Reply Brief — Chambers v. Nasco, Inc.

Supreme Court, U.S.

EILED

JAN 30 1991

WOSEPH F. SPANIOL, Jr,

CLERK

Supreme Court of the United States

OCTOBER TERM, 1990

G. RUSSELL CHAMBERS

Petitioner,

V.

NASCO, INC.

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

REPLY BRIEF ON

BEHALF OF PETITIONER

MACK E. BARHAM*

ROBERT E. ARCENEAUX

Barham & Markle, P.C.

650 Poydras Street

Suite 2700

New Orleans, LA 70130

(504) 525-4400

RUSSELL T. TRITICO P.C.

714 Pujo Street

Lake Charles, LA 70602

(318) 436-6648

Attorneys for Petitioner

*Counsel of Record

A B Letter Service, Inc., 327 Chartres St., New Orleans, La. (504) 581-5555

i

TABLE OF CONTENTS

TABLE OF CONTENTS ......... | | H oan

TABLE OF AUTHORITIES ...................... ii

STATEMENT OF THE CASE................ lala

ARGUMENT

I. THERE IS NO INHERENT POWER TO

SHIFT THE BURDEN OF ATTORNEYS’

FEES FOR ABUSE OF PROCESS OTHER

THAN UNDER THE “BAD FAITH”

Es te Pe Code gate e tes ae tn. 3

Il. THE “BAD FAITH” EXCEPTION IS NOT

AVAILABLE IN THIS DIVERSITY CASE... 12

CONCLUSION ...... COPS ee ne

PETITIONER HAS NO CHANGES OR AMEND-

MENTS TO THE RULE 29.1 CERTIFICATION MADE

BY HIM IN HIS ORIGINAL BRIEF.

‘i

TABLE OF AUTHORITIES

CASES: Page

Addington v. Farmers Elevator Mutual Insurance

Company, 650 F.2d 663 (5th Cir. 1981) ........... 17

Alyeska Pipeline Services v. Wilderness Society,

421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141

CORED. cc ccucecvsusecsteess mes eea eee 4,6,12,13

Baggett v. Richardson, 473 F.2d 863 (5th Cir.

BEDE onc cceecctceeekees-s €b.c00 65a 15

Boyle v. United Technologies, 487 U.S. 500 (1988)... 12

Bundinich v. Becton Dickinson and Co., 486 U.S.

e068 c000M La... ....... . o0cks scenester eis 13

Business Guides, Inc. v. Chromatic Communica-

tions Enterprise, Inc. and Michael Shipp, No.

89-1500 on the docket of the United States

lL Err 4

Byrd v. Blue Ridge Rural Elec. Co-op., 356 U.S. 525

SR, . «ob 0008 6530 Pee 14

Eash v. Riggins, 757 F.2d 557 (3rd Cir.

1985) ..... Peer te ener, 6

Fleischmann Distilling Corp. v. Maier Brewing

Co., 386 U.S. 714 (1967) ..... wee ye Poa

Frank K. Beier Radio, Inc. v. Black Gold Marine,

Inc., 449 So.2d 1014 (La. 1984) .................. 15

Guaranty Trust Co. v. York, 326 U.S. 99 (1945)... 13,14

Hall v. Cole, 412 U.S. 1 (1973).................7,12,15

Hanna v. Plummer, 380 U.S. 460 (1965) .... .13,15,16,18

Hutto v. Finney, 437 U.S. 678 (1978) .......... .7,16,17

iii

TABLE OF AUTHORITIES (continued)

CASES: Page

Indianapolis Colts v. Mayor and City Council, 775

I, cece ce ccs 18

In re Kunstler. 914 F.2d 505 (4th Cir. 1990)... 10,11

Jarvis v. Johnson, 668 F.2d 740 (3rd Cir. 1982) |. 13

Jones v. SEC, 298 U.S. 1 (1936) ............. as ee

Judice v. Vail, 430 U.S. 327 (1977) ........... 16

Kaiser Aluminum & Chem. Co. v. Bonjorno, 110

S.Ct. 1570 (1990)... ee 4

Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803)

Miller v. Florida, 482 U.S. 423 (1987).......... 4

Montgomery Ward & Co. v. Pacific Indemnity Co.,

557 F.2d 51 (3rd Cir. 1977) , 18

NASCO, Inc. v. Calcasieu Television and Radio,

Inc., 583 F.Supp. 115 (W.D.La. 1984) 2

National Forest Preservation Group v. Butz, 485

F.2d 408 (9th Cir. 1973) | 18

Roadway Express, Inc. v. Piper, 447 U.S. 752

ess k's UR cs alg a's 3 4,7,9,12

Stewart Organization, Inc. v. Ricoh Corporation,

487 U.S. 22 (1988). | 12

Summit Valley Industries, Inc. v. Local 112, United

Brotherhood of Carpenters and Joiners of

America, 456 U.S. 717 (1982) 6

Sun Oil Co. v. Wortman, 486 U.S. 717 (1988) 4

iv

TABLE OF AUTHORITIES (continued)

CASES: Page

Vaughan v. Atkinson, 369 U.S. 527, 82 S.Ct. 997

(1962) inka cheeks t Os Peete 7

Walker v. Armco Steel Sided 446 U.S. 740,

100 S.Ct. 1978 (1980) ..... ie beimaihen —

Webster v. Reproductive Health Services, 109 S.Ct.

3040 (1989) YRinabay al baat yaad. 14

Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982)... 7

White v. General Motors Corp., Inc., 908 F.2d 675

(10th Cir. 1990) _. ar sta a 10,11,18

Young v. United States ex rel. Vuitton et Fils, S.A.

481 U.S. 787 (1987) 7,9

STATUTES: .

La. Civ. Code Art. 1986 3

28 U.S.C. § 1652 12

MISCELLANEOUS:

Braman and Newmann, The Still Unrepressed Myth

of Erie, 18 U. Balt. L. Rev. 404; __. | 15

Burbank, Sanctions in the Proposed Amendments

~ to the Federal Rules of Civil Procedure; Some Ques-

tions About Power, 11 Hofstra L.Rev. 997 (1983)... 4-5

Ely, The Irrepressible — of Erie, 87 Harv. L.

Rev. 693 (1974) 14

Miller, Federal Rule 44.1 and the ‘‘Fact” pee

to Determining Foreign Law; Death Knell for a Die-

Hard Doctrine, 65 Mich. L. Rev. 613 (1967) 15

v

TABLE OF AUTHORITIES (continued)

g Page

MISCELLANEOUS (continued):

Redish & Phillips, Erie and the Rules of Decision

Act: In Search of the Appropriate Dilemma, 91

Harv. L. Rev. 356 (1977) _.. ia. | 15

Sanctions Standards Still Murky, 77 ABA Journal

84 (Jan. 1991)... 10

l

STATEMENT OF THE CASE

NASCO’s concentration upon the underlying facts of

this case (12 of 29 pages of brief) suggests that it is of the

view that those facts are the measure of the district court’s

“inherent power.’’ Chambers believes that this Court did

not grant certiorari in this case because of a preoccupation

with the facts. The facts of this case, no matter how ‘‘bad’’

they may have been painted, do not justify the district

court’s unprecedented invocation of its ‘‘inherent power”

to shift the entire burden of attorneys’ fees in direct con-

travention of the underlying and controlling state law. Nor

does the long delayed, post-trial, retributive manner in

which that power was wielded make this case a good can-

didate for charting such a new course. =

Admittedly, some of the conduct that occurred in

this case was flagrantly sanctionable. Counsel would be

hard pressed to defend some of Chambers’ lawyers’ tactics

and practices. For this, they have been severely punished.

Imposing a $1,000,000 penalty upon Chambers for this

conduct is not “‘necessary’’ for the functioning of the

courts, the hallmark of any ‘inherent power.’’ Such an

award is only ‘‘necessary,’’ or even useful, to the goal of

compensating NASCO for Chambers’ bad faith breach of

contract, a goal which unquestionably belongs within the

sphere of the substantive law, and which is anathema to

the substantive law of Louisiana that controls in this case.

Despite Chambers’ belief that the conduct that was

the object of the sanction is not dispositive of the signifi-

cant legal issues presented by this case, he would be remiss

to himself, if no one else, to forego this opportunity,

perhaps his last, to place upon the public record his true

lack of complicity in the ‘‘abuses of process”’ that allegedly

justify the $1,000,000 sanction levied against him. After

learning of certain misrepresentations about its plans for

the future of KPLC-TV made by NASCO in its ascertain-

ment papers to the F.C.C., Chambers decided that he did

not want to sell the station’s assets to NASCO. He offered

to pay damages instead of performing. His offer was

2

refused. Chambers then contacted his attorneys and asked

them if they-could excuse performance by payment of

damages. His lawyers devised a plan which they assured

him was legal and would eliminate his obligation to

specifically perform the contract. It was the lawyers’ con-

clusion that they could take advantage of NASCO’s failure

irene 8. Sm a ti

ey whee Sai ep: apn gy ee

that transfer upon the public Se a to the

lawyers, Chambers would then be relieved of any obligation

to specifically perform the agreement under Louisiana's

peculiar Public Records Doctrine, although he would re-

main liable for the damages that he was willing and had of-

fered to pay. After Chambers’ skepticism of the lawyers’

plan was quelled by their reassurances that the plan was

legal, he agreed to follow their advice. Accordingly, he ex-

ecuted the necessary documents to effect a transfer of the

station assets, and travelled to Birmingham, Alabama, to

secure the signature of his sister Mabel Baker, the prospec-

tive third party purchaser/trustee designated and approv-

ed by his attorneys, on an instrument to effect the trust.

There, Chambers’ complicity ends. From that point

forward, everything that was done in this case was done by

counsel — Chambers himself made no decision with regard

to the course of the litigation. The attorneys, not

Chambers, reacted and told him when and how to act in

this matter. Even the contempt citation issued against

Chambers, to which NASCO points as evidence of

Chambers’ incorrigible recalcitrance, was leveled at con-

duct that was performed only upon the advice of his

lawyers, although the district court found that fact was not

a defense. See NASCO, Inc. v. Calcasieu Television and

Radio, Inc., 583 F.Supp. 115, 120 (W.D.La. 1984).!

1! NASCO contends that two other pieces of conduct prove that

Chambers was the ‘principal conspirator:"’ his “concocting” of the

Public Records Doctrine defense, and his ‘‘fabrication’’ of testimony and

documents. Resp. Br. 29. But, no one has ever contended that Chambers

conceived the Public Records Doctrine defense. In fact, the evidence

(continued)

3

For his complicity, Chambers has paid, and hand-

somely too.2 NASCO was paid $850,000 to compensate it

for the delayed performance, an amount which it accepted

in settlement as adequate and commensurate to its

damage. No more is permitted by Louisiana law. See La.

Civ. Code Art. 1986. Louisiana law simply will not tolerate

an additional award of attorneys’ fees to NASCO, despite

the fact that Chambers’ breach of contract may have been

found to be in utter ‘‘bad faith.3”’

ARGUMENT

I. THERE IS NO INHERENT POWER TO SHIFT

THE BURDEN OF ATTORNEYS’ FEES FOR

ABUSE OF PROCESS OTHER THAN UNDER

THE “BAD FAITH” EXCEPTION.

NASCO’s entire argument in this case stems from

the faulty premise that there is an ‘‘inherent power” in the

courts to shift the entire burden of attorneys’ fees for

‘abuse of process’”’ and for ‘vindicating judicial authority”

that is devoid of any substantive ramifications. By invok-

(Footnote 1 continued)

establishes without contradiction that he was skeptical of its validity

until convinced otherwise by his attorneys. As to the false evidence,

NASCO introduced that evidence into this case over the strenuous ob-

jection of Chambers’ counsel, who sought to keep it out on the grounds

of its irrelevancy! 39R59-60.

2 In addition to the station assets themselves, NASCO received free of

charge and without adjustment of the purchase price millions of dollars

in station improvements that had been installed during the progress of

the lawsuit. Moreover, it suffered no risk and had no investment. The

burden of maintaining the station and fulfilling F.C.C. requirements was

by law at all times solely Chambers’ responsibility. The only money that

NASCO “‘invested’’ was the initial $900,000 in earnest money it had

deposited to secure the purchase agreement, which Chambers had allow-

ed to be returned when he objected to the sale.

3 A full discussion of Louisiana law in this regard is contained at pages

13 - 15 of Chambers’ Original Brief in the Court of Appeal.

4

ing the substantive/procedural distinction,4 and sug-

gesting that use of “inherent power’ fits comfortably

within the latter half of that dichotomy, NASCO and the

Court of Appeal seek to avoid any limitation that Erie

might place upon the shifting of attorneys’ fees due to bad

faith conduct in a diversity case.

NASCO'’s theory, at least as it relates to attorneys’

fees, was rejected by this Court in Alyeska Pipeline Ser-

vices v. Wilderness Society, 421 U.S. 240 (1975), when it

held that federal courts do not possess an “inherent power’

to shift the entire burden of attorneys’ fees. The realloca-

tion of the burdens of litigation is a matter particularly

within the legislative sphere.® There is no ‘‘roving author-

ity’’ for the federal bench to assess attorneys’ fees

‘‘whenever the courts might deem them warranted.” /d., at

260. Absent a contractual or statutory provision to the con-

trary, courts are constrained to follow the General

American Rule that each party is to bear his or her own at-

torneys’ fees. In recognizing ‘’bad faith’ conduct as

creating an exception to this Rule, this Court specifically

relied upon the common law equitable origins of awarding

attorneys’ fees for vexatious conduct, and the tacit ap-

proval given by Congress to the practice. /d., at 259-60.

While Alyeska did not involve an attempt to shift at-

torneys’ fees on the grounds of abuse of process,®° this

Court’s decision in Roadway Express, Inc. v. Piper, 447

4 The terms “‘substance”’ and “‘procedure’’ describe very little except a

dichotomy. The line between them varies from context to context, Sun

Oil Co. v. Wortman, 486 U.S. 717, 726 (1988), and ‘‘might sometimes

prove elusive.’ Miller v. Florida, 482 U.S. 423, 433 (1987).

5 Just last term, this Court is Kaiser Aluminum & Chem. Co. v. Bonjor-

no, 110 S.Ct. 1570, 1576 (1990), relying on Alyeska, reiterated that ‘‘the

allocation of the costs accruing from litigation is a matter for the

legislature, not the courts.”’

6 Amicus curiae’s brief in Business Guides, Inc. v. Chromatic Com-

munications Enterprise, Inc. and Michael Shipp., No. 89-1500 on the

docket of this Court, contains an excellent dissertation on why Alyeksa

and the Rules Enabling Act constrain a court's “inherent power’ to

award attorneys’ fees, even on procedural grounds. See also Burbank,

(continued)

5

U.S. 752 (1980), made clear that any “inherent power” in

the court to act against abuse, if it involved the shifting of

the entire burden of attorneys’ fees, was constrained by the

General American Rule. An award of attorneys’ fees, even

as a ‘‘sanction’’ for abuse of process, could not be imposed

except through use of the common law equitable power to

award attorneys’ fees that is at the root of the ‘‘bad faith”

exception. Jd., at 767.

Lacking any other authority for the existence of an

‘inherent power”’ to shift the burden of attorneys’ fees on

procedural grounds, NASCO attempts to expand the

courts’ inherent equitable power to award attorneys’ fees

under the ‘‘bad faith’ exception into a broader inherent

power to shift attorneys’ fees to remedy “abuse of pro-

cess,’ a phrase no doubt selected for its procedural tone

and which becomes the theme of NASCO’s entire brief. To

do this, NASCO suggests, without citation to authority,

that, “the authority to award attorneys’ fees for abuses of

the judicial process is part of a larger array of inherent

judicial powers that includes the power to: hold a party in

contempt, discipline attorneys, conduct independent in-

vestigations to determine if fraud has been perpetrated on

the court, dismiss a case sua sponte, remove disruptive

litigants, and enjoin the filing of repeated, frivolous in for-

ma pauperis petitions.”’ Resp. Br. 16 (citations omitted).

The fallacy in this argument is that it fails to

recognize that there are different grades of ‘inherent

power.’ NASCO assumes that there is an inherent power

to shift attorneys’ fees for abuse of process that is of the

same magnitude as these other inherent powers because

(Footnote 6 continued)

Sanctions in the Proposed Amendments to the Federal Rules of Civil

Procedure: Some Questions About Power, 11 Hofstra L. Rev. 997 (1983).

Of particular interest is the discussion of recent legislative history (pro-

posed amendments to Rule 68 and the 1988 amendment to the Rules of

Decision Act) that demonstrates Congress’ view that the question of at-

torneys’ fees, even when awarded under a procedural mantle, is within

its exclusive domain.

6

certain cases refer to the ‘‘bad faith exception”’ as an ‘‘in-

herent power’ and, according to NASCO’s reasoning, an

inherent power is an inherent power is an inherent power.

But, this is not the case. For example, the power of

this Court to declare a statute unconstitutional is an ‘‘in-

herent power”’ of the highest order because it is part and

parcel of this Court’s constitutional mission. Eash v. Rig-

gins, 757 F.2d 557, 562-63 (3rd Cir. 1985). This power is

always available and cannot be abridged, even by act of

Congress. Marbury v. Madison, 5 U.S. (1 Crance) 137

(1803). Certain other powers, such as contempt, dismissal

of claims, or injunction, may be inherent because of their

necessity for a court to act as a court. These powers may

be subject to legislative regulation, but they cannot be

denied. Yet still, there are some powers that are ‘‘inherent’’

only in the sense that they are “highly useful” in the pur-

suit of a just and equitable result. They exist only in the

absence of contrary legislative directive. Eash v. Riggins,

supra, at 563.

The power to shift the burden of attorneys’ fees

under the ‘‘bad faith’ exception belongs to this last

category. First, the ‘‘bad faith’’ exception could be

eliminated by the legislature at any time. Alyeska Pipeline

Services v. Wilderness Society, supra, at 259-60. Moreover,

the ‘‘bad faith’’ exception is ‘‘necessary’’ only in the sense

that it grants the court power to pursue a just result. Eash

uv. Riggins, supra, at 563. The very reason for the existence

of the exception, and the grant of fees pursuant to it, is to

do equity between the parties. In Summit Valley In-

dustries, Inc. v. Local 112, United Brotherhood of

Carpenters and Joiners of America, 456 U.S. 717, 721

(1982), this Court specifically referred to the ‘‘bad faith’’

exception as an ‘‘equitable exception” that was endorsed

by the courts ‘‘where necessary to further the interests of

justice."’ See also Fleischmann Distilling Corporation v.

Maier Brewing Co., 386 U.S. 714, 718 (1967) (common law

equitable exceptions to General American Rule sanctioned

when “overriding considerations of justice’’ compel such a

7

result). NASCO itself, citing Weinberger v. Romero-

Barcelo, 456 U.S. 305, 313 (1982), concedes that the power

‘at issue here”’ is “‘an inherent equitable power.” Resp. Br.

‘at 19. Moreover, in Hutto v. Finney, 437 U.S. 678, 689 n.

14 (1978), relied upon so heavily by NASCO, this Court

specifically noted that the power to award attorneys’ fees

“against a party who shows bad faith by delaying or

disrupting the litigation process’’ belonged to ‘‘an equity

court.’’ Such an award vindicates judicial authority and

‘‘makes the prevailing party whole for expenses caused by

his opponerit’s obstinacy.”’ Jd. These expressions of the

purpose of the “‘bad faith’’ exception are consistent with its

origin as an equitable remedy available to the Chancery

Courts. Hall v. Cole, 412 U.S. 1, 5 (1973).7

No court has ever included the power to award at-

torneys’ fees for ‘“‘bad faith’’ conduct within the realm of

those inherent powers that are ‘‘necessary to the exercise

of all others” or ‘‘necessary to permit the courts to func-

tion,’ Roadway Express v. Piper, supra, at 764; Young v.

United States ex rel. Vuitton et Fils, S.A., 481 U.S. 787, 819

(1987) (Scalia, J., concurring), as does NASCO in order to

elevate the power to one that would appear immune from

Erie concerns. The ‘“‘bad faith’’ exception, which is the

courts’ only “inherent power” to shift the burden of at-

torneys’ fees, is not a matter of functional necessity, as

held by the Court of Appeal. Pet. App. A-69. Roadway Ex-

press, Inc. v. Piper, supra, certainly suggests that the abili-

ty to shift attorneys’ fees is not ‘‘inherent”’ in the sense of

being ‘‘necessary,’’ since it is constrained by the General

American Rule.

NASCO does not offer any real explanation for why

the “inherent power’’ to shift the entire burden of

7 Indeed, the case usually referred to as the seminal case on the subject,

Vaughan v. Atkinson, 369 U.S. 527, 82 S.Ct. 997 (1962), and which

perhaps expanded the remedy to all types of actions, announced the ex-

istence of the power by finding that ‘‘counsel fees have been awarded in

equity actions” and “equity is no stranger to admiralty."’ Jd., at 530.

8

attorneys’ fees for abuse of process should be viewed as

“necessary,” especially given the panoply of express

powers that courts have been imbued with of late, as well

as the inherent power to discipline errant counsel or redress

specific litigant abuses. See Pet. Br. 19 n.3, 22 n.5, 24 n.6.

NASCO’s only argument, that the power to shift the entire

burden of attorneys’ fees is ’’necessary’’ because “nothing

else .. . covers the same landscape,’”’ Resp. Br. at 20, entire-

ly misses the point. It is true that the express and present-

ly recognized inherent powers that courts possess may not

afford courts the power to effect a massive post-trial shift

in the entire burden of attorneys’ fees, but to say that

courts lack the power to traverse that uncharted terrain

does not mean that they need to in order to be protected

from abuse. NASCO cannot suggest one specific pro-

cedural abuse that falls outside the scope of the express

sanction powers.® Nor does it bother to rebut the conten-

tion that the presently recognized sanction powers, if utiliz-

ed swiftly to remedy specific transgressions at the time of

their occurrence, better arm the courts to remedy specific

abuses and deter future abuse, thereby reducing the vexa-

tion of ‘‘bad faith”’ litigation and the ultimate amount of at-

torneys’ fees incurred as a result of it.9

8 NASCO’s suggestion that Rule 11's focus on “‘pleadings, motions and

other papers” reflects a ‘narrow’ concern is mystifying, since it is hard

to conceive of a procedural abuse that could be effected without the use

of pleadings or other papers. NASCO’s argument that the conduct at

issue in this case was beyond the reach of Rule 11 only proves that what

is really at issue here is Chambers’ bad faith Lreach of contract, not any

litigation abuse that might have occurred. NASCO all but acmitted that

fact in its Opposition to Writs where it stated at page 6 note 3 that the

‘‘malefaction’’ for which Chambers is being punished was beyond the

reach of Rule 11 because it “‘did not involve the signing of papers filed

in conjunction with this litigation.”’

9 The facts of this case are certainly no counter to the argument, since

the trial court did not even attempt to utilize the myriad express powers

available to it during the course of litigation, with the sole exception of

one contempt citation. In every case of perceived abuse, the court found

warnings to be adequate for its purpose. Only sixteen months after the

case was ended, on the suggestion of the Court of Appeal, did the trial

court feel the need to vindicate its authority. Given these facts, the

(continued)

9

The point is not that the express powers supplant the

“bad faith’ exception — it is that the two address a dif-

ferent set of concerns.!° The express powers are Patriots

aimed directly at abuses of the courts’ process, and as such

they offer the best hope of both immediate remedy and

deterrence. The ‘‘bad faith’’ exception does not offer the

same hope, nor was it conceived to. It offers equitable com-

pensation to a party injured by the other’s unchecked vex-

atious and oppressive conduct. Therefore, it seems more

than odd to attempt to justify a fee shift through the exer-

cise of a courts’ inherent powers for procedural abuses

when those abuses were allowed to accumulate unchecked

by the available express powers. Since inherent powers are

“shielded from direct democratic controls’ and are only

those ‘‘necessary’’ to the exercise of all others, Roadway

Express, Inc. v. Piper, supra, at 764, it is only logical to re-

quire a court to attempt to combat procedural abuses with

the express powers available to it before allowing invoca-

tion of the inherent power to shift the entire burden of at-

torneys’ fees on the grounds of procedural abuse. Cf. Young

v. United States ex rel. Vuitton et fils, S.A., supra, at 788

(It should be ‘‘ensured”’ that “courts will exercise their in-

herent power of self-protection only as a last resort.’’).

Moreover, invocation of the ‘‘inherent power’’ of the

court to grant a massive retrospective, retaliatory shift of

attorneys’ fees, while perhaps serving the substantive goal

of equitable compensation to the injured litigant, does little

to further the goal of deterrence that is at the heart of

(Footnote 9 continued)

Court of Appeal’s suggestion that the use of inherent power in this case

was “‘an effort to control the litigation,’ Pet. App. A-77, litigation that

was long over, is bizarre.

‘0 NASCO’s contention that any argument that the two are ‘‘co-

extensive’ is ‘‘senseless on its face’’, Resp Br. 18, may be correct, but

Chambers never argued that they were. Chambers has always contended

that the inherent power to shift the full burden of attorneys’ fees is not

‘“‘co-extensive’’ with the express sanction powers because the former

necessarily includes reimbursement for some nonsanctionable conduct

within its overinclusive reach.

10

the sanctions power. Such a fee shift is actually a counter-

productive method of enforcing the rules of litigation con-

duct, achieving deterrence, and sanctioning specific trans-

gressions, all of which are at the heart of protecting a court

from ‘‘abuse of process”’ and ‘‘vindicating its authority.”’

There are certain principles that must be followed to ensure

that a sanction achieves its maximum and desired result,

without any unwanted side effects such as chilling

legitimate zealous advocacy.!! Chambers laid these out in

his brief, and cited the applicable jurisprudence to that ef-

fect. To that vast body of law must be added two new

welcome additions: Jn re Kunstler, 914 F.2d 505 (4th Cir.

1990), and White v. General Motors Corp., Inc., 908 F.2d

675 (10th Cir. 1990). The point of this discussion was that,

when gauged by all of the rules that have developed regard-

ing ‘“‘sanctions,’’ a massive, post-trial shift of attorneys’

fees falls short. It is not a good way to achieve the goals of

sanctions; it is only a good way to provide maximum com-

pensation to an injured party.

Without ever coming to grips with this argument,

NASCO retorts that, in this case, the district court did not

abuse its discretion in imposing $1,000,000 in sanctions.

NASCO argues that there is nothing wrong with a massive

post-trial shift in attorneys’ fees,!? or that it include com-

pensation for conduct that did not occur before the issuing

court.!3 NASCO argues that such an award need not be

11 One need only read the commentary, Sanctions Standards Still

Murky, 77 ABA Journal 84 (Jan. 1991), to discern the confusion and fear

among the bar that the award at issue has generated.

12 NASCO’s attempt to justify the fact that the fee award made in this

case was made more than a year after the conclusion of trial on the

merits completely ignores the fact that the award was made after final

appeal as well — for all purposes, this case was ‘‘over’’ until the trial

court decided that its authority needed vindicating sixteen months after

its work was done.

13 NASCO’s argument that it is permissible to include compensation for

fees incurred as a result of extra-judicial conduct appears to contradict

its position that every single penny of attorneys’ fees incurred in this

case was a result of abuse of the judicial process. Moreover, it complete-

(continued)

1]

granted with the reasonable specificity that is required of

other attorneys’ fee awards,'4 that it be personalized,!® or

that it exclude reimbursement for fees that were incurred

due to a failure to mitigate.'® All of this might be true if

the ultimate goal desired is full compensation; but the

authorities cited by Chambers in his original brief make it

amply clear that these requirements are integral to any ef-

fective plan to police against judicial abuse.

It is perhaps for these reasons that the ability of a

(Footnote 13 continued)

ly ignores the fact that it was beyond the province of the district court

to sanction conduct that occurred before the Court of Appeal, before this

Court, and before administrative agencies.

14 NASCO’'s suggestion that its failure to maintain time records is ex-

cusable because it did not know in advance it would need them, Resp.

Br. 29 n.19, is incorrect. Adequate time records should be kept for

reasons other than simply for sanction purposes. In any event, when the

amount of a monetary sanction is large and based upon fee statements,

adequate detail must be supplied so that the “‘reasonableness’’ of the

sanction can be scrutinized. Jn re Kunstler, supra, at 523-24. Only then

can the presence of such mitigating factors as, for example, attorney

overstaffing, be revealed. White v. General Motors Corp., Inc., supra, at

686.

15 While NASCO repeats (without providing any citation to the record

to support the conclusion) the trial court's finding that Chambers per-

sonally was responsible for every procedural abuse in this case, NASCO

fails to explain why Chambers should shoulder the entire monetary

burden. The trial court did not find that he acted alone. Joint liability

would therefore seem appropriate. See e.g, White v. General Motors

Corp., Inc., supra, at 685-66.

16 NASCO’s suggestion that every penny of $1,000,000 attorneys’ fees

was ‘necessarily’ incurred to defeat a defense so spurious that every

single element of it constituted an abuse of the judicial process is

preposterous. See e.g., White v. General Motors Corp., Inc., supra, at 908

(“It is difficult to imagine how GM could have reasonably incurred

$172,382.19 attorneys’ fees in ridding itself of this frivolous suit on sum-

mary judgment."’). NASCO’s claim that it could not obtain summary

judgment in this case because Chambers ‘‘falsely claimed there were fac-

tual disputes,"’ Resp. Br. 28, is simply incorrect. NASCO did not call a

single witness at trial to rebut any of the facts adduced by Chambers.

This case was decided as a matter of law on the undisputed facts,

making it a perfect candidate for summary judgment.

12

court to shift the entire burden of attorneys’ fees has never

been considered an ‘inherent power’’ in the traditional or

classic sense of that term. In Roadway Express, Inc. v.

Piper, supra, this Court expressly held that any ‘inherent

power’ that a court might possess to award attorneys’ fees

is limited by the General American Rule. NASCO and the

Court of Appeal have confused the ‘‘bad faith’’ exception to

that Rule, which is ‘‘unquestioned,”’ Hall v. Cole, supra, in

the sense that Congress has never interfered with its ap-

plication and thus has tacitly approved it, Alyeska Pipeline

Services v. Wilderness Society, supra, at 259-60, with those

monolithic inherent powers that ‘‘exist to protect the in-

terests of a court quo court,’’ and thus might fall outside

the scope of the Rules of Decision Act, 28 U.S.C. § 1652.

Resp. Br. 13. While courts plainly have the inherent power

to regulate the process of litigation, that power is still con-

strained by principles of separation of powers and by the

limits of what is actually necessary to regulate the conduct

of practice before the federal courts. The “inherent power’

to shift the entire burden of attorneys’ fees has been held

to run afoul of Congress’ power to allocate the risks and

burdens of litigation, Alyeska Pipeline Services, Inc. v.

Wilderness Society, supra, and has never been held to be

‘necessary’ for the effective operation of the courts.

Il. THE “BAD FAITH” EXCEPTION IS NOT

AVAILABLE IN THIS DIVERSITY CASE.

The “inherent power” of a court to award attorneys’

fees under the ‘‘bad faith’’ exception is no more than the

law-making power of a court sitting in equity to do justice

between the parties. That is the origin of the exception,

and, just as any other equitable remedy, such judge-made

law may be circumscribed by the legislature. In a diversity

suit, the circumscription to ‘‘judge made law” is found in

the Rules of Decision Act, 28 U.S.C. § 1652, which requires

that, under Erie conditions, state law on the subject be

respected. Stewart Organization, Inc. v. Ricoh Corporation,

487 U.S. 22, 27 n.6 (1988). See also Boyle v. United

13

Technologies, 487 U.S. 500, 517 (1988). (‘Federal common

law can displace state law in ‘few and restricted’ in-

stances."’); Bundinich v. Becton Dickinson and Co., 486

U.S. 196, 198 (1988) (‘‘state law generally supplies the rules

of decision in federal diversity cases’’).!7

This Court found that Erie was triggered and ap-

plicable to awards of attorneys’ fees under the “‘bad faith’’

exception in Alyeska Pipeline Services, Inc. v. Wilderness

Society, supra, at 259 n.31. Its holding rested on firm

ground, considering the ‘‘outcome-determination”’ test of

Guaranty Trust Co. v. York, 326 U.S. 99 (1945), and the

“twin-aims”’ dicta in Hanna v. Plummer, 380 U.S. 460

(1965). There is no doubt that an award of attorneys’ fees

under the ‘bad faith’ exception is ‘outcome

determinative.’’!® The award has a ‘‘clear and undeniable

effect on the monetary outcome of a suit.”’ Jarvis v.

Johnson, 668 F.2d 740, 745 (3rd Cir. 1982). The threat of

liability for attorneys’ fees for “‘bad faith’’ litigation cer-

tainly has the great potential for altering the ‘character

and result”’ of the litigation, as well as the “‘fortunes’’ of

the litigants, which is the root concern of the ‘‘forum shop-

ping” leg of the ‘twin aims’’ of Erie. Hanna v. Plummer,

supra, 380 U.S. at 468 n.9. In a discreet class of cases, those

in which either the claim or defense is marginal, there

would be real reason to avoid federal court and try one’s

hand in a state court that does not recognize the ‘‘bad

faith’’ exception. The other leg of the ‘‘twin-aims’’ is also at

play,'9 since it is certainly unfair to allow a

17 In this case, the award granted by the district court is contrary to

the controlling state law. As the Court of Appeal found, Louisiana only

allows attorneys’ fees when authorized by statute or contract. ‘It does

not recognize an exception for bad faith practice.’’ Pet. App. A-67.

18 Even the Court of Appeal had to admit that fact in its opinion. Pet.

App. A-77. (‘Of course, use of inherent power is outcome determinative

in the sense that Chambers owes fees he would not have owed had Loui-

siana law applied. . . .”’).

19 Walker v. Armco Steel Corporation, 446 U.S. 740, 752, 100 S.Ct.

1978, 1986 (1980), made clear application of state law was warranted by

(continued)

14

nonresident plaintiff to subject a resident defendant to the

possibility of being cast for attorneys’ fees when his next

door neighbor would be immune from such an award if sued

by a co-citizen. Ely, The Irrepressible Myth of Erie, 87

Harv. L. Rev. 693, 712 (1974). ‘““The nub of the policy that

underlies Erie R. Co. v. Tompkins is that for the same tran-

saction the accident of a suit by a non-resident litigant in

a federal court instead of in a State court a block away

should not lead to a substantially different result.”’

Guaranty Trust Co. v. York, supra, at 108.20

Neither NASCO nor the Court of Appeal felt con-

strained to follow either Louisiana law or the mountain of

precedent that commands its application.?! Instead, they

assert that the “inherent power”’ to shift the burden of at-

torneys’ fees for “abuse of process” cannot trigger Erie

concerns because it is purely procedural, a matter in which

only the forum court has an interest.

No authority is cited in support of this position.

NASCO resorts to the ‘"balancing’’ test announced by this

Court in Byrd v. Blue Ridge Rural Elec. Co-op., 356 U.S.

525 (1958), and claims that such a test is a “settled princi-

ple” of Erie analysis. Resp. Br. 21.2% However, it has been

(Footnote 19 continued)

the fulfillment of only one of Erie's “twin aims.”

20 NASCO’s contention is that Erie's “twin aims” are not offended by

application of the federal “bad faith’’ exception because it is “party

neutral,” treating plaintiffs and defendants alike and applying equally

to citizens and noncitizens, Resp. Br., 14, 22-23, is disingenuous at best.

Erie's concern is not whether plaintiffs or defendants, or “‘in-staters’’ or

“‘out-of-staters’’ are favored, but rather that a plaintiff or defendant

citizen receive the same treatment in federal court against a non-citizen

as his co-citizen receives in state court against either a citizen or a non-

citizen. ‘Certainly, the fortuitous circumstance of residence out of State

of one of the parties to a litigation ought not to give rise to a discrimina-

tion against others equally concerned but locally resident.’ Guaranty

Trust Co. v. York, supra, at 112.

21 “{S}tare decisis is a cornerstone of our legal system. . . .’ Webster v.

Reproductive Health Services, 109 S.Ct. 3040, 3056 (1989).

22 NASCO also cites some language from Hanna v. Plummer, supra, as

(continued)

. 15 -

universally recognized that Byrd's balancing approavh was

rejected by Hanna v. Plummer, which returned to and refin-

ed the outcome-determination approach of York. Ely,

supra, at 696; Braman and Neumann, The Still Unrepress-

ed Myth of Erie, 18 U. Balt. L. Rev. 404, 414 n.65; Redish

& Phillips, Erie and the Rules of Decision Act: In Search of

the Appropriate Dilemma, 91 Harv. L. Rev. 356, 369 n.4

(1977). As one commentator noted:

Apparently abandoned [in Hanna]... is the no-

tion derived from Byrd by several courts and

commentators that competing state and federal

practices must be balanced and that state prac-

tice can be permitted to prevail only when it is

‘bound up with the definition of the rights and

obligations of the parties.’

Miller, Federal Rule 44.1 and the ‘‘Fact’’ Approach to

Determining Foreign Law: Death Knell for a Die-Hard Doc-

trine, 65 Mich. L. Rev. 613, 714-15 (1967).23

NASCO’s argument is simply incorrect. The purpose

of a fee shift under the “bad faith" exception has always

(Footnote 22 continued)

holding that Erie can be ignored in ‘matters which relate to the ad-

ministration of legal proceedings’’ because of “affirmative countervail-

ing [federal] considerations.’ Resp. Br. at 22. However, the language is

taken completely out of context. When not so abused, the passage is

readily seen as indicating that Erie constraints do not apply when the

question at hand involves the applicability of a Federal Rule, such as

Rule 11. The test in that case is whether the Rule is constitutional and

within the authority granted under the Rules Enabling Act. Hanna v.

Plummer, supra, at 472-74. NASCO's confusion about Hanna explains

the curious argument made in note 13 of its brief. See Pet. Br. 28 n.10.

23 In any event, Louisiana has a st i i i

! . rong policy against awarding at-

torneys’ fees under the “inherent power” of the court for ‘‘bad faith”’

conduct. The underlying rationale of such an award is punitive. Hall v.

Cole, supra, at 5. Likewise, Louisiana law construes any award of at-

torneys’ fees as essentially punitive in nature. Frank K. Beier Radio,

Inc. v. Black Gold Marine, Inc., 449 So.2d 1014, 1016 (La. 1984). But.

Louisiana law strictly forbids punitive dam Beaeses . Bicherd

473 F.2d 863, 865 (5th Cir. 1973). a nn

16

been compensatory. It is a legacy of the Chancery Court's

power to do justice between the parties. That the award of

attorneys’ fees under the "bad faith’ exception may have

the concomitant side effect of ‘‘vindicating judicial authori-

ty’’ does not detract from its central thrust, which is essen-

tially compensatory.24 The exception has, at its core, the

substantive goal of preventing a litigant from enriching

himself by engaging in ‘“‘bad faith’’ conduct at the expense

of his innocent adversary, a goal which is something more

than merely improving the process by which lawsuits are

conducted.

Moreover, NASCO’s argument turns Erie analysis

on its head. It assumes that the relevant fact in determin-

ing whether a particular rule to be applied is a '’rule of deci-

sion’’ is the motive of the court in invoking that rule (to

promote a procedural goal or to achieve a substantive one),

rather than the effect that the rule has in terms of

‘‘outcome-determination”’ or the “‘twin-aims”’ of Erie. That

assumption is wrong.

[T]he question is not whether a [rule] is deemed a

matter of ‘procedure’ in some sense. The ques-

tion is . . . does it significantly affect the result of

a litigation for a federal court to disregard a law

of a State that would be controlling in an action

upon the same claim by the same parties in a

State Court?

Hanna v. Plummer, supra, at 466.

Finally, NASCO and the Court of Appeal's argument

draws a fanciful and hypothetical distinction between ‘‘bad

24 While contending that the ‘sole’ purpose of the award at issue in this

case was to protect the ‘‘court quo court,’ NASCO was forced to admit

that this Court recognized in Hutto v. Finely, supra, that an award

under the “equity court's power” to invoke the ‘‘bad faith’’ exception

‘‘vindicates judicial authority ... and makes the prevailing party whole

for expenses caused by his opponent's obstinacy.” /d., at 678 n.14, 98

S.Ct. at 2573 n. 14. The two are certainly not mutually exclusive. Cf

Juidice v. Vail, 430 U.S. 327, 335-336 & n.12 (1977).

17

faith’’ in the conduct of litigation itself (which is ‘‘classical-

ly procedural’’, Resp. Br. at 24), and ‘‘bad faith’’ in the

assertion of a claim or defense or in the conduct that leads

to the litigation (which ‘‘quickly implicates stat: choices of

policy,”’ Pet. App. A-76, and is thus presumably substan-

tive enough to be the object of Erie’s concern). No shift ot

the entire burden of attorneys’ fees in a lawsuit could be

predicated solely on the ‘classically procedural.’’ No mat-

ter how vexatious the litigation conduct of a party, his

adversary will incur attorneys’ fees, perhaps substantial

charges, that “are not intimately related to the mechanics

of the litigation.’’ Hutto v. Finney, supra, at 707 (Powell,

Jr. concurring). This statement can only be refuted by ex-

panding the scope of ‘‘bad faith litigation conduct”’ to in-

clude conduct the legitimacy of which is mea* red by the

substantive law, and is therefore not ‘‘classically

procedural.”’

This case is a perfect example. While the Court of

Appeal has chosen to define “‘litigation conduct’’ as in-

cluding all the grounds upon which the attorneys’ fee

award at issue was based, a review of those grounds reveals

that they are rife with the exact same ‘federal measuring”’

of claims and defenses that ‘‘quickly implicates state

choices of policy.”” Pet. App. A-76. Consider the major

ground, the ‘‘fraud’’ perpetrated on the court in an attempt

to deprive it of ‘‘jurisdiction’’ through the confection of the

Public Records Doctrine defense engineered by Gray. Resp.

Br. 21 n. 12. In an obvious attempt to direct Chambers’ and

Gray’s conduct at the court, NASCO has described what

transpired with ‘‘procedural’’ sounding words — words

that conjure abuses of process of the vilest kind. But, the

transfer of the assets to Mabel Baker was not a procedural

abuse (nor was it “‘litigation conduct’’ since it occurred

before the lawsuit was filed, Pet. App. A-61). No “fraud”

was committed on the court. See Addington v. Farmer's

Elevator Mutual Insurance Company, 650 F.2d 663, 668

(5th Cir. 1981), cert. denied, 454 U.S. 1098 (1981) (even per-

jury and failure to disclose do not constitute a fraud upon

the court because they do not “‘subvert”’ the “integrity of

18

the judicial process”’ in a ‘‘manner involving more than an

injury to a single litigant.’’) Nor was there any attempt to

deprive the court of ‘‘jurisdiction’’ over the assets, which

could only have been accomplished if Chambers had remov-

ed them from the country. Cf. National Forest Preservation

Group v. Butz, 485 F.2d 408, 410 (9th Cir. 1973) (argument

that transfer of lands pending appeal on denial of injunc-

tion placed the lands beyond the jurisdiction of the court

termed ‘‘nonsense.”’).25 Despite all of the procedural

ghosts that NASCO tries to summon, at issue here is a bad

faith breach of contract, and Chambers’ desire to have

what turned out to be a meritless legal theory tested in

federal court. ‘Clearly, the exercise of one’s legal rights to

have a dispute resolved in Federal Court is not an abuse of

the judicial process."’ Indianapolis Colts v. Mayor and City

Council, 775 F.2d 177, 182 (7th Cir. 1985). Awarding at-

torneys’ fees on the basis of that conduct, even through

throwing a procedural cloak about it, is precisely the kind

of ‘‘federal measuring’ that ‘‘quickly implicates state

choices of policy,’’ Pet. App. A-76. The same is true for the

other ‘‘ procedural abuses”’ alleged to have been committed

by Chambers, which all revolve essentially around the fact

that the defenses asserted on his behalf by Gray were all

found to be specious.26 Whether all of this conduct is penn-

ed ‘‘litigation conduct” or otherwise, awarding attorneys’

fees because of it surely has the potential to materially

alter the ‘“‘character or result’’ of the litigation. Hanna v.

Plummer, supra, at 467. Under Erie and Hanna, such a

federal shaping of a state substantive right is unwarranted.

Montgomery & Co. v. Pacific Indemnity Co., at 557 F.2d

51, at 58 n.9 (3rd Cir. 1977).

25 Gray's decision to confect the Public Records Doctrine defense after

receiving notice that NASCO would seek a TRO is likewise not a pro-

cedural abuse. It merely placed the conduct “‘at his peril and subject to

the power of the court to restore the status quo. .. ."’ Jones v. SEC. 298

U.S. 1, 18 (1936).

26 “Excessive discovery requests, which were complained of in this

case, also séem peculiarly the province of lawyers.’ White v. General

Motors, Corp., Inc., supra, at 686.

19

CONCLUSION

NASCO asserts that Chambers’ suggestion that this

case is inappropriate for a remand is ‘‘nonsense.”’ Im-

possibility is not “‘nonsense.’’ NASCO has stated that it is

impossible to supply the type of time records that would be

necessary to conduct the detailed analysis that would be re-

quired to sanction Chambers under the court’s express

powers. J.A. 132.27 NASCO now asks this Court to re-

mand the case so that it can produce the records that it

refused to produce previously on the ground of “im-

possibility.’’ Moreover, the trial court has already examin-

ed the conduct at issue in light of its express powers, and

found Rule 11 inadequate to vindicate its authority. Pet.

App. A-41.28 The district court’s error in grounding its

decision on its “‘inherent power”’ is an error attributable to

NASCO (who prayed that the court invoke that power so

that it could be reimbursed the entirety of its attorneys’

fees), not Chambers. Under these unique circumstances,

Chambers respectfully suggests that a remand is not due.

27 The same constraint should have prevented the district court's

assessing attorneys’ fees under the “bad faith’ exception. Coleman-

Worthington Productions v. Schuller, 914 F.2d 1496 (9th Cir. 1990);

Sidag Aktiengesellschaft v. Smoked Food Products Company, Inc., 854

F.2d 799 (5th Cir. 1988).

28 This is not to say that Rule 11, or any of the other availabie express

powers or even several of the inherent powers (such as dismissal of

claims, contempt, or limited fees and expenses) properly invoked at the

time specific violations of the rules of conduct occurred, would not have

been more than adequate to protect the court from abuse.

- ——————————

20

MACK E. BARHAM* |

ROBERT E. ARCENEAUX |

Barham & Markle, P.C.

650 Poydras Street, Suite 2700

New Orleans, LA 70130

(504) 525-4400

RUSSELL T. TRITICO, P.C.

714 Pujo Street

Lake Charles, LA 70602

(318) 426-6648

Attorneys for Petitioner

* Counsel of Record

January 30, 1990