Navarro-Ayala v. Hernandez-Colon

[Systems note: Appendix available from Clerk's Office.]

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 92-2030

ROBERTO NAVARRO-AYALA, ET AL.,

Plaintiffs, Appellees,

v.

RAFAEL HERNANDEZ-COLON, GOVERNOR
OF THE COMMONWEALTH OF PUERTO RICO, ET AL.,

Defendants, Appellants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Hector M. Laffitte, U.S. District Judge]

Before

Breyer, Chief Judge,

Torruella and Boudin, Circuit Judges.

Carlos A. Del Valle Cruz with whom Ramirez & Ramirez, Jorge E.

Perez Diaz, Secretary of Justice, Commonwealth of Puerto Rico, and

Anabelle Rodriguez, Solicitor General, Commonwealth of Puerto Rico,

were on brief for appellants.
Carlos Garcia Gutierrez with whom Armando Cardona Acaba, Puerto

Rico Legal Services, Inc., and Luis M. Villaronga were on brief for

appellees.

August 20, 1993

BREYER, Chief Judge. Kenneth Colon, an attorney,

appeals a $500 sanction that the district court imposed

after finding that he had violated Rule 11 of the Federal

Rules of Civil Procedure. The district court based the

sanction upon a motion that Colon signed, on behalf of the

Commonwealth of Puerto Rico, which asked the court to reduce

the compensation paid to a special master. After reviewing

the motion and the record, we find no violation of Rule 11.

We conclude that the sanction is without basis in law, and

reverse the order imposing it.

I

Background

The sanction arose in the context of lengthy

litigation seeking to reform part of Puerto Rico's mental

health system. See, e.g., Navarro-Ayala v. Hernandez-Colon,

956 F.2d 348 (1st Cir. 1992). In 1974, a group of patients

at Rio Piedras Hospital filed suit, claiming that conditions

there violated the federal Constitution. In 1977, the

district court entered a Stipulation, agreed upon by the

parties, which prescribes reforms and sets standards for

care and treatment. In 1985, the district court appointed a

Special Master who, assisted by a staff, was to monitor

compliance with the Stipulation. In 1987, the district

court began to interpret the Stipulation as applying to

other hospitals in Puerto Rico (at least insofar as they

treated patients transferred from Rio Piedras). The Special

Master began to monitor treatment conditions and seek

compliance with the Stipulation at, at least, one other

hospital.

In late 1991, this court held that the Stipulation

applied only to conditions at Rio Piedras; in the court's

view, the parties had not agreed to its application

elsewhere. Navarro-Ayala v. Hernandez-Colon, 951 F.2d 1325,

1346 (1st Cir. 1991) ("Navarro I"). The court's opinion also

observed that Rio Piedras Hospital seemed to be close to

achieving full compliance with the Stipulation's conditions.

Id. at 1329 n.3. About one month later, in January 1992,

the district court reappointed the Special Master, and his

monitoring staff, to serve until the end of the year.

In February 1992, the Commonwealth filed the

motion, signed by attorney Colon, that is the subject of

this appeal. The motion asked the district court to

reconsider its January 1992 reappointment of the Special

Master, to reduce the length of the term of that

reappointment, to reduce the level of compensation paid the

Master and his staff, and to relieve the Commonwealth of the

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burden of paying for a year's worth of monitoring services

in advance. After considering and rejecting the motion, the

district court decided that its signer had violated Rule 11.

The district court ordered a sanction of $500. The

sanctioned attorney, Kenneth Colon, now appeals.

II

Review of the Sanction Order

Under Rule 11 (in relevant part), an attorney's

signature on a motion paper certifies that "to the best of

the signer's knowledge, information and belief formed after

reasonable inquiry, [the motion] is well grounded in fact

and is warranted by existing law or a good faith argument

for the extension, modification, or reversal of existing law

. . ." Fed. R. Civ. P. 11. The district court concluded

that the signer of the motion paper before us failed in his

duty to undertake reasonable inquiry. In reviewing that

holding, we must take account of that court's greater

familiarity with relevant context, and "apply an abuse-of-

discretion standard." Cooter & Gell v. Hartmarx Corp., 496

U.S. 384, 399 (1990). See also Muthig v. Brant Point

Nantucket, Inc., 838 F.2d 600, 603 (1st Cir. 1988).

Applying that standard, we have found no lawful basis for

applying a sanction in this case.

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The reader can most easily understand why we reach

this conclusion by examining attorney Colon's motion paper,

attached to this opinion as an Appendix. Just what is it

about this paper, one might rightly ask, that would violate

Rule 11? The document makes three requests. First, the

motion asks the district court to reappoint the Special

Master to a term shorter than an additional (nearly) full

year. It relies on the fact that our then-recent Navarro I

opinion both 1) limited the Stipulation's scope to

conditions at Rio Piedras Hospital, and 2) referred to Rio

Piedras' conditions as close to compliance. In light of

those reasons, the motion asserts that the Master's duties

under the Stipulation may be less extensive in the coming

year than the district court had previously thought. And,

it claims that the parties' briefs discussing the

implications of Navarro I (scheduled for submission in mid-

March) would clarify the more limited scope of those future

duties.

Second, the motion asks the district court not to

require the Commonwealth to "prepay[]" a year's worth of

monitoring services, for such payment would be "premature"

given that "the need for and extent of these services has

not been defined." It adds that there "is no reason why the

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required monitoring services cannot be compensated after

their performance . . . ." As authority, it cites Rule

53(a) of the Federal Rules of Civil Procedure, which gives

federal courts broad authority to structure a special

master's compensation. See Fed. R. Civ. P. 53(a)

(compensation shall be paid "as the court may direct").

Third, the motion opposes the rates of

compensation for the Special Master and staff set forth in

the court-approved budget. The motion, in an Appendix A,

presents a chart which says, in effect, that the

Commonwealth compensates its judges, inferior judicial

officers, and comparable health care personnel at much lower

rates of pay. And the motion, in referring to Rule 53(a),

makes clear that the district court has wide discretion to

set the proper amount of compensation. See Fed. R. Civ. P.

53(a) (compensation "shall be fixed by the court").

The district court based its Rule 11 finding

primarily upon the motion's third request, seeking a

reduction in compensation. The January 1992 order

reappointing the Special Master provided for compensation at

the following hourly rates:

Special Master $100.00
Special Master's assistant 30.00

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Psychiatrist 75.00
Psychologist 75.00
Social worker 60.00
Occupational therapist 25.00
Quality assurance director 25.00

The appellant's motion in opposition set forth (in its

Appendix A) a different and much lower set of hourly rates

at which, it said, the Commonwealth paid comparable

employees:

Superior Court judge $27.00
Superior Court law clerk 10.00
Psychiatrist 11.20
Psychologist 11.20
Social worker 9.80
Occupational therapist 7.90
Quality assurance director 7.90

The district court took objection to this latter schedule.

The court said that this schedule did not reflect the pay

that many health care professionals in the Commonwealth's

employ actually receive. The court said further that Colon

had failed to make a reasonable prefiling inquiry into the

actual pay of such professionals before suggesting Appendix

A's pay scales, which were "drastically below the staff's

current rates." These suggested pay scales, the court

added, were "insulting to the professionals on the Special

Master's staff."

In our view, the record does not support the

district court's conclusion that Rule 11 required attorney

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Colon to make a further inquiry. For one thing, the object

of Rule 11's inquiry requirement is to avoid filings that

are baseless. See Fed. R. Civ. P. 11 (signature certifies

that "to the best of the signer's knowledge . . . formed

after reasonable inquiry, [the motion] is well grounded in

fact and is warranted" by law) (emphasis added); Cooter &

Gell, 496 U.S. at 393 ("the central purpose of Rule 11 is to

deter baseless filings"). Here, the inquiry that the

district court believed the appellant should have made would

not have shown the motion to be baseless (i.e. legally

unwarranted, or without adequate factual grounding). It

would simply have weakened, without destroying, the

Commonwealth's argument.

More specifically, the inquiry would have shown 1)

that the motion's Appendix A accurately reflects an official

Commonwealth pay scale, set by its central personnel agency,

for permanent health care professionals, but 2) that the

Commonwealth hires many (perhaps most) health care

professionals, not as permanent employees, but under special

contractual arrangements at higher rates. In light of that

showing, the Commonwealth might have found it more

difficult, but not at all impossible, to proceed with its

claim for lower compensation on the basis of Appendix A.

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The legal standards governing special master compensation

leave much to the district court's discretion. Fed. R. Civ.

P. 53(a). And, an effort to tie the Special Master and

staffs' compensation more directly to judicial compensation

and to an "official" (though frequently skirted)

Commonwealth pay scale is plausible, and within the realm of

reasonable argument, even if that argument eventually would

not carry the day. Cf. Newton v. Consolidated Gas Co., 259

U.S. 101, 105 (1922) (special master's compensation should

be "liberal, but not exorbitant"; salaries "for judicial

officers performing similar duties are valuable guides," but

a "higher rate of compensation is generally necessary").

For another thing, the motion paper's failure to

set forth a more complete account of Commonwealth pay

practices did not impose significant additional costs upon

the opposing party. See, e.g., Unioil, Inc. v. E.F. Hutton &

Co., 809 F.2d 548, 557 (9th Cir. 1986) (cost of foreseeable

response by opposing parties relevant for determining what

constitutes reasonable inquiry), cert. denied, 484 U.S. 822

(1987); Jerold S. Solovy et al., Sanctions in Federal

Litigation 2.04 at 2-18 (1991) (magnitude of burden in

responding to filing affects thoroughness of investigation

that must be performed). That party, the Special Master,

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and the Master's staff, all had ready access to the relevant

compensation-related facts and quickly brought them to the

court's attention. Of course, presenting these facts did

cost the opposing party some time and effort. But Rule 11

normally does not require one party to uncover and to set

forth the facts that support the other side's position. Cf.

Continental Air Lines, Inc. v. Group Systems International

Far East, Ltd., 109 F.R.D. 594, 598 (C.D. Cal. 1986) (Rule

11 does not impose general duty to call all important facts

to court's attention).

Finally, the motion, read fairly and as a whole,

contains no significant false statement that significantly

harmed the other side. We emphasize the word "significant"

because the district court found one sentence literally

false. That sentence says that the "rates of pay" for the

Master's staff "outpace by a factor of 6 or more to 1, the

rates of pay of their counterparts in the Public Health

System." This statement is not literally false, if one uses

the "official" pay scale for permanent employees as a

comparison; in light of actual pay practices, we would

characterize it as "overstatement" or "one-sided

characterization." But were it literally inaccurate, it

would not matter, for Rule 11 neither penalizes

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overstatement nor authorizes an overly literal reading of

each factual statement. Forrest Creek Assoc., Ltd. v.

McLean Sav. and Loan Ass'n, 831 F.2d 1238, 1244-45 (4th Cir.

1987) (Rule 11 "does not extend to isolated factual errors,

committed in good faith, so long as the pleading as a whole

remains `well grounded in fact.'"); Gregory P. Joseph,

Sanctions: The Federal Law of Litigation Abuse 9(D) at

133-34 (1989) ("The focus of . . . Rule [11] is the court

paper as a whole, not individual phrases or sentences

construed separately or taken out of context. . . . [A]t

some level of analysis, every unsuccessful litigation paper

contains an unsupported allegation or flawed argument").

The district court provided several other

justifications for its sanctions. It said that Colon, in

the motion paper, (1) should not have used the word

"bilking," (2) should not have called the payments

"burdensome" without first investigating the actual "effects

of these payments on the Department of Health's budget," (3)

should not have said the litigation was in the "final stage

of proceedings" without asking government officials "if full

compliance and an end to this case were in fact close at

hand," and (4) should not have asked to change the budgeting

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process without first finding out "how the Special Master

had been paid in the past."

In our view, these circumstances do not justify a

Rule 11 sanction, whether considered separately or all

together. (1) We concede that the word "bilking" is

pejorative and, insofar as it implies cheating, without

justification. We also concede the obvious point that

argument made to a judge is more appropriate (and usually

works better) without pejoratives. But to find support for

a Rule 11 sanction in appellant's use of a single, rather

mild (albeit unjustified) pejorative, is to impose a

standard of perfection that few lawyers or judges would

meet. We are not aware of any reason or authority

suggesting that Rule 11 imposes such a standard.

(2) The motion paper does call the Special

Master's budget "burdensome," but we do not understand

where, or how, Rule 11 forbids such a characterization. No

one disputes that the total amount of the Special Master's

court-approved budget is $171,000. Nothing in the record

suggests that the Commonwealth found this amount

insignificant; nor do we understand either how further

consultation with government officials would have led

attorney Colon to change the characterization, or how the

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use of the word "burdensome" made a significant difference

to the litigation.

(3) Neither do we understand how, or why, Rule 11

would forbid attorney Colon to characterize the litigation

as in the "final stage of proceeding." Our opinion in

Navarro I curtailed the scope of the Stipulation and also

observed that "conditions" at Rio Piedras may be "largely .

. . in compliance." The motion paper made clear that the

Commonwealth would soon file a brief arguing in favor of

significantly limiting the Special Master's monitoring

activity. Thus the statement seems to amount to an

argument, reasonable in its context, that might, or might

not, help convince a court. The record does not make clear

how further "inquiry" or further consultation with

government officials would have shown the argument to have

lacked adequate "ground[ing] in fact."

(4) We agree with the district court that the

motion paper, in requesting that "monitoring services be

compensated after their performance," does not take account

of the fact that the current budgeting system provided for

disbursement of budget funds (on a monthly basis) to the

Special Master only after he performed services.

Nonetheless, we do not see how the motion's possible

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misstatement can justify a sanction. Read fairly, and in

context, the paper's request indicates that the Commonwealth

objected to having to budget for a year's worth of

monitoring services in advance, a portion of which might

turn out to have been unnecessary. At worst, the paper's

statement reflects a minor, technical confusion about the

budgeting process, and one which apparently caused no harm.

(After all, the opposing party, the Special Master, and the

court, all understood, and could readily explain, how

current budgeting worked.) See Forrest Creek Associates,

Ltd., 831 F.2d at 1244-45; Joseph, Sanctions 9(D) at 133-

34.

In sum, the district court, at most, could have

found a few isolated instances of noncritical statements

that further inquiry might have shown to be inaccurate or

overstated. That further inquiry would not have shown the

motion's requests to have been baseless. And, failure to

make that inquiry did not unfairly impose upon the other

party some special litigation cost or burden. This case

differs significantly from the kinds of cases in which this

court has upheld a district court's imposition of Rule 11

sanctions. Cf. Muthig, 838 F.2d at 605 (no reasonable

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inquiry where counsel could have readily learned from

clients facts that would have shown their claim for

intentional infliction of emotional distress lacked

validity); Ryan v. Clemente, 901 F.2d 177, 179-81 (1st Cir.

1990) (sanctioning harmful allegation that state officials

failed to investigate illegal scheme where available record

showed the contrary); Cruz v. Savage, 896 F.2d 626, 632-34

(1st Cir. 1990) (sanctioning attorney for unreasonably

bringing and pursuing nine frivolous claims, including some

with either no supporting evidence or where record directly

contradicted claim); Bay State Towing Co. v. Barge American

21, 899 F.2d 129, 131 (1st Cir. 1990) (no reasonable inquiry

where extensive record contains nothing to suggest why or

how a person could have believed most of filing's claims).We

do not see how the district court could find a failure to

undertake the "reasonable inquiry" that Rule 11 requires.

The order of the district court is

Reversed.

NOTE: See Slip Opinion for copy of Appendix.

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