Petition for Writ of Certiorari — Skidmore Energy, Inc. v. Maghreb Petroleum Exploration, S.A. (No. 06-416)
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| Su, “dig Cont U.S.
06-416 SEP 2 2 2006
sas —OFFICE OF THE CLERK
IN THE
Supreme Court of the United States
SKIDMORE ENERGY, INC., AND
GEOSCIENCE INTERNATIONAL, INC.
Petitioners,
V.
MAGHREB PETROLEUM EXPLORATION, S.A.,
MEDIHOLDING, S.A., MIDEAST FUND FOR MOROCCO, LTD.,
SAMAHA TRADING (UK) LTD., ABDULLAH KAMEL, SHEZI
NACKVI, MOHAMMED BENSLIMANE, MOULAY ABDELLAH
ALAOUI, RICHARD MENKIN, CRAIN, CATON & JAMES, P.C.,
AND REUVEN M. BISk,
Respondents.
On Petition for a Writ of Certiorari to the
United States Court of Appeals for the Fifth Circuit
PETITION FOR WRIT OF CERTIORARI
Mary K. Ludwick Gregory P. Standerfer
Counsel of Record Standerfer Law Firm, P.C.
Ludwick & Associates 1400 Civic Place, Ste. 221
3878 Oak Lawn Ave., Ste. 525 Southlake, Texas 76092
Dallas, Texas 75219 Tel: (817) 481-4411
Tel: (214) 373-7474
Counsel for Petitioners
POS EI AE, SLITS VIED TLE Lt PO LOT FO aS rap FOR eR ue
tS ree
Questions Presented
Questionl. May a client who engaged inno
sanctionable conduct whatsoever (Geoscience), and for whom
the trial court made no finding of sanctionable conduct, be held
liable for sanctions under Rule 11?
Question 2. May aclient be held liable for sanctions
under Rule | 1 in the absence of any evidence or finding that the
client knew or should have known that the complaint filed on its
behalf was factually or legally baseless?
Question 3. May a Court assess attorneys’ fees
allegedly incurred in a case as a sanction without ever making a
finding that the attorneys’ fees were reasonable (no finding that
both the hourly rate and the number of hours spent were
reasonable)?
Question 4. May a Court assess all attorneys’ fees
allegedly incurred in a case as a sanction where the trial court
did not expressly find such fees to have been caused by the
violations of Rule 11, and it was uncontroverted that a
significant portion of such fees were neither caused by, nor
related to, the violations of Rule 11 found by the Trial Court?
Question 5. May a Court assess all attorneys’ fees
allegedly incurred in a case as a sanction where the
uncontroverted evidence established that a significant portion of
such fees were unrelated to the sanctionable conduct found, were
unrelated to the representation of any of the Defendants moving
for sanctions, or were supported only by redacted fee statements
which provided no sufficient documentation to determine
whether the alleged fees were reasonably incurred?
Statement Pursuant to Supreme Court Rule 29.6
Petitioners, Skidmore Energy, Inc., and Geoscience
International, Inc. are privately owned entities. Each of these
entities have no parent corporation and there is no publicly held
company that owns 10% or more of either of such entity’s stock.
ee
TABLE OF CONTENTS
RIE RAS Sin nee SAORI BRE PEE CAP i
Statement Pursuant to Supreme Court Rule 29.6........... li
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NE oie ie eiey uo enebeatheenae ees 2
Reasons for Granting the Petition ...................... 5
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OPPO OT TT ET eC CO OEE? 26
TABLE OF AUTHORITIES
CASES
Blum vy. Stenson, 465 U.S. 886 (1984) ....... 4, 15, 21, 22, 24
Browning Debenture Holders Committee v.
DASA Corp., 560 F.2d 1078 (2d Cir.1977) ..........0.00- 13
Byrne v. Nezhat,
et Te BTA CLEC: BOOP) oc cevicvicrenusas 4,7, 8,24
Calloway v. Marvel Entertainment Group,
a Division of Cadence Industries Corp.,
OOO 28 tT Or, TO) oa oe eee ieks 4,10, 25
Childs v. State Farm, 29 F.3d 1018 (5th Cir. 1994) ....... 16
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384,
110 S.Ct. 2447, 110 L.Ed.2d 359 (1990) ............. 21,22
Eastway v. City of New York,
er 5 I, OO Ce: FE s FOO) 8 bier ccks $04 OAs 11
In re Big Rapids Mall Associates,
pg te gg RE Fea Eee Ae eet 4,9, 25
Independent Fire Ins. Co. v. Lea,
ipeg RES De OR. fy ee Pome eer Te or 14
Louisiana Power & Light Co. v. Kellstrom,
SOT SE FTe CGE, FI) + 6k eee sve (ae eee 16
iv
Pennsylvania v. Delaware Valley Citizens’
Council for Clean Air, 478 U.S. 546 (1986) .. 4, 15,21, 22, 24
Thomas v. Capital Sec. Services, Inc.,
836 F.2d 866 (Sth Cir.1988)(en banc) ..............246. 16
White v. General Motors Corp., Inc.,
Pe TO A OC, FIFE nike cco nnnrcececta 4,9, 24
RULES/STATUTES
ee ee ce lei dyravuke ee @Pkse Neeneehnan eee. |
RE a5 cv heen tes) s REwLba sore e eae eee 2
i Seater tere ba Ve bar eeety Seu mes 2
ae Ua. $2101 ...... aces ba hentai akgvenéncsaeiees |
§ eae } Sree 1, 2, 4, 5, 7-11, 13-16, 21, 23, 24
Supreme Court Rule 13.1 and 13.3 ......... PERE DS eT ]
Opinions Below
The ruling of the United States Court of Appeals for the
Fifth Circuit, dated July 7, 2006, affirming in aii respects the
decision of the District Court, is officially reported at 455 F.3d
564, and is reproduced at Appendix p.1. Petitioner’s timely
Petitions for Rehearing and Rehearing En Banc were denied on
August 2, 2006, and is reproduced at Appendix p. 12.
The Rulings on Defendants’ Motions for Sanctions by the
United States District Court for the Northern District of Texas -
Dallas Division, Honorable Jane J. Boyle Presiding, dated March
17, 2005, and May 18, 2005, were unpublished, and are
reproduced at Appendix p. 14, and Appendix p. 34, respectively.
Jurisdiction
The Order of the United States Circuit Court of Appeals
for the Fifth Circuit sought to be reviewed was entered on July 7,
2006. Petitioners timely filed a Petition for Panel Rehearing and
a Petition for En Banc Rehearing on July 20, 2006. The Petitions
for Rehearing were denied on August 2, 2006. This Petition is
timely under 28 U.S.C. 2101 and Supreme Court Rule 13.1 and
13.3 because it is being filed within 90 days of both the entry of
the order sought to be reviewed, and of the denial of the Petitions
for Rehearing. This Court has jurisdiction to review the order of
the United States Circuit Court of Appeals for the Fifth Circuit
pursuant to the jurisdiction conferred by 28 U.S.C. Section 1254.
Statutes/Rules Involved
Fed. R. Civ. P. 11 is reproduced at Appendix p. 50.
Statement of the Case
The j liction of the district court was invoked pursuant
to 28 U.S.C. § «531 (general federal question jurisdiction), and 28
U.S.C. § 1367 (Supplemental jurisdiction). The trial court
assessed Rule 1i sanctions of $530,667.32 following the
dismissal on the merits of Petitioners’ RICO and Sherman Act
claims for failure to state a claim, and the dismissal, for want of
subject matter jurisdiction, of Petitioners’ remaining state law
claims.
On April 15, 2005, the Trial Court entered a final
judgment incorporating its September 3, 2004, December 3, 2004
and December 28, 2004 Orders of Dismissal, subject to
Appellees’ Motion for Rule 11 Sanctions then pending before the
Trial Court. On March 18, 2005, The Trial Court entered an
interlocutory Order Granting Rule 11 Sanctions against
Appellants and their former trial counsel, Gary Sullivan, “the
amount and apportionment of those fees [to] be determined by
separate order”. On April 19, 2005, Appellants retained new
counsel and filed (1) Plaintiffs’ Objections to Defendants’
Attorneys’ Fees and Expenses Claimed as Sanctions, and (2)
Plaintiffs’ Response to Defendants’ Motion for Rule 1 1 Sanctions
and Motion for Reconsideration of sanctions awarded against
Appellants.
On May 18, 2005, the Trial Court entered a final and
appealable Order Granting Defendants’ Request for Attorneys’
Fees and Denying Plaintiffs’ Objections and Motion for
Reconsideration of the sanctions award. On June 10, 2005,
Appellants timely filed their Notice of Appeal of the Trial Court’s
final and appealable May 18, 2005 Order Granting Sanctions and
denying Plaintiffs’ Motion to Modify the Trial Court’s
interlocutory March 18, 2005 Order (collectively, the “Sanctions
Orders”’).
On July 7, 2006, the United States Circuit Court of
Appeals for the Fifth Circuit issued its judgment and opinion on
appeal, which affirmed the sanctions orders entered by the trial
court. Petitioners timely filed a Petition for Panel Rehearing and
a Petition for En Banc Rehearing on July 20, 2006. Both
Petitions were denied on August 2, 2006.
The sanctions award was affirmed by the 5" Circuit Court
of Appeals. The 5" Circuit’s opinion affirmed the joint and
several award of sanctions against Petitioners, Skidmore Energy,
Inc. and Geoscience, Inc. even though the 5" Circuit affirmatively
conceded, in its opinion, that there was no evidence in the record
of any sanctionable conduct by Geoscience, and the trial court
never made any finding of any sanctionable conduct by
Geoscience.
The 5th Circuit’s opinion also affirmed the award of
sanctions of the entirety of legal fees and expenses allegedly
incurred by Respondents’ counsel, despite the failure of the trial
court to make a finding that such fees were “reasonable”. The
trial court found only the hourly rate to be reasonable, but wholly
failed, despite a direct challenge by Plaintiffs, to make a finding
that the number of hours allegedly incurred were reasonable. The
trial court made a finding only that Defendants had reasonably
incurred “a significant number of hours defending the claim”.
There was never the required affirmative finding that the number
of hours spent or the expenses incurred, were reasonable.
Finally, the 5th Circuit’s opinion also affirmed the award
of sanctions of the entirety of legal fees and expenses allegedly
incurred by Respondents’ counsel, (a) without ever making a
finding that the entirety of all claims asserted by Petitioners in the
trial court were frivolous, (b) despite the fact that the trial court
addressed only the two federal claims (RICO and Sherman Act),
found those to be sanctionable, but dismissed the remainder of the
3
a
state law claims solely because the federal court no longer had
jurisdiction to hear the non-federal claims, without ever reaching
the merits of those claims; and (c) despite the uncontroverted
evidence that a significant portion of such fees were unrelated to
the sanctionable conduct found, were unrelated to the
representation of any of the Defendants moving for sanctions, or
were supported only by redacted fee statements which provided
no sufficient documentation to determine whether the alleged fees
were reasonably incurred.
These holdings would impermissibly convert Rule 11 into
a rule of strict and joint and several liability, allow the
unrestrained assessment of fees and expenses that are not
reasonable, and are unrelated to the sanctionable conduct found.
These holdings are contrary to well settled precedent of
this Court, including Pennsylvania v. Delaware Valley Citizens’
Council for Clean Air, 478 U.S. 546 (1986); and Blum y. Stenson,
465 U.S. 886 (1984), on determination of reasonableness of
attorneys’ fees under Lodestar.
These holdings are also directly contrary to holdings of the
majority of the courts of appeal upon the issue liability for Rule
11 sanctions, including the 11" Circuit, in Byrne v. Nezhat, 261
F.3d 1075 (11th Cir. 2001); the 10th Circuit in White v. General
Motors Corp., Inc., 908 F.2d 675 (10" Cir. 1990); the 6" Circuit
in In re Big Rapids Mall Associates, 98 F.3d 926 (6™ Cir. 1996);
and the 2" Circuit in Calloway v. Marvel Entertainment Group,
a Division of Cadence Industries Corp., 854 F.2d 1452 (2™ Cir.
1988).
Reasons for Granting the Petition
The 5th Circuit’s Opinion Conflict with
Decisions of other United States Courts of Appeals
The 5" Circuit in this case held that even though there is
no. evidence in the record of any sanctionable conduct by
Petitioner, Geoscience, and the Court made no findings of any
sanctionable conduct by Geoscience, the sanctions order entered
by the trial court assessing sanctions jointly and severally against
Petitioners Skidmore and Geoscience may nevertheless be
affirmed. The 5th Circuit further held that even though the only
finding against Petitioner Skidmore was that its representative did
not know of the factual basis for several of the claims investigated
and pleaded by its attorney, that Skidmore could be sanctioned,
in the absence of any evidence or finding that Skidmore knew or
even should have known, that the complaint filed on its behalf
was factually or legally baseless. These holdings are contrary to
virtually unanimous agreement among the federal courts of
appeals that Rule 11 does not provide for such a strict liability
sanctions award. Appellants’ counsel has been unable to find any
opinion at any level in any circuit within the entire United States
that has ever held that a party who engaged-in-no-sanctionable
conduct whatsoever shall be liable for sanctions so long as at
least one party arguably engaged in sanctionable conduct, and the
innocent parties were represented by the same counsel. The 5"
Circuit held, in its opinion, at footnote 12:
fni2. We _ acknowledge the argument _of
Appellants' counsel that only Skidmore's - and
not Geoscience's - involvement in sanctionable
conduct is reflected in the Record. We also
observe, however, that these two entities were -
represented by common counsel in the district
court, as they are on appeal, and that in all of their
5
filings no distinction is made between them. We
cannot say, particularly in light of the district
court's inherent!y superior vantage point, that the
court erred in sanciioning Appellants jointly. 455
F3d. at 568, fn.12. (emphasis added).
The 5" Circuit held:
The district court did not abuse its discretion in
awarding sanctions against Appellants. Rule 11
provides for sanctions against “the attorneys, law
firms, or parties that have violated [the Rule] or
are responsible for the violation. /d., at 567.
kk*
The district court observed the “common thread
weaving its way through this case ... is the
puzzling lack of legal or factual support
articulated for the pleadings,” and repeatedly
noted “Plaintiffs’ failure to articulate any
evidentiary support for their claims.” The court
discussed in detail the testimony of Michael
Gustin, Skidmore’s owner, who assured th. ourt
that he had reviewed the pleadings before they
were filed. Nevertheless, he was “entirely unable
to articulate a factual nexus between any of the
Defendants and verifiable money laundering
activity,” organized crime, terrorism financing, or
any of the other “sensational allegations peppered
throughout the complaint and RCS.” The court
found “[t]he bulk of Plaintiff[s’] causes of action
... are without evidentiary support and thus appear
to have been ‘instigated as a gambie that
something might come of it rather than on the
basis of the facts at hand.’” The court awarded
sanctions because it found “that reasonable factual
and legal inquiries would have prevented this suit
from being filed. /d., at 568.
The 5" Circuit’s opinion highlights Petitioners’ complaint
with respect to the trial court’s order and the 5" Circuit’s opinion.
Both the trial Court and the 5" Circuit relied upon a single finding
by the trial court to support joint and several sanctions. A
corporate representative of Skidmore testified that he was sure he
had reviewed the complaint before it was filed, but he could not
articulate a factual basis for several of the legal causes of action
investigated and pleaded by the attorney hired by Petitioners to
represent them. However, neither the trial court nor the 5"
Circuit ever (a) made any connection between these isolated
statements of the Skidmore representative and the sanctions
assessed against the parties, jointly and severally, (b) made any
finding, or found any evidence in the record, to support a sanction
against Geoscience, and (c) made any finding, or found any
evidence in the record, that Skidmore knew or even should have
known, that the complaint filed on its behalf was factually or
legally baseless.
The 5" Circuit’s opinion is directly contrary to the 11"
Circuit’s holding in Byrne v. Nezhat, 261 F.3d 1075 (11th Cir.
2001). Byrne held that in order for a party to be sanctioned under
Rule 11, the party must have been responsible for the
sanctionable conduct:
The defendants contend that Manov's deposition
testimony contradicted the allegations in the
complaint, that her amendments to her deposition
demonstrated that she was trying to change her
testimony, and that she continued to rely on Neal
after she learned of his disqualification in
Mullen's state court case. Even if these
allegations and other like-styled arguments set
-
forth by the defendants are true, they do not
indicate that Manov knew the complaint filed
on her behalf was factually or legally baseless.
Further, there is no evidence in the record
indicating that Manov provided false infor-
mation to her attorneys, thereby facilitating a
factually groundless complaint. ... There is no
indication that Manov was anything but truthful in
relaying to counsel facts about her surgeries and
post-operative complications. The inadequacies
in the RICO and other counts in the amended
complaint stemmed directly from her attorneys. ...
Implicit in the district court's reasoning is the
understanding that Manov's attorneys, not Manov,
were responsible for the frivolous claims and
pleadings. Accordingly, insofar as the monetary
sanctions levied against Manov were based on the
court's authority under Rule 11, they cannot be
upheld. /d., at 1118-19.
Other than a single statement by Skidmore’s corporate
representative that he was sure he read the Complaint before it
was filed, there is no evidence and no findings of the types of
conduct found by other circuits to warrant Rule 11 sanctions.
There was no evidence and no finding by the trial court that
Skidmore or Geoscience (or any of their representatives) knew the
complaint filed on their behalf was factually or legally baseless.
There was no evidence and no finding by the trial court that
Skidmore or Geoscience (or any of their representatives) provided
false information to their attorneys, thereby facilitating a factually
groundless complaint. There is nothing to indicate that Skidmore
and Geoscience were anything but truthful in relaying to counsel
facts about the transactions giving rise top their claims. As in
Byrne, the inadequacies in the RICO and Sherman Act counts in
the pleadings and in the RICO Case Statement stemmed directly
from their attorney, Gary Sullivan, and yet, each of the clients, as
represented parties, were sanctioned jointly and severally.
The 5" Circuits opinion is alsc directly contrary to the
10th Circuit’s holding in White v. General Motors Corp., Inc.,
908 F.2d 675 (10" Cir. 1990). White also held that in order for
a party to be sanctioned under Rule 11, the party must have been
responsible for the sanctionable conduct:
Sanctions must be appropriate in amount and
levied upon the person responsible for the
violation. We agree with those circuits that
have expressed the view that the sanctioning of
a party requires specific findings that the party
was aware of the wrongdoing. In the instant
case, the trial court appears to have assessed
joint and several liability without considering
relative fault. This concerns us particularly
because this case is one in which at least a
colorable ADEA argument could have been
made to advance White and Staponski's
position... /d., at 685-6. (emphasis added).
Again, the trial court in this case made no findings that
either Skidmore or Geoscience was aware of the frivolousness of
the federal claims asserted by their attorney, or of any of the
factual matters pleaded by their attorney, Gary Sullivan. There
was no discussion or weighing, by either the trial court, or by the
5" Circuit, of relative fault or responsibility of either of the
represented parties.
For the same reasons, the 5" Circuits opinion is also
directly contrary to the 6" Circuit’s holding in Jn re Big Rapids
Mall Associates, 98 F.3d 926 (6" Cir. 1996). Big Rapids also
held that in order-fer-a-part+to be sanctioned under Rule 11, the
9
party must have been responsible for the sanctionable conduct:
In the instant case, the bankruptcy court concluded
that "the attorneys and clients shared respon-
sibility for the litigation strategy," Memorandum
Opinion, Feb. 15, 1994, p. 14 (App. p. 29), and it
imposed sanctions on not only the Debtor, but
also on both of its principals and both of the
appellants, jointly and severally. The court made
no finding that appzilants knew or should have
known before filing the bankruptey petition
that their clients would lack credibility in
court. Likewise, there are no facts to support a
conclusion of "shared responsibility." "The
sanctioning of a party requires specific findings
that the party being sanctioned was aware of
the wrongdoing. ... In the instant case, the trial
court appears to have assessed joint and
several liability without considering relative
fault." Without any findings to support the
imposition of sanctions on appellants, the
bankruptcy ruling amounts to vicarious liability on
the part of appellants for the perceived
unreliability of their clients' testimony. /d., at 932.
(emphasis added) (internal citations omitted).
For the same reasons, the 5" Circuits opinion is also
directly contrary to the 2" Circuit’s holding in Calloway y.
Marvel Entertainment Group, a Division of Cadence Industries
Corp., 854 F.2d 1452 (2™ Cir. 1988). Calloway also held that in
order for a party to be sanctioned under Rule 11, the party must
have been responsible for the sanctionable conduct:
Calloway appeared pro se on his appeal. He asked
that we appoint counsel to represent him but failed
10
to file an affidavit of indigency as requested.
Because he thereafter filed no papers, his appeal
was automatically dismissed by the clerk for
failure to prosecute under our Civil Appeals
Management Plan. For reasons stated immediately
infra, we are sua sponte recalling the mandate and
reinstating Calloway's appeal in order to remand
for a determination of the relative responsibility of
Calloway and his attorneys for the conduct
violating Rule 11 and the allocation of sanctions
between them.
The entire Rule 11 proceeding against Calloway
was thoroughly tainted by Pavelic & LeFlore's
representation of him notwithstanding a
self-evident conflict of interest. The motions for
sanctions explicitly relied, inter alia, upon the
facsimile claim. With regard to that claim,
Calloway had agreed at trial that he had no "real
evidence" other than what LeFlore had told him,
namely that a handwriting expert had supported
the claim that facsimile signatures were
improperly atfixed to the contracts. This
testimony alone clearly raised an issue as to
whether Calloway or LeFlore, or both, were
responsible for the conduct Judge Sweet found
violative of Rule 11. Unless LeFlore was prepared
to inform Judge Sweet that he had in fact put
words in Calloway's mouth in preparing the
amended complaint, the affidavit opposing the
motions for summary judgment and various
answers to interrogatories, and that he thereafter
misrepresented to Calloway Tytell's opinion on
the matter, he should have ceased to represent
Calloway in the Rule 11 proceedings. See,
Eastway v. City of New York, 637 F. Supp. 558,
570 (E.D. N.Y. 1986) (when there is question as
to whether client or attorney is at fault, interests of
two become adverse and client will need new
counsel to represent him). Instead, his firm, from
which the defendants were also seeking sanctions,
continued to represent Calloway, submitting a
brief (signed by LeFlore) devoted almost
exclusively to issues that had been submitted to
_ the jury, making only a single, oblique reference
to the facsimile claim in a footnote. Of course, no
argument was made to the court that LeFlore and
the firm bore full responsibility for the facsimile
claim. In particular, the extent to which LeFlore
pressed the facsimile argument upon Calloway,
including a misrepresentation as to an expert's
opinion, was not explored. Nor was it argued that,
even if Calloway bore some responsibility for the
claim, LeFlore and the firm should be jointly and
severally liable for sanctions imposed on
Calloway.
The district court imposed $100,000, fifty percent
of the total sanctions, upon Calloway, an amount
for which the attorneys are not jointly and
severally liable. In imposing sanctions, however,
Judge Sweet stated that Calloway may not have
been aware of the consequences of his statements
and was prone to substitute his attorney's theories
for the facts. He thus stated that Calloway did not
knowingly lie in the affidavit that was written by
LeFlore and that Calloway had not acted in bad
faith. 111 F.R.D. 649-50. Moreover, the position
taken by LeFlore at oral argument in this court is
that LeFlore unaccountably misinterpreted what
=
Calloway told him regarding Calloway's signing
only in his capacity as a corporate officer.
In imposing sanctions, Judge Sweet appears to
have applied an "objectively reasonable" test
to Calloway's conduct. That test, however, is
appropriate only in evaluating the conduct of
attorneys under Rule 11, not the conduct of
parties represented by attorneys. As licensed
professionals and officers of the court,
attorneys are expected to measure up to
minimal standards of professional competence
under the Rule and thus may not excuse their
conduct on the ground that they were acting in
good faith.
We believe that a party represented by an
attorney should not be sanctioned for papers
signed by the attorney unless the party had
actual knowledge that filing the paper cons-
tituted wrongful conduct, e.g., the paper made
false statements or was filed for an improper
purpose. The Advisory Committee stated that
allocation of sanctions among attorneys and their
clients was a matter of judicial "discretion" and
that sanctions should be imposed on a party where
appropriate under the circumstances. Fed.R.Civ.P.
11 advisory committee's note to 1983 amendment.
As guidance, the Committee cited Browning
Debenture Holders Committee v. DASA Corp.,
560 F.2d 1078 (2d Cir.1977), a case holding that
a represented party should not be held liable for
wrongful conduct by attorneys unless the party
was personally aware of or responsible for the
conduct. /d., at 1473-5. (emphasis added).
13
The 5th Circuit’s newly announced basis for sanctions is
even directly contrary to one of its own prior decisions,
Independent Fire Ins. Co. vy. Lea, 979 F.2d 377 (Sth Cir.1992):
While the Trial Judge has broad discretion in
assessing sanctions under Rule 11, we conclude
that he abused such discretion in applying
sanctions to Randall Lea and Elizabeth Lemoine
Lea. ... In its lengthy opinion, the Trial Court
clearly identified the many grounds and
circumstances on which it felt that actions taken
by Robert W. Lea, Jr. failed to satisfy the
requirements of Rule 11; but no where did the
Trial Court identify any similar actions as having
been taken by either Randal] Lea or Elizabeth
Lemoine Lea. While Rule 11 of the Federal Rules
of Civil Procedure does contemplate that
sanctions can be levied against a "represented
party", we are constrained to hold under the facts
of this case that the "represented party" against
which sanctions are levied must be a party who
had some direct personal involvement in the
management of the litigation and/or the decisions
that resulted in the actions which the court finds
improper under Rule 11. This test would clearly
include Robert W. Lea, Jr. but would also clearly
exclude Randall Lea and Elizabeth Lemoine Lea.
There is nothing in the express language of Rule
11 that all parties at interest on a particular side of
a given law suit shall be subject to sanctions on a
pro rata or joint and several liability or in solido
basis; and we do not think that the basic policies
of "deterrence and education" behind Rule 11
require an interpretation of the Rule which creates
such forms of vicarious liability. Jd., at 378-9.
14
An interpretation of Fed. R. Civ. P. 11 allowing the
imposition of joint and severaj sanctions in the absence of any
evidence or findings by the trial court that a party knew the
complaint filed on its behalf was factuatiy or legally baseless, or
that a party provided false information to its attorneys, thereby
facilitating a factually groundless complaint, would convert Rule
]1 into a rule of strict liability and would make every party to
every Civil action an indemnitor for the conduct of both their
attorneys and of every other commonly aligned party. Rule-11
cannot and should not be so construed. Petitioners request that
this Court grant their Petition and construed Rule 11 to require
the trial court to make an affirmative finding, with respect to each
party, whether such party engaged in sanctionable conduct, and if
so, to apportion sanctions among offending parties and/or their
counsel to reflect the wrongful conduct of each party.
The 5" Circuit’s Opinion
Conflicts with Decisions of this Court
The Sth Circuit and the trial court in this case failed to
conduct the Lodestar analysis required by this Court in
Pennsylvania v. Delaware Valley Citizens' Council for Clean Air,
478 U.S. 546. (1986); and Blum v. Stenson, 465 U.S. 886 (1984).
The trial court found only the hourly rate to be reasonable,
but wholly failed, despite a direct challenge by. Plaintiffs, tc
make a finding that the number of hours allegedly incurred
were reasonable, instead finding only that Defendants
“reasonably expended a significant number of hours working
on the case”. There was never any affirmative finding that the
number of hours spent or the expenses incurred, were reasonable.
The trial court’s specific finding was as follows:
The Court, being intimately familiar with the
progression of this litigation, finds that the
Defendants' attorneys have reasonably
15
expended a_ significant number of hours
working on this case.” (CR 3535. Appendix 2).
Rule 11 permits the district court to order a party who
violates Rule 11 to pay his opponent "the reasonable expenses
incurred because of the filing of the pleading, motion, or other
paper, including a reasonable attorney's fee." Fed. R. Civ. P. 11;
Childs v. State Farm, 29 F.3d 1018, 1023-4 (Sth Cir. 1994);
Thomas vy. Capital Sec. Services, Inc., 836 F.2d 866, 874 (Sth
Cir.1988)(en banc). However, in those cases in which such
sanctions are imposed, the attorneys’ fees and expenses reim-
bursed must (1) be found to have been caused by a violation of
Rule 11, and (2) be affirmatively found to be reasonable.
Childs, 29 F.3d at 1027; Thomas, 836 F.2d at 878-9.
The trial court did not find that the entirety of the
Appellants’ attorneys’ fees were caused by a violation of Rule
11, and the trial court did not find that the number of hours sought
by Appellants in their motion for sanctions were reasonable.
Therefore, the total attorneys’ fee under Lodestar were not, and
could not have been, affirmatively found to be reasonable. The
5" Circuit affirmed the sanction, resting “its opinion on the
following statements:
Determinations of hours and rates [for calculating
reasonable litigation expenses and attorneys’ fees]
are questions of fact. ... Accordingly, we review
the district court’s determination of reasonable
hours and reasonable rates for clear error.
Louisiana Power & Light Co. v. Kellstrom, 50
F.3d 319, 324 (5th Cir. 1995).
k*k*
The court conducted the lodestar analysis by
multiplying the reasonable number of hours
expended in defending the suit by the reasonable
16
hourly rates for the participating lawyers. As the
hourly rates submitted by the defense were not
disputed, the sole factor for the court’s
determination was the reascnable number of hours
expended. Relying on defense counsel’s
documentation, which “clearly indicate[d] the
nature and type of work performed or [sic] and
detail[ed] how the hours were spent on particular
aspects of the case,” the court concluded that the
number of hours claimed by the defense was
reasonable. Among the court’s considerations
were the complexity of the litigation, the number
of individual and mostly foreign defendants, and
the “vast array of claims asserted.” Given the
district court’s “intimate[] involve[ment] with the
case, the litigants, and the attorneys,” as well as its
thorough discussion in its Order granting the
sanctions, its factual determination of the
reasonable number of hours expended was not
clearly erroneous.
Appellants complain, vaguely and
conclusionally, that a “significant portion” of the
defense costs awarded were unrelated to the
sanctionable conduct or were incurred in
representing defendants other than the 11 that
moved for sanctions. Beyond these bare
assertions, however, Appellants failed adequately
to brief the issue or to call our attention to
anything in the record that might support this
contention. /d., at 566-7.
The 5" Circuit stated that the complaints regarding the
reasonableness of attorneys’ fees and expenses awarded were
“vague and conclusional”. One could not have made such a
17
statement if one had reviewed the voluminous and detailed billing
excerpts contained in the voluminous pages of detailed billing
statements and excerpts specifically cited to in Appeilants’ Brief,
and attached in Appellants’ Appendix. The 5" Circuit never
addressed the voluminous record relating to the unreasonableness
of the hours or the undisputed fact that a significant amount of the
Crain, Caton & James fees related to work done for parties they
did not represent and who were not movants for sanctions. The
Defendants sought, and the Trial Court awarded, at least
$297,492.25 in (a) attorneys fees that were unrelated to defense
of claims asserted by Plaintiffs against the defendant parties who
moved for the sanctions, or (b) were billed for hundreds of
unidentified “conferences among lawyers”, all set forth in
excruciating detail in Appellants Brief in the 5" Circuit, which
directed the court of appeals to the following specific complaints
and the following specific exhibits from the trial court record:
a. As shown by the billing entries excerpted
from Crain, Caton & James’ single fee bill, there
are numerous instances of legal fees rendered for
party Defendant Saoud, who was not one of Crain,
Caton & James’ clients in this lawsuit and who is
not a movant for sanctions. (Plaintiffs’ Objections
to Defendants’ Application for Attorneys’ Fees
and Expenses, Exhibit 1 - CR 3197, 3201;
Appendix 4 in the court of appeals) ($26,112.25
in entries on fee billings were rendered for
Defendant Saoud, who never moved for
sanctions). (reproduced at Appendix p.54).
b. As shown by the billing entries
excerpted from Crain, Caton & James’ single fee
bill, there are numerous instances of legal fees
rendered communicating with the attorneys for
Defendant Bandar Bin Sultan, who was not one of
18
Crain, Caton & James’ clients in this lawsuit, and
which related to the motions to dismiss filed by
Bandar Bin Sultan asserting diplomatic immunity,
a defense that could never have been used in any
of Crain Caton’s eleven Defendants’ defense; and
Bandar Bin Sultan was not a movant for sanctions
(Plaintiffs’ Objections to Defendants’ Application
for Attorneys’ Fees and Expenses, Exhibit 1 - CR
3197, 3206; Appendix 5 in the court of appeals)
($27,468.75 in entries on fee billings were
rendered for Defendant Bandar Bin Sultan,
who never moved for sanctions). (reproduced at
Appendix p.63).
c. As shown by the billing entries
excerpted from Crain, Caton & James’ single fee
bill, there are numerous instances of legal fees
rendered for Defendants Saleh Abdellah Kamel
and Dallah al Baraka who were not Crain, Caton
& James’ clients in this lawsuit, and the
referenced services clearly were not legal services
rendered on behalf of any of the eleven Crain,
Caton & James Defendants and who were-not
movants for sanctions, (Plaintiffs’ Objections to
Defendants’ Application for Attorneys’ Fees and
Expenses, Exhibit 1 - CR 3197, 3210; Appendix
6 in the court of appeals) . ($15,536.50 in entries
on fee billings were rendered for Defendants
Saleh Abdellah Kamel and Dallah al Baraka,
who never moved for sanctions). (reproduced at
Appendix p.71).
C. As shown by the billing entries
excerpted from Crain, Caton & James’ single fee
bill, there are numerous instances of legal fees
19
rendered for researching counterclaims of slander,
libel, and defamation, and the litigation privilege,
all of which were clearly not applicable to any of
these eleven Defendants’ defense of Appellants’
claims in the underlying suit. (Plaintiffs’ Objec-
tions to Defendants’ Application for Attorneys’
Fees and Expenses, Exhibit 1 - CR 3197, 3214;
Appendix 7 in the court of appeals) ($19,852.75
in entries on fee billings were rendered for
researching counterclaims, wholly unrelated to
defense of the action). (reproduced at Appendix
p.77).
f. As shown by the billing entries
excerpted from Crain, Caton & James’ single fee
bill, there are numerous instances of legal fees
charged for phone communications, memos
drafted, and meetings with unidentified persons,
for which the fee entries are wholly or
substantially redacted preventing both Appellants
and the Trial Court, from making the detailed and
specific review of the fees allegedly incurred, and
preventing this Court from conducting its own
duty of "rigorous" review for abuses of the district
court's discretion (Plaintiffs’ Objections to Defen-
dants’ App. for Attorneys’ Fees and Expenses,
Exhibit 1 - CR 3197, 3217; Appendix 8 in the
court of appeals) ($64,234.50 in fee entries that
were wholly or extensively redacted).
(reproduced at Appendix p.81).
g. As shown by the billing entries
excerpted from Crain, Caton & James’ fee bills,
there are numerous instances of legal fees charged
for multiple and repeated “conferences” between
20
lawyers. (Plaintiffs’ Objections to Defendants’
Application for Attorneys’ Fees and Expenses,
Exhibit | - CR 3197, 3328; Appendix 11 in the
court of appeals) (607.60 hours and $144,287.50
in fee entries containing the description
“conference”). (reproduced at Appendix p.103).
As set forth above, none of the fees objected to by
Appellants were: (i) expressly found by the Trial Court to have
been caused by the violations of Rule 11, or (2) affirmativel
found to be reasonable by the Trial Court. A district court
necessarily abuses its discretion in imposing sanctions if it bases
its ruling on an erroneous view of the law or a clearly erroneous
assessment of the evidence. Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 405, 110 S.Ct. 2447, 2460-61, 110 L.Ed.2d 359
(1990). The 5“ Circuit erred in affirming the trial court’s award +
of sanctions without a finding that the attorneys’ fees awarded
were reasonable, and without making the finding that the number
of hours allegedly incurred were reasonable, as required for an
effective Lodestar calculation, and in doing so, violated this
Court’s decisions, including Pennsylvania v. Delaware Valley
Citizens' Council for Clean Air, 478 U.S. 546 (1986); and Blum
v. Stenson, 465 U.S. 886 (1984). This Court, in Delaware Valley
provided, as follows:
The most useful starting point for determining the
amount of a reasonable fee is the number of hours
reasonably expended on the litigation multiplied
by a reasonable hourly rate. This calculation
provides an objective basis on which to make an
initial estimate of the value of a lawyer's services.
To this extent, the method endorsed in Hensley
follows the Third Circuit's description of the first
step of the lodestar approach.
¥e He Ye
21
We further refined our views in Blum v. Stenson,
465 U.S. 886. 104 S.Ct. 1541, 79 L.Ed.2d 891
(1984). Blum restated that the proper first step in
determining a reasonable attorney's fee is to
multiply “the number of hours reasonably
expended on the litigation times a reasonable
hourly rate.” /d., at 888, 104 S.Ct., at 1544. We
emphasized, however, that the figure resulting
from this calculation is more than a mere “rough
- guess” or initial approximation of the final award
to be made. Instead, we found that “[w]hen ... the
applicant for a fee has carried his burden of
showing that the claimed rate and number of
hours are reasonable, the resulting product is
presumed to be the reasonable fee” to which
counsel is entitled. Jd., 478 U.S. at 564-5, _
The district court made no upward or downward
adjustment to what purported to be a Lodestar calculation.
Without afinding that the number of hours allegedly incurred was
reasonable, the trial court and the 5" Circuit could not have made
the required Lodestar calculation. Both the trial court and the 5"
Circuit necessarily abused their discretion in imposing sanctions
because both based their respective rulings on an erroneous view
of the law or a clearly erroneous assessment of the evidence.
Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct.
2447, 2460-61, 110 L.Ed.2d 359 (1990); and Pennsylvania v.
Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546
(1986); and Blum v. Stenson, 465 U.S. 886 (1984).
The 5" Circuit also affirmed a sanction of all attorneys’
fees allegedly incurred despite the trial court's failure to make any
finding that the entirety of the Complaint was legally or factually
groundless. The trial court did not find all claims stated in the
Complaint to be groundless. The trial court never addressed the
22
non-federal claims, the non-federal claims were never held to be
frivolous or groundless and the entire case was never held to be
“wholly frivolous” or “wholly groundless.” Respondents
admitted, both in their brief and during the sanctions hearings,
that the state law claims relating to contractual and business
disputes between the parties were arguable. Even the trial court
found that the underlying claims were arguable, stating in the
March 18, 2005 Order:
Defendants complain that Plaintiffs have turned a
potentially legitimate commercial and contractual
dispute over the Moroccan investment project
between a few defined parties into a broad-based
attack on numerous individuals and entities with
little or no connection to the dispute. (March 18
Order, CR'25235).
Such statements by Defendants and the trial court are a
clear acknowiedgment that Appellants had potentially legitimate
commercial and contractual complaints, and that the only claims
found to be frivolous and sanctionable were the federal claims
alleged by Petitioners’ former trial counsel. The remainder of the
claims were simiply dismissed for want of jurisdiction following
the dismissal of the federal claims. Therefore, an award of “all
fees incurred” means that the trial court awarded fees for the
defense of claims and factual allegations never found to have
been frivolous or sanctionable.
An interpretation of Fed. R. Civ. P. 11 to allow for the
assessment of sanctions of the entirety of attorneys’ fees and
expenses allegedly incurred where (a) the trial court never
affirmatively found the fees or the expenses to be “reasonable”;
(b) the trial court never made a finding that the complaint was
wholly frivolous; (c) the trial court never made a finding that the
pendant state law claims were factually or legally unsupported,
23
much less frivolous; (d) the uncontroverted evidence established
that a significant portion of such fees were (i) clearly unrelated to
the sanctionable conduct found, (ii) clearly unrelated to the
representation of the defendants moving for sanctions, or (iii)
supported only by redacted fee statements which provided
insufficient evidence of reasonableness; would be a clearly
erroneous interpretation of Rule 11, and would violate this
Court’s precedents for determination of reasonableness.
Petitioners request that this Court grant their Petition and construe
Rule 11 to require the trial court to determine reasonableness
consistent with Rule 11 as requested herein, and as required by
prior precedent of this Court.
Summary
The holding of the 5" Circuit would impermissibly
convert Rule 11 into a rule of strict and joint and several liability
for commonly represented parties, and would make every party to
every civil action an indemnitor for the conduct of both their
attorneys and of every other commonly aligned party. The holding
of the Sth Circuit would impermissibly allow the unrestrained
assessment of fees and expenses that are noi found to be
reasonable, and that are not related to any sanctionable conduct.
Finally, the holding of the 5" Circuit would impennissibly allow
the imposition of sanctions in the absence of any evidence of, or
any affirmative finding of, sanctionable conduct by a represented
party. Rule 11 cannot and should not be so construed.
These holdings are contrary to well settled precedent of
this Court, including Pennsylvania v. Delaware Valley Citizens’
Council for Clean Air, 478 U.S. 546 (1986); and Blum v. Stenson,
465 U.S. 886 (1984). These holdings are also directly contrary to
holdings of the majority of the courts of appeal, including the 11"
Circuit, in Byrne v. Nezhat, 261 F.3d 1075 (11th Cir. 2001); the
10th Circuit in White v. General Motors Corp., Inc.,908 F.2d 675
24
(10" Cir. 1990); the 6" Circuit in In re Big Rapids Mall
Associates, 98 F.3d 926 (6" Cir. 1996); and the 2™ Circuit in
Calloway v. Marvel Entertainment Group, a Division of Cadence
Industries Corp., 854 F.2d 1452 (2™ Cir. 1988).
Conclusion
For the reasons set forth herein, the Petition for a writ or
certiorari should be granted.
Respectfully Submitted,
Yprhl. Sebavcke
v -
Mary .fLudwick
Counge} of record
Ludwick & Associates
3878 Oak Lawn Ave., Suite 525
Dallas, Texas 75219
Telephone: (214) 373-7474
Facsimile: (214) 373-7476
Gregory P. Standerfer
Standerfer Law Firm, P.C.
Texas State Bar No. 19029500
1400 Civic Place, Suite 221
Southlake, Texas 76092
Telephone: (817) 481-4411
Telecopier: (817) 481-4053
INDEX TO APPENDIX
Skidmore Energy, Inc., et. al. v.
Maghreb Petroleum Exploration, SA, et. al.
455 F.3d 564 (5™ Cir. 2006)............ Peery Te ae |
5" Circuit Order Denying Petitioners’
(Appellants in the court below) Petitions
for Rehearing and Rehearing En Banc ................+... 12
Trial Court Order Granting Defendants’
Motion for Rule 11 Sanctions
I Si a aceckopns 14
Trial Court Order Granting Defendants’ Request
for Attorney’s Fees and Denying Plaintiffs’
Objections and Request for Reconsideration
SE EY SG ov cs 6 bid ne eae cow eteaeebeneeunan 34
fe aM | Rory Tere ree ere Tere Tee Tee Te 50
Billing Excerpts Exhibits demonstrating
that a significant portion of such fees were
unrelated to the sanctionable conduct found,
were unrelated to the representation of any
of the Defendants moving for sanctions, or :
were supported only by redacted fee statements
which provided no sufficient documentation to
GUCGTUNEING VORSORMDIONIOSS .. on ccc cee teers esewecesce 54
26
*564
United States Court of Appeals, Fifth Circuit.
Skidmore Energy, Inc.; Geoscience International, Inc.,
Plaintiffs-Appellants,
KPMG, et al.,
Defendants,
Maghreb Petroleum Exploration, SA; Mideast Fund for
Morocco, LTD.; Crain, Caton & James, PC; Reuven M.
Bisk; Saleh Abdellah Kamel; Abdellah Kamel; Samaha
Trading UK; Mohammed Benslimane; Moulay Abdellah
Alaoui; Shezi Nackvi; Richard Menkin; Mediholding, SA,
Defendants-Appellees.
No. 05-10819.
July 7, 2006.
Appeal from the United States District Court
for the Northern District of Texas.
Before SMITH, WIENER and STEWART, Circuit Judges.
WIENER, Circuit Judge:
Plaintiffs-Appellants Skidmore Energy, Inc. and Geoscience
International, Inc. (collectively, “Appellants”) appeal the district
court's award of sanctions totaling $530,667.32 against them and
their trial counsel, Gary Sullivan, under Federal Rule of Civil
Procedure 11. The district court apportioned the sanctions
three-fourths to Sullivan and one-fourth jointly to Appellants. The
Appendix Page |
subject of this appeal is solely the one-fourth apportioned to
Appellants; Sullivan is not an appellant herein. We conclude
_ that the district court did not abuse its discretion in awarding
sanctions or in assessing one-fourth of the award jointly against
Appellants; neither do we perceive clear error in the court's
determination of Defendants-Appellees' reasonable litigation
expenses and attorneys’ fees *566 or in using that as the
appropriate measure of sanctions. Accordingly, we affirm.
I. FACTS AND PROCEEDINGS
This lawsuit addresses an ongoing dispute that arose from oil and
gas exploration activities in Morocco. One year after they were
sued in Morocco for their alleged breach of contract, fraud, and
mismanagement of the venture in which they were involved,
Appellants filed the instant lawsuit in the Northern District of
Texas addressing the same matters already being litigated against
Appellants in Morocco. In their Complaint, which named 21
mostly foreign defendants, Appellants claimed damages of $3
billion based on Sherman Act and RICO violations, as well as
breach of fiduciary duty, aiding and abetting breach of fiduciary
duty, libel, civil conspiracy to suppress oil reserves, and fraud.
They alleged inter alia that Defendants were involved in
financing terrorist organizations, money laundering, and
organized crime. The Complaint was ultimately dismissed in
April 2005.
Defendants-Appellees (11 of the 21 defendants) filed a motion in
the district court for Rule I1 sanctions in August 2004, asserting
that the suit lacked both legal and factual evidentiary support.
Two hearings on the motion were conducted in February 2005.
The district court heard the testimony of several witnesses,
including corporate representatives of both Appellants, and the
court itself questioned their counsel, Gary Sullivan. At the
conclusion of the hearings, the district court found that Rule 11
violations had indeed been committed and _ that
Appendix Page 2
Defendants-Appellees' reasonable litigation expenses and
attorneys' fees were an appropriate sanction. After reviewing
detailed submissions from Defendants-Appellees concerning their
fees and expenses, the district court entered an Order awarding
sanctions totaling $530,667.32. Appellants were jointly assessed
one-fourth of this amount; Sullivan was assessed three-fourths.
This appeal followed.
Il. STANDARD OF REVIEW
“We review all aspects of the district court's decision to invoke
Rule 11 and accompanying sanctions under the abuse of
discretion standard.”*™' Appellate review is deferential because
FN1. Am. Airlines, Inc. v. Allied Pilots Ass'n, 968 F.2d 523, 529 (Sth
Cir.1992).
the imposition or denial of sanctions of necessity involves a
fact-intensive inquiry into the circumstances surrounding the
activity alleged to be a violation of Rule 11. The perspective of
a district court is singular. The trial judge is in the best position
to review the factual circumstances and render an informed
judgment as he is intimately involved with the case, the litigants,
and the attorneys on a daily basis.'"?
FN2. Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 873 (Sth
Cir. 1988) (en banc).
A district court abuses its discretion if it imposes sanctions based
on (1) an erroneous view of the law or (2) a clearly erroneous
assessment of the evidence.*™’
FN3. Smith v. Our Lady of the Lake Hosp., Inc., 960 F.2d 439, 444
(Sth Cir.1992).
“Determinations of hours and rates [for calculating reasonable
litigation expenses and attorneys' fees] are questions of fact ....
—
Appendix Page 3
Accordingly, we review. the district court's determination of
reasonable hours and reasonable rates for clear error."
FN4. Louisiana Power & Light Co. vy. Kellstrom, 50 F.3d 319, 324
(Sth Cir.1995) (citation omitted).
*567 Ill. ANALYSIS
A. Propriety of Sanctions Against Appellants
[4] The district court did not abuse its discretion in -awarding
sanctions against Appellants. Rule 11 provides for sanctions
against “the attorneys, law firms, or parties that have violated [the
Rule] or are responsible for the violation.**’ The Advisory
Committee notes regarding the 1983 Amendment further make
clear that
FNS. Fed. R. Civ. P. 11(c) (emphasis added).
If the duty imposed by the rule is violated, the court should have
the discretion to impose sanctions on either the attorney, the party
the signing attorney represents, or both, ... and the new rule so
provides .... Even though it is the attorney whose signature
violates the rule, it may be appropriate under the circumstances
of the case to impose a sanction on the client.™™®
FN6. Fed. R. Civ. P. 11 Advisory Committee Notes (emphasis
added).
We have previously approved sanctions against a client as well as
his attorney, because both have a duty “to conduct a reasonable
inquiry into the facts or law before filing the lawsuit.”"™’
FN7. Jennings v. Joshua Indep. Sch. Dist., 948 F.2d 194, 197 (Sth
Cir.1991).
Appendix Page 4
1. No Sanctioning of Clients for Legally Frivolous Pleading
Although a represented party may be held responsible for a
pleading that violates Rule 11, the 1993 Amendment to the Rule
specifically provides that “[mJonetary sanctions may not be
awarded against a represented party for a violation of subdivision
(b)(2)” concerning legally frivolous pleadings, which are
peculiarly within the province of lawyers."™* Appellants thus
argue that the district court abused its discretion in sanctioning
them for filing a legally frivolous pleading, for which only their
lawyer could properly be sanctioned. They further assert that the
district court made no specific findings that they had knowingly
participated in sanctionable conduct. "’ Although this last point
is perhaps debatable,"’’’ the district court would have abused its
discretion if it had sanctioned *568 Appellants for violating Rule
11(b)(2) by filing a /egally frivolous pleading.
FN8. Fed. R. Civ. P. 11(c)(2)A); Bynum v. Am. Airlines, No.
04-20921 (Sth Cir. Feb.6, 2006) (unpublished) (“monetary sanctions
can be imposed against the attorney but vor the client for violations
of Rule 11(b)(2)”). Under subdivision (b)(2) the person presenting
the pleading certifies that “the claims, defenses, and other legal
contentions therein are warranted by existing law or by a nonfrivolous
argument for the extension, modification, or reversal of existing law
or the establishment of new law.” Fed. R. Civ. P. 11(b)(2).
FNS. See Byrne v. Nezhat, 261 F.3d 1075, 1117-18 (1 1th Cir.2001)
(discussing liability of client for “knowing participation” in
sanctionable conduct, misrepresenting facts, or for being the
“mastermind” behind a frivolous case).
FN1O. In its Orders of March 17 and May 18, 2005, the district court
agreed with Defendants-Appellees that Appellants had “taken a
commercial] legal dispute in Morocco between well-defined parties
and used it as a vehicle to harass and embarrass them by suing
numerous individuals with little or no connection to the dispute and
publicly accusing them in the suit of unfounded sensational
wrongdoing,” and that they exhibited a “reckless willingness to
impose the burden of unwarranted litigation upon others,” thereby
knowingly participating in conduct violative of Rule 11(b)(1)
Appendix Page 5
(improper purpose). The court described Appellants as “active
participants.” Also, the record contains a March 2004 letter from
Sullivan to Michael Gustin, Skidmore's owner, acknowledging the
aygressive legal positions they were advancing, the possibility of
sanctions, and stating that “part of this reason for our lawsuit was to
act as a counteroffensive to the lawsuit ... in Morocco.”
2. Sanctions for Factually Frivolous Pleading
The district court did not, however, sanction Appellants for the
legally frivolous nature of their pleading: It sanctioned them for
the numerous factually groundless allegations in their Complaint,
for which clients may properly be sanctioned.'“'' The district
court observed the “common thread weaving its way through this
case ... is the puzzling lack of legal or factual support articulated
for the pleadings,” and repeatedly noted “Plaintiffs' failure to
articulate any evidentiary support for their claims.” The court
discussed in detail the testimony of Michael! Gustin, Skidmore's
owner,’™'? who assured the court that he had reviewed the
pleadings before they were filed. Nevertheless, the district court
found he was “entirely unable to articulate a factual nexus
between any of the Defendants and verifiable money laundering
activity,” organized crime, terrorism financing, or any of the other
“sensational allegations peppered throughout the complaint and
RCS.” The court found “[t]he bulk of Plaintiff{s'] causes of
action ... are without evidentiary support and thus appear to have
been ‘instigated as a gamble that something might come of it
rather than on the basis of the facts at hand.” ” The court
awarded sanctions because it found “that reasonable factual and
legal inquiries would have prevented this suit from being filed.”
FN11. See Fed. R. Civ. P. 11(b)(3) (factual evidentiary support); see
also Byrne, 261 F.3d at 1118.
FN 12. We acknowledge the argument of Appellants’ counsel that only
Skidmore's-and not Geoscience’s - involvement in sanctionable
conduct is reflected in the Record. We also observe, however, that
these two entities were represented by common counsel in the district
Appendix Page 6
court, as they are on appeal, and that in all of their filings no
distinction is made between them. We cannot say, particularly in
light of the district court's inherently superior vantage point, that the
court erred in sanctioning Appellants jointly.
Moreover, adhering to the distinction between factual and legal
grounds for sanctions, the district court “fully considered
Sullivan's missteps when apportioning [the] fee award such that
Plaintiffs bear responsibility for twenty-five percent of the award
and Sullivan seventy-five percent.” The district court did not
abuse its discretion in awarding sanctions against Appellants
based on the lack of support for the factual allegations in their
pleading.
B. Quantum of Sanctions Award
Rule 11 expressly provides that when there is a violation of the
Rule, an appropriate sanction is “an order directing payment to
the movant of some or all of the reasonable attorneys’ fees and
other-expenses incurred as a direct result of the violation.”**”
The district court entered its Sanctions Order following two
hearings in which it heard the testimony of several witnesses and
questioned Appellants’ trial counsel extensively, and following a
review of documentation supporting Defendants-Appellees'
claims for fees and expenses.
FN13. Fed. R. Civ. P. 11(c)(2).
1. Calculation of Reasonable
Litigation Expenses and Attorneys’ Fees
The district court's calculation of reasonable fees and expenses
was not clearly erroneous. The court conducted the lodestar
analysis by multiplying the reasonable number of hours expended
in defending the suit by the reasonable hourly rates for the
participating lawyers.*’’* As *569 the hourly rates submitted by
the defense were not disputed,"" the sole factor for the court's
Appendix Page 7
determination was the reasonable number of hours expended.
Relying on defense counsel's documentation, which “clearly
indicate[d] the nature and type of work performed or [sic] and
detail[ed] how the hours were spent on particular aspects of the
case,” the court concluded that the number of hours claimed by
the defense was reasonable. Among the court's considerations
were the complexity of the litigation, the number of individual
and mostly foreign defendants, and the “vast array of claims
asserted.” Given the district court's “intimate[ ] involve[ment]
with the case, the litigants, and the attorneys,”*'* as well as its
thorough discussion in its Order granting the sanctions, its factual
determination of the reasonable number of hours expended was
not clearly erroneous.'™"”
FN14. See Kellstrom, 50 F.3d at 324.
FN15. The district court also determined that “(t]he Defendants’
attorneys’ hourly fees ... appear to be comparable fees for
representation of similar quality in this area.”
FN16. Thomas, 836 F.2d at 873.
FN 17. In assessing the overall reasonableness of the defense costs, we
note, as the district court observed, that the plaintiffs’ own costs were
nearly $100,000 greater.
2. Fees Unrelated to Sanctionable Conduct
Appellants complain, vaguely and conclusionally, that a
“significant portion” of the defense costs awarded were unrelated
to the sanctionable conduct or were incurred in representing
defendants other than the 11 that moved for sanctions. Beyond
these bare assertions, however, Appellants failed adequately to
brief the issue or to call our attention to anything in the record
that might support this contention. There is no readily apparent
indication that the district court's assessment of the evidence
concerning fees and expenses was clearly erroneous. In fact, the
district court concluded that all of the defense costs arose from
Appendix Page 8 ‘*
the sanctionable conduct because otherwise the lawsuit would
never have been filed at all./"*
FN18. In its Order of March 17, 2005, the court stated that “because
the Court further finds that reasonable factual and legal inquiries
would have prevented this suit from being filed against these eleven
defendants, the Defendants are awarded all of their reasonable
attorneys’ fees they expended in defending this suit.”
3. “Snapshot” Test
Appellants argue that the district court impermissibly awarded
sanctions based on conduct after the sanctionable pleading was
signed, thereby imposing a continuing obligation on their trial
counsel to reevaluate the merits of the case as it developed. They
cite our en banc decision in Thomas v. Capital Security Services,
Inc. for its “snapshot” test: “Like a snapshot, Rule 11 review
focuses upon the instant when the picture is taken-when the
signature is placed on the document.*’’’ Therefore, “in
considering the nature and severity of the sanction to be imposed
under Rule 11, the court should consider the state of mind of the
attorney when the pleading or other paper was signed.”**”°
FN19, 836 F.2d at 874.
FN20. /d. at 875 (quotation omitted).
Appellants’ contention is meritless, as the district court's Order of
March 17, 2005, which the Appellants themselves quote at length
in their brief, makes clear:
After reading all of his filings and exhibits, hearing from his
witnesses, and vigorously questioning him at both hearings, it
appears that, at the time Sullivan filed his complaint and RCS and
continuing through the February 28, *570 2005 evidentiary
hearing, he had no evidentiary support for the factual allegations
underlying his causes of action and no “good reason to believe”
Appendix Page 9
that the facts he alleged were likely to have evidentiary support.
Appellants, in their quotation of the same passage, place emphasis
on the phrase, “and continuing through the February 28, 2005
evidentiary hearing,” as evidence that the district court did not
focus solely on the instant the Complaint was signed.
This argument misses the point of the 7homas “snapshot” test.
Prior to that decision, attorneys in this Circuit had a continuing
obligation to review and reevaluate their positions as the litigation
developed; a document that initially satisfied Rule 11 might later
become the basis for sanctions if new facts were discovered or
circumstances changed such that there was no longer a good faith
basis for the earlier filing." Thomas's “snapshot” rule ensures
that Rule 11 liability is assessed only for a violation existing at
the moment of filing. Although the district court's Order mentions
the time between the filing of the complaint and the evidentiary
hearing, the court clearly concluded that Sullivan's filing never
satisfied Rule 11 to begin with-that is, at the time of filing-and the
fact that he still had no evidentiary support by the time of the
hearing only underscores the violation.
FN21. See Childs v. State Farm Mut. Auto. Ins. Co., 29 F.3d 1018,
1024 n. 18 (Sth Cir.1994) (discussing Thomas).
4. Advance Warning for “Obviously Defective” Pleading
The en banc court in Thomas instructed that “where a complaint
or other paper is obviously defective within the context of Rule
11, ... a court should at minimum notify the individual certifying
the document that Rule 11 sanctions will be assessed at the end
of trial if appropriate.” ‘"’* Appellants seize on this language to
insist that the district court's failure to warn their trial counsel was
an abuse of discretion. "> We have previously rejected this
contention, stating flatly that “Thomas did not establish a rule that
district courts, in all instances, must give the offending party
Appendix Page 10
notice of a Rule 11 violation before applying sanctions.”**™* The
district court was thus not required to save Appellants from
themselves or their attorney.
FN22. 836 F.2d at 881.
FN23. Appellants' own characterization of their Complaint as
“obviously defective” necessarily precludes any argument on appeal
that their filing was not sanctionable.
FN24. Harmony Drilling Co. v. Kreutter, 846 F.2d 17, 19 (Sth
Cir. 1988).
IV. CONCLUSION
The district court did not abuse its discretion in awarding
Defendants-Appellees their reasonable attorneys’ fees and
expenses as Rule 11 sanctions for the filing of this wholly
frivolous lawsuit. This sanction was imposed for both the legally
frivolous nature of the suit and the obvious lack of evidentiary
support for the sensational allegations in the Complaint; and
liability for the sanctions award was appropriately apportioned
between Appellants and their trial counsel. Thus, the district
court did not abuse its discretion in awarding or apportioning
sanctions and did not commit clear error in its determination of
the reasonable litigation expenses and attorneys’ fees occasioned
by the frivolous filing. The district court's Order is, in all
respects,
AFFIRMED.
C.A.5 (Tex.),2006.
Skidmore Energy, Inc. v. KPMG
455 F.3d 564
_ Appendix Page 11
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 05 — 10819
SKIDMORE ENERGY, INC;
GEOSCIENCE INTERNATIONAL, INC.
Plaintiffs — Appellants
v.
KPMG, Et Al
Defendants
MAGHREB PETROLEUM EXPLORATION SA; MIDEAST
FUND FOR MOROCCO, LTD; CRAIN, CATON & JAMES
PC; REUVEN N BISK; SALEH ABDELLAH KAMEL;
ABDELLAH KAMEL; SAMAHA TRADING UK;
MOHAMMED BENSLIMANE; MOULAY ABDELLAH
ALAOUI; SHEZI NACKVI; RICHARD MENKIN;
MEDIHOLDING SA
Defendants — Appellees
Appeal from the United States District Court
for the Northern District of Texas, Dallas
ON PETITION FOR REHEARING
AND REHEARING EN BANC
(Opinion 7/7/06, 5 Cir., : F.3d)
Appendix Page 12
Before SMITH, WIENER, and STEWART, Circuit Judges
PER CURIAM:
(vv) The Petition for Rehearing is DENIED and no member of
this panel nor judge in regular active service on the court having
requested that the court be polled on Rehearing En Banc, (FED.
R. App. P. and STH CIR. R. 35) the Petition for Rehearing En
Banc is also DENIED.
( ) The Petition for Rehearing is DENIED and the court
having been polled at the request of one of the members of the
court and a majority of the judges who are in regular active
service and not disqualified not having voted in favor, (FED. R.
APP. P. and 5TH CIR. R. 35) the Petition for Rehearing En Banc
is also DENIED.
( ) Amember of the court in active service having requested
a poll on the reconsideration of this cause en banc, and a majority
of the judges in active service and not disqualified not having
voted in favor, Rehearing En Banc is DENIED.
ENTERED FOR THE COURT:
/s/ J.L. Wiener, Jr.
United States Circuit Judge
Appendix Page 13
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SKIDMORE §
ENERGY, INC., et al. §
Plaintiffs, §
§
Vv § CIVIL ACTION NO.
§ 3: 03-CV-2138-B
§
KPMG, et al. §
Defendants. §
ORDER GRANTING DEFENDANTS’ MOTION
FOR RULE 11 SANCTIONS AGAINST PLAINTIFFS
SKIDMORE ENERGY, INC. AND GEOSCIENCE
INTERNATIONAL, INC., AND THEIR ATTORNEY,
GARY SULLIVAN
Before the Court is the Motion for Sanctions of
Defendants MFM, MPE, A. Kamel, Samaha, Nackvi, Menkin,
Mediholding, Benslimane, Alaoui, Bisk and Crain Caton against
Plaintiffs Skidmore Energy, Inc. and Geoscience International,
and Their Attorney Gary Sullivan, filed August 16, 2004
(“Defendants’ Motion for Sanctions”)(doc. 253). These eleven
defendants claim that Plaintiffs’ suit against them is factually and
legally groundless and seek appropriate sanctions under Rule | }
of the Federal Rules of Civil Procedure. Hearings were held on
the motion on February 2 and 28, 2005. For the reasons stated
below and on the record at the close of the February 28, 2005
hearing, the Court agrees with Defendants and GRANTS the
Defendants’ Motion for Sanctions.
Appendix Page 14
I. BACKGROUND
The background of this case is familiar territory at this
point in the proceedings. Plaintiffs’ unsuccessful oil and gas
exploration activities in Morocco triggered a lawsuit against them
in that country followed by this suit, which was filed by Plaintiffs
on September 19, 2003. In this case, Plaintiffs sued twenty-one
mostly foreign defendants for violations of the United States’
Sherman Antitrust Act, 15 U.S.C. §§ 1-2, and the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§§ 1961 et seq., and for breach of fiduciary duty, aiding and
abetting breach of fiduciary duty, libel, civil conspiracy, and
fraud.' The Defendants each responded with motions to dismiss,
asserting pleading and jurisdictional defects in the complaint. The
Court granted the Defendants’ motions and dismissed all twenty-
one Defendants from the case as set forth below.
All of the nonresident Defendants sued in their individual
capacities — Benslimane, Alaoui, Benmoussa, A. Kamel, S. A.
Kamel, Menkin and Nackvi — were dismissed for lack of personal
jurisdiction on September 3, 2004. Plaintiffs’ claims against
Prince Bandar were dismissed for lack of subject matter
jurisdiction on December 3, 2004. That same day, the Court
dismissed nonresident company Defendants MPE, MFM,
Samaha, Dallah, and Mediholding for lack of personal
jurisdiction, and also denied the Plaintiffs’ motion for antisuit
injunction. Finally, on December 28, 2004, the Court dismissed
the case against Defendants KPMG, Rosetti, Quinn, Faisal, Saudi
Aramco, Saoud, Bisk, and the law firm of Crain, Caton, & James,
P.C. (“Crain Caton”) for failure to state a claim and for lack of
subject matter jurisdiction, and against defendants Quinn and
Rosetti for lack of personal jurisdiction over them.
' (See generally Pls.’ Orig. Compl.1 ).
Appendix Page 15
Ij, THE RULE 11 MOTION
A. Defendants’ Allegations
In their Rule 11 Motion, Defendants complain that
Plaintiffs have turned a potentially legitimate commercial and
contractual dispute over the Moroccan investment project
between a few defined parties into a broad-based attack on
numerous individuals and entities with little or no connection to
the dispute. Defendants also charge that Plaintiffs’ sensational
accusations against them of organized crime, racketeering, wire
and mail fraud, antitrust violations, money laundering, and
terrorism financing are bereft of any factual foundation. They cite
to numerous examples of the offensive language in Plaintiffs’
Complaint and RICO case statement (“RCS”) including:
“Defendants used the Liechtenstein company as a
means of money laundering and to that end
attracted funds from the United States.” (Pls.’
Orig. Compl, p. 20 4 80);
“Defendants’ threats and money laundering are
extraordinarily serious in view of the documented
record of financing terrorist and terrorist related
organizations.” (Pls.” Orig. Compl. p. 20 § 80);
“(Defendants]..have committed numerous
criminal acts, including but not limited to mail
and wire fraud, extortion, bribery and attempted
bribery, and money laundering.” (Pls.’ Orig.
Compl. pp. 19-20 § 75);
“Defendants have been aided and abetted in their
illegal scheme by elements of classical organized
crime and their associates...”’ (Pls.” Orig. Compl.
p. 21 4 83);
Appendix Page 16
* “[P]laintiffs were the victim (sic) of a complex
and sophisticated enterprise to defraud American
investors out of capital and technology. The
enterprise utilized layers of investment companies
to funnel money and conceal the true owners from
other investors, in a manner typical of money
laundering schemes.” (RCS p. 2);
* “...[I]t was clear that the remaining investors in
: MPE were several layers of front
companies...Although Plaintiff does not have
proof of specific money laundering activities, this
structure...is a typical method of conducting
money laundering activities.” (RCS p. 14);
+ “(Several of the Defendants] are currently under
investigation or are Defendants in civil litigation
related to alleged financing and support of
unlawful activities including money laundering
and terrorism.” (RCS p. 14).
Defendants further complain that Plaintiffs improperly
included the Defendants’ attorneys, Reuven Bisk and the law firm
of Crain Caton in the suit without any factual basis that either had
a connection to the Moroccan dispute other than the rendering of
legal services to investors in MPE and to MPE itself. Moreover,
Defendants argue that Reuven Bisk was not even employed by
Crain Caton at the time of the events underlying the lawsuit.
To sum up, Defendants maintain that Plaintiffs have taken
a commercial legal dispute in Morocco between well-defined
parties and used it as a vehicle to harass and embarrass them by
suing numerous individuals with little or no connection to the
dispute and publicly accusing them in the suit of unfounded
sensational wrongdoing.
Appendix Page 17
B. Plaintiffs’ Response
A common thread weaving its way through this case,
beginning with Plaintiffs’ responses to the Defendants’ motions
to dismiss, continuing through their written response to the Rule
11 motion and surfacing again in their arguments at the Rule 11
hearings, is the puzzling lack of legal or factual support
articulated for the pleadings. Boilerplate and vague, Plaintiffs
make no concrete effort tc defend either the broad range of
Defendants they included in this suit or the inflammatory charges
they level against them in their pleadings. Characteristic of
Plaintiffs’ failure to articulate any evidentiary support for their
claims is their written response to Defendants’ argument that
Plaintiffs’ money laundering and terrorism allegations are
completely unfounded. In their defense of their allegations,
Plaintiffs write:
The Defendants claim that allegations of [m]oney
laundering and [tJerrorism are sensational and
have no relation to the present lawsuit. The way in
which Plaintiffs’ investment in Morocco was
stolen has all the elements of a money laundering
scheme. The U.S. Patriot Act and related laws
place an affirmative duty on the Plaintiffs....to
take action against suspected money laundering
that may be in support of terrorism. Defendants
misunderstand or misrepresent the duty of these
Plaintiffs...under United States law.” (Pls.’ Br. at
4).
To argue that “the way” their investment was stolen “has all the
elements of a money laundering scheme” without more not only
fails to justify their inclusion of these allegations in the pleadings,
it also raises questions as to whether any evidentiary support
exists for such claims. Without identifying them, Plaintiffs also
claim to have “presented many items of evidence through the
Appendix Page 18
pleadings and motions filed in this case, including affidavits
attesting to the basis for the claims that Dallah al Baraka and
Prince Bandar were directly involved in the MPE.” (Pls.’ Br. at 3)
The appendix of exhibits attached to their response, consisting of
photographs of the Moroccan project, a DVD of a Moroccan
television report on the project and two website listings relating
to their Moroccan concessions, adds nothing to support their
pleadings. (See App. to Pls.’ Resp.).
C. The Hearings
Due to the vague response by Plaintiffs to the Rule 11
motion, the Court scheduled a hearing on the motion for February
2, 2005. After Defendants’ counsel presented his argument in
faver of the motion, Plaintiffs’ counsel, Mr. Gary Sullivan
(“Sullivan”), took his turn at the lectern only to present a
perplexingly vague explanation - similar to his written response -
as to the legal and factual bases for his pleadings. In essence, he
made reference to having initiated a pre-filing investigation by a
former FBI agent to determine the existence and location of banks
in the U.S. connected to one or more of the Defendants. (Tr. I? at
18-20). He further claimed to have had an accounting firm review
Skidmore’s records to ascertain whether his client had invested
the 27 million dollars in the Moroccan project he claimed he had.
(Id. at 20) Finally, he asserted he hired an independent oil and gas
expert to review the data from the Moroccan project to establish
that it had been a viable venture. (Id. at 21) Because none of these
pre-filing inquiries he described appeared to have a material
connection to the legal and factual bases for his pleadings, the
Court interrupted him and told him that he was not responding to
the allegations in the Rule 11 Motion. When he continued to
struggle to make a credible response to the motion, the Court
2
“Tr. I” and “Tr. IT” refer respectively to the transcripts of the
hearings held February 2 ry 2 and February 28, 2005.
Appendix Page 19
made the following observation to him:
You’re not solving anything for me right now
except giving me a lot of vagaries. And | will tell
you, just from your demeanor and your answers to
my questions, I am real concerned about whether
or not you do have any answers to my questions.
Where I think we are right now is I’m going to
have an evidentiary hearing on [Defendants’]
..allegations and require that you come forward
and meet specifically their allegations under Rule
11 with respect to each of the defendants that they
say should never been named in here, with respect
to each of the legal allegations which they say are
completely unfounded in the law, and with respect
to the sensational allegations and other factual
allegations which they say violate Rule 11 ... (Tr.
I at 35).
The Court further stated to Plaintiffs’ counsel:
You should have been prepared today to answer
these questions, and you’ re not....] want the record
to be clear, Mr. Sullivan, that you were not
prepared today for this hearing. But rather than
sanction you for serious allegations of a Rule 11
violation of the nature and breadth that we’ve got
in this case, I want to be sure that you’ve had a
full opportunity to meet each allegation in an
evidentiary hearing on the record before me. So
next time be prepared, like you should have been
today for the hearing. (Id. at 36, 39).
The in-court instructions were followed up with a written order
which directed as follows:
Appendix Page 20
Anevidentiary hearing on the Defendants’ Motion
for Sanctions, filed August 16, 2004
(“Defendants’ Motion”) (doc. 253) is set for:
Monday, February 28, 2005, at 10:00 a.m.
As directed by the Court on the record at the
February 2, 2005 hearing on the Defendants’
Motion, the Court has determined that it is
appropriate to hear evidence on the allegations
contained in the Defendants’ motion.
Accordingly, three days prior to the hearing, the
parties are to exchange exhibit and witness lists
and file theses lists with the Court. Each side will
have one hour to present their proof. For the
reasons stated on the record at the February 2,
2005 hearing, Plaintiffs’ counsel must be prepared
to respond to the specific allegations in the
defendants’ motion. (2/3/05 Order).
On the day of the February 28, 2005 evidentiary hearing,
Plaintiffs’ counsel, much to the Court’s dismay, was again
unprepared to proceed. Not only had he failed to prepare and file
a witness or exhibit list as ordered, he insisted that a motion to
disqualify Defendants’ counsel and a motion for discovery he had
filed just days before the hearing somehow trumped the Court’s
order for the evidentiary hearing and effected a stay on his
obligation to comply with the Court’s directive. (Tr. Il at 5-9) In
fact, the Court denied the discovery motion two days before the
hearing, and, after a short hearing, the Court had denied his
motion to disqualify Defendants’ counsel on the morning of the
Rule 11 evidentiary hearing. (Id. at 9-61) The Court then
proceeded with evidentiary hearing.
Unfortunately, Plaintiffs’ counsel’s presentation was
essentially a repeat of his ill-prepared display from the previous
hearing. Despite having failed to file a witness or exhibit list, the
Appendix Page 21
Court permitted him to present evidence. He called three
witnesses including Skidmore’s owner, Michael Gustin, Renn
Rothrock, a petroleum engineer who had been hired as a
consulting expert to evaluate the viability of Skidmore’s claims
of a significant discovery of reserves in Morocco, and Robert
Foote, a scientist and corporate representative of Plaintiff
Geoscience International, Inc. Neither Foote nor Rothrock’s
testimony provided any information to establish a factual or legal
basis for the allegations at issue in-the Rule 11 motion. (Id. at
181-194; 195-216).
Gustin’s testimony centered on the events leading up to
his investment in the Moroccan project, the legitimacy of his
claims that he had made a significant find of oil and gas reserves
in that country and his claim that control of the company had been
wrested from him by actions of certain of the Defendants.’ (Id. at
119-163) None of his testimony, however, answered Defendants’
charges that he had sued numerous other individuals with little or
no factual or jurisdictional connection to the case. Nor did his
testimony explain how the central dispute over his loss of control
of MPE supported his accusations of money laundering,
organized crime, racketeering, wire and mail fraud, antitrust
violations or terrorism financing.
Gustin stated that he never discussed whether there was a
problem with personal jurisdiction over the Defendants in the
case with his attorneys. (Id. at 209) He described being “shocked”
that the cases were dismissed on jurisdictional grounds. (Id. at
210) With respect to the basis for the allegations of money
laundering, he stated that the only factual support he had was “ I
3
The relationship of each of the Defendants to the Moroccan project
and its ultimate failure is murky at best. The Defendants’ brief in
support of their Motion for Sanctions sheds some light on the matter,
(See Defs.’ Br. at 4-9)
Appendix Page 22
didn’t know where the money [for the defendants’ investment]
came from...” (Id. at 210-11) He made vague references to “their”
connection to a company in Florida and to the “9/11 lawsuit” and
“the fact that we had so many unknowns about this Liechtenstein
corporation and the involvemenit and Prince Bandar and Dallah Al
Baraka” and that “there was no proof of where any of this money
ever went.” (Id. at21 1-12) But he was entirely unable to articulate
a factual nexus between any of the Defendants and verifiable
money laundering activity. When asked about the organized crime
and terrorism financing allegations, Gustin’s response was, “I
couldn’t tell you right now other than Gary [Sullivan] had several
people in Washington, D.C. helping him do research. I can’t
recall their names.” (Id. at 212-13) When queried as to why the
law firm was sued, Gustin responded, “...just the fact ihat they
represented [Gustin’s partner in the Moroccan project] and my
company Skidmore Energy which owned the other two
companies that have been discussed here today.” (Id. at 213).
Despite his inability to supply any factual support to defend his
pleadings, Gustin stated he was “sure” that he reviewed the
pleadings in this case with Sullivan before he filed them. (Id. at
216-17).
At the close of the hearing, the Court again questioned
Sullivan on the nature of his factual and legal inquiry prior to
filing this case and his RICO case statement. Once again, he was
unable to articulate a factual or legal connection between the
Defendants and the challenged allegations. When asked to
support his money laundering allegations, Sullivan responded “I
think I answered that question at the last hearing.” (Id. at 224-25)
Then in general terms, he described hiring “leading experts” to
review his complaint before it was filed. (Id. at 225) In that
connection, he referred the Court to an affidavit of attorney Ethan
Burger, attached to his Motion for Discovery that was filed
February 25, 2005, which he indicated established that he
conducted a pre-filing inquiry on the case. (Id. at 225-26) In his
affidavit, however, Burger only avers in very general terms that
Appendix Page 23
SO cr enc cn aa rn e ee eel
his firm was hired to “examine a variety of issues in connection
with the facts involved in the present case.” (Mot. for Disc.,
Burger Aff. at 3) He describes developing “biographical
information on scores of individuals,” a “document that showed
possible relationships between such individuals,” and a
“chronology.” (Id.) But nowhere does Burger supply any specifics
as to the “facts” he examined or the “individuals” on whom he
developed biographical information. Fmally, when pressed again
for “viable facts” to support his complaint, Sullivan responded
that it would take “two months of testimony” to answer the
Court’s question. (Id. at 228-29) In the end, he reverted to
supporting his pleadings in generalities maintaining he had “met
with almost everybody in Washington and certainly nobody ever
said I was off the mark.” (Id. at 229).
Ill. ANALYSIS
A. Legal Standard
Rule 11(b) provides:
By presenting to the court (whether by singing,
filing, submitting, or later advocating) a pleading,
written motion, or other paper, an attorney or
unrepresented party is certifying that to the best of
the person's knowledge, information, and belief,
formed after an inquiry reasonable under the
circumstances, -
(1) it is not being presented for any improper
purpose, such as to harass or to cause
unnecessary delay or needless increase in
the cost of litigation; .
(2) the allegations and other factual
contentions have evidentiary support or, if
specifically so identified, are likely to
Appendix Page 24
have evidentiary support after a reasonable
opportunity for further investigation or
discovery;
(3) the allegations and other factual
contentions have evidentiary support or, if
specifically so identified, are likely to
have evidentiary support after a reasonable
opportunity for further investigation or
discovery....
FED. R. CIV. P. 11(b)(1),(2),(3).
The Rule places three affirmative duties on an attorney to
which the attorney certifies he has complied by signing a pleading
motion or other document, including: (1) that the attorney has
conducted a reasonable inquiry into the facts which support the
document; (2) that the attorney has conducted a reasonable
inquiry into the laws such that the document embodies existing
legal principals or good faith argument for extension,
modification, or reversal of existing law; and (3) that
modification is not interposed for purposes of delay, harassment,
or increasing costs of litigation. Childs v. State Farm Mut. Auto
Ins. Co., 29 F.3d 1018, 1023-24 (Sth Cir. 1994).
To evaluate whether an attorney has made a reasonable
inquiry into the facts, a court should consider the time available
to the signer for investigation, the extent of the attorney's reliance
upon his client for the eval support for the document, the
feasibility of a pre-filing investigation, whether the attorney
accepted the case from another attorney, the complexity of the
factual and legal issues, and the extent to which the development
of the factual circumstances requires discovery. Id. at 1026. The
reasonableness of the legal inquiry is determined by considering
the time available to the attorney, the plausibility of the legal view
contained in the document, the pro se status of the litigant, and
the complexity of the legal and factual issues. Smith v. Our Lady
Appendix Page 25
of the Lake Hosp., Inc., 960. F.2d 439, 444 (Sth Cir. 1992)(citing
Thomas v. Capital Sec. Servs., 836 F.2d 866, 875-76 (Sth Cir.
1988)).
An attorney’s subjective good faith provides no defense
under the objective standard governing Rule 11. Childs, 29 F. 3d
at 1024. Instead, the courts look to the objective reasonableness
of the attorney’s conduct at the moment the document was signed.
Jordaan v. Hall, 275 F. Supp. 2d 778, 787 (N.D. Tex. 2003).
The Fifth Circuit has viewed the attorney’s duty to
conduct a reasonable pre-filing inquiry to be particularly
important in RICO cases, reaffirming this position in Smith with
the following quote:
Given the resulting proliferation of civil RICO
claims and the potential for frivolous suits in
search of treble damages, greater responsibility
wil] be placed on the bar to inquire into the factual
and legal bases of potential claims or defenses
prior to bringing such suit or risk sanctions for
failing to do so.
Smith, 960 F.2d at 444 (citing Chapman & Cole v. Itel Container
Int'l B.V., 865 F. 2d 676, 685 (5 Cir. 1989)(quoting Black &
Magenheim, Using the RICO Act in Civil Cases, 22 Hou. Law 20
24-25 (Oct. 1984))).
B. Analysis
With respect to his factual inquiry, Sullivan insisted at the
second hearing that he did conduct a pre-filing investigation
before filing his complaint against the Defendants. But his
contention that he hired “leading experts” to help conduct the
investigation was belied by his inability to articulate any specific
information gleaned from this investigation to support his
Appendix Page 26
decision to include the allegations he leveled against the
Defendants in the complaint and the RCS. Likewise, his claim at
the first hearing that he engaged a former FBI agent, an
accounting firm, and an oil and gas expert prior to filing did
nothing to establish that he complied with his Rule 11 obligations
because he simply could not supply any facts from these alleged
undertakings to justify his pleadings accusing these Defendants
of engaging in organized crime, racketeering, wire and mail fraud,
antitrust violations, money laundering, and terrorism financing.
Sullivan also defends his pleadings by arguing, first in his
response to the Rule 11 motion and again at the hearings, that his
only pleading obligation under the Fifth Circuit authority is put
the Defendants “on notice of the claims against them” not to
establish a prima facie case of the elements of the claims. (Pls.’
Br. at 3). But this argument also misses the mark. While the
Federal Rules permit notice pleading, they do not “allow a
plaintiff to abdicate the basic facts demonstrating his entitlement
to relief.” Murphy v. White Hen Pantry Co., 691 F. 2d 350, 353
(7th Cir. 1982). As the Advisory Committee Notes to the 1993
amendments to Rule 11 provide:
Tolerance of factual contentions in_ initial
pleadings by plaintiffs or defendants when
specifically identified as made on information and
belief does not relieve litigants from the
obligation to conduct an appropriate investigation
into the facts that is reasonable under the
circumstances; it is not a license to join parties,
make claims, or present defenses without any
factual basis or justification. FED. R. CIV.-P. 11,
1993 Advisory Committee Notes.
Sullivan cannot hide behind the notice pleading
requirements to defend his failure to conduct a reasonable inquiry
into the facts underlying his case. He had several chances to
Appendix Page 27
establish the factual underpinnings of his case, including his
response to the motions to dismiss, his response to the Rule 1]
Motion, and his multiple opportunities at the lectern during the
two hearings. He wholly failed to do so at every juncture. His
stunning lack of preparedness to defend his pleadings at both
Rule 11 hearings despite a clear directive from this Court
undermines his credibility when he claims to have facts that
support the allegations made in his pleadings. After reading all of
his filings and exhibits, hearing from his witnesses, and
vigorously questioning him at both hearings, it appears that, at the
time Sullivan filed his complaint and RCS and continuing
through the February 28, 2005 evidentiary hearing, he had no
evidentiary support for the factual allegations underlying his
causes of action and no “good reason to believe” that the facts he
alleged were likely to have evidentiary support. See SA
CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL
PRACTICE AND PROCEDURE §1335 (3d ed. 2004 & Supp.
2004).
The insufficiency of Sullivan’s legal inquiry is revealed by
the implausibility of his legal theories. As summarized above, all
of the eleven defendants moving for sanctions were dismissed
from the case on threshold legal grounds. Benslimane, Alaoui, A.
Kamel, Menkin, and Nackvi were dismissed for lack of personal
jurisdiction in an order entered September 3, 2004. In that order,
the Court found, based on settled authority, that the Plaintiffs had
failed to allege sufficient facts establishing a prima facie case for
personal jurisdiction over these Defendants. The Court found
their basic jurisdictional allegations “plainly insufficient” for
“fail[ing] to allege sufficient facts to support a connection
between Texas and any of these defendants.” (9/3/04 Order at 13)
Their alternative bases for in personam jurisdiction under RICO’s
venue provision and the “Absent Co-Conspirator Doctrine” were
just as flimsy. RICO does not provide for service of process in a
foreign country. a legal fact that a modicum of research by
- Plaintiffs’ counsel would have established. And Plaintiffs cited no
Appendix Page 28
authority establishing that the “Absent Co-Conspirator Doctrine”
was even applicable to this case. MPE, MFM, Samaha and
Mediholding were dismissed based on identical jurisdictional
shortcomings. (12/3/04 Order at 7-13).
Plaintiffs’ claims against attorney Reuven Bisk and the
Crain Caton law firm were dismissed for failure to state a claim
under Rules 12(b)(6) and 9(b) of the Federal Rules of Civil
Procedure. As described by the Court in its December 28, 2004
Order granting Bisk’s and Crain Caton’s Motion to Dismiss, the
antitrust claims were “insufficient as a matter of law to plead the
existence of a conspiracy or agreement to restrain trade.”
(12/28/04 Order at 11) With respect to the RICO claim against
these Defendants, the Court found the allegations “especially
deficient” with respect to Bisk and Crain Caton. (Id. at 17) When
pressed by the Court at the second hearing for facts to support his
allegations against Bisk, Sullivan referred to the “role that Mr.
Bisk played in the deception leading up to the dilution.” When
asked how he knew that Bisk had played this role, Sullivan
replied, “...[ mean its his client. How did he not know.” (Tr. II at
219-20) Based on the briefing and the arguments and evidence at
the hearings, there does not appear to be any factual connection
between Bisk and Crain Caton and the allegations underlying this
suit other than the rendering of legal advice. And the legal advice
rendered does not appear connected to the issue underlying this
case - the change in control of MPE. As pointed out by the
Defendants in their brief:
Neither Reuven Bisk nor Crain, Caton: (1) were
licensed to practice in Morocco; (2) participated
as attorneys with respect to the corporate
resolutions in question; or (3) served as
accountants employed to assist KPMG in their
accounting analyses. .... Indeed Reuven Bisk was
not even employed by Crain, Caton at the time.of
the alleged wrongdoing. (Defs.’ Br. at 14 ¥ 34).
Appendix Page 29
“Where a reasonable amount of research would have
revealed to the attorney that there was no legal foundation for the
position taken, Rule 11 sanctions will be imposed.” Jordaan, 275
F. Supp. 2d at 787 (quoting Collin County, Texas v. Homeowners
Association for Values Essential to Neighborhoods, (HAVEN),
654 F. Supp. 943, 954 (N.D. Tex. 1987)). The absence of legal
support for the claims against these eleven Defendants is evident
from the texts of the three orders dismissing all of the Defendants
and the claims against them from the suit. The orders also reveal
that minimal legal research would have shown Plaintiffs that
suing these Defendants under the legal theories alleged would be
a fruitless endeavor. Missing from the complaint against
Defendants Benslimane, Alaoui, A. Kamel, Menkin, Nackvi,
MPE, MFM, Samaha, and Mediholding were very basic
allegations supporting personal jurisdiction. With regard to the
order dismissing Reuven Bisk and the Crain Caton from the case,
as mentioned, the allegations against them failed to state legal
claims sufficient to sustain the case against them. Finally, despite
multiple opportunities, Plaintiffs have been wholly unable to
explain how the facts surrounding the crux of the cases- their loss
of control of MPE- in any way supports accusing the Defendants
under the legal theories of RICO, organized crime, racketeering,
wire and mail fraud, antitrust violations, money laundering, and
terrorism financing.
In sum, Plaintiffs’ allegations against these eleven
defendants are not the product of an objectively reasonable
inquiry into the facts or law as required by Rule 11 and
appropriate sanctions will be entered.
C. Appropriate Sanctions
Once the Court determines that there has been a violation
of Rule 11(b), it may impose appropriate sanctions upon the
responsible parties, attorneys or law firms. Childs, 29 F.3d at
1027. It “must impose the least severe sanction on attorneys and
Appendix Page 30
parties who violate Rule 11,” but the Fifth Circuit has affirmed a
determination by a district court that the least severe sanction for
a wholly frivolous lawsuit “is the imposition of reasonable
attorneys’ fees and expenses.” Id. (citing Granader v. McBee, 23
F.3d 120, 124 (Sth Cir. 1994)) A party moving for Rule 11
sanctions has a duty to mitigate its damages. Other sanctions
under Rule 11 may include admonishing or reprimanding the
offending attorneys, compulsory legal education, or monetary
sanctions. Thomas, 836 F.2d at 878.
In the Advisory Committee Notes to the 1993 Amendment
of Rule 11, suggested factors to consider in deciding the severity
of sanctions include:
(1) whether the conduct was wilful or negligent;
(2) whether it was part of a pattern of activity or an
isolated event;
(3) whether the conduct infected the entire pleading
_ or only a particular count or defense;
(4) whether the person has engaged in similar conduct
in other litigation;
(5) whether the conduct was intended to injure;
(6) the effect of the sanctionable conduct on the
litigation process time and/or expense; and
(7) the expertise of the responsible person.
In Thomas, the Fifth Circuit emphasized that if the
sanction is imposition of an opponent's fees and expenses, those
expenses must be caused by the violation, and must be
reasonable. 836 F.2d at 878-79. When analyzing
“reasonableness,” the district court should consider the extent to
which the non-violating party sought to mitigate its expenses. Id.
In Childs, the Fifth Circuit reviewed a district court's award of
sanctions in the form of the opponent's fees and costs from the
time the evidence that his client's case was based on fraud became
compelling. 29 F.3d at 1022-23. The district court had reduced
Appendix Page 31
the amount of fees it found reasonable from $43,000 to $30,000,
finding that this amount was a sufficient sanction. /d. at 1023. In
Mercury Air Group, Inc. v. Mansour, the Fifth Circuit affirmed
an award of $200,000 in reasonable attorneys fees and costs as a
sanction against a plaintiff who would have known its suit was
baseless if it had paid heed to certain deposition testimony. 237
F.3d 542, 548 (Sth Cir. 2001). In Jordaan, Chief Judge Fish
imposed sanctions of payment of the defendants costs and
attorneys’ fees, as well as a fine and suspension from practice
before the court until payment of the fine where the opponent had
notified the sanctioned attorney “early on that the claims
contained in the complaint were legally unfounded,” and each
defendant moved to dismiss for lack of subject matter
jurisdiction. 275 F. Supp. 2d at 790 (citing Childs, 29 F.3d at
1028).
Here, considering all of the factors, the Court finds that
the appropriate sanction is to award the Defendants their
reasonable attorneys fees caused by the violation. As addressed at
length above, elementary legal research on personal jurisdiction
would have prevented this suit from being filed against
Defendants Benslimane, Alaoui, A. Kamel, Menkin, Nackvi,
Samaha, MPE, MFM, and Mediholding. The case against Bisk
and Crain Caton, which was dismissed on threshold legal
grounds, is wholly lacking in articulable factual or legal support.
The bulk of Plaintiffs causes of action, including the sensational
allegations peppered throughout the complaint and RCS accusing
Defendants of racketeering, criminal conduct, money laundering,
bribery, extortion and terrorism financing, are without evidentiary
support and thus appear to have been “instigated as a gamble that
something might come of it rather than on the basis of the facts at
hand.” See Johnson v. A.W. Chesterton, 18 F.3d 1362, 1366 (7th
Cir. 1994), “It [is] precisely this reckless willingness to impose
the burden of unwarranted litigation upon others which Rule 11
was designed to prevent.” Jd.
Appendix Page 32
Thus, because the Court further finds that reasonable
factual and legal inquiries would have prevented this suit from
being filed against these eleven defendants, the Defendants are
awarded all of their reasonable attorneys’ fees they expended in
defending this suit. The amount and apportionment of those fees
will be determined by separate order.
SO ORDERED.
SIGNED March 17th , 2005
~
/s/ Jane J. Boyle
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
Appendix Page 33
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
SKIDMORE ENERGY, INC.,
et. al.,
Plaintiffs,
v. CIVIL ACTION
NO.3: 03-CV-2 138-B
KPMG, et al. -
Defendants
ORDER GRANTING DEFENDANTS’
REQUEST FOR ATTORNEY’S FEES
AND DENYING PLAINTIFFS’ OBJECTIONS
AND REQUEST FOR RECONSIDERATION
Before the Court are the Defendants’ Brief In Support of
Award of Attorney’s Fees As Rule 11 Sanctions, filed March 30,
2005 Against Plaintiffs Skidmore Energy, Inc., and Geoscience
International, Inc., and Their Attorney Gary Sullivan (doc. 312),
Plaintiffs’ Objections to Defendants’ Attorneys Fees and
Expenses Claimed as Sanctions (“Objections”) (doc. 317), filed
April 19, 2005 and the Plaintiffs’ Response to Motion for
Sanctions and Request for Reconsideration of Apportionment of
Sanctions Awarded (“Motion for Reconsideration) (doc. 316) also
filed April 19, 2005. For the reasons that follow, the Court
GRANTS the Defendants’ request for attorneys fees in the
amount of $530,667.32, DENIES the Plaintiffs’ Motion for
Reconsideration, DENIES the Plaintiffs’ Objections.
Appendix Page 34
I. Background
As recounted in numerous the Court filings in this case,
the Plaintiffs’ engaged in an unsuccessful oil and gas exploration
venture in Morocco which ultimately resulted in a lawsuit against
them in that country. The Plaintiffs subsequently filed the instant
lawsuit on September 19, 2003 against twenty-one defendants -
almost all foreign citizens, alleging violations of the United
States’ Sherman Antitrust Act, 15 U5.C. §§ 1-2, and the
Racketeer Influenced and Corrupt Organizations Act (“RICO”),
18 U.S.C. §§ 1961 et seq., as well as claims for breach of
fiduciary duty, aiding and abetting breath of fiduciary duty; libel,
civil conspiracy, and fraud. * All but two of the Defendants
responded with motions to dismiss, asserting pleading and
jurisdictional defects in the Complaint. The Court granted the
Defendants’ motions and dismissed all twenty-one Defendants,
from the case as set forth below.
All of the nonresident Defendants sued in their individual
capacities — Benslimane, Alaoui, Benmoussa, A. Kamel, S. A.
Kamel, Menkin and Nackvi — were dismissed for lack of personal
jurisdiction on September 3, 2004. The Plaintiffs’ claims against
Prince Bandar were dismissed for lack of subject matter
jurisdiction on December 3, 2004. That same day, the Court dis-
missed non-resident company Defendants MPE, MFM, Samaha,
Dallah, and Mediholding for lack of personal jurisdiction, and
also denied the Plaintiffs’ motion for antisuit injunction. Finally,
on December 28, 2004, the Court dismissed the Plaintiffs’ case
against Defendants KPMG, Rosetti, Quinn, Faisal, Saudi Aramco,
Saoud, Bisk, and the law firm of Crain, Caton, & James, P.C.
(“Crain Caton”) for failure to state a claim and for lack of subject
matter jurisdiction, and also held that the Court lacked personal
jurisdiction over Defendants Quinn and Rosetti.
* (See generally Pls’ Orig. Compl.)
Appendix Page 35
On August 14, 2005, eleven of the Defendants’ moved for
Rule 1) sanctions against the Plaintiffs and their attorney Gary
Sullivan. The Court granted the mction for sanctions against both
Plaintiffs and their attorney after a lengthy evidentiary hearing
held on February 28,2005. At the close of the hearing, the Court,
finding that attorney’s fees were justified based on the Rule 11
violation, specifically found that the payment should be
apportioned between the Plaintiffs and their counse. Plaintiffs
were directed to pay twenty-five percent of the total fee award
with their counsel responsible for seventy-five percent.
Defendants’ attorneys were directed to submit detailed
documentation supporting the Defendants’ request for attorney’s
fees which they submitted on March 30,2005. The hearing was
followed by a detailed memorandum order entered by the Court
on March 18, 2005 (doc. 253). Thereafter, on March 24, the Court
granted the Plaintiffs’ Emergency Motion for Withdrawal and
Substitution of Counsel arid Designation of Lead Counsel (doc.
311). Plaintiffs’ mew counsel followed up with the
above-referenced motions objecting to the requested attorneys
fees and seeking reconsideration of the Court’s ruling on the fee
issue.
Il. Analysis
A. Motion for Reconsideration.
In their motion for reconsideration, the Plaintiffs make the
somewhat novel request, without citing any relevant authority,
that the Court should reconsider the sanctions levied against the
parties because Sullivan, their former attorney, was unethical in
his management of their case against the Defendants. According
to the Plaintiffs, (1) they mistakenly thought they were being
represented by competent, ethical counsel (Motion at 14-16,
ee
The eleven defendants included MFM; MPE, A. Kamel, Samaha, Nackvi,
Menkin, Mediholding, Benslimane, Alaoui, Bisk anc Crain Caton.
Appendix Page 36
20-23), (2) they appeared at the February 28th hearing against the
advice of counsel, who told them that the hearing would be -
postponed in light of their motion to disqualify, (3) Sullivan
misused facts supplied to him by the Plaintiffs (Id. at 17; 23-31),
and (4) that Sullivan wrongly lead the Plaintiffs to make the
statements they made during the hearing (Id. at 17-31). The
Defendants, however, object to reconsideration of the Court’s
sanctions order and urge the Court to award sanctions against the
Plaintiffs and their attorney, Mr. Sullivan, jointly and severally,
rather than apportion them. (Response at 2).
The Fifth Circuit has clearly held that in filing lawsuits, it
is the duty of both the client and his attorney to make a reasonable
inquiry in to the Facts behind the allegations. Jennings v. Joshua
Indep. Sch. Dist., 948 F.2d 194, 197 (Sth Cit. 1997). There is no
question that the Court may impose Rule 11 sanctions such as
those awarded in this case against either the parties, the attorney,
or both. For example, in Jennings, the Fifth Circuit held that the
district court could impose joint and several liability for Rule 11
sanctions against a plaintiff and his attorney even though the
attorney bore the responsibility for researching and evaluating the
law. Id. The Court has previously detailed in its Memorandum
Order of March 18, 2005 the ways in which both the Plaintiffs
and their attorney failed to conduct a reasonable inquiry into the
facts and the law behind the allegations.
In their briefing, the Plaintiffs spend a good deal of time
detailing the manner in which Sullivan acted unethically, and
perhaps even illegally, in handling their lawsuit against the
various Defendants. See generally, (Motion for Reconsideration).
Because of this, the Plaintiffs argue, Sullivan should bear the
brunt of the responsibility for the Rule 11 sanctions levied against
them by the Court. Id. The Defendants, however, insist that the
evidence presented at the February 28" hearing demonstrates that
the Plaintiffs were active participants in the drafting of the
Complaint, and point out that the Plaintiffs are naturally “much
Appendix Page 37
better positioned than the Defendants to bear the risk and
responsibility that their former counsel will not be able to bear the
expense of his portion of the sanctions award.” (Response at 3).
The Court agrees. .
Inits order granting the Defendants’ motion for sanctions,
the Court set forth at length the reasons supporting the Plaintiffs’
irresponsibility as parties to this lawsuit. (March 18, 2005 Order
at 7-8). When Michael Gustin testified at the sanctions hearing,
he was unable to answer the Defendants’ charges that he had sued
numerous other individuals with little or no factual or
jurisdictional connection to the case. He was also unable to
explain the manner in which the central dispute in this case — over
his loss of control of MPE — supported the Plaintiffs’ accusations
of money laundering, organized crime, racketeering, wire and
mail fraud, antitrust violations or terrorism financing. Id.
Specifically, he stated that the only factual support for the money
laundering allegations he had was that he “didn’t know where the
money [for the Defendants’ investment came from...” (Id.;
Sanctions Hearing Transcript at 210-11). Gustin was only able to
make vague ref érences to “theft” connection to a company in
Florida and to the “9/11 lawsuit” and “the fact that we had so
many unknowns about this Liechtenstein corporation and the
involvement and Prince Bandar and Dallah Al Baraka” and that
“there was no proof of where any of this money ever went”
(March 18,2005 Order; Sanctions Hearing Transcript at 211-12).
But, as the party bringing the lawsuit, Gustin was, as the Court
noted in its Memorandum Order granting an award of sanctions,
“entirely unable to articulate a factual nexus between any of the
Defendants and verifiable money laundering activity.” (March 18,
2005 Order at 8).
Likewise, when the Court questioned Gustin regarding the
allegations of organized crime and terrorism financing, Gustin
responded that he couldn’t tell at the moment, “...other than Gary
[Sullivan] had several people in Washington, D.C. helping him do
Appendix Page 38
vay
research.” (Jd; Sanctions Hearing Transcript at 212-13).
Similarly, when the Court asked Gustin why he sued the
Defendants’ eounsel, Crain Caton and attorney Reuven Bisk,
Gustin replied that it was just based on the “...the fact that they
represented (Gustin’s partner in the Moroccan projecti and my
company Skidmore Energy which owned the other two
companies that have been discussed here today.” (March 18,2005
Order; Sanctions Hearing Transcript at 213). Even after being
unable to supply the Court with any of the factual bases of the
allegations in the Complaint, Gustin told the Court that he was
“sure” that he reviewed the pleadings in this case with Sullivan
before he filed them. (March 18,2005 Order; Sanctions Hearing
Transcript at 216-17). Finally, both John Paul Dejoria and Gustin
have admitted that they personally met with Sullivan numerous
times and had numerous telephone conversations with him regar-
ding the claims alleged. (DeJoria Dec. at 9; Gustin Dec. at 3).
While the Court is sympathetic with the Plaintiffs’
position that their attorney’s actions were highly questionable,
that does not excuse their responsibility to make a reasonable
inquiry into their claims, nor does it shift any burden to the
Defendants. The Plaintiffs have cited no authority to support their
argument that Sullivan’s conduct excused their responsibilities.
Although the record is replete with numerous failures by Sullivan,
the Court fully considered Sullivan’s missteps when apportioning
fee award such that Plaintiffs bear responsibility for twenty-five
percent of the award and Sullivan seventy-five percent. The Court
ruled on the Defendants’ motion for sanctions after reviewing
over at least twenty motions to dismiss, briefing of both parties
regarding the motion for sanctions, and two separate hearings
regarding the motion for sanctions. The Plaintiffs have failed to
introduce any new evidence or argument warranting a departure
from the Court’s decision. Therefore, the Plaintiffs’ motion for
reconsideration of the Court’s Rule 11 sanctions award is
DENIED. Thus, the only remaining issue is the amount of
attorneys fees, which is discussed below.
Appendix Page 39
B. Reasonableness of Attorneys’ Fees.
The Plaintiffs ask the Court to reduce the amount of
attorneys fees awarded to the Defendants from $530,667.32 (the
amount requested) to - $43,939.38. (Objections at 24-25).
Essentially, the Plaintiffs argue that the obviously deficient nature
of their own pleadings should have guided the Defendants to
taking what the Defendants characterize as a “cookie cutter”
approach to defending the claims against their clients (Def. Resp.
at 2) seeking an alleged $3,000,000.00 in damages. See generally,
(Objections). In this complex civil litigation case, representing
eleven mostly foreign clients, Plaintiffs basically claim that the
Defendants’ counsel was unreasonable for providing independent
representation to their clients. See generally, (Objections).
Federal courts in this circuit use the lodestar method for
determining the amount of reasonable attorney’s fees. Louisiana
Power & Light Co. v. Kellstrom, 50 F.3d 319, 323-24 (Sth Cir.
1995). The lodestar fee, which has been characterized as “the
most useful starting point” in determining a reasonable fee award,
is calculated by multiplying the number of hours reasonably
expended on the litigation by a reasonable hourly rate. See
Hensley v. Eckerhan, 461 U.S. 424, 433 (1983). The court may
then either accept or adjust the lodestar fee depending on the
circumstances of the case based on the factors set forth in
Johnson v. Georgia Hwy. Express, Inc., 488 F.2d 714 (5" Cir-
1974).° See, Wegner v. Standard Ins. Co., 129 F.3d 814, 822 (Sth
Cir. 1997); Johnson, 488 F.2d at 717-19. The lodestar is
6
The Johnson factors are: (1) the time and labor required; (2) the novelty and
difficulty of the case; (3) the skill required; (4) the preclusion of other
employment; (5) the customary fee; (6) whether the fee is fixed or contingent;
(7) time limitations imposed (8) the results obtairied; (9) the experience,
reputation and ability of the attorneys; (10) the undesirability of the case; (1 1)
the nature and length of the professional relationship with the client; and (12)
awards in similar cases. Johnson, 488 F.2d at 717-19.
Appendix Page 40
presumptively reasonable. however, and should be modified only
in exceptional cases. Watkins v. Fordice, 7 F.3d 453, 457 (5" Cir.
1993)(citing City of Burlington v. Dague, 505 US. 557, 562
(1992)).
The Defendants’ motion seeks reimbursement of
$530,667.32 in fees paid to twelve different attorneys and four
paralegals at the law firm of Crain Caton, as well as to local
counsel Jennifer Jamison. (Motion for Attorneys Fees at 2). The
attorneys worked at hourly rates ranging from $350.00 down to
$160 and the paralegals at $105.00 down to $65.00, representing
eleven different Defendants in the case in chief as well as the
motion for sanctions. (/d.). As noted previously, nine of the
eleven Defendants are foreign residents, located in different
countries, including Saudi Arabia, Morocco, Liechtenstein and
England. (Defendants’ App. at 9). The fees requested by the
Defendants’ counsel have been separated into (1) fees incurred in
response to the Plaintiffs’ Complaint ($403,234.81), comprised
of $353,030 in fees and $50,204.81 in costs, and (2) fees incurred
in pursuing the motion for sanctions ($127,432.51), comprised of
$118,467.50 in fees and $8,965.01 in costs. (Def. App. at 10;
Exh. 2,6, 11 & 12).’ Because the Plaintiffs do not dispute the
reasonableness of the Defendants’ counsel’s billing rates, the
Court will apply these rates to the number of hours reasonably
expended to calculate the lodestar fee.
The Pisintiffs do dispute, however, the number of hours
the Defendants’ attorneys reasonably claim that they expended on
this litigation. Specifically, The Plaintiff~ maintain that the fee
award should be signiflcantly reduced because (1) Crain Caton
did not make a reasonable approach to defense of this lawsuit, but
instead elected to take a course of unnecessary action that
>
Notably, the Plaintiffs paid their own counsel a total of $627,402.75 in
attorneys’ fees and expenses to prosecute this action.
Appendix Page 4}
generated completely unnecessary fees and expenses” (Objections
at 7), (2) Crain Caton engaged in unnecessary investigation and
legal research, (3) Crain Caton charged unnecessary fees with
respect to their motion for sanctions, and (4) Crain Caton charged
for unreasonable travel expenses; and photocopy/duplicating
expenses.* The Court will address these contentions in turn.
1. Inadequate Documentation and Unnecessary
Fees and Expenses.
Crain Caton’s fee request covers 1273.75 hours of attorney labor
and 43.25 hours of paralegal labor. The Defendants bear the
burden of proving that the hours claimed were “reasonably
expended on the litigation.” See, Alberti v. Klevenhagen, 896
F.2d 927, 933-34, modified in part on other grounds, 903 F.3d
352 (Sth cir. 1990) (on rehearing); See also, Hensley, 461 U.S. at
434 (“The district court also should exclude from this initial fee
calculation hours that were not ‘reasonably expended.””). “In
determining the amount of an attorney fee award, courts
customarily require the applicant to produce contemporaneous
billing records or other sufficient documentation so that the
district court can fulflll its duty to examine the application for
noncoinpensable hours.” Bode v. United States, 919 F.2d 1044,
1047 (5" Cir. 1990); See, e.g. Kellestrom, 50 F.3d at 325-26
(reducing fee award by ten percent where challenged billing
records did not provide the court with sufficient information to
determine whether all of the amounts requested were reasonably
expended on this litigation.”). “[T]he documentation must be
8
The Plaintiffs also object to Defendants’ counsel’s monitoring of the docket
and review of other Defendants’ pleadings, specifically mentioning Prince
Bandar’s Motion to Dismiss for Lack of Subject Matter Jurisdiction on the
basis of diplomatic immunity. (Motion at .3). The Court dismisses this
argument, Which wouid call for counsel to Ignore the pleadings and rulings of
matters potentially involving the Defendants’ clients, especially in light of the
Plaintiffs’ far-flung conspiracy allegations.
Appendix Page 42
sufficient for the court to verify that the applicant has met its
burden.” Kellestrom, 50 F.3d at 324. Where the party seeking
attorney’s fees has failed to present adequately documented time
records, the court may “exclude all time that is ... inadequately
documented.” Watkins, 7 F3d at 457. Without sufficient
documentation, the court will reduce the number of hours
awarded or deny the fee application in its entirety. Kellestrom, 50
F.3d at 324, 326.
The Piaintiffs first claim that Crain Caton billed their
clients for unreasonable investigation and research. (Objections
at 7). The Plaintiffs make the incredible argument that the
Defendants should have known upon reviewing the Plaintifs’
claims that they were untenable and iacked legal and
jurisdictional basis and that they needlessly expended effort
researching those issues for eaci: of their clients. See, e.g.
(Objections at 17). In their brief, the Plaintiffs make such
comments as “the responses, briefs in support thereof: and
appendices filed by the Plaintiffs to the eleven Defendants’
motions to dismiss were so incompetent at raising any defense
whatsoever, that there was really no necessity for the filing [of]
(sic) any replies, briefs and further appendices.” (Jd.). The
documents attached in support of the Defendants’ motion,
however, clearly indicate the nature and type of work performed
or and detail how the hours were spent on particular aspects of the
case. The Defendants were also representing eleven individual
clients as Defendants. The Court, being intimately familiar with
the progression of this litigation, finds that the Defendants’
attorneys have reasonably expended a significant number of hours
working on this case. This was a complex case flied against
twenty one mostly foreign defendants alleging the most serious of
allegations. Although none of the claims proceeded to trial, the
motions to dismiss and the motion for sanctions occupied an
extraordinary amount of this Court’s and the parties’ attention.
Additionally, the Court has mentioned the vast array of claims
asserted in this case. Motions to dismiss were filed by each of the
Apperidix Page 43
eleven Defendants bringing the sanctions motion, as well eight
other defendants, requiring the resolution of some relatively
simple issues but also more complex issues involving the RICO
statutes. Even a cursory review of the docket sheet evidences the
substantial amount of time spent by the Defendants’ attorneys.”
y 3 Unnecessary Expenses in Filing the
Motion for Sanctions.
The Plaintiffs’ next complain that the Defendants’
attorneys charged unnecessary expenses in filing the motion for
sanctions. The Court finds, however, that the Defendants’ fees
were reasonable given the fact that there were eleven different
defendants moving for sanctions who each had different degrees
of involvement with the central dispute and who each had to
separately address the complex legal theories involved in the case
and the factual bases, or more importantly, lack thereof; for the
Plaintiffs’ allegations. Moreover, the Motion for Sanctions was
filed on August 16, 2004, more than six months before the final
sanctions hearing. The Plaintiffs could have, at any time,
9
The Plaintiffs also seek to omit any fees billed before each Defendant was
served. (Objections at 6-7). The Court disagrees. The Defendants are not
precluded from being reimbursed for some fees merely because they were
incurred prior to actual service of process of a lawsuit in which they were
named. See, Williamson v. Tucker, 615 S.W.2d 881, 893 (Tex. App. — Dallas
1981, writ ref'd n.r.e.) (holding that the plaintiff's employment of counsel! was
a reasonable means of_protecting his right to collect a note, thus enabling
plaintiff to recover pre-petition fees). The Plaintiffs’ seek to bolster this claim
because MPE, the only client charged the full amount of fees by the
Defendants, was the ninth party served. (Objections at 7). The Court is
unpersuaded. As explained in the Declarations attached to the Defendants’
Motion for Fees, the eleven Defendants seeking sanctions were represented by
the same lawyers. (See Lederer Dec.). The fact that some billing statements
were simply addressed to MPE in no way suggests that no work was performed
on the other Defendants’ behalf. The Court finds that the Defendants’ award
should not be further reduced on this basis.
Appendix Page 44
re-pleaded their claims or dismissed the unsupported allegations
in light of the accusations levied in the sanctions motion.
3. Improper Expenses for Travel and
Duplication-
Finally, the Plaintiffs complain that the Defendants
charged unreasonable expenses for travel and duplication.
Regarding the duplication expenses of $6,607.31, the Defendants’
counsel represented eleven separate defendants in a complex case
involving twenty one Defendants who were accused, among other
things, of conspiracy charges. The Court finds the Plaintiffs’
argument that the Defendants were unreasonable in sending the
15,182 pages out for duplication rather than occupying its
in-house resources untenable.
As for the travel expenses, the Defendants only claim
$2,206.34 in travel expenses in representing these eleven
defendants, most of whom do not reside in the United States. The
Court likewise finds untenable the Plaintiffs’ apparent position
that it was unreasonable for the Defendants to ever meet with
their overseas clients. (Objections at 20-22; cf Def. Resp. at 7).
The Court will not reduce the awarded fees on this basis.
B. Lodestar Calculation.
Having addressed the Plaintiff? objections to the
reasonableness of the Defendants’ fee request, and after making
the appropriate adjustments as outlined above, the Court
calculates the lodestar fee as follows'®:
10
This information is contained in the Defendants’ Appendix at Tabs 1 and 2.
Appendix Page 45
Attorney Hours Average Billing
Rate/Hour
Christopher Prine 20.25 $281.60
Carolyn Russell 106.25 $210.92
C. Henry Kollenberg 5.50 $300.00
C. Vance Christopher 6.75 $322.78
Emily T. Whiftenburg .25 $210.00
George W. Lederer 537.40 $298.21
Jonathan Bickham 27.50 $275.35
Nicole B. Davis 8.75 $185.00
Peter C. Smart 16.50 $225.00
Reuven M. Bisk 396.50 $286.10
Scott M. Elliot 20.75 $175.00
Todd Ramey 127335 $209.79
Subtotal 1273.75
Paralegal
Brinson Coffinan 39.00 $ 97.18
Pool Paralegals 4.25 $ 70.00
Subtotal 43.25
TOTAL LODESTAR FEE
Sanctions
Attorney Hours Average Billing
Rate/Hour
Christopher Prine 28.75 $290.00
Carolyn Russell 33.65 $215.45
C. Henry Kollenberg .30 $300.00
C. Vance Christopher 9.25 $337.93
George W. Lederer 155.75 $306.10
Peter C. Smart 2.50 $250.00
Reuven M. Bisk 131.85 $304.85
Scott M. Elliot 50 $175.00
Todd Ramey 47.35 $219.68
Subtotal 409.30
Paralegal
Brinson Coffman 7.25 $104.66
Pool Paralegals 1.50 $ 70.00
Subtotal 418.05
TOTAL LODESTAR FEE
Appendix Page 46
Total Fee
$ 5,702.50
$ 22,410.00
$ 1,650.00
$ 2,178.75
$ 52.50
$160,259.25
$ 7,572.50
$ 1,618.75
$ 3,71250
$113,437.30
$ 3,631.25
$_26.717.00
$348,942.50
$ 3,790.00
$___ 297.50
$ 4,08750
$353,030.00
Total Fee
$ 8,337.50
$ 7,250.00
$ 90.00
$ 3,126.25
$ 47,490.75
$ 625.00
$ 40,194.75
$ 87.50
$_10.402.00
$117,603.75
$ 758.75
$ _ 105.00
$___ 863.75
$118,467.50
Keeping in mind that the lodestar is presumptively
reasonable, the Court now turns to examine the remaining
Johnson factors to determine whether the lodestar should be
adjusted.
il Should the Lodestar & Adjusted Based on the
Johnson Factors?
The Fifth Circuit has stated that Johnson Factors one and
seven are included in the iodestar calculation and should not be
analyzed again in deciding whether to adjust the lodestar. Walker
v. U.S. Dep't of Hous. and Urban Dev., 99 F.3d 761, 771-72 (5™
Cir. 1996). With respect to some of the other factors, the Circuit
further explained:
The Supreme Court has limited greatly the use of
the second, third, eighth, and ninth factors, and we
have held that enhancements based upon these
factors are only appropriate in rare cases
supported by specific evidence in the record and
detailed findings by the courts... An enhancement
based on the eighth factor is appropriate only
when the fee applicant can demonstrate that it is
customary in the area for attorneys to charge an
additional fee above their hourly rates for an
exceptional result... The Supreme Court has
barred any use of the sixth factor.
Applying the Johnson factors to this case, the Court finds that the
lodestar fee should not be adjusted. Factors | and 7 are included
in the lodestar calculation and will not be considered again in
dedding whether to adjust the lodestar. See, Jd. Likewise, factor
8 — the amount involved and the results obtained has been
discussed In addressing the amount of damages claimed and the
ultimate dismissal of the Plaintiffs’ case against all eleven moving
Defendants. Factors 2,3, and 9 do not warrant an adjustment. The
Appendix Page 47
ee
complexity of this case along with the attorneys’ skill, experience,
and reputation are not sufficiently unusual to equate this dispute
with those “rare cases supported by specific evidence.” Jd.
As to factor 6, the Supreme Court has barred its use to
enhance a fee award, but even considering it in this case, the
Court finds it insufficient to warrant an adjustment. Factor 4
provides no basis for a fee adjustment because there is no
evidence offered by the Defendants that their attorneys were
precluded from taking other work to litigate this case. Likewise,
factors 5 and 11 do not justify an enhancement. The Defendants’
attorneys’ hourly fees are not disputed, and they appear in be
comparable fees for representation of similar quality in this area.
As for Factor 10, while this Court has noted the extreme
undesirability of this lawsuit, it does not find this factor alone
sufficient to warrant an adjustment to the lodestar. And finally,
Factor 12 —- the awards made in similar cases — provides no reason
to adjust the award in this case.
In summary, the Court finds that a consideration of the
Johnson factors provides no basis for either increasing or
decreasing the lodestar fee award in this case. Accordingly, the
Defendants’ motion to recover attorney’s fees is GRANTED in
the amount of $$530,667.32.
Ill. Conclusion
For the foregoing reasons, this Court DENIES the
Plaintiffs’ motion for reconsideration of its memorandum order
of March 18, 2005 awarding Rule 11 sanctions against them and
their attorney, Gary Sullivan. The Court likewise DENIES the
Plaintiffs’ Objections to the Defendants’ attorneys fees and
expense, and GRANTS the Defendants’ Motion to Recover
Attorney’s Fees And Costs. The Defendants are awarded
$530,667.32 as reimbursement for fees reasonably expended, and
apportions liability between the Plaintiffs (25%) and their former
Appendix Page 48
attorney, Gary Sullivan (75%). It is further ORDERED that this
sum be paid within 30 days of the date of this order.
SO ORDERED,
May 18", 2005.
/S/
JANE J. BOYLE
UNITED STATES DISTRICT JUDGE
Appendix Page 49
Rule 11. Signing of Pleadings, Motions, and Other Papers;
Representations to Court; Sanctions
(a) Signature. Every pleading, written motion, and other paper
shall be signed by at least one attorney of record in the attorney's
individual name, or, if the party is not represented by an attorney,
shall be signed by the party. Each paper shall state the signer's
address and telephone number, if any. Except when otherwise
specifically provided by rule or statute, pleadings need not be
verified or accompanied by affidavit. An unsigned paper shall be
stricken unless omission of the signature is corrected promptly
after being called to the attention of the attorney or party.
(b) Representations to Court. By presenting to the court
(whether by signing, filing, submitting, or later advocating) a
pleading, written motion, or other paper, an attorney or
unrepresented party is certifying that to the best of the person's
knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances,--
(1) __ itis not being presented for any improper purpose,
such as to harass or to cause unnecessary delay or
needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions
therein are warranted by existing law or by a
nonfrivolous argument for the extension,
modification, or reversal of existing law or the
establishment of new law;
(3) the allegations and other factual contentions have
evidentiary support or, if specifically so identified,
are likely to have evidentiary support after a
reasonable opportunity for further investigation or
discovery; and
Appendix Page 50
(4) the denials of factual contentions are warranted on
the evidence or, if specifically so identified, are
reasonably based on a lack of information or
belief.
(c) Sanctions. If, after notice and a reasonable opportunity to
respond, the court determines that subdivision (b) has been
violated, the court may, subject to the conditions stated below,
impose an appropriate sanction upon the attorneys, law firms, or
parties that have violated subdivision (b) or are responsible for
the violation.
(1) How Initiated.
(A) By Motion. A motion for sanctions under
this rule shall be made separately from
other motions or requests and shall
describe the specific conduct alleged to
violate subdivision (b). It shall be served
as provided in Rule 5, but shall not be
filed with or presented to the court unless,
within 21 days after service of the motion
(or such other period as the court may
prescribe), the challenged paper, claim,
defense, contention, allegation, or denial is
not withdrawn or appropriately corrected.
If warranted, the court may award to the
party prevailing on the motion the
reasonable expenses and attorney's fees
incurred in presenting or opposing the
motion. Absent exceptional
circumstances, a law firm shall be held
jointly responsible for violations
committed by its partners, associates, and
employees.
Appendix Page 51
(2)
(B) OnCourt's Initiative. On its own initiative,
the court may enter an order describing the
specific conduct that appears to violate
subdivision (b) and directing an attorney,
law firm, or party to show cause why it
has not violated subdivision (b) with
respect thereto.
Nature of Sanction; Limitations. A sanction
imposed for violation of this rule shall be limited
to what is sufficient to deter repetition of such
conduct or compai2>'e conduct by others similarly
situated. Subject to the limitatiofis in
subparagraphs (A) and (B), the sanction may
consist of, or include, directives of a nonmonetary
nature, an order to pay a penalty into court, or, if
imposed on motion and warranted for effective
deterrence, an order directing payment to the
movant of some or all of the reasonable attorneys’
fees and other expenses incurred as a direct result
of the violation.
(A) Monetary sanctions may not be awarded
against a represented party for a violation
of subdivision (b)(2).
(B) Monetary sanctions may not be awarded
on the court's initiative unless the court
issues its order to show cause before a
voluntary dismissal or settlement of the
claims made by or against the party which
is, or whose attorneys are, to be
sanctioned.
Appendix Page 52
es
(3) Order. When imposing sanctions, the court shall
describe the conduct determined to constitute a
violation of this rule and explain the basis for the
sanction imposed. ~~
(d) Inapplicability to Discovery, Subdivisions (a) through (c) of
this rule do not apply to disclosures and discovery requests,
responses, objections, and motions that are subject to the
provisions of Rules 26 through 37.
_—
Appendix Page 53
-
Fees Related to Abdu Saoud
Date | Attny Description of Services Hours Amount
12/4/03 {RMB {Telephone conference with Abdu Saoud. 0.25 68.75
1/5/04. |GWL {Conference with R. Bisk regarding Abdu Saoud; attention} 1.00 300.00
to claims.
1/5/04 {TR Review newswires. Office conference with Reuven Bisk 0.75 150.00
regarding Abdu Saoud. Office conference with Carolyn
Russell regarding MPE timeline.
1/5/04 {RMB {Office conference with George Lederer 3.00 855.00
Telephone conference with
Abdu Saoud. Drafi and iransmit memo as to same.
BEST AVAILABLE COPY
Appendix Page 54
2/4/04
RMB
Telephone conference with Abdu Saoud regarding
potentially being served. Two telephone conferences with
Richard Cantin. Office conference with Carolyn Russell.
Two office conferences with Brinson Coffman.
1.50
427.50
2/4/04
CAR
Confer with Reuven Bisk regarding service on Abdu
Saoud and research whether such service was proper.
3.00
660.00
2/5/04
RMB
Two telephone conferences with Abdu Saoud discussing
need to speak with Shezi and case handling. Review fax
on MOU. Forward to Shezi and Richard. Office
conference with Carolyn Russell. Office conference with
George Lederer regarding motion for service by
publication. Telephone conference with Richard Menkin
to go over his statement.
2.00
570.00
2/9/04
RMB
Telephone conference with Abdu Saoud. Review and
transmit State Department response.
1.50
427.50
Appendix Page 55
2/10/04
RMB
E-mail to Nancy Dutton on her prepared letter on service
by publication. Telephone conference with Shezi Nackvi.
Two telephone conferences with Abdu Saoud. Two
office conferences with Carolyn Russell. Office
conference with Vance Christopher, George Lederer and
Henry Kollenberg regarding forming litigation team.
4.00
1,140.00
2/18/04
RMB
Telephone conference with Richard Menkin regarding
developments and answers. Review and modify Menkin’s
motion to dismiss. Telephone conference with Tim
Perkins of Smith, Underwood regarding Abdu Saoud’s
representation. Again modify Menkin’s declaration.
Review service issues with Todd Ramey.
5.00
1,425.00
2/23/04
GWL
Receive and review Quinn and Rosetti Reply Briefs;
receive Saoud Motion.-
3.00
900.00
Appendix Page 56
2/25/04
RMB
Telephone conference with Allyson Dobbs. Telephone
conference with Dutton & Dutton, Nancy and Susan.
Office conference with George Lederer, Jim McOuirre,
and Tim McCarthy of White & Case
Review and respond
to their inquiries from Tim Perkins and Abdu Saoud.
3.00
855.00
2/25/04
RMB
Telephone conference with Abdu Saoud telling him to
contact me henceforth through Tim Perkins.
0.25
71.25
2/26/04
GWL
Letter from Perkins with Saoud order; draft and file
Certificate of Interested Persons for Mr. Menkin;
attention to joint defense issues.
1.75
525.00
2/27/04
TR
Review court filing. Office conference with George
Lederer regarding KPMG audit. Review newswires.
Office conferences with Reuven Bisk and George Lederer
regarding MOUs and Mr. Saoud.
1.75
385.00
Appendix Page 57
2/29/04
TR
Organize share ledger binders and meroanda of
understanding for review by George Lederer. Include new
agreements with Abdu Saoud. Leave notes regarding
binders,
3/1/04
TR
0.50
110.00
Review court filings. Office conferences with Reuven
Bisk and George Lederer. Note correct website citation
missed by KFMG counsel. Conference with Jonathan
Bickham regarding translation of Abdu Saoud stock
power.
1.00
220.00
3/1/04
GWL
Receive message from Ms. Nancy Dutton; attention to
Memorandum of Understanding entered into by Mr.
Abdu Saoud; review Reply from KPMG to Plaintiffs’
Response.
1.00
300.00
3/2/04
GWL
Attention to letter from Ms. Dutton; drafting Joint
Defense Agreement with Mr. Saoud; drafting agrecment
to share costs with Mr. Saoud; review cases regarding
choice of law.
5.25
1,575.00
Appendix Page 58
3/3/04 IGWL jRevisions to Saoud Joint Defense Agreement and Cost 3.25 975.00
Sharing Agreement; meeting
3/3/04 {RMB {Telephone conference with Richard Menkin 4.00 1,140.00
. Office conference
ee
engagement letter and modify.
Review letter agreement and joint defense agreement
with Saoud, modify and transmit. Review and approve
Godwin Gruber bill. Organize file.
3/8/04 |TR Review court filings for Abdu Saoud. 0.25 55.00
3/8/04 [GWL 2 receive 0.75 225.00
Saoud pleadings.
3/18/04 }|RMB ]Review analyze and respond to Richard Menkin’s e-mail 2.50 712.50
on Abdu Saoud.
3/29/04 IGWL jReceive Plaintiffs’ Response to Saoud pleadings; receive 2.00 600.00
filed copy of Menkin pleadings.
4/16/04 }|RMB Teleconference with Tim Perkins, attorney for Abdu 0.50 142.50
Saoud; email Richard and Shezi with suggestions.
Appendix Page 59
10/26/04 |RMB [Telephone conference with Tom Perkins on Abdu Saoud. 0.25 75.00
9/23/03 {RMB jTelephone conference with Tim Perkins. Telephone 7.00 1,925.00
conference with George Lederer. Draft memorandum
regarding proper response to Federal Petition.
9/29/03 {RMB |Telephone conference with Richard Menkin. Telephone 7.50 2,062.50
conference with Tim Perkins, Dallas counsel. Modify and
transmit courtesy letter to all co-defendants.
2/18/04 {RMB {Telephone conference with Richard Menkin regarding 5.00 1,425.06
developments and answers. Review and modify Menkir’s
motion to dismiss. Telephone conference with Tim
Perkins of Smith, Underwood regarding Abdu Saoud’s
representation. Again modify Menkin’s declaration.
Review service issues with Todd Ramey.
Appendix Page 60
2/25/04
RMB
Telephone conference with Allyson Dobbs. Telephone
conference with Dutton & Dutton, Nancy and Susan.
Office conference with George Lederer, Jim McOuirre,
and Tim McCarthy of White & Case
_________ Review and respond to their inquiries from
Tim Perkins and Abdu Saoud.
3.00
855.00
2/25/04
RMB
Telephone conference with Abdu Saoud telling him to
contact me henceforth through Tim Perkins.
71.25
2/26/04
GWL
Letter from Perkins with Saoud order; draft and file
Certificate of Interested Persons for Mr. Menkin;
attention to joint defense issues.
525.00
4/16/04
RMB
Teleconference with Tim Perkins, attorney for Abdu
Saoud; emai] Richard and Shezi with suggestions.
0.50
142.50
7/23/04
CVC
Phone calls to Tim Perkins; attn to correspondence to
plaintiff re: direct contact with parties; attn to response to
anti-suit injunction.
1.50
487.50
7/23/04
TR
Review newswires. Office conference with Vance
1.00
220.00
Christopher. Teiephone call to Tim Perkins.
Appendix Page 61
9/10/04 |GWL |Receive Memorandum Order from Judge Boyle; 5.00 1,500.00
telephone conference with Mr. Perkins, attorney for Mr.
Sauod review report to MFM; meeting with Mr. Bisk;
work on Sur-Reply.
10/26/04 |RMB {Telephone conference with Tom Perkins on Abdu Saoud. 0.25 75.00
11/3/04 {RMB jCorrespondence and email to Tim Perkins. Telephone 4.25 1,275.00
conference with
Begin draft of update letter, |
11/16/04-44RMB }Telephone conference with Richard Menkin on expert. 1.25 375.00
Email suggested response to Tim Perkins to Shezi.
Receipt and review of appeals notice. Office conference
with-Caro! Ditta.
3/4/05 {GWL jEmail from Mr. Perkins, Sauod’s attorney; attention to 0.70 220.50
documenting attorney’s fee claim.
3/11/05 {GWL jLetter from Perkins. 0.20 63.00
TOTAL 92.15 $26,112.25
Appendix Page 62
Fees Relating to Bandar Bin Sultan
Date | Attny . Description of Services Hours Amount
1/9/04 }]GWL {Receive new pleadings from KPMG; drafting letter to 3.25 975.00
insurance carrier; receive notice of Default Judgment v.
Bandar.
1/9/04 |RMB_ {Office conference with Brinson Coffman and George 3.00 855.00
Lederer regarding Prince Bandar and regarding potential
default judgment. Telephone conference with Richard
Menkin. Begin drafting memo for motion to dismiss.
1/14/04 JTR Research __ . Research Dutton 1.75 350.00
& Dutton law firm representing Prince Bander bin
Sultan. Review newswires.
Appendix Page 63
1/14/04
RMB
Locate, make contact with, and transmit information to
Dutton & Dutton. Telephone conference with Nancy
Dutton. Prepare and e-mail data on lawsuit status to
Prince’s attorneys.
2.50
712.50
2/6/04
RMB
Receipt and review of order granting ability to serve by
publication. Office conference with George Lederer and
Carolyn Russell as to same. Analyze, draft and transmit
correspondence to Shezi Nackvi and Richard Menkin.
Office conference with Dutton & Dutton, Nancy Dutton
over proper handling.
3.50
997.50
2/10/04
RMB
E-mail to Nancy Dutton on her prepared letter on service
by publication. Telephone conference with Shezi Nackvi.
Two telephone conferences with Abdu Saoud. Two
office conferences with Carolyn Russell. Office
conference with Vance Christopher, George Lederer and
Henry Kollenberg regarding forming litigation team.
4.00
1,140.00
Appendix Page 64
2/11/04
GWL
Telephone conference with local Dallas counsel
regarding filing reply brief to plaintiffs’ response;
receive notice of appearance for Prince Bandar; drafting
motion to dismiss for Menkin.
4.75
1,425.00
2/12/04
RMB
Telephone conference with Hughes & Luce, Bob Davis
regarding representing Prince Bandar. Telephone
conference with Susan Kincaid of Nancy Dutton’s office.
Modify Motion on behalf of Richard Menkin. Review
Skidmore pleadings against all defendants
6.00
1,710.00
2/12/04
RMB
Telephone conference with Hughes & Luce, Bob Davis
regarding representing Prince Bandar. Telephone
conference with Susan Kincaid of Nancy Dutton’s office.
Modify Motion on behalf of Richard Menkin. Review
Skidmore pleadings against all defendants
6.00
1,710.00
Appendix Page 65
2/16/04
RMB
Review declaration changes of Richard Menkin.
Telephone conference with Steve Benz, Esquire for
Prince Bandar. Begin memorandum to Litigators on lack
of sufficient pleading from a logical perspective.
5.00
1,425.00
2/17/04
RMB
Telephone conference with Nancy Dutton. Telephone
conference with Richard Menkin. Office conference
bao: ss. Complete
memorandum on previous filings. Redraft declaration of
Richard and transmit.
9.00
2,565.00
2/24/04
RMB
Telephone conference with Steve Benz _
—
0.25
71.25
Appendix Page 66
2/25/04
RMB
Telephone conference with Allyson Dobbs. Telephone
conference with Dutton & Dutton, Nancy and Susan.
Office conference with George Lederer, Jim McOuirre,
and Tim McCarthy of White & Case
see Review and
respond to their inquiries from Tim Perkins and Abdu
Saoud.
3.00
855.00
2/27/04
RMB
Review letter to Judge regarding service by publication
from Nancy Dutton. Office conference with George
regarding Abdu.
1.00
285.00
3/1/04
GWL
Receive message from Ms. Nancy Dutton; attention to
Memorandum of Understanding entered into by Mr.
Abdu Saoud; review Reply from KPMG to Plaintiffs’
Response.
1.00
300.00
3/2/04
GWL
Attention to letter from Ms. Dutton; drafting Joint
Defense Agreement with Mr. Saoud; drafting agreement
to share costs with Mr. Saoud; review cases regarding
choice of law.
5.25
1,575.00
Appendix Page 67
3/2/04
RMB
Telephone conference with Richard Menkin. Telephone
conference with Nancy Dutton. Telephone conference
with
Telephone conference with
Draft update letter on service and counsel assignments.
6.00
1,710.00
3/16/04
GWL
Receive and review various pleadings filed on behalf of
Prince Bandar; attention to issue of personal jurisdiction
regarding Menkin Reply.
6.00
1,800.00
3/16/04
RMB
Review Michael Knox’s engagement letter. Receipt and
review, Prince Bandar’s motion to dismiss.
3/17/04
GWI
Receive Judge Fish’s order unfiling Bandar motions;
work on personal jurisdiction issue for Mr. Menkin.
4/13/04
GWL
Telephone conference with local counsel; attention to
pleadings filed by plaintiffs in response to Prince
Bandar’s Motion to Dismiss.
Appendix Page 68
1 4/28/04
GWL
Attention to allegations against Abdullah Kamel; work
on pleadings for Abdullah Kamel; review new pleadings
regarding Prince Bandar, receive Plaintiffs’ Responses to
Samaha and Nackvi Motions.
7.00
2,100.00
4/28/04
RMB
Review motions to dismiss responses to Shezi and
Samaha; review response and supplement for motion to
dismiss for Bandar.
1.50
427.50
6/10/04
RMB
Modify Checklist; review objection to Bandar’s
immunity argument by Skidmore; e-mail updates to
Shezi Nackvi and Richard Menkin.
375.00
6/17/04
RMB
Office conference with George Lederer; review
Azzedine Benmoussa reply; office conference with Nikki
Davis over expansive reading of Rule 4 exclusion.
1.50
450.00
6/23/04
TR
Review newswires. Office conference with Nicole Davis
regarding service in Morocco and other issues.
0.75
165.00
Appendix Page 69
7/21/04
TR
Review newswires. Make final modifications to letters
for co-defendants and counsel. Send letters to counsel
with message. Instructions to Jamie Cheek to send co-
defendant letters and attachment; Review
correspondence from Nancy Dutton and obtain
information —__—
4.00
880.00
12/6/04
GWL
Attention to Order Dismissing Prince Bandar.
0.50
157.50
TOTAL
__ 96.00
$ 27,468.75
Appendix Page 70
Fees Related to S. Kamel & Dallah Al Baraka
Date
Attny Description of Services Hours Amount
3/11/04 |RMB {Two telephone conferences with Mr. Michael Knox. 2.75 783.75
Check out _
a alternative. Telephone conference
a ee . Review response to
Richard Menkin’s Motion to Dismiss. Office conference
with George Lederer.
3/13/04 |]GWL |Telephone conference with Mr. Knox concerning facts 0.25 75.00
of case. |
3/15/04 |RMB | Telephone conference with Michael Knox on 0.25 71.25
engagement.
3/16/04 [RMB [Review Michael Knox’s engagement letter. Receipt and 1.50 427.50
review, Prince Bandar’s motion to dismiss.
3/17/04 {RMB _ [Review Knox engagement letter and approve. 0.50 142.50
Appendix Page 71
3/18/04
RMB
Telephone conference with
telephone conference with Michael Knox.
0.50
142.50
4/8/04
RM
eTeleconferences with Michael Knox, George Lederer
and Richard Menkin over corrections to Declaration of
Jurisdiction. Modify, review, modify and transmit
motions to dismiss for Samaha and Shezi.
4.25
1,211.25
4/14/04
GWL
Telephone conference with Mr. Knox regarding facts of
case; conference with Mr. Bisk regarding service of
Complaint upon MFM, other issues.
2.75
825.00
4/14/04
RMB
Teleconferences with Richard Menkin and Michael
Knox; email Richard Menkin; office conference with
George Lederer to debrief on meeting in London and
calendaring of remaining actions.
1.50
427.50
4/23/04
CAR
Meet with Reuven Bisk and research for response to
Mike Knox’s email inquiry regarding competing
methods of service.
0.75
165.00
Appendix Page 72
4/23/04
RMB
Review truncated affidavit of Abdullah; teleconference
with Richard Menkin; review service date issue for
Saudis with Knox; office conference with George
Lederer; email Richard request for documentation from
ONAREP; office conference with Carolyn Russell
_ |regarding proper date of service for Saudis; office
conference with Todd Ramey regarding service package
of DeJoria being to us by mistake; review package.
3.25
926.25
4/27/04
RMB
Telephone conference with Mike Knox;
___ office conference with
Richard Menkin; review correspondence.
1.50
427.50
4/29/04
GWL
Telephone conference with local counsel regarding
filings for Abdullah Kamel; work on 12(b)(1) motion;
telephone conference with Mr. Knox regarding Den
Norske case.
7.00
2,100.00
Appendix Page 73
4/30/04
RMB
Teleconferences with Richard Menkin and Michael
Knox; verify proper date of filing on Monday; Begin
affidavits for Mediholdings.
3.25
926.25
5/4/04 :
Complete and transmit affidavits for 5 defendants on
Jurisdiction; office conference with Carolyn Russel on
conflict letters; redraft Joint Defense Agreement with
Kuiox; telephone conference with Richard Menkin.
342
1,125.00
5/4/04
Begin reviewing Knox’s final response for Dallah and
Saleh (after filing).
0.75
225.00
5/17/04
Telephone conference with Mr. Knox regarding various
issues; - attention to answer date.
240.00
5/20/04
Draft Joint Defense Agreement and transmit. Review
and respond to Knox correspondence.
600.00
5/21/04
Telephone conference with Shezi Nackvi; Telephone
conference with Allison Dodds; Redraft correspondence
for Allison to Knox; Redraft and transmit Joint Defense
Agreement and Dodd’s letters to Knox; Office
conference with Carolyn Russell; Telephone conference
with Mike Knox.
750.00
Appendix Page 74
5/23/04
RMB
Review Knox and Allison’s correspndence and forward
comments on to Shezi and Richard.
0.50
150.00
5/24/04
GWL
Telephone call with local counsel in Dallas regarding
filing of original Declarations of witnesses; email from
Mr. Knox; attention to Joint Defense Agreement. ©
1.50
450.00
6/3/04
RMB
Telephone conference with Richard Menkin; transmit
responses to Mediholding, Nackvi, MFN, etc.; telephone
conference with John Knox.
2.50
750.00
6/3/04
GWL
Conference, telephone conference with Mr. Knox
regarding Joint Defense Agreement; conference with
Mr. Bisk.
1.25
375.00
6/4/04
RMB
Telephone conference with Mike Knox on need to
complete reply.
0.25
75.00
6/7/04
RMB
Review Abdullah’s reply and revise memo; e-mail
memo to Shezi Nackvi and Mike Knox.
fa
675.00
7/13/04
GWL
Telephone conference with Mr. Knox regarding
proposed joint defense agreement and related issue.
0.50
150.00
7/13/04
RMB
Office conference with George Lederer on withdrawal of
Knox.
0.25
75.00
Appendix Page 75
7/26/04 {GWL [Telephone conference with local counsel; email from 2.25 675.00
Knox; review Plaintiffs’ Motion for Anti-Suit -
12/3/04 |GWL {Telephone conference with Mr. Knox. 0.25 78.75
12/10/04 |RMB [Telephone conference with Richard Menkin. Review 0.50 157.50
Knox e-mail and telephone calls.
12/15/04 |GWL jTelephone conference with Mr. Knox; email to Mr. 0.30 94.50
Bisk.
1/10/05 |GWL {Telephone conference with Mr. Knox regarding 0.30 94.50
substitution of counsel.
1/11/05 J]CAP {Telephone conference with Knox regarding need for 0.50 145.00
new counsel for Saleh Kamnel.
TOTAL 52.90 $ 15,536.50
Appendix Page 76
Fees Related to Libel/Slander/Defamation
Amount
Date Attny Description of Services Hours
9/23/03 |CAR |Research and prepare memo regarding joint defense pe 1,550.00
issues, possible siander/libel claims and pleading
defects; meet with Reuven Bisk and Henry Kollenberg.
10/22/03 {RMB |Concise response for Libel and Slander memo. Transmit 1.50 412.50
memorandum regarding Statement of Facts.
10/23/03 |RMB . Office conference with Jonathan Bickham 0.25 68.75
regarding libel issue and possible case. Respond to
handling x
10/28/03 {RMB |Office conference with Jonathan Bickham regarding 0.75 206.50
Libel/Slander. Office conference with Todd Ramey
regarding service of process in Saudi Arabia, Great
Britain and Liechtenstein.
Appendix Page 77
10/30/03
RMB
Telephone conference with Rchard Cantin, Shezi
Nackvi nd Richard Menkin. Office conference with
Peter Smart regarding libel and slander memorandum.
1.00
275.00
11/11/03
RMB
Office conference with Peter Smart regarding
libel/slander positioning. Office conference with George
Sederer, Henry Kollenberg regarding same. Modify
Peter's memo draft analyze issues cover letter.
5.50
1,512.50
11/12/03
RMB
Complete and transmit slander & libel assessment.
Complete and transmit attorney client conflicts issue
memorandum. __ . Office
conference with George Lederer. Commence written
response. Office conference with Peter Smart.
6.00
1,650.00
11/4/03
PCS
Legal research on issues pertaining to defamation and
privilege to talk about allegations made in pleadings.
5.00
11/5/03
PCS
Continue research on pertinent law on defamation;
prepare memo discussing law and analyzing options.
7.00
11/11/03
GWL
Attention to defamation and slander issue; drafting
memo regarding possible multiple representation of
parties.
2.30
Appendix Page 78
11/25/03 |]GWL jRevisions to memo on defamation damages; attention to 4.50 1,237.50
statutory cap on exemplary damages; memo to P. Smart
regarding liability for parties and witnesses out of court
statements.
11/26/03_|GWL jRevise memo regarding defamation claim. 0.50 137.50
10/14/03 |JTB |Researched Texas cases regarding the applicability of 2.50] - 687.50
the ligitation privilege to out-of-court statements.
10/21/03 |JTB |Worked on memorandum regarding the scope of the 3.00 825.00
litigation privilege in Texas.
10/22/03 |JTB |Worked on memorandum regarding the scope of the 2.50 687.50
litigation privilege in Texas.
10/23/03 |JTB |Conducted further research of the Texas case law on the 2.00 550.00
scope of the litigation privilege in Texas.
10/27/03 |JTB |Continued research and drafting of memorandum on the 4.50 1,237.50
scope of the litigation privilege in Texas.
10/31/03 {PCS {Review pertinent law pertaining to privilege to defame; 2.50 562.50
review complaint.
11/3/03 {JTB- [Further research of the Texas and Fifth Circuit case law 6.00 1,650.00
on the litigation privilege.
Appendix Page 79
11/4/03 |PCS_ |Legal research on issues pertaining to defamation and 5.00 1,125.00
privilege to talk about allegations made in pleadings.
11/4/03 |JTB_ [Worked on research memorandum regarding the scope 4.00 1,100.00
of the litigation privilege in Texas.
11/5/03. |JTB_ {Worked on research memorandum regarding the scope 2.00 550.00
of the litigation privilege in Texas.
2/16/04 {TR |Review newswires. Office conferences with Reuven 2.25 495.00
Bisk regarding service. Legal research on aiding and
abetting breaches of fiduciary duty and privileges.
Office conference regarding joint settlement defense.
TOTALS 78.30 $ 9,852.75
Appendix Page 80
Crain Caton Redacted Fee Entries
Date
Atty
Description of services
Hours
Amount
09-22-03
RMB
Receipt and review of new Federal Petition. Telephone
conference with Richard Menkin. ia
______
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