United States Court of Appeals
For the First Circuit
No. 12-1302
HARRIET J. BALERNA,
Plaintiff,
v.
CARMEL A. GILBERTI; MELVIN L. LEWIS, individually and as
Executor of the Estate of Helen Lewis; EDWARD F. LEWIS,
individually and as Executor of the Estate of Helen Lewis,
Defendants, Appellees.
JOSEPH J. COPPOLA,
Interested Party, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Howard, Circuit Judge,
Souter,* Associate Justice,
and Stahl, Circuit Judge.
Robert J. Muldoon, Jr., with whom Matthew C. Moschella,
*
Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
Jessica G. Kelly and Sherin and Lodgen LLP were on brief, for
appellant.
Michael J. Markoff for appellees.
February 27, 2013
HOWARD, Circuit Judge. Joseph Coppola, an attorney,
appeals a decision of the United States District Court for the
District of Massachusetts admonishing him for unprofessional
conduct. Finding no abuse of discretion, we affirm.
I. Background
This appeal arises from Coppola's behavior during a case
in which he made accusations against opposing counsel. To explain
the reasons for the district court's admonishment, we briefly
review the background of the case. The estate of Helen Lewis held
the senior mortgage on a parcel of real property, and Harriet
Balerna (whom Coppola would eventually represent) held the junior
mortgage. When the mortgagor defaulted, Helen Lewis's husband and
executor Melvin Lewis hired an attorney, Carmel Gilberti, to
foreclose on the property. In each of two foreclosure auctions,
Ruth Drowne placed the highest bid but could not obtain financing,
forfeiting $30,000 in deposits she made. The property was
eventually sold to Edward Lewis, Melvin's son and another executor
of Helen Lewis's estate, who had placed the second highest bid at
the second auction. Ruth Drowne then filed suit in Massachusetts
state court to set aside the foreclosure sale and retrieve the
deposits that she had forfeited. Gilberti successfully defended
the suit. After Gilberti received attorneys' fees for defending
the suit, the remaining proceeds of the foreclosure sale were equal
only to a fraction of Balerna's junior mortgage.
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Because the proceeds were so meager, Coppola filed suit
on Balerna's behalf in the United States District Court for the
District of Massachusetts against Gilberti, Melvin Lewis, and
Edward Lewis on four counts:
1. Accounting for the proceeds of the foreclosure sale.
2. Declaratory judgment regarding the parties' rights to
those proceeds.
3. Conversion of the proceeds, including unjustified
payment of Gilberti's attorney's fees in the Drowne case.
4. Breach of fiduciary duty, again including the payment
of Gilberti's attorney's fees.
The defendants filed a motion to dismiss, which the court
denied in a minute order. After months of discovery, the case
proceeded to a bench trial, at which Coppola questioned Gilberti
extensively. Three of Coppola's areas of inquiry are relevant on
appeal:
Conversion
The complaint filed by Coppola on behalf of Balerna
accused Gilberti of wrongfully converting the foreclosure proceeds
by using some of them to defend the Drowne suit, in which Gilberti
was sued individually. Despite the caption of that case, however,
Drowne had sued Gilberti only in her capacity as the estate's
attorney. The mortgage agreement, moreover, clearly allowed the
mortgagee to participate in legal proceedings affecting the
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mortgaged property, which undoubtedly included the Drowne suit.
Balerna v. Gilberti, 281 F.R.D. 63, 67 (D. Mass. 2012). At the
beginning of the trial, the court warned Coppola that he risked
being assessed costs if he could not substantiate the conversion
allegation. Coppola offered no evidence that the decision to
defend the Drowne suit was unjustified; in fact, the costs and fees
associated with that suit were less than the $30,000 in forfeited
deposits that Drowne was attempting to recover. The court later
concluded that Coppola had accused Gilberti of serious misconduct
without any evidence.
Usury
In a motion to disqualify Gilberti, as well as in his
opposition to the defendants' motion to dismiss, Coppola invoked
the Massachusetts criminal usury statute, which prohibits a lender
from taking "directly or indirectly, interest and expenses the
aggregate of which exceeds an amount greater than twenty per centum
per annum upon the sum loaned." Mass. Gen. Laws ch. 271, § 49(a).
Based on this statute, Coppola argued that Gilberti's fees were
excessive because they exceeded twenty percent of the foreclosure
proceeds. On the first day of trial, the court told Coppola that
this was a losing argument: "I'll tell you right now, the usury
argument is a total nonstarter. I'll look at it, but I have had it
argued to me before. It's never worked. It's not going to work
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this time either." Nevertheless, Coppola questioned Gilberti in a
way that insinuated that she had committed criminal usury:
Q[:] Are you aware that [payments made on the
loan were] greater -- principal and interest
greater than 20 percent per year?
. . . .
MR. COPPOLA: The cause of action is that the
payments were excessive, your Honor. It is --
as a matter of law, it is illegal to charge
more than 20 percent per year.
After much discussion with Coppola, the court cut off this line of
questioning: "[The usury statute] doesn't have anything to do with
this witness. Maybe by analogy you can argue it in your proposed
findings, but this is not a claim that you advanced against
[Gilberti] or against anyone."
False Statements
Based on discrepancies between the Lewis estate's records
and information that Gilberti provided during discovery, Coppola
accused Gilberti at trial of providing false information: "The
fact is, we asked for an accounting of those proceeds. We were
provided false information. We were provided false information
under oath. We were provided false information as to the answers
to interrogatories." Coppola pressed this attack in his
questioning of Gilberti:
Q[:] You did file an accounting. Yes, you
did. But you made false statements, did you
not?
. . . .
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THE COURT: Very strong words, Mr. Coppola.
You better be very careful.
THE WITNESS: I am really tired of your
accusations, Joe. I'm going to tell you that
right now.
THE COURT: Let's –
THE WITNESS: I'm a good attorney. I've done
nothing wrong.
(Whereupon, the witness breaks down.)
After the trial, the court entered judgment for the
defendants and issued an order to show cause why Coppola should not
be disciplined for the conduct described above. After receiving
briefing, the court held that "sanctions are warranted" because of
"the heedless and unnecessary damage inflicted on Attorney
Gilberti's reputation." Balerna, 281 F.R.D. at 70. The court
admonished Coppola under Federal Rule of Civil Procedure 11(b) for
his conduct, but it did not impose any sanction beyond the
admonishment itself. Coppola appealed.
II. Analysis
We review for abuse of discretion a decision of the
district court imposing sanctions under Rule 11. Cooter & Gell v.
Hartmarx Corp., 496 U.S. 384, 405 (1990), superseded in part on
other grounds by Fed. R. Civ. P. 11(c). As the standard implies,
we give deference to the court's decision. Méndez-Aponte v.
Bonilla, 645 F.3d 60, 68 (1st Cir. 2011). Here, the district court
did not abuse its discretion in admonishing Coppola for the
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accusations he made concerning conversion, usury, and false
statements.
Conversion
Coppola's claim that Gilberti converted funds was never
supported by any evidence; the mortgage agreement clearly permitted
Gilberti to spend foreclosure proceeds to defend the Drowne suit,
and "any reasonable attorney would have understood that although
Gilberti had been named in her individual capacity in the [Drowne]
action, her presence as a defendant was related solely to her
capacity as the attorney for the Lewis Estate." Balerna, 281
F.R.D. at 67. These facts should have been obvious to Coppola
before trial. Nevertheless, Coppola allowed this claim to proceed
to judgment while impugning Gilberti's integrity. Coppola claims
that sanctions were not warranted because he relied in good faith
on In re Hilson, 863 N.E.2d 483 (Mass. 2007), a case in which an
attorney was disciplined for sending funds to his client when those
funds were supposed to be held in escrow for another party. See
Protective Life Ins. Co. v. Dignity Viatical Settlement Partners,
L.P., 171 F.3d 52, 58 (1st Cir. 1999) ("But though that claim
lacked merit, it was not so plainly unmeritorious as to warrant the
imposition of sanctions."). Coppola could not reasonably have
relied on this case because, unlike the attorney in Hilson,
Gilberti had an explicit contractual right to spend the foreclosure
proceeds as she did. See Hilson, 863 N.E.2d at 491.
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Usury
Coppola's allegation that Gilberti violated the criminal
usury statute was frivolous. Coppola claims that he reasonably
relied on two cases, Begelfer v. Najarian, 409 N.E.2d 167 (Mass.
1980), and Focus Investment Associates, Inc. v. American Title
Insurance Co., 992 F.2d 1231 (1st Cir. 1993). In Begelfer, the
Supreme Judicial Court of Massachusetts ordered the recomputation
of attorneys' fees payable under a contract that violated the usury
statute for reasons unrelated to attorneys' fees. 409 N.E.2d at
175 n.16. Begelfer has no application here because the usury
statute applies to lenders making loans, not to attorneys such as
Gilberti, charging fees. As the court pointed out to Coppola, if
his interpretation of the usury statute were correct, any attorney
charging a one-third contingency fee in a foreclosure matter would
be guilty of criminal usury. Focus Investment Associates involved
a "consulting fee" associated with a loan, which may have been a
pretext for the lender to collect an unlawful amount of interest.
992 F.3d at 1240. Here, there is no question that the payments to
Gilberti were legitimate expenses of litigation that benefitted the
Lewis estate. Therefore, Coppola could not reasonably have relied
on these cases.
False Statements
At trial, Coppola questioned Gilberti about her alleged
false statements so aggressively that she broke down on the stand.
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Coppola claims that three allegedly false statements justified this
questioning. First, Gilberti filed an affidavit in the Drowne suit
stating that she had received funds to purchase the foreclosed
property from Edward Lewis. In fact, her firm had received about
half of the funds, while the estate received the rest. Second, in
responding to a request for admission, Gilberti stated that her
firm held the foreclosure sale proceeds in escrow. This was not
correct. At trial, another attorney for the Lewises explained that
he interpreted this request to ask whether Gilberti could account
for the proceeds, and that if there was a mistake in the answer, he
was responsible. The court appeared to accept this explanation.
Third, Gilberti's original accounting credited the estate with a
$10,000 payment that was never made. Gilberti corrected the
accounting after Coppola pointed it out to her.
In the end, the court apparently decided that Gilberti's
statements did not amount to misconduct. Although the court's
decision to impose sanctions on Coppola based on these accusations
is a closer question than it is for the accusations of conversion
and usury, it did not constitute an abuse of discretion; Coppola
turned what seemed to be innocent misunderstandings into claims of
perjury.
Finally, Coppola makes a blanket challenge to his
admonishment under Federal Rule of Civil Procedure 11(b): While
the court cited Coppola's conduct at trial as the reason for his
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admonishment, Rule 11(b) allows sanctions only for misconduct in
presenting "a pleading, written motion, or other paper--whether by
signing, filing, submitting, or later advocating it." The rule
cannot be used to punish conduct at trial. Lamboy-Ortiz v.
Ortiz-Vélez, 630 F.3d 228, 245 (1st Cir. 2010). With respect to
Coppola's claims of conversion and criminal usury, his argument
misses the mark because he did raise these claims in submissions to
the court, and he continued to advocate them during the trial even
after clear warnings by the judge. But Coppola appears not to have
alleged in "a pleading, written motion, or other paper" that
Gilberti made false statements. Although the court was not
entitled to impose sanctions for this conduct under Rule 11(b), it
would not have been an abuse of discretion for the court to invoke
its inherent power to discipline Coppola. See Chambers v. NASCO,
Inc., 501 U.S. 32, 44-45 (1991) ("A primary aspect of [a federal
court's discretion to exercise its inherent powers] is the ability
to fashion an appropriate sanction for conduct which abuses the
judicial process."). Once the court concluded that the unremitting
accusations of falsehoods were groundless, it was entitled to
sanction counsel for pressing them. Therefore, no prejudice to
Coppola resulted from the district court's reliance on Rule 11(b).
III. Conclusion
We affirm the district court's decision.
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