558 F. Supp. 2d 116

NEW ENGLAND SURFACES d/b/a Dion Distributors, Inc., Plaintiff v. E.I. DUPONT DE NEMOURS AND COMPANY d/b/a DuPont and Parksite, Inc., Defendants.

Civil No. 06-89-P-H.

United States District Court, D. Maine.

June 3, 2008.

*120William D. Robitzek, Paul F. Macri, Berman & Simmons, P.A., Lewiston, ME, for Plaintiff.

Deborah A. Buccina, Christine Kennedy-Jensen, James E. Fortin, Douglas, Den-ham, Buccina & Ernst, Martha C. Gayth-waite, Harold J. Friedman, Friedman, Gaythwaite, Wolf & Leavitt, Portland, ME, John C. Wyman, Murtha Cullina LLP, Boston, MA, for Defendants.

Peter J. Rubin, Daniel J. Mitchell, Bernstein Shur, Portland, ME, Steven D. Silin, Berman & Simmons, P.A., Lewiston, ME, Harrison L. Richardson, Kathryn K. Row-en, Richardson, Whitman, Large & Badger, Portland, ME, David J. Perkins, Perkins Olson, Portland, ME, for movants.

DECISION AND ORDER ON DEFENDANT E.I. DUPONT DE NEM-OURS AND COMPANY’S MOTION FOR ATTORNEY FEES

D. BROCK HORNBY, District Judge.

If a party does not use Rule 11 or Rule 37 to seek sanctions against its opponent during the course of a lawsuit, can it recover sanctions for litigation misconduct at the close of the case under 28 U.S.C. § 1927 or the court’s inherent power? Theoretically yes. But I conclude that if the Rules and statute are “up to the task” of dealing with the alleged abuses (and they are here), the court’s inherent power should not be used; and that the movant has not met its burden of proof under § 1927 to show “vexatious” conduct. After oral argument, the defendant DuPont’s motion for attorney fees is Denied.

Factual and PROcedural Background

The plaintiff New England Surfaces (“NES”) was a longtime distributor for the defendant E.I. DuPont de Nemours and Company (“DuPont”) throughout New England. In April 2006, DuPont terminated NES as a distributor. Then it appointed the defendant Parksite, Inc. (“Park-site”) to be its “Sales Affiliate” in New England. Parksite had previously led a group of nineteen distributors (the “G-19”), including NES, in negotiating with DuPont.

NES sued DuPont and Parksite (collectively the “defendants”) on May 3, 2006. The initial Complaint contained fourteen counts. NES added three counts with its First Amended Complaint on May 19, 2006, before the defendants responded to the initial Complaint.1

*121Next, the defendants filed a motion to dismiss all but two counts. NES moved for permission to file a Second Amended Complaint, adding claims for breach of contract and for violation of the Maine Unfair Sales Act. On August 23, 2006, Judge Singal granted the motion to amend. On October 20, 2006, Judge Singal granted in part the defendants’ motion to dismiss. Order on Mot. to Dismiss, 460 F.Supp.2d 153 (D.Me. 2006). He dismissed four counts under various state statutes based primarily on a choice-of-law determination. See id. at 158-62. He also dismissed the claim of unconscionability because NES’s allegations were insufficient to state such a claim. See id. at 162-63. He denied the motion to dismiss the other counts.2

Discovery proceeded until April 2007; then the defendants filed motions for summary judgment on all remaining counts. On September 14, 2007, Judge Singal granted partial summary judgment to the defendants. See Order on Mots, for Summ. J., 517 F.Supp.2d 466 (D.Me.2007). He granted them judgment on all of NES’s claims related to DuPont’s termination of NES as a distributor. But he denied summary judgment on four claims related to the manner in which DuPont and Parksite acquired NES’s customer lists or communicated with NES’s eustom-ers after DuPont had decided to terminate NES, ruling that there were trialworthy issues on those counts.

NES never got to trial on those remaining claims. On December 6, 2007, Judge Singal granted the defendants’ motion in limine to exclude NES’s evidence of damages because it was not relevant to the remaining claims and because NES failed to establish an adequate foundation for the proffered testimony of its damages experts. See Order on Mot. in Limine, 2007 WL 4287577 (D.Me. Dec.6, 2007). As a result, Judge Singal entered final judgment against NES. NES filed a notice of appeal to the First Circuit on January 4, 2008.3

Then, DuPont filed this motion for attorney fees against NES and its law firm Berman & Simmons and one of its partners, William Robitzek (collectively “Ber-man & Simmons”), based upon 28 U.S.C. § 1927 and the court’s inherent power.4 This is the first time in the lawsuit that DuPont raised any issue of litigation misconduct: throughout the proceedings before Judge Singal, the defendants never filed a motion under Federal Rules 11, 26, 37 or Local Rule 26.

DuPont claims that it has incurred $1,376,215.27 in attorney fees and *122$398,721.48 in disbursements for its own defense and as a result of indemnifying Parksite for its fees and expenses. According to DuPont’s motion:

a. [NES] ... and its attorneys brought and thereafter continued to prosecute this lawsuit without any proper basis for or proper investigation into the factual and legal bases for the numerous counts asserted against DuPont and Parksite ... and
b. NES and its attorneys made the proceedings unnecessarily complex and expensive by filing two amended complaints containing duplicative and meritless counts, instituted and refused to narrow burdensome document discovery and otherwise conducted the proceedings in a vexatious manner.

Mot. of DuPont for Attorney’s Fees, at 1 (Docket Item 219) (“DuPont’s Mot. for Att’y Fees”). DuPont makes no charge that NES or its lawyers acted with subjective bad faith.

Analysis

The “American Rule” is that each party bears its own attorney fees and litigation expenses. Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975). Narrow exceptions to the American Rule exist under the Federal Rules of Civil Procedure, some statutes, and the court’s inherent power. DuPont seeks relief under the court’s inherent power and under 28 U.S.C. § 1927.

(1) Sanctions based upon the Inherent Power of the Court5

Under its inherent power, a federal court may assess attorney fees against a “party [that] has ‘acted in bad faith, vexatiously, wantonly, or for oppressive reasons.’ ” Alyeska, 421 U.S. at 258-59, 95 S.Ct. 1612 (quoting F.D. Rich Co. v. United States for the Use of Indus. Lumber Co., 417 U.S. 116, 129, 94 S.Ct. 2157, 40 L.Ed.2d 703 (1974)); see also Chambers v. NASCO, Inc., 501 U.S. 32, 45-46, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991). Subjective bad faith is not a requirement. Dubois v. U.S. Dep’t of Agric., 270 F.3d 77, 80 (1st Cir.2001) (“the moving party must demonstrate that the losing party’s actions were ‘frivolous, unreasonable, or without foundation, even though not brought in subjective bad faith’ ”) (quoting Local 285 v. Nonotuck Res. Assocs., 64 F.3d 735, 737 (1st Cir.1995)). “Because of its potency, however, a court’s inherent power to shift attorney’s fees should be used sparingly and reserved for egregious circumstances. Thus, the power to sanction must be used with great circumspection and restraint, employed only in compelling situations.” Id. (internal quotation marks and citations omitted).

The Supreme Court has instructed that although “a federal court [is not] forbidden to sanction bad-faith conduct by means of the inherent power simply because that conduct could also be sanctioned under the statute or the Rules .... the court ordinarily should rely on the Rules rather than the inherent power” unless “neither the statute nor the Rules are up to the task.” Chambers, 501 U.S. at 50, 111 S.Ct. 2123. The First Circuit has confirmed that “there are limits to a court’s inherent powers, particularly in instances where the Civil Rules are on all fours.” United States v. One 1987 BMW 325, 985 F.2d 655, 661 (1st Cir.1993) (specifically concluding that a court should stay within the *123confines of sanctions allowed by Rule 37 rather than shortcut the “delicate balance struck by [Rule 37]” by imposing a sanction pursuant to its inherent powers).6

The Rules alone here are entirely “up to the task.” Rule 11 gives abundant protection against a party or lawyer who files any pleading without adequate inquiry or investigation, or to needlessly increase the cost of litigation; or who later advocates a position contained in the pleadings, after learning that it is without merit.7 As for discovery, Rules 26 and 37 permit a party to resist abusive discovery, seek a protective order, Fed.R.Civ.P. 26(b)(2)(C) & (c)(1), and seek the award of expenses, Fed.R.Civ.P. 26(c)(3) & 37(a)(5). Moreover, attorney fees are specifically available under Rule 26(g). This District’s Local Rule 26(b) also articulates a specific process for resolving discovery disputes quickly and economically. DuPont has not presented any alleged misconduct not adequately addressed by the Rules.8 I conclude therefore that there is no reason here to exercise the court’s inherent power.

(2) Sanctions based upon 28 U.S.C. § 1927

28 U.S.C. § 1927 states:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof *124who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.

In the First Circuit, the standard for awarding § 1927 sanctions is objective: “while an attorney’s bad faith will always justify sanctions under section 1927, we do not require a finding of subjective bad faith as a predicate to the imposition of sanctions.” Cruz v. Savage, 896 F.2d 626, 631-32 (1st Cir.1990). “Behavior is ‘vexatious’ when it is harassing or annoying, regardless of whether it is intended to be so.” Id. at 632. To be vexatious, the attorney’s conduct must “be more severe than mere negligence, inadvertence, or incompetence.” Id; McLane, Graf, Rauler-son & Middleton, P.A. v. Rechberger, 280 F.3d 26, 44 (1st Cir.2002). Thus, sanctions are available under § 1927 “only when [the attorney’s conduct] displays a serious and studied disregard for the orderly process of justice.” Rossello-Gonzalez v. Acevedo-Vila, 483 F.3d 1, 7 (1st Cir.2007) (internal quotation marks omitted).

The party requesting § 1927 sanctions bears the burden to show that an attorney’s conduct was “more severe than mere negligence, inadvertence, or incompetence.”9 The filing of a motion under § 1927 does not shift the burden to the other party to justify its behavior. Moreover, in this context, a lawyer’s conduct must be evaluated without the benefit of hindsight. See Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421-22, 98 S.Ct. 694, 54 L.Ed.2d 648 (1978) (“[I]t is important that a district court resist the understandable temptation to engage in post hoc reasoning by concluding that, because a plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation.”).10

Unlike the inherent power, the Supreme Court and the First Circuit have not instructed that § 1927 can only be used when the Rules do not cover the conduct. Thus, the failure to invoke the Rules when they are available does not wholly preclude consideration of § 1927 sanctions. See Northwest Bypass Group v. U.S. Army Corps of Engineers, 552 F.Supp.2d 137, 142-43 (D.N.H.2008) (Woodcock, J.). But given the specificity of the Rules along with their embedded policy concerns (of which fairness and notice are two), such a failure surely must inform exercise of the court’s discretion11 under § 1927.12

*125I address each of the categories of vexatious multiplication that DuPont has challenged.

(A) The Claims and Pleadings

Berman & Simmons was not counsel to NES at the time of the original Complaint and the First Amended Complaint. As a result, no sanctions are available against them for those documents.

DuPont’s attack on Berman & Simmons for filing the Second Amended Complaint (and thereafter pursuing those claims) has three fronts. First, DuPont asserts that it “added little more than cosmetic changes to the original Complaint and forced the Defendants to incur unnecessary costs in filing amended and supplemental responses.... ” Mem. of Law in Support of DuPont’s Mot. for Att’y Fees, at 7 (Docket Item 220). But I decline to award sanctions on that basis, since the presiding district judge approved and allowed the amendment. See Order Granting Pl.’s Mot. for Leave to File Second *126Am. Compl., at 2 (Docket Item 64) (“because this case is at an early stage of litigation ... leave to file a Second Amended Complaint will not cause undue delay or prejudice to the Defendants.”).

Second, DuPont contends that the Second Amended Complaint contained an excessive number of counts. Although defeated in resisting the motion to amend, DuPont could have challenged the Second Amended Complaint with a motion to strike under Rule 12(f) or with a motion under Rule 11. The former, if successful, could have reduced the number of counts. The latter would have put NES’s lawyers on notice that DuPont was seeking sanctions and allowed them to withdraw or revise the pleading.13 I decline to award sanctions on that basis.

Finally, DuPont says that many of NES’s claims were baseless: the “contract claims and associated claims based on DuPont’s alleged statements of trust and loyalty were frivolous,” and “the tort claims ... had no basis in law or fact.” Mem. of Law in Support of DuPont’s Mot. for Att’y Fees, at 3-5. Beyond challenging the filing of these claims, DuPont argues that Berman & Simmons continued “to prosecute the claims when it was objectively clear that the arguments were unsupported by any admissible evidence.” See Reply of the Def. DuPont, at 2 (Docket Item 272). Whether framed against the claim itself or the continuing duty not to pursue claims shown to be untenable, these allegations also fall squarely within the scope of Rule 11.

Moreover, under § 1927, DuPont has failed to show that Berman & Simmons behaved vexatiously and unreasonably, based upon what they knew or should have known at the time. See McMahan v. Toto, 256 F.3d 1120, 1129 (11th Cir.2001), amended on reh’g, 311 F.3d 1077 (“Something more than a lack of merit is required for § 1927 sanctions or they would be due in every case.”). The only evidence DuPont submitted of what NES’s lawyers knew or should have known when they filed their pleadings (or failed to withdraw them) is the language of an agreement between DuPont and NES.14 That language provided in substance that DuPont had the right to terminate NES upon thirty days notice, that no damages were available for termination, and that no amendments to the contract could be made except in writing. But as Judge Singal noted, that last provision, which is critical *127to the viability of the termination provisions, could be overcome by evidence of oral alterations that “leave[s] no doubt of the intention of the parties” or a course of dealing that “explicitly address[es] the contract provision.” See Order on Mots, for Summ. J., 517 F.Supp.2d at 484 (internal quotation marks omitted). DuPont has not shown that Berman & Simmons had (or should have acquired) information from its client that should have stopped its efforts to pursue the argument that the agreement had been amended in a way that would avoid the termination provisions.

Four of NES’s liability counts survived summary judgment (but limited to the acquisition of NES’s customer lists or communication with NES’s customers by DuPont and Parksite).15 As to those, therefore, it cannot be said that NES’s claims and arguments “were unsupported by any admissible evidence” on the question of liability. After summary judgment, Judge Singal, on a motion in limine by the defendants, concluded that NES’s evidence of “lost profits and loss of the value of the company due to lost DuPont sales, while relevant to any claims of unlawful termination of the distribution agreements, is simply not relevant to the claims that remain in this case.” See Order on Mot. in Limine, 2007 WL 4287577, at *1. Judge Singal did not say that there were no damages resulting from the remaining claims, but rather that NES had not produced evidence of damages relevant to those claims. See id. The pursuit of those claims without any relevant evidence of damages might have justified a Rule 11 motion, putting NES on notice and allowing it to withdraw the claims voluntarily.16 But in the absence of such a Rule 11 motion, I find that resisting the defendants’ motion in limine after summary judgment did not met the § 1927 standard of a “serious and studied disregard for the orderly process of justice.” Rossello-Gon-zalez, 488 F.3d at 7. The damages theory was tenuous, but not vexatious.

Beyond filing the Second Amended Complaint, it is not clear that Berman & Simmons filed any other pleadings against DuPont that fit § 1927’s subject matter of “multiplying] the proceedings.” See e.g., Rossello-Gonzalez, 483 F.3d at 7 (listing as examples of § 1927 misconduct, “duplicative motions being filed or repeated refusals to comply with court orders”). They did resist the defendants’ motion to dismiss, and in that they were partially successful; they did resist the defendants’ motion for summary judgment and again they were partially successful; they did resist the final motion in limine to exclude their evidence of damages, and there they failed. Although at the end of the day, they lost the case, that alone hardly shows a pattern of vexatious behavior.

DuPont also criticizes NES’s claims against Parksite, which required DuPont to incur the costs of two sets of counsel because of its prior agreement to indemnify Parksite. NES’s claims against Parksite (breach of fiduciary duty, tortious interference with contract, and misappropriation of confidential information) fo*128cused on Parksite’s leadership position in the G-19. The tortious interference claim survived summary judgment. Judge Sin-gal granted summary judgment on the fiduciary duty claim because NES could not show that a fiduciary relationship existed with Parksite, although Parksite had occupied a position of leadership in the G-19, a group to which NES belonged and that negotiated against DuPont. See id. at 489-90. NES’s claim of misappropriation of confidential information failed because NES could not show that it took the necessary steps to protect its customer lists. See id. at 495-96. DuPont provides no evidence or explanation for why these claims against Parksite were unreasonable or vexatious when made or when advocated, other than NES’s ultimate inability to develop sufficient evidence during discovery to resist summary judgment.

(B) Discovery Abuse

DuPont claims that NES refused to narrow its discovery request or even engage in a discovery conference, thereby requiring DuPont to produce approximately 300,000 pages unnecessarily, all of which failed to provide evidence to support NES’s claims. However, DuPont’s lawyers proceeded to produce the requested documents rather than seek the court’s assistance under Federal Rules 26 and 37 and Local Rule 26, or exercise their option of refusing to comply with a burdensome request and obligating NES to invoke the court’s assistance and thereby the possibility of sanctions in either direction. DuPont never mentioned or implied any belief that NES’s lawyers were violating the discovery rules and never filed a motion pursuant to Local Rule 26 (for resolving discovery disputes). The lawyers in fact held a “lengthy telephone conference” during which Attorney Robitzek agreed to narrow some of the discovery requests. See Robitzek Aff. ¶ 43. DuPont has failed to show why it did not utilize the Rules to narrow the scope of discovery or how these actions by Berman & Simmons were vexatious.

DuPont also requests its attorney fees for having to sort through an NES produced hard drive so as to avoid seeing so-called G-19 documents, which were subject to a confidentiality agreement. But DuPont provides no evidence from which to conclude that producing the hard drive in this form, assuming NES had the obligation to segregate the G-19 documents, was “more severe than mere negligence, inadvertence, or incompetence,” the standard for § 1927 sanctions. See Cruz, 896 F.2d at 632.17

(C) Other Allegedly Vexatious Conduct

On April 26, 2007, NES filed a motion for sanctions against DuPont that challenged DuPont’s initial motion in limine requesting exclusion of NES’s damages testimony as frivolous. NES argued that DuPont’s motion in limine was really a second motion for summary judgment and violated the applicable Scheduling Order, the Local Rules, and the Court’s prior orders. (DuPont had used the term “summary judgment” in its motion in limine and conceded that its approach was “unartful,” see Def. DuPont’s Opp’n to PL’s Mot. for Sanctions, at 3-4 (Docket Item 134)) Judge Singal denied NES’s motion for sanctions without explanation. But DuPont fails to

*129explain why it did not invoke Rule 11 against NES’s motion for sanctions or how NES’s sanctions motion meets the standard for § 1927 sanctions. From an objective perspective, NES’s attempt to avoid DuPont’s motion in limine as an improper motion for summary judgment was a reasonable tactical choice.

DuPont also requests a § 1927 award of attorney fees on the ground that NES violated Local Rule 56(c) by “addfing] additional facts and argument to many of its responses” in its opposing statement of material facts. Wyman Aff. ¶ 23. NES, like many litigants in this District, included gratuitous legal commentary in its opposing statement of material facts. Those extraneous statements by NES should not have multiplied the litigation for DuPont. Local Rule 56(d) required DuPont to limit its reply to “additional facts submitted by the opposing party.” That DuPont chose to respond to the other statements by NES as well does not justify § 1927 sanctions.

Conclusion

This was a complicated and hard-fought case. NES and its lawyers succeeded partially and periodically in resisting the defendants’ various attempts to be rid of them, but ultimately, the defendants won completely. It is perfectly understandable that DuPont should be upset at the breathtaking amount it has chosen to pay its lawyers to bring the matter to a successful conclusion, an amount that does not even include the costs of a trial. In some countries, DuPont’s victory would allow it to recover some portion of those fees and disbursements against NES, but not under United States law. Under existing law, none of the allegations of misconduct that DuPont recites in its motion for attorney fees, either individually or collectively, justifies an attorney fees award at the end of the case against NESs lawyers under § 1927, or against the lawyers or NES itself under the court’s inherent power. DuPont’s motion for attorney fees is therefore Denied.

SO ORDERED.

New England Surfaces v. E.I. Dupont de Nemours & Co.
558 F. Supp. 2d 116

Case Details

Name
New England Surfaces v. E.I. Dupont de Nemours & Co.
Decision Date
Jun 3, 2008
Citations

558 F. Supp. 2d 116

Jurisdiction
United States

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