F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
DEC 15 2000
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v. No. 99-2166
WILLIAM MCCALL,
Defendant-Appellee.
Appeal from the United States District Court
for the District of New Mexico
(D.C. No. CV-95-846M)
Thomas M. Bondy, Appellate Staff Attorney, Civil Division, Department of Justice,
Washington D.C. (David W. Ogden, Acting Assistant Attorney General, Washington
D.C., John J. Kelly, United States Attorney, New Mexico, and Barbara C. Biddle,
Appellate Staff Attorney, Civil Division, Department of Justice, Washington D.C., with
him on the on the brief), for Plaintiff-Appellant.
Roger Eaton, of Eaton, Martinez & Hart, P.C., Albuquerque, New Mexico, for
Defendant-Appellee.
Before SEYMOUR, Chief Circuit Judge, MURPHY, Circuit Judge and KANE, District
Judge.*
*
The Honorable John L. Kane, Jr., Senior United States District Judge for
the District of Colorado, sitting by designation.
KANE, Senior District Judge.
The United States filed this appeal after judgment was entered against it in a
foreclosure action against Defendant McCall and sanctions imposed. We AFFIRM.
After a bench trial to determine whether the Farmers Home Administration
(FmHA)1 was entitled to foreclose against property pledged to secure several notes on
which the Defendant had defaulted and collect a 10% surcharge pursuant to 28 U.S.C.
§ 3011, the district court entered judgment against the government and in favor of
McCall. The district court found the foreclosure action “frivolous and groundless” in
light of the parties’ binding settlement agreement which served as an accord and
satisfaction of the debt owed and therefore barred the action. Mem. Op. & Order, No.
95-CV-846M, pp. 1-2, 13-14 (Appellant’s App. at pp. 70-71, 82-83). “[T]o deter
frivolous and groundless filings in the future, as well as to compensate defendants for the
economic harm incurred” as a result of Plaintiff’s “unreasonable conduct,” the court also
imposed financial sanctions against the government in the form of Defendant’s costs,
litigation expenses and attorney fees. (Id. at p. 15.)
The government appeals, arguing the district court’s decision is “fundamentally
mistaken in law and in fact.” The government denies McCall ever accepted FmHA’s
1
FmHA was the federal agency within the Department of Agriculture now known
as the Rural Economic and Community Development agency.
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offer in settlement because, as a matter of law, an acceptance of the offer could only have
been made by a tender of the settlement amount by the September 6, 1995 offer expiration
date, and contends neither McCall nor anyone acting on his behalf ever did so. McCall
asserts this is a significant departure from the government’s position at trial, where the
significance of McCall’s failure to tender the settlement amount was neither addressed
nor raised, and maintains the evidence and record presented to the district court support
the decision made.
Upon careful review of the record, including the trial transcript, and considering
the parties’ arguments on appeal, we affirm for substantially the reasons given by the
district court in its Memorandum Opinion and Order.
I. THE NATURE AND EXISTENCE OF AN AGREEMENT
TO SETTLE THE DEBT FOR $84,000.
At issue is the form and the amount of the offer in compromise extended by FmHA
to McCall during prolonged settlement negotiations in the spring and summer of 1995. In
concluding the agency had “clearly put forward an offer to compromise [McCall’s debt]
for a specific sum within a specific time . . . [with] no conditions or prerequisites which
allow modification or revocation [thereof] after acceptance,” the district court reviewed a
series of letters and communications between McCall and Assistant United States
Attorney Manuel Lucero between March and July 1995. (Mem. Op. & Order at pp. 4-7.)
The communications began on March 17, 1995, when an Assistant Regional
Attorney for the agency notified the United States Attorney’s Office in Albuquerque of
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McCall’s debt and recommended commencement of a foreclosure action. Letter, dated
3/17/95 from Abeita to Kelly (Appellant’s App. at p. 186-88). In a “Special Remarks”
section attached to the letter, the agency attorney stated “[t]he amount the agency will
settle this account for is $76,894.00.” The letter was forwarded to Lucero, who
commenced negotiations with McCall in accordance therewith.
The settlement negotiations culminated in a June 26, 1995 letter from Lucero to
McCall. After rejecting a series of counteroffers from McCall, Lucero wrote as follows:
I have contacted the agency regarding your offer to settle this
matter for $70,000; however, the Farmers Home
Administration would like me to proceed with the foreclosure
action unless you can pay to this office on or before July 15th
$84,000. If that is not possible, I will file the foreclosure
action on July 17th.
Letter, Tr. Ex. 22 (Appellant’s App. at p. 165). At trial, Lucero stipulated that on July
17th he extended the offer expiration date to September 6, 1995. Trial Tr. at 5:17-22
(Appellant’s App. at p. 92). Based on his review of these communications and the
testimony at trial, the district court concluded the June 26th letter, as modified by Lucero’s
representations on July 17th, constituted an unconditional offer by the agency, not subject
to revocation or modification if accepted before the September 6th offer expiration date, to
settle McCall’s debt for $84,000. (Mem. Op. & Order at 7-8.)
On September 5, 1995, Blagg, a neighbor of McCall and owner of land adjacent to
the property that was the subject of the threatened foreclosure action, called Lucero to
notify him of an agreement he had reached with McCall to loan McCall the $84,000 to
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pay off the FmHA loan and clear title to his property “pursuant to the offer that had been
communicated by Manuel Lucero to William McCall in the letter of June 26, 1995.” See
4/14/97 Affid. of David Blagg (Appellant’s App. at p. 196, ¶ 2). Blagg stated in his
affidavit that he understood from Lucero at the time of the conversation that his offer
“would be acceptable to FHA and that a closing would be arranged in the near future.”
(Id. ¶ 3.)
Rather than call Blagg to testify at trial so he could be questioned directly about
this statement, Lucero stipulated to the admission of the affidavit and simply declared, at
the outset of the trial proceedings, that his handwritten notes of his conversation with
Blagg indicated otherwise. Referring to his notes (also admitted by stipulation as trial
Exhibit 24), Lucero stated that “basically, Exhibit 24 says that when I spoke to Mr. Blagg
[I told him] that a new appraisal had to be [done].” Trial Tr. at 6:7-14 (Appellant’s App.
at p. 93).2
2
Exhibit 24, in its entirety, reads as follows:
9/5/95
T/C to David Blag 984-2033
Call him tomorrow w/ amt to settle case plus appraisal if any
title search, survey if any.
T/C to Art Bristos Re possible settlement
9/6/95
T/C to David Blag Re purchase of property –
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It is clear from the court’s findings and conclusions that it rejected Lucero’s
(Appellant’s App. at p. 167).
We pause here briefly to note that, for reasons difficult to discern or comprehend,
Assistant United States Attorney Lucero represented the government at trial in this case.
Clearly Lucero was a material witness – the material witness – as to the nature and
amount of the agency’s settlement offer to McCall. The ethical dilemma presented by
Lucero’s dual role as witness and advocate was not raised by the parties or the court,
apparently because, at the outset of trial at least, the parties represented that the factual
issues were uncontested. It is clear from our review of the trial transcript, however, and
has been made clearer still by the government’s position on appeal, that the factual issues
surrounding the nature of the agency’s offer and Blagg’s acceptance of it on behalf of
McCall were contested and were the subject of substantial dispute almost immediately
after trial began.
These issues turned, almost in toto, on Lucero’s testimony and representations
regarding his communications over time with McCall and Blagg. In addition to testifying
about the content and meaning of his handwritten notes in Exhibit 24, which testimony
was directly contradicted by Blagg in his affidavit (Appellant’s App. at p. 196), Lucero
was also injected through the testimony of his own witness into the middle of a factual
dispute regarding when, if ever, the agency communicated its demand for a new appraisal
to him. When Lucero asked Farm Agency representative Tom Hutton on direct
examination when it was that Hutton had contacted the U.S. Attorney’s Office to say he
needed a new appraisal before anything could be settled with McCall, Hutton answered:
A. Probably at some point when you called and said that they [McCall] had offered
the [$84,000] . . .
Trial Tr. at 12 (Appellant’s App. at p. 99:9-11)(emphasis added).
Lucero’s status as a material witness cannot be disputed. When the government
shifted its focus on appeal from the conditional nature of the $84,000 offer to the lack of a
formal tendering of monies, it injected Lucero still further into both the legal and factual
disputes sub judice. Under either scenario, the ultimate factual disputes turn on Lucero’s
testimony about what he meant in his June 26 letter to McCall and what he said during the
September 5 telephone conversation with Blagg. Lucero should never have been in this
position, and once he found himself there, should not have allowed himself to remain.
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interpretation of the events. In its findings and conclusions, the district court noted that
the June 26 letter set forth no conditions or prerequisites that would allow the
modification, after acceptance, of such a critical term as the $84,000 amount. (Mem. Op.
& Order at 7.) The court also noted that the $84,000 offer remained pending for “several
weeks” before both the original and extended expiration dates, during which time the
Agency “neither undertook an appraisal nor communicated an appraisal requirement to
defendants.” (Id.) “An agreement was completed,” the court concluded, “[by] September
6, and McCall reasonably expected his case had been resolved.” (Id.) In reference to
Lucero’s arguments at trial and the testimony of Agency representative Hutton, the
district court observed that
. . . FmHA or the Farm Service Agency may have intended to
lock in an amount to be paid, acquire a new appraisal, and
then enforce the amount agreed upon should the appraisal be
lower than anticipated, and reject it should the appraisal be
higher than anticipated. Hopefully, this is an erroneous
perception and FmHA was not working, as it might appear, to
take unfair advantage. But even if the agency intended to
modify the payout amount to correspond to a current
appraisal, regardless of which side received the benefit of the
change, it cannot impose a condition on an offer or on an
agreement to settle that has never been communicated.
Mem. Op. & Order at 8.
With regard to the standard of review on appeal, McCall characterizes the district
court’s decision as primarily a factual decision that must stand unless clearly erroneous.
The government contends the issue is primarily one of formation of contract reviewable
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de novo, but says the decision to throw out its foreclosure case was so flawed that
“reversal would be required even under the clearly erroneous standard of review.”
Issues involving the formation, construction and enforceability of a settlement
agreement are resolved by applying state contract law. Carr v. Runyan, 89 F.3d 327, 331
(7th Cir. 1996). Here, the district court applied New Mexico law and general common law
principles of offer and acceptance to conclude that the agency, through Assistant United
States Attorney Lucero and McCall, through Blagg, on September 5, 1995 consummated
a binding agreement to settle the case for $84,000. We agree with McCall that this
conclusion turned primarily on factual determinations regarding the history of the parties’
settlement negotiations, their intent, and the nature and amount of settlement offer
ultimately extended. These factual determinations formed the basis for the district court’s
legal conclusions and will be accepted on review unless clearly erroneous. See Naimie v.
Cytozoyme Lab., Inc., 174 F.3d 1104, 1111 (10th Cir. 1999)(question of whether a
contract exists is a mixed question of law and fact reviewed “‘under either the clearly
erroneous standard or de novo standard depending on whether the mixed question
involves primarily a factual inquiry or the consideration of legal principles’”)(quoting
Armstrong v. Comm’r, 15 F.3d 970, 973 (10th Cir. 1994)).
If the district court’s account of the evidence is plausible in light of
the record viewed in its entirety, the court of appeals may not reverse it
even though convinced that had it been sitting as the trier of fact, it would
have weighed the evidence differently. Where there are two permissible
views of the evidence, the factfinder’s choice between them cannot be
clearly erroneous.
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Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985).
We find the district court’s account of the evidence before him both plausible and
reasonable in light of the record viewed in its entirety. Applying these facts to the law
under a de novo standard, we agree the June 26 letter from Lucero to McCall
communicated the Agency’s unconditional offer to settle McCall’s debt for $84,000.
That the Agency would like us on appeal to revisit the question, undisputed at trial,
that Blagg communicated an acceptance of that offer on September 5, 1995, compels no
different conclusion. The government’s argument that an actual tendering of monies was
a necessary prerequisite to an acceptance of the $84,000 offer as a matter of law was not
argued to the district court or offered for its consideration at trial. The general rule is that
this court will not consider an issue on appeal that was not raised below. See Walker v.
Mather (In re Walker), 959 F.2d 894, 896 (10th Cir. 1992)(and cases cited therein).
We affirm the district court’s fact-driven conclusion that on September 5, 1995 the
parties consummated a binding agreement to settle McCall’s debt for $84,000, which
agreement operated as a bar to the foreclosure action before it under the doctrine of
accord and satisfaction. We proceed next to the question of sanctions, and specifically to
the question of whether the district court’s assessment of attorney fees against the
government for its bad faith in pursuing the foreclosure action notwithstanding this
agreement was justified.
II. SANCTIONS.
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Under the “American Rule” governing respective financial burdens of litigating
civil claims, the prevailing party is not entitled to collect attorney fees from the loser.
Ruckelshaus v. Sierra Club, 463 U.S. 680, 685 (1973). We recognize a “narrow
exception” to the American Rule, allowing a trial court to award attorney fees when a
party’s opponent acts “in bad faith, vexatiously, wantonly, or for oppressive reasons.”
Sterling Energy Ltd. v. Friendly Nat'l Bank, 744 F.2d 1433, 1435 (10th Cir.1984).
Awarding fees under the bad faith exception is within a trial court’s discretion and
may be reversed only for an abuse of that discretion. Sterling at 1435-36. To justify a
shifting of fees, this court “requires more than merely a finding that a claim was frivolous
when brought.... [T]he bad faith exception is drawn very narrowly and may be resorted to
‘only in exceptional cases and for dominating reasons of justice.’” Id. at 1437 (quoting
Cornwall v. Robinson, 654 F.2d 685, 687 (10th Cir.1981)). “‘Because inherent powers are
shielded from direct democratic controls, they must be exercised with restraint and
discretion.’” United States Indus., Inc. v. Touche Ross & Co., 854 F.2d 1223, 1241 (10th
Cir. 1998)(quoting Roadway Express, Inc. v. Piper, 447 U.S. 752, 766 (1980)(considering
inherent power to assess fees as a sanction for failure to comply with discovery orders
under Fed. R. Civ. P. 37(c)). In light of these standards, we consider carefully the
district court’s findings supporting the assessment of fees against the government to
determine whether the district court abused its discretion.
The district court’s findings in support of its fee-shifting decision went beyond a
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determination that the foreclosure action was frivolous when filed. Addressing the larger
context of the Agency’s actions, the district court noted that, while the Agency had
available to it legal counsel not only in the office of the United States Attorney but also in
the Department of Agriculture, it chose not to “utilize counsel or consider its
circumstances in light of clear and long-standing legal principles,” and instead
unilaterally “repudiated its own demand, refused the payment solicited, and then initiated
an action to foreclose.” (Mem. Op. & Order at 13-14.) With regard to the Agency’s
attempt, at trial, to distance itself from Lucero’s June 26 letter and to insist the $84,000
amount was always conditional and subject to upward adjustment based on a new
appraisal, the court observed that the record “goes only [in] the opposite direction and
makes the agency appear neither fair nor forthright.” (Id. at 14)(noting FmHA originally
offered to settle McCall’s debt for $76,894, and then, “a mere five months later and
several thousand dollars more than its initial figure, FmHA refuses defendant, money in
hand”).
The district court found the Agency had “no basis in fact or in law for its abrupt
change of position, which revoked the essential term of settlement it had itself unilaterally
established.”
Then going well beyond refusal to accept the amount in
compromise, FmHA followed one unjustifiable action by
another. It caused to be filed the present civil action without
factual or legal premise, in an attempt to enforce original
obligations as if no settlement agreement had been reached.
The agency’s actions depart so far from reasonableness as to
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warrant the imposition of sanctions.
(Mem. Op. & Order at 14.)
There is support in the record for the district court’s view of the facts and we find
them neither unreasonable nor implausible under the facts and evidence adduced at trial.
Given these findings, we cannot conclude that the district court’s decision to shift
McCall’s obligation to pay his own attorney fees to the Agency as a sanction for bad-faith
conduct was an abuse of discretion.
For the foregoing reasons, the district court’s decisions to enter judgment against
the United States and in favor of McCall under the doctrine of accord and satisfaction and
to assess fees, costs and other expenses against the United States based on the bad faith
filing of the foreclosure action against McCall are AFFIRMED.
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