Federal Deposit Insurance v. Conner

United States Court of Appeals,

Fifth Circuit.

Nos. 92-1666, 93-1343.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Capital
National Bank, Plaintiff-Appellant,

and

Charles W. Sartain, individually and as attorney for the Federal
Deposit Insurance Corporation, etc., Appellant,

v.

William C. CONNER, et al., Defendants,

Charles Hillard, et al., Defendants-Appellees.

May 25, 1994.

Appeals from the United States District Court for the Northern
District of Texas.

Before GOLDBERG, DAVIS, and DeMOSS, Circuit Judges.

GOLDBERG, Circuit Judge:

The Federal Deposit Insurance Corporation ("FDIC") filed this

suit against seven former directors of Capital National Bank of

Fort Worth ("Capital"), alleging that, in their management of the

bank, the defendants were negligent, breached their fiduciary

duties, and violated express and implied agreements that they had

with the institution. In these consolidated appeals, we are called

upon to review several of the district court's orders: the

dismissal of the FDIC's claims against five of the seven defendants

as a sanction for violating a discovery order, two monetary

sanctions levied personally against one of the FDIC's attorneys

(one imposed pursuant to Federal Rule of Civil Procedure 37(b)(2)

and the other imposed pursuant to 28 U.S.C. § 1927), and the denial

1
of the FDIC's motion to amend its original complaint. We reverse

the dismissal of the FDIC's claims and the denial of the motion to

amend, vacate the sanction imposed on the FDIC's attorney pursuant

to 28 U.S.C. § 1927, and affirm the sanction imposed on the FDIC's

attorney pursuant to Rule 37(b)(2).

I. The Discovery Sanctions

A. Background

On September 15, 1988, the Comptroller of the Currency

declared Capital insolvent. The FDIC was thereafter appointed

receiver of the bank. Almost three years later, on September 13,

1991, the FDIC filed the present suit against seven of the former

directors of the failed institution. The directors named in the

original complaint were William C. Conner, Deborah Conner Norris,

Charles Hillard, Marshall Robinson, Terrance Ryan, Richard I.

Stevens, and Harry H. Whipp. In its original complaint, the FDIC

alleged that the defendants engaged in various "unsafe, unsound,

imprudent or unlawful acts and omissions ... with respect to the

management, conduct, supervision and direction of the Bank." These

acts and omissions allegedly constituted negligence, breached the

defendants's fiduciary duties, violated express and implied

agreements that the defendants had with the institution, and caused

Capital to wrongfully approve twenty-one specified loans to

specified borrowers. The wrongful approval of these loans

allegedly caused the bank to lose in excess of $2.8 million.

On November 12, 1991, five of the defendants—Hillard,

2
Robinson, Ryan, Stevens, and Whipp—filed a joint answer. 1 On the

same day, each of these defendants served on the FDIC a separate

set of written interrogatories. See Fed.R.Civ.P. 33. Except for

the name of the person about which information was sought, each set

of interrogatories was identical. Each set tracked the allegations

made in the FDIC's complaint and contained forty-five principal

questions; however, many questions had extensive sub-parts. The

FDIC calculates that there were 1,615 questions in all. On

December 16, 1991, the FDIC filed a motion for a protective order

pursuant to Federal Rule of Civil Procedure 26(c). The FDIC

claimed that the defendants's interrogatories were oppressive and

burdensome and "were filed more to harass and annoy the FDIC than

to enable the Defendants to prepare their case for trial." The

defendants who served the interrogatories opposed the FDIC's motion

and explained their need for the information sought.

On January 13, 1992, the district court denied the FDIC's

motion for a protective order. The court's order also contained

the following language:

The court further ORDERS that plaintiff shall deliver ... on
or before January 30, 1992, full and complete responses to
each of defendants' interrogatories. The court further ORDERS
that such responses shall be fully self-contained, that is,
they shall not incorporate by reference or merely refer to any
other interrogatory response, document or thing, and that such
answers shall be verified in the manner contemplated by the
Federal Rules of Civil Procedure. Failure to comply with this
order will result in the imposition of sanctions, including,
if appropriate, the striking of plaintiff's complaint in this
action.

1
Deborah Conner Norris filed her answer on November 22,
1991. The proceedings regarding the remaining defendant, William
C. Conner, are discussed in Part II.

3
Approximately ten days later, the district court granted a motion

by the FDIC for an extension of time within which to answer the

disputed interrogatories. On February 11, 1992, the date on which

the responses to the interrogatories were due, the FDIC served its

answers and objections on Hillard, Robinson, Ryan, Stevens, and

Whipp. The defendants were unhappy with the FDIC's responses.

Thus, on May 14, 1992, they filed a motion for sanctions, alleging

that the FDIC failed to comply with the district court's January 13

order. The FDIC opposed this motion and filed a response. Later,

on May 29, 1992, the FDIC served on the defendants a set of amended

and supplemental interrogatory answers. Still dissatisfied with

the FDIC's responses, the defendants continued to press their

motion for sanctions. The district court held a hearing on this

motion on July 17, 1992.

At the hearing, the district court found that the FDIC's

responses to the defendants's interrogatories violated the January

13 discovery order in several respects. First, the court held that

the FDIC violated the January 13 order by including in its

responses objections to the defendants's interrogatories.

Believing that the time for making objections had expired and

interpreting the January 13 order to forbid the raising of any

objections to the interrogatories, the district court chided the

FDIC for including in its responses both general objections to the

interrogatories as a whole and specific objections to several

individual questions. Second, the court found that the FDIC

disregarded the directive of the January 13 order that the

4
interrogatory answers be fully self-contained. Each set of the

FDIC's responses to the interrogatories violated this portion of

the January 13 order by repeatedly referring to other interrogatory

answers and other documents. Finally, the district court concluded

that the FDIC disobeyed the portion of the January 13 order that

required interrogatory answers to be full and complete because some

of the interrogatory answers merely stated general legal

conclusions without stating the facts upon which those conclusions

were based.

The district court found that the FDIC's violations of the

January 13 discovery order were conscious, deliberate, and willful.

The court did "not accept as credible or worthy of belief the

explanations of forgetfulness and the like given by [FDIC attorney

Charles W.] Sartain as excuses for failures to obey the order."

The court then considered what sanctions would be appropriate to

impose on the FDIC for its violations of the January 13 order. The

court found that the FDIC's conduct amounted to bad faith and

stated that it had considered alternative sanctions short of

dismissal. The court thus invoked its authority under Federal Rule

of Civil Procedure 37(b)(2) and dismissed the FDIC's claims against

Hillard, Robinson, Ryan, Stevens, and Whipp. Finding that the

FDIC's violations of the discovery order were not substantially

justified and that there were no other circumstances that would

make an award of expenses unjust, the court then ordered Sartain to

pay the reasonable expenses, including attorney's fees, that the

defendants incurred in their motion for sanctions. The court thus

5
ordered Sartain to pay Hillard, Robinson, Ryan, Stevens, and Whipp

$6,045.00 for the FDIC's failure to comply with the January 13

order. The court required Sartain to pay this sum from his

personal funds and forbade him from seeking reimbursement from the

FDIC. The court then entered a final judgment as to Hillard,

Robinson, Ryan, Stevens, and Whipp, dismissing the FDIC's claims

against them.

B. Discussion

Federal Rule of Civil Procedure 37(b)(2) empowers a district

court to impose "just" sanctions on parties who disobey a discovery

order. For the violation of a discovery order, a district court

can, among other things, order the dismissal of a claim and the

payment of the opposing party's expenses, including attorney's

fees.2 Rule 37 also grants a district court considerable, but not

2
The portion of Federal Rule of Civil Procedure 37(b)(2)
that is pertinent to this appeal provides as follows:

If a party ... fails to obey an order to provide or
permit discovery, ... the court in which the action is
pending may make such orders in regard to the failure
as are just, and among others the following:

(C) An order striking out pleadings or parts thereof,
or staying further proceedings until the order is
obeyed, or dismissing the action or proceeding or any
part thereof, or rendering judgment by default against
the disobedient party;

In lieu of any of the foregoing orders or in
addition thereto, the court shall require the party
failing to obey the order or the attorney advising that
party or both to pay the reasonable expenses, including
attorney's fees, caused by the failure, unless the
court finds that the failure was substantially
justified or that other circumstances make an award of
expenses unjust.

6
unlimited, discretion in fashioning appropriate penalties for those

who disobey such an order. Chilcutt v. United States, 4 F.3d 1313,

1320 (5th Cir.1993). We thus begin our review of the proceedings

below mindful that the question presented to us is not whether we

would have imposed the same sanction as the district court; it is

whether the district court abused its discretion in imposing that

sanction. National Hockey League v. Metropolitan Hockey Club,

Inc., 427 U.S. 639, 642, 96 S.Ct. 2778, 2780, 49 L.Ed.2d 747 (1976)

(per curiam); Topalian v. Ehrman, 3 F.3d 931, 934 (5th Cir.1993).

We will discuss the dismissal of the claims against Hillard,

Robinson, Ryan, Stevens, and Whipp and the monetary sanction levied

against Sartain separately.

1. The Dismissal of the FDIC's Claims

Because the law favors the resolution of legal claims on the

merits, In re Dierschke, 975 F.2d 181, 183 (5th Cir.1992), and

because dismissal is a severe sanction that implicates due process,

Brinkmann v. Abner, 813 F.2d 744, 749 (5th Cir.1987), we have

previously deemed dismissal with prejudice to be a "draconian

remedy" and a "remedy of last resort." Batson v. Neal Spelce

Associates, Inc., 765 F.2d 511, 515 (5th Cir.1985). Although the

Supreme Court has admonished that "the most severe in the spectrum

of sanctions provided by statute or rule must be available to the

district court in appropriate cases," National Hockey League, 427

U.S. at 643, 96 S.Ct. at 2781, we are also instructed by our

precedents that "sanctions should not be used lightly, and should

be used as a lethal weapon only under extreme circumstances."

7
E.E.O.C. v. General Dynamics Corp., 999 F.2d 113, 119 (5th

Cir.1993); see also Hornbuckle v. Arco Oil & Gas Co., 732 F.2d

1233, 1237 (5th Cir.1984) ("When lesser sanctions have proved

futile, a district court may properly dismiss a suit with

prejudice.") (footnote omitted).

With these considerations in mind, we have articulated several

factors that must be present before a district court may dismiss a

case as a sanction for violating a discovery order. First, we have

explained that "dismissal with prejudice typically is appropriate

only if the refusal to comply results from willfulness or bad faith

and is accompanied by a clear record of delay or contumacious

conduct." Coane v. Ferrara Pan Candy Co., 898 F.2d 1030, 1032 (5th

Cir.1990). Further, we have noted that the violation of the

discovery order must be attributable to the client instead of the

attorney. Id. We have also held that the violating party's

misconduct "must substantially prejudice the opposing party." Id.3

3
The defendants observe that we have written that "[w]hile
perhaps relevant to the type of sanction imposed, a party need
not always be prejudiced by its opponent's discovery abuses prior
to the imposition of sanctions." Chilcutt, 4 F.3d at 1324 n. 30.
We see no inconsistency between this statement and the statement
in Coane that to justify dismissal, "the misconduct must
substantially prejudice the opposing party." Coane, 898 F.2d at
1032. Simply put, while lesser sanctions may be imposed without
a showing of prejudice, more severe sanctions are justified only
if the opposing party has suffered some palpable prejudice.
Since dismissal is one of the harshest sanctions that a district
court can impose, we require a showing of substantial prejudice
before such a penalty is warranted. In contrast, the sanctions
that we have approved without a showing of prejudice have been
among the least harsh in the spectrum of available possibilities.
In Chilcutt, the district court's sanction was to establish
certain facts against the government. See Fed.R.Civ.P.
37(b)(2)(A). We affirmed the imposition of this penalty although
there was no showing that the opposing party had been prejudiced

8
Finally, we have indicated that dismissal is usually improper if a

less drastic sanction would substantially achieve the desired

deterrent effect. Id.; see also Brinkmann, 813 F.2d at 749.

Of course, our review of a district court's sanction for the

violation of one of its discovery orders also "necessarily includes

a review of the underlying discovery order." Hastings v. North

East Indep. School Dist., 615 F.2d 628, 631 (5th Cir.1980).

However, our review of the underlying discovery order is

deferential: "The trial court's exercise of discretion regarding

discovery orders will be sustained absent a finding of abuse of

that discretion to the prejudice of a party." Id.

Applying these criteria to the case before us, we hold that

the district court abused its discretion when it dismissed the

FDIC's claims against Hillard, Robinson, Ryan, Stevens, and Whipp

for the FDIC's failure to comply with the January 13 discovery

order. Even assuming the propriety of all facets of the district

court's discovery order, the circumstances of this case do not

warrant dismissal as a sanction for the FDIC's conduct.

First, we cannot find a record of delay or contumacious

conduct sufficient to warrant dismissal of the FDIC's claims.

While the FDIC did file a motion for a protective order that the

district court found to be groundless and a motion for an extension

of time within which to answer the interrogatories, the plaintiff

timely served responses to most of the interrogatories, although in

by the government's discovery abuses because the sanction imposed
was "one of the least harsh sanctions available to courts under
Rule 37(b)." Chilcutt, 4 F.3d at 1320 n. 17.

9
a manner that violated the January 13 order.4 Moreover, before the

district court's hearing on the motion for sanctions, the FDIC

served on the defendants supplemental answers that provided all of

the requested information. The FDIC's conduct admittedly violated

the January 13 order, caused a slight delay in the defendants's

preparation of their defense, and therefore exposed the FDIC to the

imposition of some sort of Rule 37(b) sanction. However, taking

all of the circumstances of this case into account, we conclude

that the FDIC's conduct did not exhibit the degree of delay or

contumacy that justifies the dismissal of its claims. Cf. S.E.C.

v. First Houston Capital Resources Fund, 979 F.2d 380 (5th

Cir.1992).

We also find that the FDIC's conduct did not cause the

defendants to suffer substantial prejudice. The defendants

complain that the delay caused by the FDIC's failure to comply with

the January 13 discovery order prejudiced them. An examination of

the record, however, reveals that the discovery dispute arose in

the initial stages of this litigation. The FDIC served its

supplemental responses to the defendants's interrogatories in May

of 1992. In its opposition to the motion for sanctions and at the

sanctions hearing, the FDIC explained that after it served its

supplemental answers, no information was withheld on account of the

4
In this set of responses, the FDIC objected to and
therefore did not answer the interrogatories that sought
information that related to the FDIC's management of Capital's
loan portfolio after the FDIC was appointed receiver of the bank.
The FDIC's objections were based on the assertion that such
information was irrelevant.

10
FDIC's objections. Given that the period for discovery was not to

close until over a year later, July 30, 1993, and that the trial

was set for the October 3, 1993, the FDIC's conduct did not prevent

the defendants's "timely and appropriate preparation for trial."

Coane, 898 F.2d at 1033. The defendants also assert that the

continued presence of this suit prejudiced their business affairs.

However, such a claim cannot suffice to justify dismissal of a

suit. The FDIC's violation of the January 13 discovery order did

not substantially prejudice the defendants.

This case involves a question of life or death, or to be or

not to be. We resurrect the FDIC's claims, although we are not

unconscious of the FDIC's miscreant behavior. The absence of delay

and prejudice identified above, taken together, satisfy us that the

district court abused its discretion when it dismissed the FDIC's

claims against Hillard, Robinson, Ryan, Stevens, and Whipp. We

therefore reverse the district court's order dismissing the FDIC's

claims against these defendants.

2. The Rule 37(b)(2) Monetary Sanction Levied Against Sartain

We now turn to the district court's order that the FDIC's

attorney, Charles W. Sartain, pay the attorney's fees incurred by

the defendants as a result of the FDIC's failure to obey the

January 13 discovery order. As we stated, the district court found

that the FDIC violated the January 13 order in several ways. The

district court also found that the FDIC's violations of the January

13 order were not substantially justified and that there were no

other circumstances that would make an award of expenses unjust.

11
The court therefore ordered Sartain to pay Hillard, Robinson, Ryan,

Stevens, and Whipp $6,045.00 for these defendants's reasonable

expenses caused by the FDIC's failure to comply with the January 13

order. See Fed.R.Civ.P. 37(b)(2). Sartain was required to pay

this sum from his personal funds and forbidden to seek

reimbursement from the FDIC. We cannot find that this sanction was

an abuse of discretion.

Federal Rule of Civil Procedure 37(b)(2) requires the award of

expenses for the failure to obey a discovery order unless the

disobedient party establishes that the failure was substantially

justified or that other circumstances make an award of expenses

unjust. See Advisory Committee Note to 1970 Amendments to Rule 37

(explaining that Rule 37(b)(2) places the burden on the disobedient

party to avoid expenses). Rule 37(b)(2) also authorizes the

district court to order the attorney who advised the disobedient

party to pay the opposing side's reasonable expenses personally.

The sanction imposed on Sartain was appropriate only if the

district court's underlying discovery order was proper, the FDIC

violated that order, and the expenses incurred by the defendants

were caused by the FDIC's failure to comply with the order. See

Hastings, 615 F.2d at 631. Our review of the record satisfies us

that the FDIC violated valid portions of the January 13 discovery

order. The district court found that the FDIC violated the January

13 order by objecting to the interrogatories, by cross-referencing

responses and repeatedly referring to other interrogatory answers

and documents, and by stating general legal conclusions in some

12
answers without stating the facts upon which those conclusions were

based. Although we are concerned by the district court's finding

that the FDIC violated the January 13 order by including objections

to the defendants's questions,5 we believe that the FDIC

transgressed plain and legitimate features of the district court's

discovery order in a sufficient number of ways to justify the award

of attorney's fees. The January 13 discovery order explicitly

required all of the FDIC's interrogatory answers to be "full and

complete" and "fully self-contained." The district court did not

abuse its discretion in fashioning these aspects of the discovery

order. The district court found that the FDIC disobeyed the

requirement that each interrogatory answer be "full and complete"

by summarizing general legal conclusions in some answers without

stating the facts upon which those conclusions were based.

Similarly, the district court found that the FDIC repeatedly

violated the directive that each answer be "fully self-contained"

by referring to other interrogatory answers or other documents at

least sixty-five times. The district court also found that these

violations were conscious, deliberate, and willful. We cannot say

that these findings are clearly erroneous. Moreover, the district

5
The January 13 order did not specifically prohibit the FDIC
from making objections. Instead, the order was, at best, general
and vague on this point. This infirmity militates against the
propriety of sanctioning Sartain for including objections to the
defendants's interrogatories. See General Dynamics, 999 F.2d at
116 (noting that the Supreme Court has held that a party cannot
be held in contempt for violating a court order unless the order
states in specific and clear terms what acts are required or
prohibited) (citing International Longshoremen's Ass'n v.
Philadelphia Marine Trade Ass'n, 389 U.S. 64, 76, 88 S.Ct. 201,
208, 19 L.Ed.2d 236 (1967)).

13
court was entitled to find that the expenses that the defendants

incurred were caused by the FDIC's violations of the discovery

order. The FDIC's violations of the January 13 discovery order are

thus sufficient to support the award of attorney's fees to the

defendants.6

Courts must be able to invoke punitive instrumentalities to

promote the orderly progress of litigated cases. The sanctions

that courts employ must be potent enough to be efficacious, but

must also be narrowly tailored to serve only their necessary

function. Like all court orders, discovery orders are to be obeyed

when issued, and sanctions for violating such orders may be imposed

without an explicit prior warning or a litany of precautionary

instructions. However, the right to sue is a valuable right that

cannot lightly be exterminated. We are thus loathe to approve of

the dismissal of a case as a sanction for violating a discovery

order without evidence of the sort of maleficent conduct that

justifies death. The application of these principles in this case

has led us to affirm the monetary sanction levied against Sartain,

but reverse the order dismissing the FDIC's claims against some of

the defendants.

II. The FDIC's Claims Against Conner and the 28 U.S.C. § 1927
Sanction Levied Against Sartain

6
The FDIC suggests that the January 13 order violated Rule
33 by preventing it from producing its business records as an
option to responding to the defendants's interrogatories.
However, the FDIC has failed to show that it was entitled to
invoke this portion of Rule 33 because it has not shown that the
burden of deriving the answers to the interrogatories is
substantially the same for both parties. We thus decline to
address this contention further.

14
 A. Background

In late January of 1992, the district court learned that

William C. Conner had died. Because the district court had not

received evidence that Conner had been served with a summons and

complaint, the district court inquired into the status of the

FDIC's claims against him. The court ordered the FDIC to file

proof of proper service on Conner or face dismissal of its claims

against him. The FDIC thus filed an Affidavit of Service of

Summons and Complaint. This affidavit explained that on November

15, 1991, the FDIC received a copy of a Notice and Acknowledgement

of Service by Mail signed by Conner. The affidavit further

explained that the FDIC also received on November 15, 1991, an

unfiled copy of what appeared to be Conner's answer. However,

Conner, who was proceeding pro se, never filed an answer in the

district court. On January 31, 1992, the district court ordered

the FDIC to inform the court whether it wished to proceed with its

claims against Conner by substituting his representatives. If so,

the court ordered the FDIC to substitute the proper party by

complying with the requirements of Federal Rule of Civil Procedure

25(a). Thus, on February 21, 1992, the FDIC filed a Rule 25

motion, requesting the court to substitute "the Estate of William

C. Conner in place of the deceased Defendant William C. Conner."

After considering the response of Hillard, Robinson, Ryan,

Stevens, and Whipp, the district court denied the motion to

substitute and dismissed the FDIC's claims against Conner. The

district court gave several reasons for its action: The court

15
first noted that the FDIC's motion to substitute was "signed by a

law firm instead of an individual attorney" in violation of a

standing order of the district court. Second, the court faulted

the FDIC for failing to serve the motion to substitute on the

representatives or successors of Conner. Third, the court noticed

that neither the FDIC's Affidavit of Service of Summons and

Complaint nor the Notice and Acknowledgement of Service by Mail

signed by Conner had been served on the other defendants. The

court also observed that the Notice and Acknowledgement of Service

by Mail had not been timely filed with the district court as

required by Local Rule 3.1(g) and the version of Federal Rule of

Civil Procedure 4(g) in effect at that time.7 Furthermore, the

court found that the FDIC incorrectly requested the substitution of

"the Estate of William C. Conner" as a defendant. An estate is not

a legal entity and cannot be sued as such. Henson v. Estate of

Crow, 734 S.W.2d 648, 649 (Tex.1987). Finally, the district court

held that since Conner had not answered or otherwise appeared in

the case for ninety days after being served, and since the FDIC had

not filed a motion for default judgment within that period of time,

7
Local Rule 3.1(g) provides that "[i]f a defendant has not
been served within 120 days after filing of the original
complaint, as evidenced by proof of service on the record, the
action may be dismissed as to that defendant, without prejudice
and without notice."

The version Federal Rule of Civil Procedure 4(g) in
effect at that time provided that "[t]he person serving the
process shall make proof of service thereof to the court
promptly and in any event within the time during which the
person served must respond to the process." This provision,
as amended, now appears in Rule 4(l ).

16
the FDIC's claims against Conner were susceptible of being

dismissed pursuant to Local Rule 3.1(h).8 The district court thus

denied the FDIC's motion to substitute and dismissed the FDIC's

claims against Conner. The FDIC filed a motion for new trial, but

this motion was summarily denied by the district court.

In their May 14, 1992 motion for sanctions, defendants

Hillard, Robinson, Ryan, Stevens, and Whipp requested that they be

reimbursed for the expenses they incurred in their opposition to

the FDIC's motion to substitute. At the July 17, 1992 sanctions

hearing, the district court invoked 28 U.S.C. § 1927 and ordered

Sartain to pay the defendants who opposed the FDIC's motion to

substitute parties $1,590.00 to compensate them for the attorney's

fees they incurred in their opposition to the motion. The district

court justified this sanction on the FDIC's "multiplication of

these proceedings unreasonably due to the failure of the plaintiff

to comply with my order signed January 31, 1992."

B. Discussion

Sartain contests the propriety of the $1590.00 sanction for

his failure to comply with the district court's January 31 order.

As noted above, this order required the FDIC to inform the court

whether it wished to pursue its claims against Conner, and, if so,

to comply with the requirements of Federal Rule of Civil Procedure

25(a). The district court sanctioned Sartain under 28 U.S.C. §

8
Local Rule 3.1(h) provides that "[w]here a defendant has
been in default or a period of ninety days, but plaintiff has
failed to move for default judgment, the action will be summarily
dismissed as to that defendant, without prejudice and without
notice."

17
1927. Under this statute, district courts have the authority to

order an attorney who "so multiplies the proceedings in any case

unreasonably and vexatiously" to "satisfy personally the excess

costs, expenses, and attorneys' fees reasonably incurred because of

such conduct." We review sanctions made under this statute for

abuse of discretion. Thomas v. Capital Security Services, Inc.,

836 F.2d 866, 872 (5th Cir.1988) (en banc); Topalian, 3 F.3d at

936 n. 5.

Before a sanction under § 1927 is appropriate, the offending

attorney's multiplication of the proceedings must be both

"unreasonable" and "vexatious." We have characterized awards under

this statute as penal in nature. Browning v. Kramer, 931 F.2d 340,

344 (5th Cir.1991). Other courts have written that § 1927 should

be employed "only in instances evidencing a "serious and standard

disregard for the orderly process of justice.' " Dreiling v.

Peugeot Motors of America, Inc., 768 F.2d 1159, 1165 (10th

Cir.1985) (quoting Kiefel v. Las Vegas Hacienda, Inc., 404 F.2d

1163, 1167 (7th Cir.1968), cert. denied, 395 U.S. 908, 89 S.Ct.

1750, 23 L.Ed.2d 221 (1969)); see also United States v. Ross, 535

F.2d 346, 349 (6th Cir.1976) (§ 1927 liability should "flow only

from an intentional departure from proper conduct, or, at a

minimum, from a reckless disregard of the duty owed by counsel to

the court."). Such a strict construction of § 1927 is necessary

"so that the legitimate zeal of an attorney in representing her

client is not dampened." Browning, 931 F.2d at 344.

In this case, the FDIC's response to the district court's

18
January 31 order was careless and even negligent. However, we

cannot ignore the fact that the district court made no finding that

Sartain's actions were vexatious. This deficiency leads us to

repeat what we said in Browning: "[A]n award pursuant to 28 U.S.C.

§ 1927 "require[s] more detailed findings to determine whether the

requirements of the statute have been met, and which, if any,

excess costs, expenses, or attorney's fees were incurred because of

[the attorney's] vexatious multiplication of the proceedings.' "

Browning, 931 F.2d at 345 (citation omitted) (emphasis supplied).

We must therefore vacate the § 1927 sanction against Sartain. On

remand, the district court may, if the facts warrant it, identify

the conduct in which Sartain engaged that displayed "the degree of

recklessness, bad faith, or improper motive required for a finding

that [Sartain] has multiplied the proceedings "unreasonably and

vexatiously.' " Manax v. McNamara, 842 F.2d 808, 814 (5th

Cir.1988); see also Hogue v. Royse City, 939 F.2d 1249, 1256 (5th

Cir.1991) (application of § 1927 requires evidence of recklessness,

bad faith, or improper motive).

III. The Motion to Amend the Complaint

A. Background

On March 2, 1992, the FDIC filed a motion for leave to file an

amended complaint. In this motion, the FDIC sought to incorporate

into the complaint charges that the defendants's allegedly wrongful

conduct caused Capital to suffer losses from several loans that

were not identified in the original complaint. The defendants

opposed this motion, arguing that allowing the amendment would be

19
futile because the FDIC's claims based on the newly challenged

loans would not relate back to the date of the original complaint

and would thus be barred by the applicable statute of limitations.

The defendants also contended that they would be prejudiced by the

amendment. The district court granted the FDIC's motion to amend

with regard to two of the loans, but denied the motion in all other

respects. Disagreeing with the district court's resolution of the

FDIC's motion, we reverse the order denying the motion to amend.

B. Discussion

Federal Rule of Civil Procedure 15(a) evinces a strong bias

in favor of granting a motion for leave to amend a pleading. The

Rule's language that leave to amend "shall be freely given when

justice so requires" is often cited. See generally, 6 Charles A.

Wright et al., Federal Practice and Procedure: Civil 2d §§ 1473,

1484 (1990). However, leave to amend need not be granted when it

would be futile to do so. See Pan-Islamic Trade Corp. v. Exxon

Corp., 632 F.2d 539 (5th Cir.1980), cert. denied, 454 U.S. 927, 102

S.Ct. 427, 70 L.Ed.2d 236 (1981). Such a situation arises when

leave is sought to add a claim upon which the statute of

limitations has run. However, under Rule 15(c), an amendment to a

complaint will relate back to the date of the original complaint if

the claim asserted in the amended pleading arises "out of the

conduct, transaction, or occurrence set forth or attempted to be

set forth in the original pleading." Fed.R.Civ.P. 15(c)(2);

McGregor v. Louisiana State Univ. Bd. of Supervisors, 3 F.3d 850,

863 (5th Cir.1993). If a claim asserted in an amended pleading

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relates back to the date of the original complaint and is thus not

barred by limitations, then leave to amend should ordinarily be

granted. The theory that animates this rule is that "once

litigation involving particular conduct or a given transaction or

occurrence has been instituted, the parties are not entitled to the

protection of the statute of limitations against the later

assertion by amendment of defenses or claims that arise out of the

same conduct, transaction, or occurrence as set forth in the

original pleading." 6A Charles A. Wright et al., Federal Practice

and Procedure: Civil 2d § 1496, at 64 (1990). Permitting such an

augmentation or rectification of claims that have been asserted

before the limitations period has run does not offend the purpose

of a statute of limitations, which is simply to prevent the

assertion of stale claims.

Some applications of the relation back doctrine are

straightforward. If a plaintiff attempts to interject entirely

different conduct or different transactions or occurrences into a

case, then relation back is not allowed. Thus, in Holmes v.

Greyhound Lines, Inc., 757 F.2d 1563 (5th Cir.1985), we refused to

allow relation back where the original complaint charged that an

arbitration award should be set aside because of the arbitrator's

improper conduct and the amended complaint charged that the union

breached its duty of fair representation with respect to the events

that occurred prior to the arbitration award. Conversely, if a

plaintiff seeks to correct a technical difficulty, state a new

legal theory of relief, or amplify the facts alleged in the prior

21
complaint, then relation back is allowed. Thus, for example, in

Federal Deposit Ins. Corp. v. Bennett, 898 F.2d 477 (5th Cir.1990),

we allowed relation back when the FDIC sought to change the legal

basis for its claim that it was entitled to recover property held

by a defendant and allege for the first time that it could redeem

the property pursuant to 28 U.S.C. § 4210(c).

However, determining when an amendment will relate back has

occasionally proven difficult. Courts have eschewed mechanical

tests for determining when relation back is appropriate.

Professors Wright, Miller, and Kane have explained that if the

alteration of a statement of a claim contained in an amended

complaint is "so substantial that it cannot be said that the

defendant was given adequate notice of the conduct, transaction, or

occurrence that forms the basis of the claim or defense, then the

amendment will not relate back." Wright et al., supra, § 1496, at

79. In the end though, the best touchstone for determining when an

amended pleading relates back to the original pleading is the

language of Rule 15(c): whether the claim asserted in the amended

pleading arises "out of the conduct, transaction, or occurrence set

forth or attempted to be set forth in the original pleading."

In the present case, we hold that the amended complaint

should relate back to the date of the original complaint. The

damage allegedly caused by the loans that the FDIC seeks to include

in this case arose out of the same conduct as the damage caused by

the twenty-one loans listed in the original complaint. The conduct

identified in the original complaint that allegedly caused the

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defendants to approve the loans listed in that pleading also

allegedly caused the defendants to approve the loans that the FDIC

seeks to include in this case through the amended complaint. The

FDIC's amendment thus seeks to identify additional sources of

damages that were caused by the same pattern of conduct identified

in the original complaint.

The defendants contend that the district court did not abuse

its discretion in denying the FDIC's motion to amend because

allowing the amendment would have unduly prejudiced them. We do

not agree. The defendants claim that allowing the motion to amend

would have unduly prejudiced them because the FDIC stated at a

meeting before this suit was filed that the loans identified in the

original complaint would be the only loans that the FDIC would

include in its complaint. Accepting this assertion as true, we do

not see how granting the motion to amend would unduly prejudice the

defendants. The FDIC filed its motion to amend in March of 1992,

over a year before the date on which amended pleadings were due and

discovery was scheduled to be completed. The motion to amend was

thus presumptively timely. Moreover, the defendants have not

alleged that the amendment will interfere with their ability to

present any evidence or defenses to the FDIC's claims. Thus, the

defendants could not have been unduly prejudiced by the FDIC's

motion to amend its complaint.

Since the FDIC's proposed amendment to its complaint does not

seek to alter the basic focus of the claim and since the defendants

have not shown that the proposed amendment will unduly prejudice

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them, we reverse the district court's denial of the FDIC's motion

to amend the complaint.

IV. Conclusion

The dismissal of the FDIC's claims against the five defendants

and the denial of the motion to amend are REVERSED. The monetary

sanction against Sartain imposed pursuant to 28 U.S.C. § 1927 is

VACATED. The Rule 37(b)(2) sanction against Sartain is AFFIRMED.

This case is REMANDED to the district court for further proceedings

consonant with this opinion.

. . . . .

. . . . .

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