IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-20417
MAGUIRE OIL COMPANY, et al.,
Plaintiffs,
MAGUIRE OIL COMPANY,
Plaintiff-Appellee,
versus
THE CITY OF HOUSTON,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Texas
June 18, 1998
Before JOLLY, WIENER, and STEWART, Circuit Judges.
STEWART, Circuit Judge:
Defendant City of Houston (“the City”) appeals the district court’s order requiring the City
to pay $98,578.10 in sanctions to plaintiff Maguire Oil Company (“Maguire”) for “wrongfully
caus[ing] the removal of this case from state court to federal court and, thereafter, deliberately
conceal[ing] from the Court and counsel information pertinent to [the] Court’s jurisdiction.” Because
we find that the district court abused its discretion in imposing sanctions, we reverse.
I.
FACTS AND PROCEDURAL HISTORY
On October 27, 1993, Maguire filed suit in Texas state court for damages and a declaratory
judgment against the City, alleging that certain actions taken by the City against mineral interests it
owned near Lake Houston amounted to, inter alia, (1) a taking without adequate compensation or
due pro cess of law; and (2) unreasonable discrimination against a mineral property owner.1 The
targeted City actions were not only dubious, but—as seen below—foretelling of further questionable
behavior on the City’s part (i.e., during the instant litigation); specifically, the City issued a stop-work
order on a Maguire-owned gas well that only months earlier it had authorized via permit.2 These
actions prompted Maguire to raise not only the aforementioned claims, but also claims of negligent
misrepresentation, promissory estoppel and estoppel.
Noting that Maguire had asserted “violations of [its] rights under the United States
Constitution,” the City timely removed the case to the United States District Court for the Southern
District of Texas on the ground that the court had “original jurisdiction [because the case was] a civil
rights action arising under the [C]onstitution, laws or treaties of the United States.” Trial thereafter
commenced on November 7, 1995. On November 13, 1995, the district court granted the City’s
motion for judgment as a matter of law on Maguire’s claims of negligent misrepresentation,
1
Maguire’s takings, or inverse condemnation, claim was premised on both (1) the Fifth and
Fourteenth Amendments to the United States Constitution and (2) Sections 17 and 19 of Article I of
the Texas Constitution. Maguire did not specify a constitutional or statutory basis for its
unreasonable discrimination claim.
2
According to the City, the permit was issued in violation of Section 23-102 of the Houston
Code, which prohibits the drilling of a well for the purpose of exploring for oil, gas and other
minerals within 1,000 feet of Lake Houston.
2
promissory estoppel and estoppel, but denied the motion as to Maguire’s claim of inverse
condemnation.3 On November 15, 1995, a jury rendered a verdict in favor of the City, finding that
the City’s actions did not constitute inverse condemnation of Maguire’s mineral interests.
Maguire then filed a “Motion for New Trial on the Negligent Misrepresentation, Promissory
Estoppel, and Estoppel Claims,” followed by a “Renewed Motion for Judgment as a Matter of Law
and, in the Alternative, [a] Motion for New Trial on [the] Takings [Claim].” On September 6, 1996,
the district court granted Maguire’s motion for new trial as to the negligent misrepresentation claim
and requested further briefing on whet her the inverse condemnation claim was barred by the
applicable statute of limitations.
The district court never ruled on the statute of limitations issue, holding instead that it lacked
subject matter jurisdiction over the entire case. In so holding, the court noted that in Williamson
County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172, 195, 105 S.Ct. 3108, 3121,
87 L.Ed.2d 126 (1985), the Supreme Court held, inter alia, that a takings claim under the Fifth
Amendment is not ripe for review until “the owner [of the property at issue] has unsuccessfully
attempted to obtain just compensation through the procedures provided by the State for obtaining
such compensation.” See also Samaad v. City of Dallas, 940 F.2d 925, 934 (5th Cir. 1991) (“[I]f a
State provides an adequate procedure for seeking just compensation, the property owner cannot claim
a violation of the Just Compensation Clause until it has used the procedure and been denied just
compensation.” (quoting Williamson, 473 U.S. at 195, 105 S.Ct. at 3121)). The district court found
that because (1) Texas had adequate procedures to remedy a deprivation of property by government
3
On appeal, t he parties do not explain the fate of Maguire’s “unreasonable discrimination”
allegation. From our review of the record, it appears that Maguire did not pursue this claim with
diligence and thus it became overshadowed by the other asserted claims.
3
regulation and (2) Maguire did not first litigate the claim in state court, Maguire’s inverse
condemnation claim was not ripe for review. See Rolf v. City of San Antonio, 77 F.3d 823, 826-27
(5th Cir. 1996) (holding that Texas recognizes a cause of action for inverse condemnation when
property is directly restricted, and that “[a] state’s [remedial] procedure is adequate even though its
law is unsettled whether the claimant would be entitled to compensation.”). In addition, the court
held that because it did not have “jurisdiction over the federal claim asserted by Maguire,” it could
not exercise jurisdiction over Maguire’s state law claims.
Before remanding the case to state court, however, the court observed that on December 8,
1995, the United States District Court for the Southern District of Texas had held—through a
different judge—that it lacked subject matter jurisdiction in Trail Enterprises, Inc. v. City of Houston,
907 F.Supp. 250 (S.D. Tex. 1995), a case that involved not only a virtually identical federal takings
claim, but also removal of the claim by the same defendant (the City) prior to the claim’s final
resolution in state court. Id. at 251 (citing Williamson, 473 U.S. at 193-94, 105 S.Ct. at 3120).
Because it appeared that “the City of Houston may have deliberately taken inconsistent positions on
the jurisdiction issue and may have caused an unnecessary duplication of time and expense in this
case,” the court invited Maguire to submit “any motion that [it] wish[ed] to file related to this matter
before a final order remanding the case [was] entered.” Maguire filed a motion for fees, costs,
and sanctions, citing three possible sources for the court’s authority to issue such an award: (1) the
court’s inherent sanctioning power, which may be invoked when a party has “acted in bad faith,
vexatiously, wantonly, or for oppressive reasons,” Chambers v. NASCO, Inc., 501 U.S. 32, 45-46,
111 S.Ct. 2123, 2133, 115 L.Ed.2d 27 (1991); (2) 28 U.S.C. § 1927, which supports an award
against an “attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously
4
. . . .”; and (3) 28 U.S.C. § 1447(c), which states that “[a]n order remanding [a] case may require
payment of just costs and any actual expenses, including attorney’s fees, incurred as a result of the
removal.” In support of its motion, Maguire argued that the City wrongfully removed the case to
federal court, and thereafter, concealed the Trail decision from the court’s attention. Maguire averred
that in November 1996, while preparing for an upcoming pretrial conference, its attorney uncovered
the Trail opinion and—despit e Maguire’s preference to have the retrial occur in federal
court—promptly brought the opinion to the court’s attention in accordance with his professional
responsibilities. Maguire added that “[d]espite the clear significance of [the Trail decision] to the
proceedings in the case at bar, the City of Houston never informed [anyone] about the decision”—and
thus deliberately concealed a jurisdictional “trump card” from the court’s (and Maguire’s) attention.
Maguire sought (2) $162,738 for fees and expenses incurred for non-reusable work devoted to the
November 1995 trial; (2) $98,578.10 for fees and expenses incurred during post-trial litigation
following the Trail decision; and (3) $98,578.10 as sanctions for the City’s misconduct.
The district court partially granted Maguire’s motion for sanctions in a brief order, the
pertinent part of which is reproduced below:
[T]he Court is of the opinion and finds that the City of Houston
wrongfully caused the removal of this case from state court to federal
court and, thereafter, deliberately concealed from the Court and
counsel information pertinent to this Court’s jurisdiction, all of which
caused a multiplication of proceedings and the needless duplication of
time and expense . . . . For these reasons, . . . [Maguire’s motion] is
GRANTED in part and the City of Houston is ORDERED to pay to
Maguire . . . the sum of $98,578.10 as partial reimbursement for
attorney fees, costs and litigation expenses needlessly incurred by
Maguire . . . as a consequence of the conduct of the City of Houston.
The district court then remanded the case to state court. The City timely appeals the order imposing
sanctions.
5
II.
DISCUSSION
On appeal, the City contends that the sanctions imposed cannot be sustained under any of the
grounds identified by Maguire in its motion for fees, costs and sanctions. While a remand order
based on the lack of subject matter jurisdiction cannot be reviewed on appeal, see Mobil Corp. v.
Abeille General Insur. Co., 984 F.2d 664, 665 (5th Cir. 1993), a concomitant imposition of sanctions
is not similarly shielded. Miranti v. Lee, 3 F.3d 925, 927-28 (5th Cir. 1993).
“This Court reviews the imposition of sanctions for an abuse of discretion.” Matta v. May,
118 F.3d 410, 413 (5th Cir. 1997). “A court abuses its discretion to impose sanctions when a ruling
is based on an erroneous view of the law or on a clearly erroneous assessment of the evidence.” Id.
Because the abbreviated ruling at issue does not disclose under what legal authority sanctions were
imposed, we will examine each of the possible grounds offered by Maguire.
A. 28 U.S.C. § 1927
Although Maguire invoked section 1927 as a possible basis for sanctions below, it wisely does
not urge affirmance of the district court’s award on that basis now. Section 1927 applies to an
“attorney or other person admitted to conduct cases in any court of the United States . . . who so
multiplies the proceedings in any case unreasonably and vexatiously,” 28 U.S.C. § 1927, and is
thus—by its own terms—available only against attorneys and not parties. See Matta, 118 F.3d at
413-14 (“[Section] 1927 sanctions are, by the sect ion’s plain terms, imposed only on offending
attorneys; clients may not be ordered to pay such awards.”) (citation omitted). Because the award
at issue in this case was imposed against the City—and not any of the attorneys involved—it plainly
cannot be sustained under section 1927.
6
B. 28 U.S.C. § 1447(c)
The City argues that irrespective of section 1447(c)’s allowance that “[a]n order remanding
[a] case may require payment of just costs and any actual expenses, including attorney’s fees, incurred
as a result of . . . removal,” 28 U.S.C. § 1447(c), the sanctions imposed in this case cannot be
sustained under section 1447(c) because the City did not “wrongfully remove” the case from state
court. While Maguire does not dispute that “the propriety of the defendant’s removal [is] central
in determining whether to impose fees [under 28 U.S.C. § 1447(c)],” Miranti, 3 F.3d at 928, Maguire
contends that because t he district court’s order reimbursed it only for attorney’s fees and costs
incurred after the Trail decision was rendered—and did not impose sanctions for expenses incurred
prior to and during the November 1995 trial—the issue of whether the City wrongfully removed the
case is a red herring.4 Indeed, Maguire’s brief nowhere urges us to affirm the district court’s award
on the basis of section 1447(c).
While the district court’s limitation of the sanction award to expenses incurred after the Trail
decision was rendered strongly suggests that the City was sanctioned only for failing to bring the Trail
decision to the court’s attention, the language of the sanction order itself explicitly references the
City’s “wrongful[] . . . removal” of the case as one of the reasons for granting Maguire an award.
Therefore, the City is more than justified in proffering an argument that it did not wrongfully remove
this action from state court, and that an award of sanctions is unwarranted under section 1447(c).
We agree with the City that section 1447(c) cannot sustain the award of sanctions at issue in
this case. In Avitts v. Amoco Production Co., 111 F.3d 30, 32 (5th Cir.), cert. denied, 118 S.Ct. 435,
4
Maguire avers that the City has already been penalized for its “wrongful removal” of the case
by the district court’s order to remand.
7
139 L.Ed.2d 335 (1997), we stated:
[i]f a plaintiff bears a substantial share of the responsibility for the case
remaining in federal court, a court abuses its discretion by awarding
the plaintiff any sums under § 1447(c). In other words, a plaintiff may
in certain cases be estopped from recovering costs and attorney’s fees
under § 1447(c) when his conduct after removal plays a substantial
role in causing the case to remain in federal court.
Maguire does not dispute on appeal the City’s assertion that Maguire played a crucial role in
persuading the district court to retain jurisdiction over this case. Given that Maguire (1) alleged
violations of both state and federal law in its original state law complaint; (2) did not move to remand
after the case was removed; (3) alleged in its amended complaint that the district court had
jurisdiction over the case; and (4) persisted in arguing—even after informing the district court about
the Trail decision—that federal jurisdiction nevertheless existed under Lucas v. South Carolina
Coastal Council, 505 U.S. 1003, 112 S.Ct. 2886, 120 L.Ed.2d 798 (1992), we find that Maguire
indeed played a substantial role in causing the case to remain in federal court after its removal. The
district court’s imposition of sanctions therefore cannot be sustained under section 1447(c).
C. THE COURT’S INHERENT POWERS
We now turn to the primary issue in this case—whether the district court’s award of sanctions
may be sustained under the court’s inherent power to sanction deplorable conduct in litigation. See
Chambers v. NASCO, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). In Chambers, the
Supreme Court indicated that even if a statute or rule governs the imposition of attorney’s fees, a
court may “resort to its inherent power to impose attorney’s fees, as a sanction for bad faith
conduct.” Id. at 50, 111 S.Ct. at 2135. It is well-settled, however, that the threshold for the use of
inherent sanctioning power is high, and once the power is invoked, it must be “exercised with
restraint and discretion.” Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir. 1995) (citations
8
omitted). Accordingly, before imposing sanctions under its inherent power, a court must make a
specific finding that the sanctioned party acted in “bad faith.” Matta, 118 F.3d at 410.
In this case, the district court held that the City “wrongfully caused the removal of this case
. . . and, thereafter, deliberately concealed from the Court and counsel information pertinent to this
Court’s jurisdiction.” Although the district court’s holding is ambiguous in terms of specifying (1)
the particular City action that was taken in “bad faith” and (2) the precise information that was
“deliberately concealed,” the parties have raised no arguments along those lines, and instead have
narrowly framed the issue on appeal as follows: whether the evidence was sufficient to show that the
City deliberately concealed the Trail decision from the district court’s attention, thus warranting an
imposition of sanctions under the court’s inherent powers. The parties’ focus on the Trail decision
is by no means unreasonable, given that the district court awarded Maguire only those fees, costs, and
expenses incurred after that decision was rendered. We thus turn our attention to the Trail decision
and the evidence presented on whether the City deliberately concealed it as a jurisdictional “trump
card.”
1. The Trail Decision
In Trail, the plaintiff—an oil and gas lessee of certain acreage in the vicinity of Lake Houston
(“Trail Enterprises”)—filed suit in state court, alleging that the City of Houston had (1) enacted a city
ordinance pro hibiting the drilling of oil and gas wells within an area that encompassed its leased
acreage and (2) failed to respo nd to its request for a variance to permit it to drill wells within the
subject area. Trail, 907 F.Supp. at 251.5 Trail Enterprises alleged two causes of action. The first
5
While the Trail court did not identify the specific City ordinance at issue, the City does not
dispute Maguire’s assertion that it was Houston Code Section 23-102, the very ordinance that
precipitated the instant litigation.
9
action, for declaratory judgment that the ordinance was void, was based primarily on state law, but
included an allegation that the ordinance violated Article I, § 10, Clause 1 of the United States
Constitution. Id. The second action, for damages resulting from the inverse condemnation of its
property, was based on both the Texas and United States Constitutions. Id.
Based on the federal claims that were asserted, the City removed the case to the United States
District Court for the Southern District of Texas. Trail Enterprises then filed a motion to remand,
arguing that because state remedies had not yet been exhausted, the inverse condemnation claims
were not ripe. Id. The City responded that because Trail Enterprises invoked other provisions of the
federal constitution as a basis for relief, removal was proper. Id. The district court, relying on
Williamson, 473 U.S. at 193-94, 105 S.Ct. at 3120, held that because “the federal constitutional
claims of an uncompensated taking for public use [were] unripe, [it had] no federal question
jurisdiction over the federal takings claims.” Id. In addition, the court declined to entertain Trail
Enterprise’s declaratory judgment claim, noting that it was primarily based on state law. The court
remanded the entire case to state court on December 8, 1995.
We agree with the district court’s assessment that, in all material respects, the factual and
procedural backdrop of the Trail case is virtually identical to that in the instant case, and that once
the Trail court decided that it did not have jurisdiction over the asserted claims, the district court
should have been informed of that decision. Both cases involved not only the City as a defendant,
but claims of inverse condemnation that were: (1) based on the same City ordinance; (2) removed to
the United States District Court for the Southern District of Texas prior to being adjudicated in state
court; and (3) asserted in conjunction with primarily state law claims. The fact that Maguire sought
the return of a drilling permit that had previously been issued, whereas Trail Enterprises sought a
10
drilling permit for the first time (i.e., through variance procedures), is a distinction without a
difference to the crucial issue of whether federal subject matter jurisdiction existed over Maguire’s
claims. Indeed, the City conceded below that once the Trail court decided that jurisdiction was
lacking over the claims asserted, the attorneys assigned to the Maguire case were under an
obligation—if they were aware of that decision—to disclose it to the court below. We do not
disagree with that assessment.
2. Evidence of the City’s Deliberate Concealment of the Trail Decision
While the district court understandably was perturbed that the City failed to inform it of the
Trail decision, it nonetheless could not impose sanctions for the City’s ineptitude unless it first made
a specific finding that the City acted in “bad faith.” Chaves, 47 F.3d at 156 (“In order to impose
sanctions . . . under its inherent power, a court must make a specific finding that the [sanctioned
party] acted in “bad faith.”). Although the court purported to make such a finding in its brief order
imposing sanctions—“[the City] deliberately concealed . . . information pertinent to this Court’s
jurisdiction”—our review of the record reveals that this finding was based on a clearly erroneous
assessment of the evidence. Indeed, nothing in the record indicates that the City deliberately
concealed the Trail decision from the district court’s attention between December 8, 1995 (the date
the Trail decision was rendered) and November 14, 1996 (the date the court below was informed of
that decision). Consequently, the imposition of the sanctions at issue cannot be sustained under the
court’s inherent powers.
Suffice it to say, the fact that the City was the defendant in Trail and should have known for
some time that federal subject matter jurisdiction was problematic in the instant case causes us much
concern, particularly with regard to the City’s coordination (or lack thereof) in handling its litigation
11
activities.6 To say that the proverbial “left hand did not know what the right hand was doing” is an
understatement. Nonetheless, the City argues, as it did below, that “the attorneys who handled this
case were not the same attorneys who handled the Trail [Enterprises] case,” and that there was no
evidence that it “deliberately failed to disclose any information to the [court below].” As part of its
opposition to Maguire’s motion for sanctions, the City introduced the affidavits of four City
attorneys—Jocelyn Labove (“LaBove”), an Assistant Attorney for the Defense Litigation Division;
Robert Cambrice (“Cambrice”), the Chief of the Defense Litigation Division; Judy Hatfield
(“Hatfield”), an Assistant Attorney for the Business Litigation Division; and Gene Locke (“Locke”),
the City Attorney—who collectively attested to the following facts:
(1) the City Attorney’s office is divided into ten divisions, including the Defense
Litigation Division and the Business Litigation Division;
(2) the Maguire case, upon its filing in late 1993, was assigned to the Defense
Litigation Division, whereas the subsequently filed Trail Enterprise case was assigned
to the Business Litigation Division;
(3) the attorneys responsible for the Maguire case (including LaBove and Cambrice)
were unaware of “the specifics [of the Trail case]”—most notably its procedural
history (i.e., that it was originally filed in state court, then removed and
remanded)—until counsel for Maguire presented the Trail decision to the district
court in November 1996;
(4) the attorneys responsible for the Trail case (including Hatfield) did not
6
The City’s behavior is especially perplexing in light of the fact that the Trail case and the
instant case were docketed in the same courthouse.
12
communicate the Trail court’s December 8, 1995, holding regarding subject matter
jurisdiction to the attorneys responsible for the Maguire case, because—to the best
of their knowledge—the Maguire case was conclusively decided in favor of the City
in November 1995; and
(5) the lack of communication between the two divisions stemmed from the cases
being assigned to different divisions and likely “would [not] have [occurred] if the
cases had been handled out of the same division.”
In addition, the City conceded in its opposition motion that the above-noted miscommunication
between its attorneys rose to the level of negligence, and that the district court should have been
informed about the Trail decision as soon as it was rendered. Unfortunately for Maguire, however,
mere negligence does not trigger a court’s inherent sanctioning power.7
To its fatal detriment, Maguire presented no rebuttal evidence to suggest that the City’s
actions went beyond mere negligence to constitute intended deceit, i.e., bad faith. In particular,
Maguire introduced no evidence to suggest that the City deliberately withheld the Trail decision from
the attorneys working on the Maguire case, or that the Maguire attorneys were aware of the decision
and failed to disclose it to the district court. Instead, Maguire merely asserted, as it does on appeal,
that the City was generally “aware” of the Trail decision through the imputed knowledge of the
attorneys who worked on that case, and t hat the City failed to disclose the decision to the court
below. The City does not dispute these assertions, however, and reiterates on appeal that its failure
7
The City assures us that corrective measures have since been implemented to ensure that,
“absent extraordinary circumstances, cases involving substantially related matters [are] handled out
of the same division.” According to Locke, these measures should reduce the likelihood of a repeat
of the questionable conduct exhibited by the City during this case.
13
to disclose the Trail decision was negligent. It argues, however, that the record does not support
a finding that it deliberately concealed its “awareness” of the Trail decision from the district court,
and we agree.8 The City’s explanation for its actions—albeit establishing its conduct during this
litigation to be slipshod—was plausible, and was neither rebutted in the least by Maguire nor
discounted by any fact-finding on the part of the district court. Because the record cannot support
a finding that the City acted in “bad faith,” we conclude that the district court improperly invoked its
inherent sanctioning power against the City.
III.
8
In a footnote in its brief, Maguire asserts that LaBove’s affidavit—in which LaBove admits
to disclosing the names of experts used in the Maguire case to Hatfield—“inadvertently proves” that
the City was aware of the district court’s lack of jurisdiction, and that it deliberately concealed this
fact from the court’s attention. In that affidavit, LaBove stated:
At no time prior to the date of [November 14, 1996] was I aware that the Trail case
had been removed from the state district court to federal [court] or that it had been
remanded in December 1995 for lack of subject matter jurisdiction. As best as I can
recall, I conveyed the names of experts that we used in the Maguire case at trial to
Judy Hatfield, the attorney handling for the City the Trail[] case. This, however, if
it occurred, did not occur until sometime after the trial in the referenced case.
Essentially, Maguire claims t hat this affidavit establishes (1) that LaBove was made aware
(presumably through Hatfield) about the challenge made to the Trail court’s subject matter
jurisdiction, and (2) that the attorneys working on the instant case were thus cognizant of the district
court’s precarious jurisdictional reach over the claims asserted.
We disagree with Maguire’s interpretation of LaBove’s affidavit. To begin, the affidavit
provides no indication that LaBove’s interaction with Hatfield occurred after December 8, 1995, the
date the Trail court remanded for lack of subject matter jurisdiction. More importantly, there is no
indication that LaBove was made privy to the challenge that had been made to the Trail court’s
jurisdiction (i.e., assuming her interaction with Hatfield occurred before December 8, 1995), or to
the Trail court’s ultimate decision to remand for lack of subject matter jurisdiction (i.e., assuming
their interaction occurred after December 8, 1995). Without more damning evidence concerning the
substance of the conversation between LaBove and Hatfield, we decline to discount LaBove’s explicit
assertion that she was unaware of the Trail decision until November 14, 1996, the date the court
below was informed of it. Maguire’s effort to “grab at straws” in this manner makes more evident
our conclusion that the record contains no evidence of active misconduct on the City’s part.
14
CONCLUSION
For the foregoing reasons, we hold that the district court’s imposition of sanctions against the
City cannot be sustained under (1) 28 U.S.C. § 1927, (2) 28 U.S.C. § 1447(c), or (3) the court’s
inherent sanctioning power. There being no further arguments of the parties to consider, the
judgment of the district court is REVERSED.
15