UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
filed: September 14, 1988.
UNION COUNTY BOARD OF CHOSEN FREEHOLDERS, G. RICHARD MALGRAN, WALTER BORIGHT, EDWARD J. SLOMKOWSKI, CHARLOTTE DE FILIPPO, BRIAN FAHEY, ROBERT J. LAPOLLA, PAUL J. O'KEEFE, SANDRA FLAK, LISA MONTANA, JOSEPH SALEMME, MARILYN BLACKER, JOSEPH TRIARSI, ESQ. AS AGENTS, OFFICERS, EMPLOYEES OF THE COUNTY OF UNION, NEW JERSEY, AND IN THEIR REPRESENTATIVE CAPACITIES AND INDIVIDUALLY L. T. VINCENTI, APPELLANT
On Appeal from the United States District Court for the District of New Jersey-Trenton, D.C. Civil Action No. 86-1238.
Higginbotham, Stapleton and Greenberg, Circuit Judges.
Opinion OF THE COURT
A. LEON HIGGINBOTHAM, JR., Circuit Judge.
Appellant is a lawyer against whom the district court imposed attorney's fees totalllng approximately $25,000 as sanctions under Federal Rule of Civil Procedure 11.
We will affirm the district court's conclusion of a Rule 11 violation, based on its subsidiary finding that the complaint prepared by appellant is legally frivolous. We will also affirm the district court's calculation of the lodestar amount. We will, however, vacate that aspect of its order imposing a particular monetary sanction without consideration of numerous possible mitigating factors, and remand the case for further proceedings.
From January 7 through March 8, 1985, Christine Doering ("Doering") worked for Union County, New Jersey in the position of a rape crisis counselor and administrator at the Union County Rape Counseling Center. As a result of several incidents resulting in mutual dissatisfaction on the part of both Doering and her employer, she resigned her position by letter dated February 25. On that same day, her employer wrote Doering a letter that did not terminate her employment but did relieve her of her counseling duties.
Appellant L. T. Vincenti ("Vincenti") thereafter filed on Doering's behalf a civil rights complaint in federal district court, pursuant to 42 U.S.C. § § 1983 and 1985 (1982), against the Union County Board of Chosen Freeholders and the county officials who supervised and administered the rape crisis center. The complaint alleged violations of Doering's first and fourteenth amendment rights. After a number of pre-trial conferences (including, apparently, several unsuccessful attempts at settlement) and discovery, defendants moved for summary judgment and attorney's fees pursuant to 42 U.S.C. § 1988 and Fed. R. Civ. P. 11. In two detailed and thoughtful opinions, the district court granted defendants' motions. Doering v. Union County Board of Chosen Freeholders et al., No. 86-1238, slip op. (D.N.J. May 4, 1987), reprinted in Appellant's Appendix at 17-34 ("Doering I"); Doering v. Union County Board of Chosen Freeholders et al., No. 86-1238, slip op. at 1-12 (D.N.J. Sept. 29, 1987), reprinted in Appellant's Appendix at 3-14.
In granting the motion for attorney's fees, costs and sanctions, the district court held that "[Doering's] First Amendment claims of deprivation of free speech and association and free exercise of religion are so clearly without merit as to be termed unreasonable." Doering I, reprinted in Appellant's Appendix at 34. It relied on Christiansburg Garment Co. v. EEOC, 434 U.S. 410 (1978) and Hughes v. Rowe, 449 U.S. 5, 66 L. Ed. 2d 163, 101 S. Ct. 173 (1980), for the proposition that a prevailing defendant may recover fees in a civil rights action under 42 U.S.C. § 1988 if the action is "meritless in the sense that it is groundless or without foundation." Appellant's Appendix at 33 (quoting Hughes, 449 U.S. at 14). It then found not only that defendants were entitled to recover costs and fees from Doering under § 1988, but that Vincenti had violated Rule 11. Appellant's Appendix at 33. The court thereafter exercised its discretion to impose costs on Doering herself under § 1988,*fn1 but ordered Vincenti to pay defendants' attorney's fees as a sanction for violating Rule 11. Id. at 5-6.
Because the district court's decision to require Vincenti to pay defendants' attorney's fees "was based on the filing of a frivolous complaint," Appellant's Appendix at 6, the court felt that "it [wa]s appropriate that the fee award encompass all aspects of the litigation." Id. It therefore calculated a lodestar amount, based on submissions from defendants' counsel, id. at 6-11, which it refused to adjust upwardly. Id. at 11. The court rejected the argument that the award should take into account ability to pay. Id. at 12. It also rejected Vincenti's arguments for a full evidentiary hearing on the Rule 11 issue, for recusal of the district court, and for in camera review of a state ethics complaint filed by Doering against Vincenti. Id. at 12-14.
Vincenti now appeals the imposition of sanctions.*fn2
The traditional American rule is that each party to litigation bears its own costs, including attorney's fees. See Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240, 44 L. Ed. 2d 141, 95 S. Ct. 1612 (1975). Congress has, however, over the years enacted numerous statutory exceptions to the general rule against fee-shifting. Through rules and interpretation, courts have gradually expanded these exceptions.
Underlying these various fee-shifting statutes and rules are policies that seek to foster the filing and litigation of meritorious claims. To that end, one purpose is the compensation of plaintiffs for the actual costs incurred in vindicating legal rights that advance important public policies. The availability of such compensation enables these plaintiffs to act as private attorney generals and enhances the probability that their claims will be litigated. A far different purpose -- deterrence of frivolous lawsuits -- is also served by the rule, which provides for compensation to defendants to reimburse them for legal fees that they should not have been forced to incur.
Rule 11 provides in relevant part that
the signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, motion, or other paper; that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. . . . If a pleading, motion, or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper, including a reasonable attorney's fee.
Fed. R. Civ. P. 11 (emphases added). We have stated that, by awarding attorney fees to prevailing defendants in an effort to discourage plaintiffs from bringing baseless actions or making frivolous motions, the Rule's primary purpose is not "wholesale fee shifting but [rather] correction of litigation abuse." Gaiardo v. Ethyl Corp., 835 F.2d 479, 483 (3d Cir. 1987); see also Fed. R. Civ. P. 11 advisory committee notes ("The word 'sanctions' in the caption . . . stresses a deterrent orientation in dealing with improper pleadings. motions or other papers."). The standard developed by courts for imposition of sanctions under Rule 11 is stringent because such sanctions 1) are "in derogation of the general American policy of encouraging resort to the courts for peaceful resolution of disputes," Eastway Construction Corp. v. City of New York, 637 F. Supp. 558, 564 (E.D.N.Y. 1986), modified and remanded, 821 F.2d 121 (2d Cir.). cert. denied 484 U.S. 918, 108 S. Ct. 269, 98 L. Ed. 2d 226 (1987); 2) tend to "spawn satellite litigation counter-productive to efficient disposition of cases," Gaiardo, 835 F.2d at 482; and 3) "increase tensions among the litigating bar and between [the] bench and [the] bar." Eastway Construction Corp., 637 F. Supp. at 564. This Court and others have interpreted its language to prescribe sanctions, including fees, only in the "exceptional circumstance", Gaiardo 835 F.2d at 483, where a claim or motion is patently unmeritorious or frivolous. See, e.g., Lieb v. Topstone Industries Inc., 788 F.2d 151, 157 (3d Cir. 1986) ("Rule 11 therefore is intended to discourage pleadings that are 'frivolous, legally unreasonable, or without factual foundation, even though the paper was not filed in subjective bad faith.'" (quoting Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir. 1986); Oliveri v. Thompson, 803 F.2d 1265, 1275 (2d Cir. 1986) ("Rule 11 is violated only when it is 'patently clear that a claim has absolutely no chance of success.'") (quoting Eastway Construction Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985)), cert. denied sub nom. County of Suffolk v. Graseck, 480 U.S. 918, 107 S. Ct. 1373, 94 L. Ed. 2d 689 (1987).
Thus, although this provision does contain an element of compensation in the "amount of the reasonable expenses incurred because of the filing," Schwarzer, Sanctions Under the New Federal Rule 11 - A Closer Look, 104 F.R.D. 181, 202 (1985) ("Sanctions"), its primary purpose is deterrence of abuses of the legal system. Fee-shifting is but one of several methods of achieving the various goals of Rule 11. See Schwarzer, Rule 11 Revisited 101 Harv. L. Rev. 1013, 1020 (1988) ("The vast majority of courts agree that the rule's purpose is to deter abuse, with fee-shifting simply one of several methods of achieving deterrence.") District courts should, therefore consider a wide range of alternative possible sanctions for violations of the rule. A district court's choice of deterrent is "appropriate when it is the minimum that will serve to adequately deter the undesirable behavior." Eastway Const. Corp., 637 F. Supp. at 565 (emphases added); see also Sanctions 104 F.R.D. at 201 ("The basic principle governing the choice of sanctions is that the least severe sanctions adequate to serve the purpose should be imposed.") (emphases added); Fed. R. Civ. P. 11 advisory committee notes ("The court . . . retains the necessary flexibility to deal appropriately with violations of the rule. It has discretion to tailor sanctions to the particular facts of the case. . . ."). The language of Rule 11 evidences the critical role of judicial discretion, stating that when the district court determines that a filing is in violation of the rule, the court "shall" impose sanctions that "may" -- not "shall" -- "include an order to pay" the other party's expenses. Other sanctions that could be appropriate in some circumstances, and that may take the place of a monetary award, include publication, an order barring an attorney from appearing for a period of time, reprimand, dismissal of baseless claims or defenses, or even ordering "the attorney who violated the rule to circulate in [his or her] firm a copy of the opinion in which the pleadings were criticized." Gaiardo, 835 F.2d at 482 (citing Golden Eagle Distrib. Corp. v. Burroughs Corp., 103 F.R.D. 124, 129 (N.D.Cal. 1984), rev'd, 801 F.2d 1531 (9th Cir. 1986)).
Where a district court decides to award a monetary sanction, such as attorney's fees, the total amount of such a sanction (as well as the initial decision whether to impose such a sanction) should be guided by equitable considerations. See, e.g., Faraci v. Hickey-Freeman Company, Inc., 607 F.2d 1025, 1028 (2d Cir. 1979) ("Recent legislation extending the power of federal courts to award attorney's fees by no means requires abandonment of the equitable principles that have traditionally governed a court's discretion in such matters. On the contrary, the express grant of authority to award fees presumes continued application of equitable considerations in appropriate cases, both to effectuate the broader legislative purpose and to do justice in the particular case."); United States Steel Corp. v. United States, 519 F.2d 359, 363 (3d Cir. 1975) ("Traditionally, where a fee-shifting determination is committed by statute to a court's discretion, equitable considerations govern."). As we have stated earlier, "[i]nfluenced by the particular facts of a case, the court may decide that the circumstances warrant imposition of only part of the adversary's expenses or perhaps only a reprimand." Lieb, 788 F.2d at 158.
In recognition of the broad discretion granted to the trial court to fashion sanctions under Rule 11, this court has enunciated an "abuse of discretion" standard for reviewing the initial decision to impose sanctions as well as the specifics of fee awards. See, e.g., Napier v. Thirty or More Unidentified Federal Agents, 855 F.2d at 1091 (3d Cir. 1988); Gaiardo, 835 F.2d 479, 485; Eavenson, Auchmuty & Greenwald v. Holtzman, 775 F.2d 535, 540 (3d Cir. 1985). Before it imposed the sanctions, the district court here made the requisite finding that the complaint filed by Vincenti was frivolous, in other words, that he violated the Rule by failing competently to research the law before filing the instant complaint. Doering, No. 86-1238, slip op. at 2-3, reprinted in Appellant's Appendix at 4-5. Our review of the record, under the "abuse of discretion" standard, leads us to affirm this finding.
Rule 11 provides that the court may assess fees to cover "reasonable expenses [including attorney's fees] incurred because of the filing of the [frivolous] pleading, motion, or other paper . . . ." The starting point for a determination of attorney's fees, the lodestar calculation, is the product of the number of hours reasonably expended in responding to the frivolous paper times an hourly fee based on the prevailing market rate. Here, the district court fairly assessed the reasonableness of the hourly fee structure submitted by the defendants' counsel and painstakingly analyzed the propriety of the number of hours for the purposes asserted by counsel and necessitated by Doering's groundless action. We do not disturb the court's lodestar calculation.
We do, however, for the first time here, direct the district courts to consider various mitigating factors in their calculation of the total monetary compensation owed by lawyers who have been found to have violated Rule 11. A particularly relevant equitable factor is the sanctioned party's ability to pay.*fn3 Obviously, the deterrent effect of an award of attorney's fees depends on the extent of the sanctioned party's resources. But while a monetary sanction, such as attorney's fees, is clearly an acceptable choice of deterrent, courts must be careful not to impose monetary sanctions so great that they are punitive -- or that might even drive the sanctioned party out of practice.*fn4 See, e.g., Napier v. Thirty or More Unidentified Federal Agents, Nos. 855 F.2d 1080 at 29 n.12 (3d Cir. 1988) ("[T]he court may consider the relative wealth of the parties in determining the final amount in order to insure that 'a losing party is not subjected to financial ruin.'") (quoting Tedeschi v. Smith Barney, Harris Upham & Co., 579 F. Supp. 657, 664 (S.D.N.Y. 1984), aff'd, 757 F.2d 465 (2d Cir.), cert. denied sub nom. Chapman v. Smith Barney, Harris Upham & Co., Inc., 474 U.S. 850, 88 L. Ed. 2d 122, 106 S. Ct. 147 (1985)); Brown v. Federation of State Medical Boards, 830 F.2d 1429, 1439 (7th Cir. 1987); Oliveri, 803 F.2d at 1281 (approving the district court's reducing sanction against attorney from $51,000 to $5,000 because of his financial condition); Matter of Yagman, 796 F.2d 1165, 1185 (9th Cir. 1986); Sanctions, 104 F.R.D. at 203 (The impact of monetary sanctions "on the person against whom they are assessed must, however, be considered and ability to pay is a factor in determining reasonableness."). Here, the district court refused to reduce the amount of the sanction, and relied on Inmates of Allegheny County Jail v. Pierce, 716 F.2d 177 (3d Cir. 1983). for the proposition that "the losing party's financial ability to pay is not a 'special circumstance,'" id. at 180, that would reduce an otherwise reasonable attorney's fee award under [42 U.S.C.] § 1988." The policy considerations behind fee awards to prevailing plaintiffs under civil rights statutes, however, are different from the policies underlying sanctions under Rule 11, and therefore, Inmates of Allegheny County Jail is not dispositive.
In the present case, it is undisputed that the defendants incurred substantial attorney's fees. On the other hand, Vincenti is a solo practitioner who requested the district court to mitigate the sanction, and who, by his statement at oral argument, has limited financial resources.*fn5 The record, however, is barren of any evidence relevant to such an inquiry. Thus, in order for the district court to exercise properly its discretion in setting the amount of fees to be assessed against Vincenti, further evidence must be developed upon the issue of his ability to pay.
Finally, the district court, on remand, must consider two other specific mitigating factors when it fashions a Rule 11 sanction against Vincenti. First in that regard, it must consider the fact that he has already been subject to adverse press scrutiny as a result of the sanction by the district court. Secondly it must consider the fact that he has been subject to at least one other disciplinary action. In light of these circumstances, the district court should review its decision to determine whether the primary purpose of the sanctions that it has imposed -- deterrence -- can still be satisfied by a lesser monetary award to the defendants. In considering these two additional mitigating factors, it is also appropriate for the district court to review any other evidence that would tend to substantiate Vincenti's claim that he has already been deterred sufficiently from filing frivolous actions.
Reiterating the assertion we made in the context of attorney's fee awards under 42 U.S.C. § 1988, "[a] court's judgment may be guided by a number of elements, including the public interest in encouraging particular suits, the conduct of the parties and economic considerations." United States Steel Corp., 519 F.2d at 363. Such equitable considerations should govern the court's exercise of its discretion in administering Rule 11, both in the initial decision to impose a monetary sanction and determination of the type and amount of the sanction.*fn6
For the foregoing reasons, we will affirm the district court's decision to impose sanctions for Appellant's violation of Rule 11. We will also affirm its calculation of the lodestar amount of defendants' attorney's fees. We will, however, vacate the final amount of monetary sanctions imposed, and remand the case for proceedings consistent with this opinion.