NOT RECOMMENDED FOR PUBLICATION
File Name: 19a0390n.06
Nos. 18-5437/5926/5927/5955
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
JENNIFER LYNN DARNELL, ) FILED
) Jul 31, 2019
Plaintiff-Appellant/Cross-Appellee, ) DEBORAH S. HUNT, Clerk
)
v. )
ON APPEAL FROM THE
)
UNITED STATES DISTRICT
JASON ARTHUR, Esquire; LISA MICHELLE )
COURT FOR THE EASTERN
GIBSON; WALTER SCHWAB IRREVOCABLE )
DISTRICT OF TENNESSEE
TRUST; WOODBOURNE INVESTMENTS, LLC, )
)
Defendants-Appellees/Cross-Appellants, )
)
BEFORE: COLE, Chief Judge; GRIFFIN and BUSH, Circuit Judges.
GRIFFIN, Circuit Judge.
Plaintiff appeals the district court’s grant of summary judgment in defendants’ favor on her
tortious-interference-with-business-relations and civil-conspiracy claims. Defendants cross
appeal the district court’s refusal to impose Rule 11 sanctions. Additionally, they have moved to
sanction plaintiff and her counsel for this appeal. We affirm the dismissal of plaintiff’s claims;
reverse the district court’s Rule 11 ruling; grant defendants’ motion for appellate sanctions; and
remand for further proceedings consistent with this opinion.
I.
This Tennessee common-law dispute stems from a collection action and a temporary
restraining order. Defendants Woodbourne Investments and Walter Schwab Irrevocable Trust (the
Trust)—through the representation of attorney (and co-defendant) Jason Arthur—obtained a
Nos. 18-5437/5926/5927/5955, Darnell v. Arthur, et al.
judgment against non-party Jimmy Boyd in Missouri and domesticated that judgment in a
Tennessee state court. Following an asset search, they sought and obtained a temporary restraining
order from a Tennessee state court prohibiting Boyd from “selling, encumbering, disposing of,
hiding, destroying, and/or transferring ownership” of various property, including two real estate
parcels in Washington County, Tennessee titled to Boyd’s company, JHB & Sons Excavating,
LLC.
Enter Boyd’s daughter, plaintiff Jennifer Darnell. She was in the process of obtaining $2.5
million in financing to commercially develop her own property. According to plaintiff’s
complaint, defendants knew the TRO—which named only Boyd and made no mention of
plaintiff—encumbered Darnell’s property and then anonymously informed her loan broker about
the TRO, resulting in the cancelation of a lending commitment. So plaintiff intervened in the
underlying Tennessee state-court action. Her intervention was short-lived—she quickly agreed
that the contested real estate parcels were “designated account numbers for Washington County,
Tennessee’s Personal Property Appraisal accounts for JHB & Sons Excavating, LLC, and are not
real property parcel designations.” Thus, the TRO did not include plaintiff’s real estate.
Yet Darnell filed a federal lawsuit three weeks later against Woodbourne, the Trust, Arthur,
and Lisa Gibson (Boyd’s estranged wife/Darnell’s estranged step-mother). Contradicting her
agreement in state court, she alleged she owned the contested property and that the TRO
“intentionally” and “improperly” encumbered that property. Her theory was that “Arthur and
Gibson acted in total concert to apply pressure to Boyd to get Boyd to leave the Boyd/Gibson
marriage without any compensation” and that “all Defendants acted in concert to injure, harm and
harass [Darnell] as a means to force Boyd to pay the Judgment.” Darnell asserted three causes of
action under Tennessee common law: intentional interference with existing or perspective
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business relations; fraud; and civil conspiracy. She demanded $4 million in compensatory
damages and $18.5 million in punitive damages.
Defendants moved both to dismiss plaintiff’s complaint under Federal Rule of Civil
Procedure 12(b)(6), and for sanctions under Federal Rule of Civil Procedure 11. Plaintiff then
moved to disqualify defendant Arthur. Because the parties submitted extensive matters outside
the pleadings, the magistrate judge (presiding with consent of the parties) treated defendants’
motions to dismiss as ones for summary judgment under Federal Rule of Civil Procedure 56 and
granted them in their entirety in a comprehensive and well-reasoned opinion.
The magistrate judge then thoroughly evaluated defendants’ Rule 11 motions and detailed
how woefully short plaintiff’s lawsuit fell from complying with Rule 11—in his words, “Rule 11
was designed to avoid these kind[s] of lawsuits.” As but one example of his well-articulated
analysis:
An attorney cannot simply blindly follow the dictates of an upset client. The
advocate must certify under Rule 11 that the factual contentions have evidentiary
support or “will likely have evidentiary support after a reasonable opportunity for
further investigation…” Fed. R. Civ. P. 11(b)(3). In this case, that certification is
lacking. In fact, when given the opportunity to develop these facts, Plaintiff and
[her attorney] engaged in no discovery and made no effort to develop them. This
lack of engagement is not surprising because no additional discovery would have
revealed any new facts that would have justified the allegations in the Complaint.
Plaintiff knew that the TRO the attorney drafted and which the state court approved,
did not include her property.
Blatant Rule-11-violative misconduct notwithstanding, the magistrate judge denied defendants’
Rule 11 motions (and found the attorney-disqualification motion to be moot). Rule 11(c)(2)
requires that a motion for sanctions be served on opposing counsel twenty-one days prior to filing
with the court. Plaintiff’s briefing did not fault defendants for noncompliance with this procedural
necessity. Yet the magistrate judge raised the question sua sponte and denied defendants’ motions
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because “[d]efendants do not claim that they sent the motion to [plaintiff’s attorney] 21 days prior
to its filing.”
But they had. They advised the court as much in reply as well as in motions for
reconsideration. And plaintiff conceded during reconsideration briefing that defendants complied
with “the procedural aspects of Rule 11.” The magistrate judge, however, refused to reconsider
his ruling because defendants’ originally briefed Rule 11 motions “did not demonstrate that they
had forwarded a copy of the motion for sanctions to Plaintiff’s counsel prior to its filing.” And he
rejected defendants’ evidence to the contrary as tardy.
II.
On appeal, plaintiff contends the district court erred in granting summary judgment in
defendants’ favor on her tortious-interference-with-business-relations and civil-conspiracy claims,
and in not disqualifying Arthur. (Plaintiff concedes the unmeritorious nature of her fraud claim
and does not challenge that aspect of the district court’s judgment.) We have reviewed the record
on appeal. The magistrate judge’s opinion painstakingly demonstrates the futility of plaintiff’s
claims and fully articulates the reasons why judgment should be entered for defendants. A detailed
opinion by this court would therefore be duplicative and serve no useful purpose.
Accordingly, we adopt the analysis and conclusions of the district court and affirm on the
basis of its March 30, 2018, opinion.
III.
On cross appeal, defendants appeal the magistrate judge’s refusal to impose Rule 11
sanctions. We review that decision for abuse of discretion. Ridder v. City of Springfield, 109 F.3d
288, 293 (6th Cir. 1997). “A court abuses its discretion when it commits a clear error of judgment,
such as applying the incorrect legal standard, misapplying the correct legal standard, or relying
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upon clearly erroneous findings of fact.” Jones v. Ill. Cent. R.R. Co., 617 F.3d 843, 850 (6th Cir.
2010) (citation omitted). The magistrate judge did just that—he clearly erred in finding defendants
did not comply with Rule 11’s procedural requirements.
Attorneys must reasonably investigate factual allegations and legal contentions—including
their frivolity—before filing a complaint with a federal court. Fed. R. Civ. P. 11(b). This
obligation is not static; Rule 11 “imposes a continual obligation on attorneys to refrain from
pursuing meritless or frivolous claims at any stage of the proceedings.” Merritt v. Int’l Ass’n of
Machinists and Aerospace Workers, 613 F.3d 609, 627 (6th Cir. 2010) (internal quotation marks
omitted). Rule 11(c)’s sanction provision “encourages keen observance of this duty.” Penn, LLC
v. Prosper Bus. Dev. Corp., 773 F.3d 764, 766 (6th Cir. 2014). It permits sanctions if “a reasonable
inquiry discloses the pleading, motion, or paper is (1) not well grounded in fact, (2) not warranted
by existing law or a good faith argument for the extension, modification or reversal of existing
law, or (3) interposed for any improper purpose such as harassment or delay.” Merritt, 613 F.3d
at 626 (citation and internal quotation marks omitted). “Rule 11 sanctions are warranted if the
attorney’s conduct was unreasonable under the circumstances.” Andretti v. Borla Performance
Indus., Inc., 426 F.3d 824, 833 (6th Cir. 2005). As extensively detailed by the magistrate judge,
plaintiff’s counsel unreasonably advanced claims in violation of the letter and spirit of Rule 11.
His generic arguments on appeal to the contrary only reinforce this conclusion.
When a party moves for Rule 11 sanctions, it must follow the Rule’s strict procedural
mandate:
A motion for sanctions must be made separately from any other motion and must
describe the specific conduct that allegedly violates Rule 11(b). The motion must
be served under Rule 5, but it must not be filed or be presented to the court if the
challenged paper, claim, defense, contention, or denial is withdrawn or
appropriately corrected within 21 days after service or within another time the court
sets.
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Fed. R. Civ. P. 11(c)(2). This safe-harbor provision “giv[es] the proponent of a questionable claim
an opportunity to assess the claim’s validity without immediate repercussion.” Ridder, 109 F.3d
at 294 (citation omitted). In short, Rule 11 sanctions are permissible only after the moving party
puts the offending party on notice of aberrant conduct and the offending party declines to cure a
deficient filing. Moore v. Lafayette Life Ins. Co., 458 F.3d 416, 446 (6th Cir. 2006).
Here, plaintiff’s attorney enjoyed all of Rule 11’s safe-harbor protections. He certainly did
not object to the contrary before the magistrate judge, and for good reason—he knew that
defendants properly put him on notice of potential Rule 11 sanctions, elected to stand pat, and
affirmatively advised the magistrate judge to that effect. Having (wisely) failed to raise
compliance with this non-jurisdictional requirement below, see, e.g., Shirvell v. Gordon, 602 F.
App’x 601, 606–07 (6th Cir. 2015) (citing Brickwood Contractors, Inc. v. Datanet Eng’g Inc., 369
F.3d 385 (4th Cir. 2004) (en banc)), he forfeited that defense. To be sure, defendants would have
served their cause better by affirmatively demonstrating to the magistrate judge, at the outset, that
they complied with Rule 11 (and did themselves no favor by initially attaching warning letters,
which do not satisfy Rule 11’s strict mandate, see Penn, 773 F.3d at 766–68). But nothing in the
Rule requires a moving party to make this showing. And when the magistrate judge imposed this
extratextual requirement on defendants, they made the showing—uncontested nonetheless. In our
view, then, the magistrate judge erred in raising the issue of Rule 11 compliance sua sponte and
finding that defendants did not satisfy Rule 11’s procedural requirements when they clearly did.
We therefore reverse and remand with instructions to impose Rule 11 sanctions.
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IV.
That leaves us with defendants’ motion to sanction plaintiff and her counsel for this appeal
pursuant to Federal Rule of Appellate Procedure 38, 28 U.S.C. § 1912, and 28 U.S.C. § 1927.
“These provisions,” as we have recently summarized, “provide overlapping standards”:
Federal Rule of Appellate Procedure 38 provides for sanctions “if a court of appeals
determines that an appeal is frivolous.” Sanctions under Fed. R. App. P. 38 are
appropriate when an appeal is wholly without merit and when the appellant’s
arguments essentially had no reasonable expectation of altering the district court’s
judgment based on law or fact. Although a finding of bad faith is not required for
imposition of Rule 38 sanctions, we will usually impose Rule 38 sanctions only
where there was some improper purpose, such as harassment or delay, behind the
appeal. 28 U.S.C. § 1912 provides that “where a judgment is affirmed by the
Supreme Court or a court of appeals, the court in its discretion may adjudge to the
prevailing party just damages for his delay, and single or double costs.” It is similar
in application to Rule 38. Finally, § 1927 declares that “any attorney who so
multiplies the proceedings in any case unreasonably and vexatiously may be
required by the court to satisfy personally the excess costs, expenses, and attorneys’
fees reasonably incurred because of such conduct.” Section 1927 allows for
sanctions when the attorney knows or reasonably should know that a claim pursued
is frivolous. Section 1927 sanctions may be imposed without a finding that the
lawyer subjectively knew that his conduct was inappropriate, but the conduct must
exceed simple inadvertence or negligence that frustrates the trial judge.
Hogan v. Jacobson, 823 F.3d 872, 886 (6th Cir. 2016) (alterations and citations and some quotation
marks omitted).
“[T]he appeal in this case is all of the above.” Bridgeport Music, Inc. v. Smith, 714 F.3d
932, 944 (6th Cir. 2013). As summarized above and demonstrated in full by the magistrate judge’s
comprehensive opinion granting summary judgment in defendants’ favor and in his Rule 11
opinion, plaintiff and her counsel pursued “patently meritless” claims below. Id. They then
doubled down on appeal in the face of a stern warning by the magistrate judge to the contrary.
They have “wasted our time and [their] adversary’s money” by pursuing this frivolous appeal.
Waldman v. Stone, 854 F.3d 853, 855 (6th Cir. 2017) (citation omitted). Sanctions are appropriate.
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We therefore grant defendants’ motion for appellate sanctions, to be shared equally
between Darnell and her counsel. Defendants shall file an affidavit within fifteen days of this
opinion setting forth costs and attorneys’ fees spent in defending this appeal. Plaintiffs may then
file a response within fifteen days.
V.
For these reasons, we affirm the dismissal of plaintiff’s claims, reverse the district court’s
Rule 11 ruling, grant defendants’ motion for appellate sanctions, and remand for further
proceedings consistent with this opinion.
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