Matta v. May

United States Court of Appeals,

Fifth Circuit.

No. 96-20418.

Joseph Charles MATTA, Plaintiff-Appellant,

v.

S. Beville MAY, et al., Defendants,

S. Beville May, Defendant-Appellee.

July 31, 1997.

Appeal from the United States District Court for the Southern
District of Texas.

Before DAVIS, STEWART and PARKER, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

Appellant Joseph Charles Matta ("Matta") appeals from the an

order awarding Appellee S. Beville May ("May") $290,262 in attorney

fees as a sanction against Matta. We reverse.

FACTS AND PROCEEDINGS BELOW

This action and the related case of Barnes v. Levitt, No.

H-92-898, arose from Wanderlon Ann Barnes's ("Barnes") employment

at the Houston branch office of the Securities and Exchange

Commission ("SEC"). Matta supervised Barnes in his capacity as the

assistant regional administrator of the SEC. May was the attorney

representing Barnes in connection with Barnes's claims of

employment discrimination against SEC.

Barnes, an African-American female, worked as an SEC attorney

in its Houston office from August 1988 until September 1991. In

February 1991 Barnes sought counseling with the SEC's Office of

Equal Employment Opportunity ("EEO"). During the initial informal

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proceedings Barnes raised issues of racial discrimination. Barnes

claims, but Matta disputes, that Barnes also alleged gender

discrimination and sexual harassment during the informal EEO

process. On August 9, 1991 Barnes received a notification of her

right to file a formal administrative EEO complaint. Barnes's

attorney, May, filed a formal EEO complaint on August 23, 1991 and

an amended complaint on September 3, 1991, alleging racially and

sexually motivated discrimination, harassment and retaliation.

Barnes did not sign either complaint. On Monday, September 9,

1991, Barnes started another federal job as an attorney at the

Resolution Trust Corporation ("RTC") earning the same salary she

was previously making at the SEC. On that date, she told the SEC

that it should consider her constructively discharged as of

September 6, 1991.

The SEC had issued a press release concerning the agency's

investigation of Barnes's claims against Matta and other SEC

officials. A reporter from the Houston Chronicle contacted

Barnes's attorney, May, who granted a telephone interview. On

September 7, 1991, a front-page newspaper article appeared in the

Houston Chronicle which quoted May as stating that "an Equal

Employment Opportunity complaint filed August 27 [on behalf of

Barnes] claims Matta sexually assaulted a female employee" and

"that Matta overlooked rapes by other men in the six-person

[Houston] office." In fact, both the complaint and the amended

complaint alleged that

as early as 1986, other senior officials at the HBO [Houston
Branch Office] including former regional administrator Edwin

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 J. Tomko, created a hostile and offensive environment for
women by their conduct. Their conduct includes rape, sexual
assault, sexually suggestive mannerisms, leering, dirty and
racist jokes.

Although Barnes's complaint made various allegations against

Matta, and did accuse other persons of sexual assault, it did not

accuse Matta of sexual assault or overlooking rapes by other men.

The statement attributed to May in the newspaper article was

patently untrue.

After the SEC canceled her EEOC complaint for failure to

cooperate, Barnes filed a Title VII and Equal Pay Act action on

March 23, 1992.1 On September 4, 1992, Matta filed suit in a Texas

state court asserting claims for defamation and false light

publicity against May, Barnes and six media entities seeking

damages allegedly resulting from the publication of the article.

The defendants removed the defamation suit and sought to

consolidate it with the Title VII suit. Although briefly

consolidated, the defamation case was eventually severed and

carried on the district court's docket as a separate action. On

March 31, 1995, the district court granted summary judgment for the

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Matta was initially named as an individual defendant in
Barnes's suit, but was dismissed on April 22, 1993 when the
Attorney General certified that Matta had acted within the scope of
his employment. On July 8, 1993, on Barnes's motion, the district
court reinstated Matta as an individual defendant. Matta filed an
interlocutory appeal from that order on August 16, 1993. The
district court refused to stay the proceedings during that appeal.
On August 1, 1994, in an unpublished opinion, this court reversed
the district court and Matta was once again dismissed from the
case. Barnes v. Levitt, et al., No. 93-2636 (5th Cir. August 1,
1994). In sum, Matta was a party defendant to the Title VII suit
from March 1992 to April 1993 and again from July 1993 to August
1994.

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media entities, dismissed the claims against May and Barnes

pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure

and awarded $20,359.36 of costs against Matta.

After that summary judgment/dismissal order became final, May

filed a motion for attorney's fees seeking $290,262.00 for services

that her attorneys rendered to her in the defamation case as

sanctions against Matta. She asserted that the fees were

"recoverable and can be awarded under Rule 11, 28 U.S.C. § 1927 and

through the exercise of the Court's inherent powers," but did not

specify how those legal theories related to her claims. Matta

filed a written response in opposition. The district court then

granted the motion in a brief order, the body of which we reproduce

here in its entirety:

Defendant S. Beville May's Motion for Attorney's Fees and
Costs is before the Court. Having considered the motion and
any responses thereto, the Court is of the opinion that S.
Beville should have her attorney's fees in this case. It is
therefore;

ORDERED, ADJUDGED AND DECREED that S. Beville May is
awarded and shall recover $290,262.00 from and against Joseph
C. Matta.

DISCUSSION

Matta challenges the award on appeal, contending that the

attorney's fee, awarded in this case as a sanction, cannot be

sustained under 28 U.S.C. § 1927, Rule 11 or the court's inherent

powers. This Court reviews the imposition of sanctions for an

abuse of discretion. Chaves v. M/V Medina Star, 47 F.3d 153, 156

(5th Cir.1995). A court abuses its discretion to impose sanctions

when a ruling is based on an erroneous view of the law or on a

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clearly erroneous assessment of the evidence. Id.

Because it is impossible to tell what legal theory the

district court based the award on, we will examine each in turn.

a. 28 U.S.C. § 1927.

Section 1927 applies to an "attorney or other person admitted

to conduct cases in any court of the United States ... who so

multiplies the proceedings in any case unreasonably and

vexatiously...." 28 U.S.C. § 1927 (1994). Unlike Rule 11, § 1927

sanctions are, by the section's plain terms, imposed only on

offending attorneys; clients may not be ordered to pay such

awards. Travelers Ins. Co. v. St. Jude Hospital, 38 F.3d 1414,

1416 (5th Cir.1994).

May argues that § 1927 may be applied to Matta "because he is

an attorney and because he appeared pro se in an interlocutory

appeal in the Barnes case, which had been consolidated with the

defamation case," citing ACLI Gov't Sec., Inc. v. Rhoades, 907

F.Supp. 66 (S.D.N.Y.1995). Further, May points out that Matta did

not raise this issue in the district court and argues that he is

therefore foreclosed from raising it for the first time on appeal,

citing Clark v. Aetna Casualty & Surety Co., 778 F.2d 242, 249 (5th

Cir.1985). May contends that Matta's failure to make this argument

in the trial court prevented that court from determining whether

Matta acted as an offending attorney and not merely a client in

this case.

It is clear from the record that Matta was represented by an

attorney throughout this case. Neither his status as a licensed

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attorney nor his pro se brief filed in the related case make him

liable for attorney fees under § 1927. Therefore, § 1927 cannot

serve as the basis of the $290,262 attorney fee award in this case.

b. Rule 11

Matta filed his original petition on September 4, 1992, prior

to the amendment of Federal Rule of Civil Procedure 11, that was

effective on December 1, 1993. The case was removed and Matta

filed his motion to remand prior to the amendment as well. The

case remained on the district court's docket until its dismissal on

March 31, 1995. The court did not identify, the parties do not

assert and we cannot find any action taken by Matta after the

December 1, 1993 amendment that might serve as the predicate for

the sanctions imposed. We therefore apply the pre-1993 version of

Rule 11. Childs v. State Farm Mut. Auto. Ins. Co., 29 F.3d 1018,

1023 n. 17 (5th Cir.1994)(holding that because conduct at issue

occurred prior to December 1, 1993, amended Rule 11 was not

applied) The former version of Rule 11 provides in pertinent part:

The signature of an attorney or party constitutes a
certificate by the signer 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 it 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

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 pleading, motion, or other paper, including a reasonable
attorney's fee.

Before a court can impose a Rule 11 sanction, "[i]t is

axiomatic that the court must announce the sanctionable conduct

giving rise to its order." Topalian v. Ehrman, 3 F.3d 931 (5th

Cir.1993). As an initial matter, the sanctions imposed here are

infirm because the record is devoid of any explanation from the

district court in this regard. Moreover, Matta argues that the

record cannot support a Rule 11 sanction on any factual theory and

thus urges us to reverse the sanction award rather than remanding

the case to the trial court to supply the necessary factual

findings.

Matta asserts that the causes of action, filed in Texas state

court, were well-founded in fact and law. We agree. His state

court petition alleged that Barnes, both personally and through her

attorney defamed him. May was quoted in the newspaper article as

claiming that Matta sexually assaulted a female employee and

"overlooked rapes by other men in the six-person office." Sexual

assault is a second degree felony in Texas. Tex. Pen.Code §

22.011. A false statement which charges a person with the

commission of a crime is libelous per se. Leyendecker & Assoc.,

Inc. v. Wechter, 683 S.W.2d 369, 374 (Tex.1984). The law presumes

a statement which is libelous per se defames a person and injures

his reputation. Id. May's statement that Matta had "overlooked

rapes by other men in the six-person office" is also actionable per

se. "Utterances are slanderous per se if they are false, made

without privilege and ascribed to another, conduct, characteristics

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or a condition incompatible with the proper conduct of his lawful

profession or office." McDowell v. State of Texas, 465 F.2d 1342,

1344 (5th Cir.1972). The accusation that Matta overlooked rapes by

men under his supervision accused Matta, at the very least, of

conduct incompatible with his profession as an attorney and his

position with the SEC.

In addition, May's statements were false on their face.

Barnes's EEO complaint did not charge that Matta either sexually

assaulted women or overlooked rapes by other men. Matta also

submitted an affidavit in which he specifically denied engaging

such conduct.

May does not seriously challenge either the fact that her

statements to the newspaper were per se defamatory or that they

were false. Rather, she relies on the district court's finding

that her comments to the newspaper reporter were absolutely

privileged because they related to the pending SEC administrative

proceeding. Under Texas law, no remedy exists in a civil action

for libel or slander if an absolute privilege exists. Reagan v.

Guardian Life Ins. Co., 140 Tex. 105, 166 S.W.2d 909, 912 (1942).

A communication made in the course of a judicial proceeding is

absolutely privileged. Id. This privilege applies to

quasi-judicial proceedings before governmental agencies as well.

Astro Resources Corp. v. Ionics, Inc., 577 F.Supp. 446, 447

(S.D.Tex.1983). In dismissing Matta's lawsuit, the district court

relied on Russell v. Clark, 620 S.W.2d 865 (Tex.Civ.App.—Dallas

1981, writ ref'd n.r.e.) which held that:

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 An attorney at law is absolutely privileged to publish
defamatory matter concerning another in communications
preliminary to a proposed judicial proceeding, or in the
institution of, or during the course and as a part of, a
judicial proceeding in which he participates as counsel, if it
has some relation to the proceeding.

Id. at 869 (quoting RESTATEMENT (SECOND) OF TORTS § 586 (1977)). The

district court held that May's comments to the newspaper reporter

had "some relation to" the SEC proceeding.

Our precedent does not allow the imposition of Rule 11

sanctions merely for the eventual failure of a claim; rather,

sanctions are to be applied only where, at the time of the filing,

the position advocated is unwarranted. F.D.I.C. v. Calhoun, 34

F.3d 1291, 1300 (5th Cir.1994). Therefore, we consider only

whether Matta's suit was well grounded in fact and warranted by

existing law or a good faith argument for the extension,

modification, or reversal of existing law. Fed.R.Civ.P. 11.

Matta's complaint is both factually distinguishable from

Russell and arguably sustainable under Russell 's holding. The

communication in Russell was a letter sent by an attorney to

potential witnesses during the attorney's investigation of possible

causes of action, "seeking evidence for use in pending litigation."

Russell, 620 S.W.2d at 866. The court concluded that the

defamatory letter was absolutely privileged only because it bore

some relationship to the litigation about which it was written in

that it appeared to be designed to obtain information to be used as

evidence. Id. at 870. The Russell court stated that "the act to

which the privilege applies must bear some relationship to a

judicial proceeding in which the attorney is employed, and must be

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in furtherance of that representation." Id. at 870. The argument

that May's statement to the newspaper was not absolutely privileged

is, in our view, a defensible position, warranted under Texas law

at the time Matta's suit was filed. May's untruthful statement

about what the pending complaint alleged can hardly be said to have

furthered her representation of Barnes. We therefore conclude that

Matta's suit was well grounded in fact and in law.

Even if well grounded in fact and law, sanctions may be

available under Rule 11 if a pleading is interposed for "any

improper purpose." In May's motion for attorney's fees she quoted

the following language in an order that had been entered in the

related case of Barnes v. Levitt:

Matta felt secure in filing a suit for defamation against Ms.
May, Ms. Barnes and various members of the media, knowing full
well that the suit was frivolous and filed merely to vex Ms.
Barnes and her attorneys.

Order, C.A. No. H-92-0898 at 5-6 (S.D.Tex. Jan. 29, 1996). She

asks this court to give that statement the stature of a factual

finding in the present case, acknowledging that a severe sanctions

order requires a detailed exposition of the specific facts that

support it. See Topalian v. Ehrman, 3 F.3d 931, 936 n. 5 (5th

Cir.1993). Assuming, without deciding, that the statement could be

construed as an implied factual finding of improper purpose in

response to the motion for sanctions filed several weeks later in

a separate cause of action, we hold that such a finding is clearly

erroneous. Matta's suit alleged that May made a per se defamatory

statement, untrue on its face which was published in a front-page

article in one of the two major newspapers in Houston, Texas.

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Further, the article impugned his ability to do his job as a public

employee in that city. Not only does his suit pass the tests for

sound legal and factual basis, the damages to a government employee

and attorney from such defamation are potentially substantial.

Finally, May argues that the district court impliedly found

that she was personally targeted as a defendant in this suit

because Matta wished to interfere with her performance as Barnes's

attorney in the employment discrimination case. We reject this

contention as well. Of all the named defamation defendants, May

was in the best position to appreciate the factual and legal

implications of her statement to the newspaper and thus to avoid

the alleged damages. Therefore, naming her personally as a

defendant in the suit cannot be said to have been vexatious or for

purposes of harassment.

In sum, Rule 11 does not provide a legal basis for the award

of attorney fees in this case.

c. The district court's inherent power to sanction

The final basis proffered by May in her motion for a

fee-shifting sanction was an award under the court's inherent

powers. The threshold for the use of inherent power sanctions is

high. A court may assess attorney's fees under its inherent powers

when a party has acted in bad faith, vexatiously, wantonly, or for

oppressive reasons, or has defiled the "very temple of justice."

Chambers v. NASCO, 501 U.S. 32, 45-46, 111 S.Ct. 2123, 2133, 115

L.Ed.2d 27 (1991). A court must make a specific finding that the

sanctioned party acted in bad faith in order to impose such

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sanctions. Dawson v. United States, 68 F.3d 886, 895 (5th

Cir.1995). May again relies on the language of the January 29,

1996 Order in the Barnes case, arguing that the "suit was frivolous

and filed merely to vex" language is adequate to meet the

requirement for a bad faith finding. For the reasons discussed

above, we hold that there is not a sufficient basis for a finding

of bad faith, so that, even if the quoted language arguably amounts

to a bad faith finding, it is clearly erroneous.

CONCLUSION

For the foregoing reasons, the award of attorney fees against

Matta is REVERSED, and we find it unnecessary to reach the other

points of error raised by Appellant.

REVERSED.

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