not substantially justified and that there were no
other circumstances that would make an award of expenses unjust.
11
The court therefore ordered Sartain to pay Hillard, Robinson, Ryan,
Stevens, and Whipp $6,045.00 for these defendants's reasonable
expenses caused by the FDIC's failure to comply with the January 13
order. See Fed.R.Civ.P. 37(b)(2). Sartain was required to pay
this sum from his personal funds and forbidden to seek
reimbursement from the FDIC. We cannot find that this sanction was
an abuse of discretion.
Federal Rule of Civil Procedure 37(b)(2) requires the award of
expenses for the failure to obey a discovery order unless the
disobedient party establishes that the failure was substantially
justified or that other circumstances make an award of expenses
unjust. See Advisory Committee Note to 1970 Amendments to Rule 37
(explaining that Rule 37(b)(2) places the burden on the disobedient
party to avoid expenses). Rule 37(b)(2) also authorizes the
district court to order the attorney who advised the disobedient
party to pay the opposing side's reasonable expenses personally.
The sanction imposed on Sartain was appropriate only if the
district court's underlying discovery order was proper, the FDIC
violated that order, and the expenses incurred by the defendants
were caused by the FDIC's failure to comply with the order. See
Hastings, 615 F.2d at 631. Our review of the record satisfies us
that the FDIC violated valid portions of the January 13 discovery
order. The district court found that the FDIC violated the January
13 order by objecting to the interrogatories, by cross-referencing
responses and repeatedly referring to other interrogatory answers
and documents, and by stating general legal conclusions in some
12
answers without stating the facts upon which those conclusions were
based. Although we are concerned by the district court's finding
that the FDIC violated the January 13 order by including objections
to the defendants's questions,5 we believe that the FDIC
transgressed plain and legitimate features of the district court's
discovery order in a sufficient number of ways to justify the award
of attorney's fees. The January 13 discovery order explicitly
required all of the FDIC's interrogatory answers to be "full and
complete" and "fully self-contained." The district court did not
abuse its discretion in fashioning these aspects of the discovery
order. The district court found that the FDIC disobeyed the
requirement that each interrogatory answer be "full and complete"
by summarizing general legal conclusions in some answers without
stating the facts upon which those conclusions were based.
Similarly, the district court found that the FDIC repeatedly
violated the directive that each answer be "fully self-contained"
by referring to other interrogatory answers or other documents at
least sixty-five times. The district court also found that these
violations were conscious, deliberate, and willful. We cannot say
that these findings are clearly erroneous. Moreover, the district
5
The January 13 order did not specifically prohibit the FDIC
from making objections. Instead, the order was, at best, general
and vague on this point. This infirmity militates against the
propriety of sanctioning Sartain for including objections to the
defendants's interrogatories. See General Dynamics, 999 F.2d at
116 (noting that the Supreme Court has held that a party cannot
be held in contempt for violating a court order unless the order
states in specific and clear terms what acts are required or
prohibited) (citing International Longshoremen's Ass'n v.
Philadelphia Marine Trade Ass'n, 389 U.S. 64, 76, 88 S. Ct. 201,
208, 19 L. Ed. 2d 236 (1967)).
13
court was entitled to find that the expenses that the defendants
incurred were caused by the FDIC's violations of the discovery
order. The FDIC's violations of the January 13 discovery order are
thus sufficient to support the award of attorney's fees to the
defendants.6
Courts must be able to invoke punitive instrumentalities to
promote the orderly progress of litigated cases. The sanctions
that courts employ must be potent enough to be efficacious, but
must also be narrowly tailored to serve only their necessary
function. Like all court orders, discovery orders are to be obeyed
when issued, and sanctions for violating such orders may be imposed
without an explicit prior warning or a litany of precautionary
instructions. However, the right to sue is a valuable right that
cannot lightly be exterminated. We are thus loathe to approve of
the dismissal of a case as a sanction for violating a discovery
order without evidence of the sort of maleficent conduct that
justifies death. The application of these principles in this case
has led us to affirm the monetary sanction levied against Sartain,
but reverse the order dismissing the FDIC's claims against some of
the defendants.
II. The FDIC's Claims Against Conner and the 28 U.S.C. § 1927
Sanction Levied Against Sartain
6
The FDIC suggests that the January 13 order violated Rule
33 by preventing it from producing its business records as an
option to responding to the defendants's interrogatories.
However, the FDIC has failed to show that it was entitled to
invoke this portion of Rule 33 because it has not shown that the
burden of deriving the answers to the interrogatories is
substantially the same for both parties. We thus decline to
address this contention further.
14
A. Background
In late January of 1992, the district court learned that
William C. Conner had died. Because the district court had not
received evidence that Conner had been served with a summons and
complaint, the district court inquired into the status of the
FDIC's claims against him. The court ordered the FDIC to file
proof of proper service on Conner or face dismissal of its claims
against him. The FDIC thus filed an Affidavit of Service of
Summons and Complaint. This affidavit explained that on November
15, 1991, the FDIC received a copy of a Notice and Acknowledgement
of Service by Mail signed by Conner. The affidavit further
explained that the FDIC also received on November 15, 1991, an
unfiled copy of what appeared to be Conner's answer. However,
Conner, who was proceeding pro se, never filed an answer in the
district court. On January 31, 1992, the district court ordered
the FDIC to inform the court whether it wished to proceed with its
claims against Conner by substituting his representatives. If so,
the court ordered the FDIC to substitute the proper party by
complying with the requirements of Federal Rule of Civil Procedure
25(a). Thus, on February 21, 1992, the FDIC filed a Rule 25
motion, requesting the court to substitute "the Estate of William
C. Conner in place of the deceased Defendant William C. Conner."
After considering the response of Hillard, Robinson, Ryan,
Stevens, and Whipp, the district court denied the motion to
substitute and dismissed the FDIC's claims against Conner. The
district court gave several reasons for its action: The court
15
first noted that the FDIC's motion to substitute was "signed by a
law firm instead of an individual attorney" in violation of a
standing order of the district court. Second, the court faulted
the FDIC for failing to serve the motion to substitute on the
representatives or successors of Conner. Third, the court noticed
that neither the FDIC's Affidavit of Service of Summons and
Complaint nor the Notice and Acknowledgement of Service by Mail
signed by Conner had been served on the other defendants. The
court also observed that the Notice and Acknowledgement of Service
by Mail had not been timely filed with the district court as
required by Local Rule 3.1(g) and the version of Federal Rule of
Civil Procedure 4(g) in effect at that time.7 Furthermore, the
court found that the FDIC incorrectly requested the substitution of
"the Estate of William C. Conner" as a defendant. An estate is not
a legal entity and cannot be sued as such. Henson v. Estate of
Crow, 734 S.W.2d 648, 649 (Tex.1987). Finally, the district court
held that since Conner had not answered or otherwise appeared in
the case for ninety days after being served, and since the FDIC had
not filed a motion for default judgment within that period of time,
7
Local Rule 3.1(g) provides that "[i]f a defendant has not
been served within 120 days after filing of the original
complaint, as evidenced by proof of service on the record, the
action may be dismissed as to that defendant, without prejudice
and without notice."
The version Federal Rule of Civil Procedure 4(g) in
effect at that time provided that "[t]he person serving the
process shall make proof of service thereof to the court
promptly and in any event within the time during which the
person served must respond to the process." This provision,
as amended, now appears in Rule 4(l ).
16
the FDIC's claims against Conner were susceptible of being
dismissed pursuant to Local Rule 3.1(h).8 The district court thus
denied the FDIC's motion to substitute and dismissed the FDIC's
claims against Conner. The FDIC filed a motion for new trial, but
this motion was summarily denied by the district court.
In their May 14, 1992 motion for sanctions, defendants
Hillard, Robinson, Ryan, Stevens, and Whipp requested that they be
reimbursed for the expenses they incurred in their opposition to
the FDIC's motion to substitute. At the July 17, 1992 sanctions
hearing, the district court invoked 28 U.S.C. § 1927 and ordered
Sartain to pay the defendants who opposed the FDIC's motion to
substitute parties $1,590.00 to compensate them for the attorney's
fees they incurred in their opposition to the motion. The district
court justified this sanction on the FDIC's "multiplication of
these proceedings unreasonably due to the failure of the plaintiff
to comply with my order signed January 31, 1992."
B. Discussion
Sartain contests the propriety of the $1590.00 sanction for
his failure to comply with the district court's January 31 order.
As noted above, this order required the FDIC to inform the court
whether it wished to pursue its claims against Conner, and, if so,
to comply with the requirements of Federal Rule of Civil Procedure
25(a). The district court sanctioned Sartain under 28 U.S.C. §
8
Local Rule 3.1(h) provides that "[w]here a defendant has
been in default or a period of ninety days, but plaintiff has
failed to move for default judgment, the action will be summarily
dismissed as to that defendant, without prejudice and without
notice."
17
1927. Under this statute, district courts have the authority to
order an attorney who "so multiplies the proceedings in any case
unreasonably and vexatiously" to "satisfy personally the excess
costs, expenses, and attorneys' fees reasonably incurred because of
such conduct." We review sanctions made under this statute for
abuse of discretion. Thomas v. Capital Security Services, Inc.,
836 F.2d 866, 872 (5th Cir.1988) (en banc); Topalian, 3 F.3d at
936 n. 5.
Before a sanction under § 1927 is appropriate, the offending
attorney's multiplication of the proceedings must be both
"unreasonable" and "vexatious." We have characterized awards under
this statute as penal in nature. Browning v. Kramer, 931 F.2d 340,
344 (5th Cir.1991). Other courts have written that § 1927 should
be employed "only in instances evidencing a "serious and standard
disregard for the orderly process of justice.' " Dreiling v.
Peugeot Motors of America, Inc., 768 F.2d 1159, 1165 (10th
Cir.1985) (quoting Kiefel v. Las Vegas Hacienda, Inc., 404 F.2d
1163, 1167 (7th Cir.1968), cert. denied, 395 U.S. 908, 89 S. Ct.
1750, 23 L. Ed. 2d 221 (1969)); see also United States v. Ross, 535
F.2d 346, 349 (6th Cir.1976) (§ 1927 liability should "flow only
from an intentional departure from proper conduct, or, at a
minimum, from a reckless disregard of the duty owed by counsel to
the court."). Such a strict construction of § 1927 is necessary
"so that the legitimate zeal of an attorney in representing her
client is not dampened." Browning, 931 F.2d at 344.
In this case, the FDIC's response to the district court's
18
January 31 order was careless and even negligent. However, we
cannot ignore the fact that the district court made no finding that
Sartain's actions were vexatious. This deficiency leads us to
repeat what we said in Browning: "[A]n award pursuant to 28 U.S.C.
§ 1927 "require[s] more detailed findings to determine whether the
requirements of the statute have been met, and which, if any,
excess costs, expenses, or attorney's fees were incurred because of
[the attorney's] vexatious multiplication of the proceedings.' "
Browning, 931 F.2d at 345 (citation omitted) (emphasis supplied).
We must therefore vacate the § 1927 sanction against Sartain. On
remand, the district court may, if the facts warrant it, identify
the conduct in which Sartain engaged that displayed "the degree of
recklessness, bad faith, or improper motive required for a finding
that [Sartain] has multiplied the proceedings "unreasonably and
vexatiously.' " Manax v. McNamara, 842 F.2d 808, 814 (5th
Cir.1988); see also Hogue v. Royse City, 939 F.2d 1249, 1256 (5th
Cir.1991) (application of § 1927 requires evidence of recklessness,
bad faith, or improper motive).
III. The Motion to Amend the Complaint
A. Background
On March 2, 1992, the FDIC filed a motion for leave to file an
amended complaint. In this motion, the FDIC sought to incorporate
into the complaint charges that the defendants's allegedly wrongful
conduct caused Capital to suffer losses from several loans that
were not identified in the original complaint. The defendants
opposed this motion, arguing that allowing the amendment would be
19
futile because the FDIC's claims based on the newly challenged
loans would not relate back to the date of the original complaint
and would thus be barred by the applicable statute of limitations.
The defendants also contended that they would be prejudiced by the
amendment. The district court granted the FDIC's motion to amend
with regard to two of the loans, but denied the motion in all other
respects. Disagreeing with the district court's resolution of the
FDIC's motion, we reverse the order denying the motion to amend.
B. Discussion
Federal Rule of Civil Procedure 15(a) evinces a strong bias
in favor of granting a motion for leave to amend a pleading. The
Rule's language that leave to amend "shall be freely given when
justice so requires" is often cited. See generally, 6 Charles A.
Wright et al., Federal Practice and Procedure: Civil 2d §§ 1473,
1484 (1990). However, leave to amend need not be granted when it
would be futile to do so. See Pan-Islamic Trade Corp. v. Exxon
Corp., 632 F.2d 539 (5th Cir.1980), cert. denied, 454 U.S. 927, 102
S. Ct. 427, 70 L. Ed. 2d 236 (1981). Such a situation arises when
leave is sought to add a claim upon which the statute of
limitations has run. However, under Rule 15(c), an amendment to a
complaint will relate back to the date of the original complaint if
the claim asserted in the amended pleading arises "out of the
conduct, transaction, or occurrence set forth or attempted to be
set forth in the original pleading." Fed.R.Civ.P. 15(c)(2);
McGregor v. Louisiana State Univ. Bd. of Supervisors, 3 F.3d 850,
863 (5th Cir.1993). If a claim asserted in an amended pleading
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relates back to the date of the original complaint and is thus not
barred by limitations, then leave to amend should ordinarily be
granted. The theory that animates this rule is that "once
litigation involving particular conduct or a given transaction or
occurrence has been instituted, the parties are not entitled to the
protection of the statute of limitations against the later
assertion by amendment of defenses or claims that arise out of the
same conduct, transaction, or occurrence as set forth in the
original pleading." 6A Charles A. Wright et al., Federal Practice
and Procedure: Civil 2d § 1496, at 64 (1990). Permitting such an
augmentation or rectification of claims that have been asserted
before the limitations period has run does not offend the purpose
of a statute of limitations, which is simply to prevent the
assertion of stale claims.
Some applications of the relation back doctrine are
straightforward. If a plaintiff attempts to interject entirely
different conduct or different transactions or occurrences into a
case, then relation back is not allowed. Thus, in Holmes v.
Greyhound Lines, Inc., 757 F.2d 1563 (5th Cir.1985), we refused to
allow relation back where the original complaint charged that an
arbitration award should be set aside because of the arbitrator's
improper conduct and the amended complaint charged that the union
breached its duty of fair representation with respect to the events
that occurred prior to the arbitration award. Conversely, if a
plaintiff seeks to correct a technical difficulty, state a new
legal theory of relief, or amplify the facts alleged in the prior
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complaint, then relation back is allowed. Thus, for example, in
Federal Deposit Ins. Corp. v. Bennett, 898 F.2d 477 (5th Cir.1990),
we allowed relation back when the FDIC sought to change the legal
basis for its claim that it was entitled to recover property held
by a defendant and allege for the first time that it could redeem
the property pursuant to 28 U.S.C. § 4210(c).
However, determining when an amendment will relate back has
occasionally proven difficult. Courts have eschewed mechanical
tests for determining when relation back is appropriate.
Professors Wright, Miller, and Kane have explained that if the
alteration of a statement of a claim contained in an amended
complaint is "so substantial that it cannot be said that the
defendant was given adequate notice of the conduct, transaction, or
occurrence that forms the basis of the claim or defense, then the
amendment will not relate back." Wright et al., supra, § 1496, at
79. In the end though, the best touchstone for determining when an
amended pleading relates back to the original pleading is the
language of Rule 15(c): whether the claim asserted in the amended
pleading arises "out of the conduct, transaction, or occurrence set
forth or attempted to be set forth in the original pleading."
In the present case, we hold that the amended complaint
should relate back to the date of the original complaint. The
damage allegedly caused by the loans that the FDIC seeks to include
in this case arose out of the same conduct as the damage caused by
the twenty-one loans listed in the original complaint. The conduct
identified in the original complaint that allegedly caused the
22
defendants to approve the loans listed in that pleading also
allegedly caused the defendants to approve the loans that the FDIC
seeks to include in this case through the amended complaint. The
FDIC's amendment thus seeks to identify additional sources of
damages that were caused by the same pattern of conduct identified
in the original complaint.
The defendants contend that the district court did not abuse
its discretion in denying the FDIC's motion to amend because
allowing the amendment would have unduly prejudiced them. We do
not agree. The defendants claim that allowing the motion to amend
would have unduly prejudiced them because the FDIC stated at a
meeting before this suit was filed that the loans identified in the
original complaint would be the only loans that the FDIC would
include in its complaint. Accepting this assertion as true, we do
not see how granting the motion to amend would unduly prejudice the
defendants. The FDIC filed its motion to amend in March of 1992,
over a year before the date on which amended pleadings were due and
discovery was scheduled to be completed. The motion to amend was
thus presumptively timely. Moreover, the defendants have not
alleged that the amendment will interfere with their ability to
present any evidence or defenses to the FDIC's claims. Thus, the
defendants could not have been unduly prejudiced by the FDIC's
motion to amend its complaint.
Since the FDIC's proposed amendment to its complaint does not
seek to alter the basic focus of the claim and since the defendants
have not shown that the proposed amendment will unduly prejudice
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them, we reverse the district court's denial of the FDIC's motion
to amend the complaint.
IV. Conclusion
The dismissal of the FDIC's claims against the five defendants
and the denial of the motion to amend are REVERSED. The monetary
sanction against Sartain imposed pursuant to 28 U.S.C. § 1927 is
VACATED. The Rule 37(b)(2) sanction against Sartain is AFFIRMED.
This case is REMANDED to the district court for further proceedings
consonant with this opinion.
. . . . .
. . . . .
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