Chaves v. M/V Medina Star

United States Court of Appeals,

Fifth Circuit.

No. 94-60388

Summary Calendar.

Luis Cuna CHAVES, Oscar D. Barbosa, Nikolay Shmakov, Konstantin
Anchev, Victor Formenkov, Danail Ivanov, Vyacheslav Shutikov, Oscar
L. Goinhex, Frederick D. Brooks, Clive D. Bennet, Dene E. Zepeda
and Captain Leonard O'Keefe, Plaintiffs,

v.

The M/V MEDINA STAR, formerly the M/V Odessa Star in rem, and
Casblan Maritime, Gema Shipping & Trading and Captain Jose Otero in
personam, Defendants.

March 10, 1995.

Appeal from the United States District Court for the Southern
District of Texas.

Before JOHNSON, WIENER, and STEWART, Circuit Judges.

JOHNSON, Circuit Judge:

Under the authority of the inherent power of the court, the

magistrate judge imposed sanctions on attorney for allegedly bad

faith conduct in litigation. Attorney appeals and we REVERSE.

I. FACTS AND PROCEDURAL HISTORY

On February 8, 1994, attorney Jimmie M. Spears brought suit on

behalf of several crew members of the M/V MEDINA STAR seeking the

recovery of earned but unpaid wages. As Spears chose to pursue the

plaintiffs' claims in rem, he contemporaneously requested the

issuance of a warrant for the arrest of the vessel. The magistrate

judge to whom the case was assigned granted this request, issued a

warrant and the U.S. Marshal arrested the vessel in Freeport,

1
Texas.1

Two days later, the magistrate judge held a hearing to

determine the amount of security to be posted to effect the release

of the vessel. At that hearing, the initial group of intervenors

appeared asserting claims actionable against the M/V MEDINA STAR in

rem. Additionally, the captain of the M/V MEDINA STAR, a

named-defendant, personally appeared and requested that the hearing

be continued to permit him time to employ counsel. Accordingly,

the magistrate judge granted the intervention and rescheduled the

hearing for setting the amount of the bond for February 18, 1994.

On February 18, a second group of intervenors appeared

asserting claims actionable in rem against the M/V MEDINA STAR.

The magistrate judge granted the intervention.2 Further, the

magistrate judge set the amount of the bond at $440,000. This

amount was calculated to secure payment of all claims pending

before the magistrate judge.3

1
To effect this seizure, the plaintiffs, in accordance with
the local rules, posted a $5,000 bond to cover the expenses
incurred by the U.S. Marshal in this matter.
2
During this hearing, Spears complained that only his
clients, the original plaintiffs, had participated in the seizure
of the vessel. Hence, he suggested that the intervenors should
join in the seizure to protect their interests in the litigation.
Moreover, both sets of intervenors had, in fact, requested in
their intervening complaints that the vessel be arrested.
Nevertheless, the magistrate judge did not act on those requests
and thus the intervenors never joined in the seizure. As a
consequence, the expenses of the seizure continued to be borne by
the original plaintiffs alone even though the jurisdictional
benefits of the seizure inured to the advantage of all claimants
against the vessel.
3
The sole exception to this was the claim of the preferred
mortgage holders who explicitly asked the court to ignore their

2
 Shortly thereafter, the original plaintiffs, represented by

Spears, reached a settlement of their claims. Accordingly, and

without seeking court approval, Spears, on February 23, 1994,

submitted a document to the Marshal purporting to authorize the

release of the vessel.4

This action distressed the magistrate judge who feared that,

while he still had claimants against the vessel pending, his in rem

jurisdiction over the vessel could sail with the tide.5 Believing

that Spears had no authority to unilaterally release the vessel

when he knew there were other claimants before the court, the

magistrate judge ordered Spears to appear and show cause why he

should not be held in contempt or otherwise sanctioned for his role

in the release of the M/V MEDINA STAR from custodia legis. In

defense of his action, Spears argued that because only his clients,

the original plaintiffs, had the vessel arrested, he, as their

attorney, had the authority to release their seizure of the vessel.

The magistrate judge rejected Spears' argument, though.

Further, the magistrate judge found that Spears had acted in bad

claim in the determination of the bond amount.
4
Two days later, the original plaintiffs filed their motion
to dismiss their claims.
5
In fact, there was very little risk that the vessel would
sail because of the financial difficulties of the owner and the
mechanical problems the vessel was experiencing. Moreover, the
other parties in the litigation were notified of Spears' action
in releasing the vessel prior to the time that the vessel could
have sailed and in time to rearrest the vessel on their own
behalf if they wished to pursue their claims. The remaining
parties did rearrest the vessel and thus the jurisdiction of the
court was not actually harmed.

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faith in acting to jeopardize the jurisdiction of the court.

Accordingly, relying on the inherent power of the court, the

magistrate judge imposed sanctions upon Spears in the amount of

$2,500 payable within ten days. Spears objected to the Opinion and

Order issued by the magistrate judge and requested review by the

district court. The district court upheld the action of the

magistrate judge, however. Spears now appeals to this Court.

II. DISCUSSION

A. Jurisdiction

Before we address the merits of this case, we must satisfy

ourselves that we have jurisdiction. In Click v. Abilene National

Bank, 822 F.2d 544 (5th Cir.1987), we held that an order awarding

Rule 11 sanctions against an attorney was not final and appealable

under 28 U.S.C. § 1291.6 Moreover, the Click Court held that the

order was not an appealable collateral order under the doctrine of

Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct.

1221, 93 L.Ed. 1528 (1949).7 The prerequisites of an appealable

6
But see, Crookham v. Crookham, 914 F.2d 1027, 1029 n. 4
(8th Cir.1990); Reygo Pacific Corp. v. Johnston Pump Co., 680
F.2d 647, 648 (9th Cir.1982).
7
There is disagreement in the circuits on this issue. The
First, Third, Tenth and Federal Circuits also hold that an appeal
of a sanction order issued against an attorney for a party is not
an appealable collateral order under Cohen. In re Licht &
Semonoff, 796 F.2d 564 (1st Cir.1986); Eastern Maico
Distributors, Inc. v. Maico-Fahrzeugfabrik, 658 F.2d 944 (3d
Cir.1981); G.J.B. & Assoc. v. Singleton, 913 F.2d 824 (10th
Cir.1990); Sanders Associates, Inc. v. Summagraphics Corp., 2
F.3d 394 (Fed.Cir.1993). However, the Second, Seventh, Eighth,
and Eleventh Circuits hold that an attorney for a party may
immediately appeal a sanction order pursuant to Cohen. See e.g.
Sanko S.S. Co. v. Galin, 835 F.2d 51 (2d Cir.1987); Frazier v.
Cast, 771 F.2d 259 (7th Cir.1985); Crookham v. Crookham, 914

4
Cohen order are that: 1) it must conclusively determine the

disputed question, 2) it must resolve an important or serious and

unsettled question, 3) which is completely separable from and

collateral to the merits of the parties' litigation, and 4) if not

appealed as a collateral matter, the district court's determination

must be practically unreviewable. Rives v. Franklin Life Insurance

Co., 792 F.2d 1324, 1327 (5th Cir.1986); Click, 822 F.2d at 545.

The Click Court found that the final criterion was not met because

Rule 11 sanctions against an attorney can be and routinely are

appealed when merged into the district court's final judgment. Id.

This decision was reaffirmed in Schaffer v. Iron Cloud, Inc.,

865 F.2d 690 (5th Cir.1989). In Schaffer, as in the instant case,

the sanction order against the attorney was immediately payable.

Even so, in the absence of any showing that the sanction impeded

the plaintiff's access to the courts, this Court saw no reason to

diverge from Click's holding that such an order was not an

appealable collateral order under Cohen. Id. at 691.

However, this Court did diverge from the Click rule in

Markwell v. County of Bexar, 878 F.2d 899 (5th Cir.1989). In that

case, the district court imposed monetary sanctions against an

attorney who had withdrawn from representation of any party at the

time of the appeal. In addressing whether this fact distinguished

this case from the holding of Click, the Markwell Court looked to

our sister circuit's opinion in Eavenson, Auchmuty & Greenwald v.

F.2d 1027 (8th Cir.1990); Transamerica Commercial Fin. Corp. v.
Banton, Inc., 970 F.2d 810 (11th Cir.1992).

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Holtzman, 775 F.2d 535 (3d Cir.1985). That court held that a

sanctions order imposed against an attorney that had withdrawn from

the litigation was an appealable collateral order because the

attorney had an immediate interest in challenging the sanction,

which interest was not shared by the parties to the suit or by

counsel to a party, and that the sanctions order would be

effectively unreviewable from a final judgment in the litigation.

Id. at 538-39. Relying on this reasoning, the Markwell Court

determined that an exception to the Click rule was warranted where

an order assesses sanctions against an attorney who has withdrawn

from representation at the time of the appeal and where immediate

appeal of the order would not impede the progress of the underlying

litigation. Markwell, 878 F.2d at 901.

We believe that the facts of the instant case fall within the

exception set out in Markwell. While attorney Spears has not

withdrawn from representation of his clients, his clients have

settled and have been voluntarily dismissed from the underlying

action. Spears has no further interest in the merits of the

litigation. However, he clearly has an interest in challenging the

sanction against him and this interest is not shared by any other

party or attorney in the underlying litigation. Further, as Spears

is no longer connected with the merits of the case, it is unclear

that he would be able to obtain review of the sanctions order after

final judgment. Finally, we are unable to discern any impediment

to the progress of the underlying litigation that would be caused

by our consideration of this appeal. Accordingly, we conclude that

6
we have jurisdiction over Spears' appeal under the collateral order

doctrine.

B. Sanctions Under the Court's Inherent Power

We review the imposition of sanctions for an abuse of

discretion. Resolution Trust Corp. v. Bright, 6 F.3d 336, 340 (5th

Cir.1993). A court abuses its discretion when its ruling is based

on an erroneous view of the law or on a clearly erroneous

assessment of the evidence. Cooter & Gell v. Hartmarx Corp., 496

U.S. 384, 405, 110 S.Ct. 2447, 2461, 110 L.Ed.2d 359 (1990).

As authority for the instant order, the magistrate judge

relied entirely on the inherent power of the court to impose

sanctions against attorneys for bad faith conduct in litigation.

See Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115

L.Ed.2d 27 (1991). While this power undoubtedly exists, the

threshold for the use of inherent power sanctions is high. Reed v.

Iowa Marine and Repair Corp., 16 F.3d 82 (5th Cir.1994). Indeed,

the Supreme Court has cautioned that "[b]ecause of their very

potency, inherent powers must be exercised with restraint and

discretion." Chambers, 501 U.S. at 44, 111 S.Ct. at 2132; see

also Natural Gas Pipeline Co. v. Energy Gathering, Inc., 2 F.3d

1397, 1406-07 (5th Cir.1993) (inherent powers must be exercised

with restraint and discretion and only sparingly so). In this

case, we find the mandated restraint lacking.

In order to impose sanctions against an attorney under its

inherent power, a court must make a specific finding that the

attorney acted in "bad faith." Bright, 6 F.3d at 340; In re

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Thalheim, 853 F.2d 383, 389 (5th Cir.1988). In this case, the

magistrate judge found that Spears acted in bad faith when, without

any authorization from the court, Spears purported to authorize the

U.S. Marshal to release the vessel.

As the magistrate judge interpreted the sparse law on the

subject, Spears could not, when he knew that there were other

claimants before the court pressing claims against the vessel who

had not rearrested the vessel, release the vessel without an order

from the court.8 Spears, by contrast, contended that since he was

the only attorney who, for the benefit of his clients, caused the

vessel to be seized, he had the authority to release the vessel.

We need not resolve this question to decide this case. We

merely determine that Spears' argument is far from specious and his

motivation was obviously to serve his client and not to defeat the

jurisdiction of the court over the intervenors' claims.

First, we note that Spears' argument has some equitable

appeal. Only his clients had caused the vessel to be arrested and

only his clients were bearing the costs of that seizure. The

intervenors had incurred no expense and were attempting to ride his

8
Chiefly, the magistrate judge relied on the case of The
Oregon, 158 U.S. 186, 15 S.Ct. 804, 39 L.Ed. 943 (1895). Unlike
the instant case, The Oregon involved a situation where
intervenors presented their claims only after the vessel had been
released. Under those facts, the Supreme Court reversed a lower
court's ruling that had given the intervenors priority in the
stipulation paid into the court to effect the release of the
vessel. However, in dicta, the court opined that had the vessel
still been in custody when the intervening petitions had been
filed, the vessel could not have been released "until a
stipulation [was] given to answer all the libels on file." Id.
at 210, 15 S.Ct. at 814.

8
jurisdictional coattails. Thus, Spears argued that in order to

protect jurisdiction in rem for their claims, the intervenors would

have had to participate in the arrest of the vessel and share in

the expenses pro rata. As they had not done so, they could not

complain when he released the vessel.9

Next, it seems clear that Spears believed that the local

custom of the Southern District was that seized vessels could be

released, without an order of the court, upon a notice of consent

by the seizing party's attorney to the release of the vessel.10 As

9
That this position apparently was shared at least by the
attorney for one of the groups of intervenors is shown in a
dialogue with the magistrate judge in the hearing held after
Spears had released the vessel. After admonishing Spears for his
actions and ordering Spears to submit authority showing cause why
he should not be sanctioned for his action, the magistrate judge
queried the intervenors as to whether they desired to rearrest
the vessel at that time. The following colloquy ensued.

MR. ROSS: No, Your Honor, we'll wait until tomorrow
for that because I am going to ask that if the other
maritime lien claimants want to participate in this
arrest, so that nobody gets in the position with the
Court that Mr. Spears is in, then if they are not
participants in the arrest, then they shouldn't have—if
they don't put up part of their money to pay these
expenses, then they don't have any grounds to complain
if we release it, is my feeling over this.

THE COURT: That's fine. That's Mr. Spears' feeling as
well.

MR. ROSS: And—and so, we are going to ask the Court to
require of all these intervening claimants that they
pay a pro rata share on number of claimants.

R. Vol. 1 at 357.
10
To establish that this was the local custom, Spears
presented documents entitled Release of Seizure from seven prior
cases in the Southern District wherein the vessel had apparently
been released from seizure solely on the signature and
representations of the seizing attorney. Additionally, Spears

9
he was the only attorney who had caused the vessel to be seized, he

states that he believed that he had the authority to release the

vessel. In support of the alleged local custom and his action,

Spears turned to Rule E(5)(c) of the Supplemental Rules for Certain

Admiralty and Maritime claims of the Federal Rules of Civil

Procedure.11 This rule at least arguably supports Spears' position

that he, as the seizing attorney, had the authority to release the

vessel.

Lastly, we note that Spears' motive was not to jeopardize the

jurisdiction of the magistrate judge. Spears' clients were

incurring expenses in maintaining the seizure of the vessel and

Spears' purpose was to stanch those continuing expenses.

Accordingly, even if Spears did not, in fact, have authority

has provided a memorandum from the supervising deputy U.S.
Marshal for the Southern District of Texas, dated after the
relevant events in this action, entitled New Admiralty Procedures
for Southern District of Texas. One of the items listed as a
"new" procedure states that a court order will be required to
release a vessel unless the original seizure order states that
the vessel can be released upon written authorization from the
seizing attorney. The obvious negative implication from this is
that the prior procedure allowed release, without a court order,
upon the written authorization of the seizing attorney.
11
That rule states, in pertinent part, as follows.

(c) Release by Consent or Stipulation; Order of Court
or Clerk; Costs. Any vessel ... in the custody of the
marshal ... having the warrant may be released
forthwith upon the marshal's acceptance and approval of
a stipulation, bond, or other security, signed by the
party on whose behalf the property is detained or the
party's attorney and expressly authorizing such
release, if all costs and charges of the court and its
officers shall have first been paid.

Rule E(5)(c) (emphasis added).

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to release the vessel without a court order, which we do not now

decide, we conclude that the district court clearly erred in

finding that Spears acted in bad faith. Spears' argument

supporting his action was reasonable and he had no bad faith

intention to interfere with the jurisdiction of the court.

Moreover, as the intervenors rearrested the vessel shortly

thereafter, Spears did not actually harm the jurisdiction of the

court. Under these circumstances, we conclude that the magistrate

judge did not exercise the mandated restraint before assessing

sanctions under the inherent power of the court. Reed, 16 F.3d at

84.

III. CONCLUSION

For the reasons stated above, the judgment of the district

court is REVERSED.

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