United States Court of Appeals
For the First Circuit
No. 01-1411
PAUL NYER,
Appellant,
v.
WINTERTHUR INTERNATIONAL,
Appellee.
ISMAR HOCHEN, AS ADMINISTRATOR OF THE ESTATE OF ISMAEL HOCHEN;
RICHARD DUFAULT; CHRISTINE DUFAULT, INDIVIDUALLY AND AS MOTHER AND
NEXT FRIEND OF RICHARD DUFAULT, JR.; LEAH DUFAULT,
Plaintiffs,
v.
BOBST GROUP, INC.,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Robert B. Collings, U.S. Magistrate Judge]
Before
Torruella, Circuit Judge,
Stahl, Senior Circuit Judge,
and Lynch, Circuit Judge.
Christopher Maffucci, with whom Casner & Edwards, LLP was on
brief, for appellant.
Kimberly M. McCann, with whom Daniel P. Gibson and Gibson &
Behman, P.C. were on brief, for appellee.
May 16, 2002
STAHL, Senior Circuit Judge. Attorney Paul Nyer ("Nyer")
appeals from an order sanctioning him under Federal Rule of Civil
Procedure 11 for his attempt to bring an unfair trade practices claim
against Winterthur International Insurance Company ("Winterthur") in
connection with Winterthur's defense of a personal injury suit against
its insured. For the following reasons, we affirm.
I.
In 1994, Avery Dennison Corp. ("Avery") contracted with Bobst
Group, Inc. ("Bobst") to install and service certain controls and
equipment on Avery's printing press. On August 2, 1994, an explosion
in the printing press seriously injured two Avery employees, Ismael
Hochen and Richard Dufault. The two men retained Nyer as their
attorney and filed suit against Bobst in 1996, alleging inter alia that
Bobst's negligent maintenance of the presses caused the explosion.
Bobst filed several motions for summary judgment and obtained partial
summary judgment in 1997 on the statute of repose issue and partial
summary judgment in 2000 on Hochen's claims regarding breach of
warranty and failure to warn.1 After the summary judgment motions, only
the negligent maintenance issue remained for trial.
1The merits of the underlying suit are addressed in a
separate opinion issued this day. See Hochen v. Bobst Group,
Inc., No. 96-11214 (D. Mass. 2000), appeal docketed, No. 00-1841
(1st Cir. March 20, 2001).
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On February 18, 2000, approximately two and a half months
before the trial was set to begin, the plaintiffs attempted to add
Winterthur, Bobst's insurance carrier, as a direct defendant in the
lawsuit. In their motion to amend, the plaintiffs alleged that
Winterthur had violated Massachusetts General Laws chapter 93A because
its negotiation tactics ran afoul of Massachusetts General Law chapter
176D, which regulates insurance companies.2 The magistrate judge
deferred ruling on the motion in order to see whether the plaintiffs
would prevail at trial against Bobst.3 After the magistrate judge
directed a verdict in favor of Bobst and entered judgment on May 19,
2000, he denied the motion to amend the complaint as moot. On June 9,
2000, Winterthur filed a motion for attorney fees, costs and sanctions
against the plaintiffs' attorney Nyer pursuant to Fed. R. Civ. P. 11
and 28 U.S.C. § 1927. Nyer opposed the motion on June 30, 2000, and
Winterthur filed its response on July 12, 2000.
In determining whether sanctions were appropriate, the
magistrate judge reviewed the history of negotiations between the
parties. Plaintiffs began the settlement negotiations by making a
demand to settle of $5 million -- $3 million for Hochen and $2 million
for Dufault. On June 22, 1999, the plaintiffs, Bobst and
2See infra note 7 and accompanying text for further
explanation of the relationship between chapters 93A and 176D.
3
The parties consented to proceed before the magistrate
judge for trial and entry of judgment pursuant to 28 U.S.C. §
636(c).
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representatives from Winterthur participated in a mediation session,
during which Winterthur made an offer to settle the case for $475,000.
According to Nyer, the plaintiffs rejected the offer because (1)
Winterthur did not apportion the settlement among the individual
defendants and (2) with the workers' compensation liens at $417,000,
the settlement would be virtually unprofitable. The parties met again
for settlement discussions on September 22, 1999. Although the record
does not include the specifics of any offer allegedly made by
Winterthur at that meeting, Nyer claims that Winterthur refused to put
its offer in writing and again rejected Nyer's request that it
apportion the proposed settlement among the individual plaintiffs.
After this September meeting, Nyer sent Winterthur a 93A
demand letter alleging that Winterthur's failure to apportion the offer
or put it in writing violated Massachusetts General Law chapters 93A
and 176D. After retaining outside counsel, Winterthur responded to the
letter by offering $550,000 to resolve the case, although still
insisting that the plaintiffs had not demonstrated that liability was
reasonably clear. Shortly thereafter, Winterthur presented a proposed
apportionment of the offer, allocating $110,000 to each of the five
plaintiffs.4 Nyer and the workers' compensation carrier, however,
rejected this offer.
4
The three additional plaintiffs named in the lawsuit were
family members of Richard Dufault.
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In its motion for sanctions, Winterthur claimed that it was
under no obligation to make a settlement offer to the plaintiffs under
chapter 176D because they could not show that Bobst's liability was
reasonably clear. As it had no duty even to negotiate, Winterthur
argued, it could not be found liable for violating the insurance
regulations laid out in chapter 176D or unfair trade practices
provision in chapter 93A. Therefore, Winterthur concluded, the 93A
claim that the plaintiffs attempted to assert against it was frivolous
and made only for the improper purpose of forcing Winterthur to offer
a higher settlement figure.
In his defense, Nyer claimed that the parties understood that
Bobst's liability was reasonably clear, as reflected by the size of
Winterthur's settlement offers. Therefore, in Nyer's view,
Winterthur's refusal to apportion the settlement offer to the
individual plaintiffs and the fact that the offer was barely above the
amount of the workers' compensation lien constituted an unfair
settlement practice. Consequently, Nyer insisted that his attempt to
assert a 93A claim against Winterthur should not be sanctionable.
Before reaching the merits of Winterthur's motion, the
magistrate judge rejected Nyer's arguments that Winterthur did not have
standing to seek sanctions and that Winterthur's motion was untimely.
He then determined that there was no basis for a 93A claim against
Winterthur in light of relevant Massachusetts law, and imposed
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sanctions pursuant to Rule 11, along with attorneys' fees and costs.5
Hochen v. Bobst Group Inc., 198 F.R.D. 11 (D. Mass. 2000). Nyer timely
appealed.
5Although the magistrate judge concluded that Nyer had
violated Rule 11, he found it "not as clear that [Nyer's]
actions were vexatious so as to multiply the proceedings," in
violation of § 1927. Hochen, 198 F.R.D. at 18. Because Rule 11
provided a sufficient basis to award Winterthur with all of the
relief it sought, the magistrate judge found it unnecessary to
reach the issue of whether Nyer's conduct infringed § 1927. Id.
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II.
A. Standing
Before assessing the propriety of the magistrate judge's
ruling, we must first inquire as to whether Winterthur had standing to
seek sanctions under Rule 11. We review issues of standing de novo.
New Hampshire Right to Life Political Action Comm. v. Gardner, 99 F.3d
8, 12 (1st Cir. 1996).
As a general rule, non-parties to a case may not bring a
motion for sanctions pursuant to Rule 11. New York News, Inc., v.
Kheel, 972 F.2d 482, 488 (2d Cir. 1992). In limited circumstances,
however, a non-party may have standing to move for Rule 11 sanctions.
For example, in Westmoreland v. CBS, Inc., 770 F.2d 1168 (D.C. Cir.
1985), a non-party witness was permitted to bring a Rule 11 motion
stemming from defense counsel's commencement of contempt proceedings
against him. On the other hand, individuals that are either explicitly
discussed in a complaint or entities that are indirectly implicated by
a complaint's allegations may not intervene in the litigation for the
sole purpose of seeking Rule 11 sanctions. See New York News, Inc.,
972 F.2d at 488-89 (individual); Port Drum Co. v. Umphrey, 852 F.2d 148
(5th Cir. 1988) (corporate entity).
In Greenberg v. Sala, 822 F.2d 882 (9th Cir. 1987), the Ninth
Circuit ruled that individuals who had been named in a frivolous
complaint could seek Rule 11 sanctions, even though they had never
actually become official parties to the litigation due to lack of
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service. In finding that the would-be defendants had standing, the
court noted that "the filing of the complaint . . . caused the
defendants to incur costs and attorney fees. . . . Moreover, the filing
of the complaint necessarily triggered the expenditure of court
resources." Id. at 885.
We consider this case to be closely analogous to Greenburg.
Winterthur was never formally made a party to the litigation, but this
was due to the fact that the magistrate judge decided to reserve
judgment on the motion to amend plaintiffs' complaint until the
underlying issues regarding Bobst's liability were resolved.
Furthermore, although Winterthur was never required to refute the
chapter 93A allegations contained in the amended complaint, Winterthur
was forced to prepare a possible defense against the charge of unfair
trade practices. In this sense, Winterthur was similarly situated to
the non-party witness in Westmoreland who had to defend himself against
a petition for civil contempt arising out of his refusal to allow his
deposition to be videotaped. Therefore, we find that, even under the
reasoning of New York News, Inc., Winterthur qualifies as one of the
types of non-parties that may bring a motion for Rule 11 sanctions.
See 972 F.2d at 488-89 (distinguishing Westmoreland and Greenberg).
Accordingly, we find that Winterthur has standing to file a motion for
Rule 11 sanctions.
B. Timeliness
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One additional issue remains before we can turn to the merits
of the Rule 11 determination. Nyer has not sought review of the
district court's ruling that Winterthur's motion for sanctions was
timely filed. In his appeal, however, Nyer alleges for the first time
that Winterthur failed to comply with the "safe harbor" provision of
Rule 11, which requires a movant to wait twenty-one days after serving
a motion for sanctions on opposing counsel before filing the motion
with the court. Fed. R. Civ. P. 11(c)(1)(A). This provision is
designed to allow an attorney to correct his error before a party
commences Rule 11 proceedings. In this case, however, we need not
decide whether there was any failure to comply with the "safe harbor"
provision because Nyer did not present this issue to the magistrate
judge in his opposition to the motion for sanctions. "If any principle
is firmly established in this circuit, it is that, in the absence of
excusatory circumstances -- and none are apparent here -- arguments not
seasonably raised in the district court cannot be raised for the first
time on appeal." Corrada Betances v. Sea-Land Serv., Inc., 248 F.3d
40, 44 (1st Cir. 2001).6
6We note, however, that Nyer filed his motion to amend on
February 18, 2000 and the motion was dismissed as moot on May
19, 2000. Interestingly, Winterthur did not file its motion for
fees and sanctions until June 9, 2000, i.e., twenty one days
after the magistrate judge entered judgment and dismissed the
motion to amend. Prior to the dismissal, Nyer had approximately
three months to reconsider and withdraw the motion to amend but
chose not to do so. Once the magistrate judge dismissed the
motion as moot, the purposes of the safe harbor provision could
no longer be effectuated because Nyer had lost his opportunity
to reverse course.
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III.
With those preliminary matters resolved, we now focus on the
question of whether sanctions were appropriate in this case. Rule 11
provides for the imposition of sanctions against an attorney who files
a pleading, motion or paper that is not "well grounded in fact" or is
not "warranted by existing law or a good faith argument for the
extension, modification, or reversal of existing law," or is
"interposed for any improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of litigation."
Fed. R. Civ. P. 11.
We pause momentarily to offer some clarification as to the
proper standard of review in this case. In this circuit, as a general
rule, all aspects of a district court's Rule 11 determination are
examined under the abuse of discretion standard. See Kale v. Combined
Ins. Co. of Am., 861 F.2d 746, 757-58 (1st Cir. 1988). By "all
aspects," we refer to both "the legal conclusion of the district court
that the facts constitute a violation of the Rule and . . . the
appropriateness of the sanction imposed." Figueroa-Ruiz v. Alegria,
905 F.2d 545, 548 n.2 (1st Cir. 1990). As the Supreme Court has
instructed, however, "[a] district court would necessarily abuse its
discretion if it based its ruling on an erroneous view of the law or on
a clearly erroneous assessment of the evidence." Cooter & Gell v.
Hartmax Corp., 496 U.S. 384, 405 (1990). Therefore, in order to assess
whether the magistrate judge acted within his discretion in imposing
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sanctions, we must discern whether he properly interpreted the relevant
Massachusetts authorities regarding liability under chapters 93A and
176D.
Under state law, insurance companies in Massachusetts have
an obligation to abstain from "unfair claim settlement practices," such
as "failing to effectuate prompt, fair and equitable settlements of
claims in which liability has become reasonably clear. . . ." Mass.
Gen. L. ch. 176D § 3(9)(f).7 In order to determine whether liability
is "reasonably clear," the fact finder must determine "whether a
reasonable person, with knowledge of the relevant facts and law, would
probably have concluded, for good reason, that the insurer was liable
to the plaintiff." Demeo v. State Farm Mut. Auto. Ins. Co., 38 Mass.
App. Ct. 955, 956-57, 649 N.E. 2d 803, 804 (1995).
For the purposes of assessing whether Nyer's attempt to bring
an unfair trade practices claim against Winterthur violated Rule 11,
the court must focus on whether Nyer had evidentiary support for his
claim and/or whether his accusations were "warranted by existing law or
by a nonfrivolous argument for the extension, modification or reversal
7
Chapter 93A of Massachusetts law also protects consumers
from unfair trade practices. Mass. Gen. L. ch. 93A § 2(a)
("Unfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce are hereby
declared unlawful."). When drafted, neither chapter 93A nor
chapter 176D provided any avenue for the private enforcement of
these protections. In 1979, however, the legislature amended
chapter 93A, granting consumers a private cause of action
against insurers who violate chapter 176D. Id. § 9(1). See
generally Thomas P. Billings, The Massachusetts Law of Unfair
Insurance Settlement Practices, 76 Mass. L. Rev. 55 (June 1991).
-11-
of existing law . . . ." Fed. R. Civ. P. 11(b)(2)-(3). After
reviewing the history of negotiations between the parties and examining
the underlying personal injury litigation, the magistrate judge
determined that no reasonable attorney would have believed that he had
any evidence to support a claim that Winterthur failed to negotiate a
settlement in good faith on behalf of its insured, whose liability was
reasonably clear.
Nyer insists that Winterthur's substantial settlement offer
was an implicit acknowledgment that Bobst's liability was "reasonably
clear." Yet, as the magistrate judge noted, Winterthur explicitly
stated that its settlement proposal represented an amount approximating
the estimated cost of defense. This practice is not uncommon. In
fact, many cases are settled simply to avoid the uncertainties and
costs of going to trial. Under Nyer's view, however, the mere proposal
of a settlement offer would serve as an admission by the insurer that
liability is reasonably clear. Not only is this interpretation of
chapter 176D legally erroneous, but it would also produce the highly
undesirable effect of drastically reducing the willingness of parties
to seek an amicable resolution to their dispute.
The magistrate judge observed that "the relevant evidence to
consider when determining whether liability was reasonably clear is not
settlement offers made by defense counsel but rather facts concerning
the actual underlying claim." Hochen, 198 F.R.D. at 17. The
magistrate judge's assessment was that, in light of the significant
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hurdles facing the plaintiffs in the underlying litigation, no
reasonable attorney, on these facts, would have had a basis for
believing that Bobst's liability was reasonably clear.
In his appeal and in the proceedings below, Nyer has insisted
that it was Winterthur's failure to apportion the settlement amount
that constituted bad faith on the insurer's part. Nyer offers no
authority, however, to support his position that Winterthur was somehow
obligated to apportion the sum among the various parties. We are
unaware of any Massachusetts law that would impose an apportionment
obligation upon Winterthur and counsel has not pointed us to any such
authority. Therefore, no attorney, particularly relying on this
apportionment argument, could reasonably have believed that the facts
of this case could sustain a claim against Winterthur under chapter 93A
and 176D. This argument is simply frivolous.
We emphasize that the standard for determining whether an
insurance company has violated chapter 176D claim is distinct from the
standard for determining whether an attorney has offended Rule 11 by
making (or attempting to make) such an allegation. Yet, one cannot
assess the latter without a precise understanding of the former. The
magistrate judge did not err in his conclusion. Because we agree that
the apportionment argument raised by the appellant is totally
frivolous, in reviewing the magistrate judge's decision to impose
sanctions under the abuse of discretion standard, we find no error
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because, "at its core[, the] imposition of sanctions is a judgment
call." Kale, 861 F.2d at 758 (internal quotations omitted).
IV.
For the foregoing reasons, we affirm the imposition of
sanctions under Rule 11 against attorney Nyer.
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