IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
May 30, 2008
No. 07-20277 Charles R. Fulbruge III
Clerk
FLEMING & ASSOCIATES
Plaintiff-Appellant
v.
NEWBY & TITTLE DEFENDANTS, Represented by Liaison Counsel;
ROBERT A BELFER; NORMAN P BLAKE, JR; RONNIE C CHAN; WENDY
L GRAMM; ROBERT K JAEDICKE; CHARLES A LEMAISTRE; JOE H
FOY; BRUCE G WILSON; JOHN MENDELSON; PAULO V FERRAZ
PEREIRA; FRANK SAVAGE; HERBERT S WINOKUR, JR; JEROME J
MEYER; JOHN A URQUHART; CHARLES E WALKER; JOHN WAKEHAM
Defendants-Appellees
________________________________________________________________________
DAVID JOSE; JAMES BRISTER; PETER MAXFIELD; GEORGE ATALLAH
Plaintiffs-Appellants
v.
ROBERT A BELFER; NORMAN P BLAKE , JR; RONNIE C CHAN, JR;
JOHN H DUNCAN; JOE H FOY; WENDY L GRAMM; KEN L HARRISON;
ROBERT K JAEDICKE; MICHAEL J KOPPER; CHARLES A LEMAISTRE;
REBECCA MARK-JUBASCHE; JOHN MENDELSOHN; JEROME J
MEYER; PAUL V FERRAZ PEREIRA; FRANK SAVAGE; JOHN A
URQUHART; JOHN WAKEHAM; CHARLES E WALKER; HERBERT S
WINOKUR, JR, CERTAIN OUTSIDE DIRECTOR DEFENDANTS
Defendants-Appellees
________________________________________________________________________
MARY BAIN PEARSON; JOHN MASON
Plaintiffs-Appellants
v.
No. 07-20277
ROBERT A BELFER; NORMAN P BLAKE, JR; RONNIE C CHAN; JOHN H
DUNCAN; JOE H FOY; WENDY L GRAMM; KEN L HARRISON; ROBERT
K JAEDICKE; MICHAEL J KOPPER; CHARLES A LEMAISTRE; JOHN
MENDELSOHN; JOHN A URQUHART
Defendants-Appellees
________________________________________________________________________
FRED ROSEN; MARIAN ROSEN; LARRY D BARNETT; ROBERT CHAZEN;
CLIFFORD D GOOKIN, Trustee for the Clifford D Gookin Revocable Living
Trust; CARL HERRIN; TODD L JOHNSON, Administrator for RJS &
Affiliated Companies Pension Plan; ROBIN SAEX; JOHN SIEMER AND
ELIZABETH SIEMER, Trustees FBO the Siemer Family Trust; JOHN E
WILLIAMS; LEE ANN TOBIN, Personal Representative of the Estate of
Anthony Tobin
Plaintiffs-Appellants
v.
ROBERT A BELFER; NORMAN P BLAKE, JR; RONNIE C CHAN; JOHN H
DUNCAN; JOE H FOY; WENDY L GRAMM; ROBERT K JAEDICKE;
CHARLES A LEMAISTRE; JOHN MENDELSOHN; JEROME J MEYER;
PAUL V FERRAZ PEREIRA; FRANK SAVAGE; JOHN A URQUHART;
JOHN WAKEHAM; CHARLES E WALKER; HERBERT S WINOKUR,
CERTAIN OUTSIDE DIRECTOR DEFENDANTS
Defendants-Appellees
________________________________________________________________________
HAROLD AHLICH; FRANCES AHLICH; JOHN BANKS; IDA BANKS;
NANCY BELL; BILL BRAGDON; RHONDA BRAGDON; BRUCE
CAMPBELL; JANET CAMPBELL; VINCENT CARRELLA; MARIANNE
CARRELLA; LOUIS CARUCCI; PATRICK CUNNINGHAM; JAMES
DAVIDSON; KAREN DAVIDSON; JOHN DAVIS; PETER DORFLINGER;
RONALD GISH; JOHANNE GRAHAM; JOHN GUTMAN; DAVID HUCKIN;
EDWARD JAPHE; MICHAEL KREHEL; JOHN NEIGHBORS; JEAN
NEIGHBORS; WILLIAM PWELL; SAMUEL REINER; LILLIAN REINER;
HENRITTA ROWE; RALPH SHAPIRO; JEAN SHAPIRO; CONSTANCE
THEODORE; GEORGE VENTERS; NICKYE VENTERS; PETER VERUKI;
CHRIS BABSON AND STACEY BABSON, Co-Executors of the Estate of
Irving Babson; JENNIE LUTZ, Personal Representative of the Estate of Paul
Lutz
2
No. 07-20277
Plaintiffs-Appellants
v.
ROBERT A BELFER; NORMAN P BLAKE, JR; RONNIE C CHAN; JOHN H
DUNCAN; JOE H FOY; WENDY L GRAMM; ROBERT K JAEDICKE;
CHARLES A LEMAISTRE; JOHN MENDELSOHN; JEROME J MEYER;
PAUL V FERRAZ PEREIRA; FRANK SAVAGE; JOHN A URQUHART;
JOHN WAKEHAM; CHARLES E WALKER; HERBERT S WINOKUR, JR
Defendants-Appellees
________________________________________________________________________
RUBEN DELGADO; IRENE DELGADO; APOLONIO BACA; ROBERT H
BAKER, on Behalf of the Brookdale Baker Limited Family Partnership;
DAVID F BITONTI; EDWIN C BROUN, III; CAROLINE CALLERY;
WALLACE TILLEY, as Representative of the Estate of Bonnie Cooksey;
LOUIS J DALEO, on Behalf of Loumar Ltd a Partnership; KEN DAVIS;
JEFFREY W ELLIOT; DONNA L GAGLIARDI; LOUIS GORDON; JOEL
GROSSMAN; JAIME GROSSMAN; DOUGLAS C HAUSE; RIETTA
HUGHMACHER; GEORGE JEFFORDS; KENNETH H JONES, on Behalf of
Marianne Jones; EMILY KEMPER; ALAN LEVIN; DIANE LEVIN; SYLVIA
H LOHMAN; DAVID P MATTHEWS; KEN J MCCALL; MARY FAYE
MCCALL; LANCE MILLER; BARBARA MILLER; EDWARD O’ROURKE;
KATHRYN O’ROURKE; FRANK PARGAC; DEBRA PARGAC; ALEX
PEZDEK; ARLENE RAWITSCHER; JOHN B ROWE; JEFFREY E
SHAINOCK; ROBERT TILOTTA; THOMAS TOSONI; BILL W VERNON;
SHAUN WYMES; NANCY BELL, Personal Representative of the Estate of
Howard Earl Bell
Plaintiffs-Appellants
v.
ROBERT A BELFER; NORMAN P BLAKE, JR; RONNIE C CHAN; JOHN H
DUNCAN; JOE H FOY; WENDY L GRAMM; ROBERT K JAEDICKE;
CHARLES A LEMAISTRE; JOHN MENDELSOHN; JEROME J MEYER;
PAULO V FERRAZ PEREIRA; FRANK SAVAGE; JOHN A URQUHART;
JOHN WAKEHAM; CHARLES E WALKER; HERBERT S WINOKUR, JR
Defendants-Appellees
________________________________________________________________________
DON L GUY, Trustee for the Guy Family Living Trust; JACK MANNING;
SUE MANNING; MARY H PEARSON; CURTIS D ROBERT; GREY
SWINDENSKY; BARRY M WUNTCH; DOROTHY ZEIGFINGER AND
3
No. 07-20277
HAROLD ZEIGFINGER, Co-trustees for the Harold & Dorothy Zeigfinger
Family Trust; CHARLES H ADDERHOLD; ARNOLD GREENBERG;
REGAN YARDLEY; HAROLD SPEARS; SUZANNE C SPEARS; LENORA
HARTMAN; JOSEPH HAMER; PATRICIA A THOMAS; ALFRED
URBANEK; ADRIENNE SAMUELS; ROBERT HERZBERG; FRANCES R
MATTINGLY; GEORGE J COOKE; DEBRA C LEVENSON; WILLIS
BARTAK; JOYCE W RICHARDSON; RICHARD C KENTOPP; JIM BEMIS;
ROSANNA KAAR; WILLIAM P TODSEN; JOSEPH TENNARO;
THEODORE A MARCINIAK; MARTIN KAYE AND JUDITH KAYE,
Trustees for the Kaye Family Trust; STANLEY JACK ABRAMS;
LAWRENCE P TREADWELL; THOMAS J REGAN; MARTHA SEARS,
Personal Representative of the Estate of Kaylor Wilkins
Plaintiffs-Appellants
v.
ROBERT A BELFER; NORMAN P BLAKE, JR; RICHARD B BUY; RONNIE
C CHAN; JOHN H DUNCAN; JOE H FOY; WENDY L GRAMM, M D;
ROBERT K JAEDICKE; CHARLES A LEMAISTRE; JOHN MENDELSOHN;
JEROME J MEYER; FRANK SAVAGE; JOHN A URQUHART; JOHN
WAKEHAM; CHARLES E WALKER; HERBERT S WINOKUR, JR
Defendants-Appellees
________________________________________________________________________
CYNTHIA L ADAMS; COURTNEY L ALLEN; MARIA M ALTINGER;
SUSAN L DAVIS; WILDA B DAVIS; MARY ANN FISHER; RUTH E
FLOURNOY; FRANK W GEROLD; FRANK W GEROLD, on Behalf of the
Estate of Patricia M Gerold; DOROTHY L PIERCE; DOUGLAS P PIERCE;
GERALD E SEDLACEK; JEANETTE A SEDLACEK; CARL TRAGESSER;
ROBERT F WOHLFARTH; ERNEST J SCHWARTZ; EDITH SCHWARTS;
VERN C SMITH; NANCY S ROBERTSON; GEORGE FRASER; MAURINE D
FRASER; JACOB J TAMBORELLO; PHYLLIS F TAMBORELLO; JOHN W
PETERSON; CAROLYN JANE PETERSON; WILLIAM E TOLSON;
RICHARD F MILLER; PETER JENNINGS; STEPHEN JENNINGS AND
LINDA JENNINGS, Trustees for the Stephen and Linda Jennings Trust;
STEPHEN O JENNINGS, Trustee for the Susan Trust; LEROY W PICKENS;
JOHN A TUTHILL; THOMAS K HUISKAMP; ROBERT W SLOAN;
GEORGE C CAUBLE, JR; ARUN MISRA; JAY MISRA; CLYDE
CARPENTER; CAROLYN CARPENTER
Plaintiffs-Appellants
v.
4
No. 07-20277
ROBERT A BELFER; NORMAN P BLAKE, JR; RONNIE C CHAN; JOHN H
DUNCAN; JOE H FOY; WENDY L GRAMM, M D; ROBERT K JAEDICKE;
CHARLES A LEMAISTRE; JOHN MENDELSOHN; JEROME J MEYER;
FRANK SAVAGE; JOHN A URQUHART; JOHN WAKEHAM; CHARLES E
WALKER; HERBERT S WINOKUR, JR, CERTAIN OUTSIDE DIRECTOR
DEFENDANTS
Defendants-Appellees
Appeals from the United States District Court
for the Southern District of Texas
Before SMITH and PRADO, Circuit Judges, and LUDLUM*, District Judge.
PRADO, Circuit Judge:
In this case we review an award of attorneys’ fees that, regardless of our
decision, will never be paid. Plaintiffs-Appellants brought this appeal, seeking
vacatur of the district court’s imposition of compensatory attorneys’ fees in light
of the settlement of their suit against Defendants-Appellees. For the following
reasons, we AFFIRM the judgment of the district court with respect to its initial
sanctions order but VACATE the attorneys’ fees portion of the district court’s
judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
The underlying litigation in this case is one of many cases arising from the
Enron collapse and consolidated in the Southern District of Texas. This
particular case involved several coordinated/consolidated plaintiffs represented
by Fleming & Associates L.L.P. (“the Fleming Plaintiffs”) and their claims
against Defendants-Appellees, the former outside directors of Enron (“the
Outside Directors”).
*
District Judge of the Western District of Texas, sitting by designation.
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No. 07-20277
During the course of discovery, the Fleming Plaintiffs designated Curtis
Verschoor (“Verschoor”) as an expert witness on business and professional
ethics, corporate governance, corporate auditing, and public disclosures.
Verschoor prepared a 165-page report that the Fleming Plaintiffs timely filed on
June 1, 2006, the deadline to file such reports under the district court’s discovery
order. The discovery order applicable to the Enron cases required parties to
upload expert opinions to a secure FTP site to be used for Enron discovery
documents. The order also required parties to post a notice to a separate
website, esl3624.com, to inform the other parties of the production of a new
document.
On September 5, 2006, the day before Verschoor’s scheduled deposition,
the Fleming Plaintiffs uploaded an amended version of his expert report to the
Enron discovery website. They did not post notice of the newly uploaded
document to the notice website, esl3624.com.
The Outside Directors first became aware of revisions to Verschoor’s report
at the beginning of his September 6 deposition. At that time, the Fleming
Plaintiffs did not provide a comparison of specific changes made to the report,
though they asserted that all changes were non-substantive. In his deposition,
Verschoor characterized the changes as typographical and grammatical—periods
and semicolons out of place—and a few omitted words. He also initially testified
that the Fleming Plaintiffs’ counsel did not make any changes to the report,
although after further questioning, Verschoor realized that the Fleming
Plaintiffs’ counsel had made some revisions to the report’s table of contents.
Verschoor’s deposition testimony also suggested that the Fleming Plaintiffs’
counsel knew of errors in the body of the report around the time it was originally
filed, June 1, and that Verschoor did not make revisions to the body of the report
until approximately ten days prior to his deposition.
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No. 07-20277
The Outside Directors’ counsel halted the deposition and requested an
emergency telephone hearing before the district judge overseeing the case, Judge
Melinda Harmon. Judge Harmon suggested that the deposition be recessed
until she could make further rulings. In the interim, the Outside Directors filed
a motion to exclude Verschoor’s testimony.
On September 14, 2006, the district court issued an order sanctioning the
Fleming Plaintiffs’ counsel and denying the Outside Directors’ motion to exclude
the expert’s testimony. After performing its own line-by-line comparison of the
original and revised expert reports, the district court concluded,
Although the table of contents is substantially different, the only
differences in the body of the report consist of occasional changes of
dates, the dropping of a line from the original report in the amended
report, the additions of words and a few punctuation and formatting
changes. None of the changes to the body of the original report
found in the amended report appear to be material.
The court noted that counsel’s revisions to the report’s table of contents “give[]
rise to suspicion that counsel may have had a hand in writing the report,” but
the court concluded that any changes to the body of the report were not material
and were made by the expert witness himself. The court nevertheless ordered
that the Fleming Plaintiffs’ counsel be “sanctioned for changing the expert
witness’s report and shall pay to the Former Outside Directors the reasonable
attorneys[’] fees incurred by counsel for the Former Outside Directors in
bringing the [motion to exclude expert testimony].” The court ordered the
Outside Directors to submit a fee affidavit to be used to calculate the sanctions
amount.
On September 28, 2006, the Fleming Plaintiffs moved for reconsideration
of the sanctions order under Federal Rule of Civil Procedure 59(e). They also
objected to the fee affidavit submitted by the Outside Directors. In turn, the
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No. 07-20277
Outside Directors opposed the Fleming Plaintiffs’ motion for reconsideration and
opposed the objections to the fee affidavit.
In early December 2006, the parties settled their underlying dispute, and
on December 13, 2006, the Fleming Plaintiffs moved to dismiss all claims
against the Outside Directors. In an unopposed motion, the Fleming Plaintiffs
moved that “all parties shall bear their own costs, expenses and attorneys’ fees.”
Thereafter, the Outside Directors withdrew their opposition to reconsideration
and agreed to withdrawal of the sanctions order.
On February 8, 2007, the district court denied reconsideration of its
sanctions order and referred the attorneys’ fee issue to a magistrate judge “for
consideration and resolution, including a hearing, should she find one
necessary.” On March 6, 2007, although the Outside Directors informed the
magistrate judge that they had agreed not to collect sanctions after the
settlement,1 the magistrate judge held a hearing and directed the Fleming
Plaintiffs’ counsel to pay $15,214.45 in attorneys’ fees and expenses to the
Outside Directors. This appeal followed. We have jurisdiction under 28 U.S.C.
§ 1291 to hear this appeal.
II. DISCUSSION
The Fleming Plaintiffs raise two arguments in challenging the district
court’s sanctions orders. First, they make arguments based on mootness: either
the settlement stripped the district court of jurisdiction to impose compensatory
sanctions, requiring mandatory vacatur, or the Fleming Plaintiffs should be
entitled to equitable vacatur of the sanctions because the settlement made any
appeal of the sanctions moot. Second, the Fleming Plaintiffs contend that the
1
Counsel for the Outside Directors wrote to the magistrate judge, advising her of the
settlement: “Our clients, however, have settled the claims of the Fleming Plaintiffs
and—pursuant to that settlement—are precluded from pursuing further the sanctions at issue
in Judge Harmon’s ruling.”
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No. 07-20277
district court abused its discretion in granting the sanctions order in the first
place.
A. Mootness
This court reviews questions of mootness de novo. Staley v. Harris County,
485 F.3d 305, 308 (5th Cir.) (en banc), cert. denied, 128 S. Ct. 650, and cert.
denied, 128 S. Ct. 647 (2007). The Fleming Plaintiffs argue that their settlement
with the Outside Directors in the underlying case should have mooted the
district court’s award of compensatory sanctions against the Fleming Plaintiffs’
counsel. This argument basically splits into two prongs. First, the Fleming
Plaintiffs claim that the district court lacked jurisdiction at the time it imposed
the final sanctions because the parties had settled by that time. Second, the
Fleming Plaintiffs contend that, regardless of whether the district court had
jurisdiction, the settlement moots any appeal of the sanctions order, and the
order is therefore subject to equitable vacatur.
The Fleming Plaintiffs’ first argument invites us to view the district
court’s September 14, 2006 sanctions order as a mere preliminary order that did
not become a final appealable order until the magistrate judge determined the
sanctions amount on March 6, 2007. Citing Williams v. Ezell, 531 F.2d 1261 (5th
Cir. 1976), the Fleming Plaintiffs argue that the district court’s sanctions order
was not final until a monetary amount was decided. In Williams, we held that
the district court’s grant of a party’s motion seeking attorneys’ fees was not a
final order for the purpose of appellate review because the court deferred the
question of the amount of those fees. Id. at 1263; accord Perkins v. Gen. Motors
Corp., 965 F.2d 597, 599 (8th Cir. 1992) (“This order, however, was not a final
appealable order because it prescribed procedures to determine the amount of
money due under the sanctions.”). If the instant case was moot before the
district court’s final judgment on the sanctions order, that final order is subject
to mandatory vacatur. Goldin v. Bartholow, 166 F.3d 710, 718 (5th Cir. 1999)
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No. 07-20277
(“If mootness occurred prior to the rendering of final judgment by the district
court, vacatur and dismissal is automatic. The district court would not have had
Article III jurisdiction to render the judgment, and we cannot leave undisturbed
a decision that lacked jurisdiction.”).2
Nevertheless, we recognize that a district court always has jurisdiction to
impose sanctions designed to enforce its own rules, even after that court no
longer has jurisdiction over the substance of a case: “It is well established that
a federal court may consider collateral issues after an action is no longer
pending. For example, district courts may award costs after an action is
dismissed for want of jurisdiction.” Cooter & Gell v. Hartmarx Corp., 496 U.S.
384, 395 (1990); see also Willy v. Coastal Corp., 503 U.S. 131, 139 (1992) (holding
that a district court had jurisdiction to impose Rule 11 sanctions even though it
was later found to lack jurisdiction over the underlying case). The Eighth
Circuit elaborated on this point:
The purpose of sanctions goes beyond reimbursing parties for
expenses incurred in responding to unjustified or vexatious claims.
Rather, sanctions are designed to punish a party who has already
violated the court’s rules. The interest in having rules of procedure
obeyed does not disappear merely because an adversary chooses not
to collect the sanctions.
Perkins, 965 F.2d at 599 (citation and internal quotation marks omitted).
Second, the Fleming Plaintiffs contend that if the district court had
jurisdiction at the time it issued its final attorneys’ fee award, any appeal of that
monetary award would be rendered moot by the parties’ settlement and the
Outside Directors’ agreement not to collect it. In that event, we would vacate
under equitable principles. U.S. Bancorp Mortgage Co. v. Bonner Mall P’ship,
2
Regardless of whether the district court had jurisdiction over a purportedly moot issue,
the Court of Appeals retains jurisdiction to order vacatur of a mooted case. U.S. Bancorp
Mortgage Co. v. Bonner Mall P’ship, 513 U.S. 18, 20-22 (1994).
10
No. 07-20277
513 U.S. 18, 25 (1994) (“A party who seeks review of the merits of an adverse
ruling, but is frustrated by the vagaries of circumstance, ought not in fairness
be forced to acquiesce in the judgment.”); United States v. Munsingwear, Inc.,
340 U.S. 36, 39 (1950) (“The established practice of the Court in dealing with a
civil case from a court in the federal system which has become moot while on its
way here or pending our decision on the merits is to reverse or vacate the
judgment below and remand with a direction to dismiss.”).3
Regardless of which approach we take, it is important to recognize that the
district court’s action included two components: (1) a finding that the Fleming
Plaintiffs’ attorney engaged in sanctionable behavior; and (2) a compensatory
award payable to the Outside Directors. Although no Fifth Circuit case gives us
direct guidance on this issue, courts in other circuits have recognized that a
compensatory sanction—primarily intended to compensate a party for a wrong
3
We observe that the Supreme Court has relaxed the Munsingwear rule of “automatic”
vacatur in cases that become moot on appeal. See U.S. Bancorp, 513 U.S. at 23-25; Staley, 485
F.3d at 310. Under current law, the appropriateness of equitable vacatur is determined by
weighing the equities on a case-by-case basis. Staley, 485 F.3d at 311 n.2. “[T]he burden is
on ‘the party seeking relief from the status quo’ of the lower court judgment to demonstrate
‘equitable entitlement to the extraordinary remedy of vacatur.’” Id. at 310 (quoting U.S.
Bancorp, 513 U.S. at 26) (emphasis removed). Equitable vacatur generally is only available
in cases where the party seeking relief from the judgment below did not cause the mootness
by voluntary action: “Where mootness results from settlement, . . . the losing party has
voluntarily forfeited his legal remedy by the ordinary processes of appeal or certiorari, thereby
surrendering his claim to the equitable remedy of vacatur. The judgment is not unreviewable,
but simply unreviewed by his own choice.” U.S. Bancorp, 513 U.S. at 25.
In this case, the district court never had a chance to rule on the merits of the underlying
dispute because the parties settled. The court’s March 6 sanctions order—assuming the court
retained jurisdiction at the time it issued its final monetary award—was a punishment against
the Fleming Plaintiffs’ counsel, not a judgment that either of the parties in the case could claim
as a victory or a loss. We should not deprive the Fleming Plaintiffs’ counsel of the right to
equity when the party he represents chose to settle its suit. See Agee v. Paramount Commc’ns,
Inc., 114 F.3d 395, 399 (2d Cir. 1997) (“[An attorney] ha[s] an ethical obligation as an attorney
to act in his client’s best interests, and he could not discourage his client from entering into a
settlement simply because his client’s action might cause him to ‘forfeit’ his opportunity to
appeal the district court’s findings that he acted in bad faith.”); Perkins, 965 F.2d at 600 (“The
refusal to grant jurisdiction over an appeal of sanctions after the underlying suit has been
settled thrusts a personal conflict upon the attorney—by settling a case in the client’s interest
he may have to forfeit a personal right to appeal the sanctions levied against him.”).
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No. 07-20277
committed against it by the opposing party—is substantially different from a
purely punitive sanction, in which a litigant must pay the court or perform some
other penance for misbehavior. For example, the Seventh Circuit drew such a
distinction in Clark Equipment Co. v. Lift Parts Manufacturing Co., 972 F.2d
817 (7th Cir. 1992). The court emphasized that parties should be able to bargain
away the right to receive compensatory sanctions:
We agree that a court’s interest in having the rules of procedure
obeyed never disappears. But that interest is not sufficient to keep
a compensatory award alive for appeal after the parties have
settled. A district court may sanction abusive behavior directly by
imposing a punitive fine made payable to the court or by imposing
non-monetary sanctions. These sanctions cannot be settled by the
parties. Alternatively, however, the court may sanction the
offending party by forcing him to compensate his opponent for the
trouble he has caused. This second enforcement mechanism may be
analogized to tort remedies, which also regulate behavior by
compensating injured parties. Society at large has an interest in
enforcing negligence rules, yet we allow tort plaintiffs to bargain
away that interest by settling. So too the beneficiary of a
compensatory sanction may bargain away the court’s interest in
seeing its rules enforced. And despite the way we have phrased our
analogy, a settlement does not mean that a sanction has been
rendered ineffective—any more than a guilty plea indicates that the
criminal laws are not being enforced.
Id. at 819 (citation omitted) (emphasis added).
The Eleventh Circuit took a similar approach in Kleiner v. First National
Bank of Atlanta, 751 F.2d 1193 (11th Cir. 1985). In that case, the district court
imposed various sanctions on one party’s lawyers, including compensatory
attorneys’ fees payable to the other party and a fine payable to the court. Id. at
1199. While an appeal of the sanctions was pending, the parties settled the
underlying case. Id. The Eleventh Circuit remanded the attorneys’ fee awards
to the district court with instructions to vacate those portions of its order as
moot. Id. By contrast, the Eleventh Circuit upheld the fine payable to the court.
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No. 07-20277
That fine was “imposed pursuant to the inherent powers of the district court and
is not subject to revocation by the parties.” Id. at 1200. The court thus
articulated a distinction between sanctions payable to the court and those
intended to compensate the opposing party:
The stipulation awarding attorneys’ fees by its terms encompasses
the district court’s award of fees and costs incident to class notice
and the disciplinary proceeding. The parties correctly argue that
the settlement has mooted issues of attorneys’ fees, costs, and the
legality of the voidable exclusion sanction . . . . A different result
must obtain with respect to the fines and disqualification imposed
upon counsel. The $50,000 fine assessed against [counsel] was
imposed pursuant to the inherent powers of the district court and is
not subject to revocation by the parties.
Id. at 1199-200. Under Kleiner, therefore, a district court order awarding
compensatory attorneys’ fees should be vacated as moot after a settlement of the
underlying litigation.
We are persuaded by Clark and Kleiner that we should vacate the
monetary portion of the sanctions in this case, regardless of whether the issue
became moot before or after the district court’s sanctions order became final. If
we interpret the magistrate judge’s March 6, 2007 order as the only final
sanctions order at issue, the issue of monetary sanctions was moot at that time,
the district court lacked jurisdiction, and we must therefore vacate the
judgment. See Goldin, 166 F.3d at 718. Alternatively, because the settlement
moots any appeal of the compensatory portion of the sanctions, we should vacate
under equitable principles. See Munsingwear, 340 U.S. at 39.
Notwithstanding our reversal of the compensatory sanctions, we decline
to vacate the district court’s September 14 order entirely. In that order, prior to
the parties’ settlement, the district court sanctioned the Fleming Plaintiffs’
lawyer and explained its reasons for doing so. If the September 14 order is seen
as a final judgment, it is not subject to mandatory vacatur, which applies only
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No. 07-20277
when the court lacked jurisdiction at the time it issued a final order. See Goldin
166 F.3d at 718. It is clear that the sanctions issue could not have become moot
before the settlement. Therefore the district court had jurisdiction on September
14 to issue the sanctions order, and mandatory vacatur does not apply. See id.
Even if the September 14 order was not a final judgment, equitable
vacatur is not appropriate because the order is nevertheless appealable: Any
non-monetary portion of the sanctions not rendered moot by settlement is
appealable for its residual reputational effects on the attorney. Walker v. City
of Mesquite, 129 F.3d 831, 832-33 (5th Cir. 1997) (holding that even without a
monetary sanctions award, the damage to an attorney’s reputation caused by a
court’s sanction creates a reviewable issue sufficient to support Article III
jurisdiction over an appeal of the judgment). Equitable vacatur, intended as a
remedy when an appeal itself is moot, is therefore unavailable. We instead
review the sanctions award on its merits.4 Our holding comports with Clark and
Kleiner, which recognized that although compensatory sanctions may be
bargained away by the parties, the court’s right to sanction parties for
misconduct remains. Clark, 972 F.2d at 819; Kleiner, 751 F.2d at 1199-200.
We also are in harmony with the Eighth Circuit’s decision in Perkins,
which emphasized that parties generally cannot bargain away the court’s right
to impose sanctions. 965 F.2d at 600. In that case, the district court imposed
sanctions against Perkins and her lawyer for various abuses during trial and
4
We note that this approach differs from the reasoning of other circuits, where courts
have declined to take appellate jurisdiction to review a sanctions order merely for its
reputational effects. See Clark, 972 F.2d at 820 (“[A]n attorney may not appeal from an order
that finds misconduct but does not result in monetary liability, despite the potential
reputational effects.”); Riverhead Sav. Bank v. Nat’l Mortgage Equity Corp., 893 F.2d 1109,
1112 (9th Cir. 1990) (holding that the court lacked appellate jurisdiction where a settlement
released all claims for sanctions awards, and implicitly rejecting the sanctioned party’s
argument that it still had an interest in appealing the sanctions merely because of the
sanctions’ reputational effect). To the extent that those opinions conflict with Walker, we follow
our own precedent.
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No. 07-20277
discovery, but the court set a later hearing date to determine the sanctions
amount. Id. at 598. Before that hearing, the parties settled, and General
Motors joined Perkins and her lawyer in asking the district court to lift its
sanctions order. Id. The district court refused to do so. Id. Nevertheless, in
fashioning its final sanctions order, the district court—in light of GM’s
agreement not to collect any monetary sanctions—declined to impose any
monetary penalty. Id. at 599-600. Perkins and her lawyer appealed. The
appellate court concluded that “[a]ppellants are entitled to bargain with
adversaries to drop a motion for sanctions, but they cannot unilaterally bargain
away the court’s discretion in imposing sanctions and the public’s interest in
ensuring compliance with the rules of procedure.” Id. at 600. Thus, although
the district court declined to impose monetary sanctions, the appellate court
recognized a district court’s ability to impose sanctions despite a prior
settlement. While the Perkins court imposed sanctions despite a settlement, it
did not compel the sanctioned party to pay attorneys’ fees. Unlike the court in
Perkins, the district judge in the instant case ignored both parties’ requests for
the court to decline to impose attorneys’ fees.
Our holding preserves the right of parties to bargain away sanctions
designed to compensate the parties themselves, such as the attorneys’ fee award
in this case. On the other hand, we recognize that district courts retain the
ability to police their own rules through various punitive sanctions mechanisms,
including issuing written opinions that describe attorney misconduct. Such
admonitions play an important role in discouraging bad behavior by litigators,
and where a district court has reviewed a case of misconduct and issued a well
reasoned sanctions order, we should not allow a subsequent settlement to erase
that language.
B. Merits
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No. 07-20277
Although we vacate the monetary portion of the sanctions award, we
consider whether to vacate the district court’s sanctions order in its entirety
because of the reputational effects that order might have on the Fleming
Plaintiffs’ counsel. See Walker, 129 F.3d at 832-33. This court reviews a district
court’s imposition of sanctions for abuse of discretion. Goldin, 166 F.3d at 722.
“Generally, an abuse of discretion only occurs where no reasonable person could
take the view adopted by the trial court.” Friends for Am. Free Enter. Ass’n v.
Wal-Mart Stores, Inc., 284 F.3d 575, 578 (5th Cir. 2002) (internal quotation
marks omitted).
The district court cited no legal authority for its imposition of sanctions.
Thus, the parties are left to argue the appropriateness of sanctions under
various possible provisions. Because the timing of the changes to the report was
of key concern to the district court, we look to Federal Rule of Civil Procedure
16(f), which permits sanctions “[i]f a party or its attorney . . . fails to obey a
scheduling or other pretrial order.” FED. R. CIV. P. 16(f).
The district court’s discovery order compelled the parties to submit expert
reports by June 1, 2006. The Fleming Plaintiffs filed Verschoor’s revised expert
report in September, without any explanation for the delay. The district court
noted that changes to the report’s table of contents were made “shortly before
the scheduled deposition . . . without prior notice to the defense lawyers,” and
that the last minute disclosure “calls into question the motives of counsel for the
Fleming plaintiffs.” The district court also emphasized that the late disclosure
of these changes forced the Outside Directors to expend additional costs: “Such
expense could have been easily avoided, and the ease of avoiding that expense
calls into question the motives of counsel for the Fleming plaintiffs in making
the changes to the table of contents in the time frame those changes were made,
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No. 07-20277
and without prior explanation to defense counsel.” (emphasis added). Thus, we
find that the district court did not abuse its discretion under Rule 16.5
III. CONCLUSION
Finding the issue of monetary sanctions moot, we vacate the portion of the
district court’s sanctions order to the extent that it made an award of attorneys’
fees. Nevertheless, we decline to vacate the district court’s sanctions order in its
entirety because the court did not abuse its discretion when it issued its original
sanctions order. As this inconsequential case has already consumed too many
judicial resources, we see no reason to remand to the district court.
VACATED in part and AFFIRMED in part.
5
Because we conclude that the sanctions were justified under Rule 16, we need not
consider the Outside Directors’ alternative arguments that the sanctions were proper under
Federal Rule of Civil Procedure 37, 28 U.S.C. § 1927, or the district court’s inherent power.
17