Opposition Brief — Barry v. McShares, Inc.

Supreme Court, UE

FILED

No. 98-1506 MAY 3. 1999

4

{orice OF THE CLERK

In The ae SS ee

Supreme Court of the United States

+

DONALD D. BARRY, ESQ., et al.,

Petitioners,

McSHARES, INC., d/b/a RESEARCH PRODUCTS,

Respondent

*

On Petition For Writ Of Certiorari

fo The Supreme Court Of The State Of Kansas

s 2

RESPONDENT'S BRIEF IN OPPOSITION

*

THomaS B. BRADSHAW

(Counsel of Record)

JENNIFER P. KYNER

ARMSTRONG TEASDALE LLP

2345 Grand Boulevard, Suite 2000

Kansas City, MO 64108

lelephone: (816) 221-3420

Telecopier: (816) 221-0786

J]. STAN SEXTON, Esq.

Hampton, Royce, ENGLEMAN

& NELSON

Ninth Floor United Building

119 West Iron

Salina, KS 67402-1247

lelephone: (785) 827-725

felecopier: (785) 827-2815

Counsel for Respondent

McShares, Inc. d/b/a/

Research Products

May 1999

KLE LAW BRIEF PRINTING CO. (800) 2

RK ALI OLLECT (402) 442-2831

See OSE ee

airsiba jho5.

QUESTION PRESENTED

1. Did the Supreme Court of Kansas properly

reverse the order of the trial court granting judgment for

petitioners in a state court civil action for malicious pros-

ecution and abuse of process on the grounds that Federal

Rule of Civil Procedure 11 and Federal Antitrust Law do

not preempt state malicious prosecution and abuse of

process claims arising out of Federal Antitrust actions.

TABLE OF CONTENTS

Page

JUBSTIOIN ‘PRESEING GLh cas stn tants auoues bow i

EAGLES COP AUT ERICMRE ENS 0 hsi0 op ecb ore dace ae ao ill

SLALSNEINE OP CASE i 655s. si sen cae l

|. NATURE OF THE CASE, THE COURSE OF THE

PROCEEDINGS AND DISPOSITION OF THE

SUPREME COURT OF KANSAS. (030.06. 55.0.0 9

REASONS FOR DENYING THE WRIT............. 3

|. The Kansas Supreme Court Correctly Held That

Federal Rule of Civil Procedure 11 Does Not Pre-

empt or Replace State Law Claims for Malicious

Prosecution and Abuse of Process Based Upon

Federal Claims Exclusively Within the Jurisdic-

tion of the Federal Court. ..0i0 cc, eeackneee ane 3

A. The Kansas Supreme Court Correctly Ruled

hat State Law Claims For Malicious Pros-

ecution and Abuse of Process Are Not Pre-

empted by Federal Antitrust Law .......... 3

B. Federal Rule of Civil Procedure 11 Does Not

Preempt State Law Claims for Abuse of Pro-

cess and Malicious Prosecution ............. 9

COM. LEISHIIN ies via v bReewet bee ee ee 23

ill

TABLE OF AUTHORITIES

Page

Cases

Amwest Mortg. Corp. v. Grady, 925 F.2d 1162 (9th

aE ts BRL RE ean a 12

Berg v. Leason, 32 F.3d 422 (9th Cir. 1994) ... 13, 14, 15, 16

Bud Jennings Carpets & Draperies, Inc. v. Green-

house, 210 Kan. 92, 499 P2qd | ES oe 9 SIR ore 8

Business Guides, Inc. v. Chromatic Communications

Enterprises, Inc., 498 U.S. 533, 112 L. Ed. 2d 1140,

119 S. Ct. 922 OE NAS Chis x50 Vaan cae aae De 6, 10

California v. ARC America Corp., 490 U.S. 93, 104

L. Ed. 2d 86, 109 S. Ct. 1661 (aver). «0 & 5, 7,8, 17

Caterpillar, Inc. v. Williams, 482 U.S. 386, 96

L. Ed. 2d 318, 107 S. Ct. 2425 1) RRS Sa pe 13

Chambers v. NASCO, 501 U.S. 32, 115 L. Ed. 2d 27,

Sm aM CN 7)

Cohen v. Lupo, 927 F.2d 363 (8th Cir. 3 t 10, 11

Del Rio v. Jetton, 55 Cal. App. 4th 30, 63 Cal. Rptr.

a) Se BSS IESS GR Ca A Ae 6

East-Bibb Twiggs Neighborhood Ass'n v. Macon-Bibb

Planning & Zoning Commission, 674 F.Supp. 1475

(ao Sg SRO an ee eee 45, 19, 20, 22

Florida Lime & Avocado Growers Inc. v. Paul, 373

U.S. 132, 10 L. Ed. 2d 248, 83 S. Ct. 1210 (1963) ...4, 5

Furillo v. Dana Corp. Parish Div., 866 F. Supp. 842

NN i iia oc ue Ga meg in 17

iV

TABLE OF AUTHORITIES — Continued

Page

Great Western Bank v. Southeastern Bank, 234 Ga.

App. 420, 507 S.£.20 197 (1996)... . a0. 4s 18, 19, 20

Hines v. Davidowitz, 312 U.S. 52, 85 L. Ed. 581, 61

SG SOU TM eG ec eae 4

Kiser v. Boeing Co., 163 F.R.D. 13 (D. Kan. 1995)..... 21

Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3rd

Che OR oe sek ce ke cd Clee wee es eae ras 12

Local 174, Teamsters, Chauffeurs, Warehousemen and

Helpers of America v. Lucas Flour Co., 369 U.S. 95,

7 he Bs 2 Se; Ba S GE Br ke l s ie caa nes 17

McShares v. Barry, 266 Kan. 479, 970 P.2d 1005

CAGE.) SEES a wo ao eka eae ne eb ck pile eae a TR. PGS Ys

Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478

U.S. 804, 92 L. Ed. 2d 650, 106 S. Ct. 3229 (1986) .... 13

Nelson v. Miller, 227 Kan. 271, 607 P.2d 438 (1980)..... 6

Pacific Gas & Electric Co. v. State Energy Resources

Conservation and Development Comm'n, 461 U.S.

E90, 72 ke EG. 20 fon, 109 BE TFS Gomes «ssc 4

Schrag v. Dinges, 153 F.R.D. 665 (D. Kan. 1994)...... 20

Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 78

hs, een. ee SES, TOE SG. GR. GES CAPO: i oka ks ook ee 4

Szabo Food Services, Inc. v. Canteen Corp., 823 F.2d

ri gc ae ag ey tt sg Re Peed Pe ee 18, 19, 21, 22

Thomas v. Treasury Management Ass’n, 158 F.R.D.

SORIA A. es SEP cas bX ced Vena Ce ROR kee ees 21

TABLE OF AUTHORITIES - Continued

Page

CONSTITUTIONAL CLAUSES, STATUTES AND RULES

Pee oe, hae gs. Peer appt RN Secret yr ene | 16

SE A BE BOR iw heed Gees Oar ee ee 16

Sherman Antitrust Act, 15 U.S.C. DE £50) iseecay oe l

Cayton Act. 15 060s bo a re 19

Ce Rah Oe OUT 0095s on babe ee Cis ee ee 9

Be Waite BPRS Fi kk cee ie ect I 9, 10

Ee Sea OE MEP oe cet hie he wee Oi 16

Se Riot AT ohn Ow Pe hee eae oc ee 19, 22

Federal Rule of Civil Procedure 11.............. passim

ADDITIONAL AUTHORITIES

Federal Rule of Civil Procedure 11, Notes of 1993

ROVISGEY COOUMRNOR 620 odd Shek Cea 21

RESPONDENT'S BRIEF IN OPPOSITION

Respondent McShares, Inc., d/b/a Research Prod-

ucts, respectfully suggests that the Court deny the Peti-

tion for Writ of Certiorari seeking review of the decision

of the Supreme Court of Kansas. That Opinion is reported

at McShares v. Barry, 266 Kan. 479, 970 P.2d 1005, 1015

(Kan. 1998).

—

STATEMENT OF CASE

I. NATURE OF THE CASE, THE COURSE OF THE

PROCEEDINGS AND DISPOSITION OF THE

SUPREME COURT OF KANSAS

Respondent McShares, Inc. was a defendant in a fed-

eral antitr .t class action, based on the alleged violation

of the Sherman Antitrust Act, 15 U.S.C. § 1, et seq., styled

Albert City Elevator Co. v. Pestcon Sys., Inc., et al., Case No.

93-CV-2496, filed by the petitioners and others on Decem-

ber 3, 1993 in the United States District Court for the

District of Kansas. The Albert City case was later com-

bined by the federal district court with other similar class

actions, for pretrial and trial purposes, into Master File

No. 93-2452-KHV. McShares, Inc. prevailed at the trial of

the federal antitrust class action and judgment was

entered in favor of McShares on October 31, 1995 in the

separate Albert City action, Case No. 93-CV-2496-KHV.

Respondent did not file a motion for sanctions against the

petitioners and antitrust plaintiffs for bringing a frivolous

claim against respondent, pursuant to Federal Rule of

Civil Procedure 11, at any time during or at the conclu-

sion of the federal antitrust class action.

ee ee ee ee

hN

On November 27, 1996, within one year of the date

when the Albert City judgment became final, respondent

McShares filed this state common law action for mali-

cious prosecution and abuse of process against the peti-

tioners and other defendants based on their abusive

actions in naming and prosecuting respondent McShares

for alleged federal antitrust violations. The petitioners

removed the case to federal court, but the case was

remanded due to the failure of all defendants to timely

join in the removal. Some of the defendants moved for

judgment on the pleadings, dismissal of the action, and/

or alternatively, for summary judgment, on the grounds

that respondent’s common law actions for abuse of pro-

cess and malicious prosecution arising out of Sherman

Act litigation were totally preempted by Federal Rule of

Civil Procedure 11. The District Court of Saline County,

Kansas sustained defendants’ motions and dismissed

respondent’s causes of action on the grounds that federal

antitrust law and Federal Rule of Civil Procedure 11

preempt any state cause of action for abuse of process or

malicious prosecution which arises out of claims which

are within a federal court’s exclusive jurisdiction. The

Supreme Court of Kansas subsequently reversed the trial

court and remanded the case to the District Court of

Saline County, Kansas for further proceedings, holding

that state law claims for malicious prosecution and abuse

of process based on an underlying antitrust claim were

not preempted by federal antitrust law or Federal Rule of

Civil Procedure 11.

REASONS FOR DENYING THE WRIT

I. The Kansas Supreme Court Correctly Held That Fed-

eral Rule of Civil Procedure 11 Does Not Preempt or

Replace State Law Claims for Malicious Prosecution

and Abuse of Process Based Upon Federal Claims

Exclusively Within the Jurisdiction of the Federal

Court.

The opinion of the Kansas Supreme Court that state

law malicious prosecution and abuse of process claims

arising out of federal antitrust actions are not preempted

by federal antitrust law or Federal Rule of Civil Pro-

cedure 11 correctly followed prior relevant decisions of

this Court holding that Federal Rule of Civil Procedure 11

does not supplant state law malicious Prosecution claims

and that federal antitrust law does not preempt state law

remedies. See Business Guides, Inc. v. Chromatic Communti-

cations Enterprises, Inc., 498 US. 533, 112 L. Ed. 2d 1140,

119 S. Ct. 922 (1991) and California 7. ARC America Corp.,

490 U.S. 93, 104 L. Ed. 2d 86, 109 S. Ct. 1661 (1989).

A. The Kansas Supreme Court Correctly Ruled

That State Law Claims For Malicious Prosecu-

tion and Abuse of Process Are Not Preempted

by Federal Antitrust Law.

Federal antitrust statutes do not preempt state law

claims for malicious prosecution and abuse of process.

This Court has previously determined the relevant con-

siderations in ascertaining when Congress has preempted

state regulation or law in a given case. In California v.

ARC America Corp., 490 U.S. 93, 104 L. Ed. 2d 86, 109 S. Ct.

1661 (1989) this Court stated:

The path to be followed in preemption cases is

laid out by our cases. It is accepted that Con-

gress has the authority, in exercising its Article I

powers, to preempt state law. In the absence of

an express statement by Congress that state law

is preempted, there are two other bases for find-

ing preemption. First, when Congress intends

that federal law occupy a given field, state law

in that field is preempted. Pacific Gas & Electric

Co. v. State Energy Resources Conservation and

Development Comm'n, 461 U.S. 190, 212-213, 75

L. Ed. 2d 752, 103 S. Ct. 1713 (1983). Second,

even if Congress has not occupied the field,

state law is nevertheless preempted to the extent

it actually conflicts with federal law, that is,

when compliance with both state and federal

law is impossible, Florida Lime & Avocado

Growers Inc. v. Paul, 373 U.S. 132, 142-143, 10

L. Ed. 2d 248, 83 S. Ct. 1210 (1963) when the

state law “stands as an obstacle to the accom-

plishment and execution of the full purposes

and objectives of Congress,” Hines v. Davidowitz,

312 U.S. 52, 67, 85 L. Ed. 581, 61 S. Ct. 399 (1941).

See, e.g., Silkwood v. Kerr-McGee Corp., 464 U.S.

238, 248, 78 L. Ed. 2d 443, 104 S. Ct. 615 (1984).

490 U.S. at 100-101.

In order to determine whether or not Congress

intended to preempt common law claims of malicious

prosecution and abuse of process, it is necessary to

review the various tests for federal preemption in light of

federal antitrust law and state malicious prosecution and

abuse of process claims. This analysis must be made in

light of the presumption against finding preemption of

state law in areas traditionally regulated by the states,

such as antitrust. See California v. ARC America Corp., 490

U.S. 93, 104 L. Ed. 2d 86, 109 S. Ct. 1661 (1989).

First, petitioners do not argue that Congress made an

explicit statement that all state law in the field of antitrust

is preempted. No such statement may be found in the

federal antitrust laws.

Second, petitioners do not and cannot persuasively

argue Congress has thoroughly occupied the legislative

field of antitrust law so as to “make reasonable the infer-

ence that Congress left no room for the states to supple-

ment it.” This contention was rejected by the United

States Supreme Court in California v. ARC American Corpo-

ration, 490 U.S. 93, 101, 104 L.. Ed. 2d 86, 109 S. Ct. 1661

(1989).

Third, there is no actual conflict between state mali-

cious prosecution and abuse of process claims and federal

antitrust law. See Florida Lime Avocado Growers v. Paul, 373

U.S. 132, 142-143, 10 L. Ed. 2d 248, 83 S. Ct. 1210 (1963). In

this case, there is no conflict between permitting recovery

for frivolous and abusive antitrust litigation under state

law and permitting recovery for legitimate claims that

federal antitrust laws have been violated.

Petitioners argue that Kansas malicious prosecution

and abuse of process claims based on an unsuccessful

federal antitrust claim are implicitly preempted because

the state law claims are “an obstacle to the purposes and

objectives of Congress” in enacting the federal antitrust

laws. Petitioners fail to satisfactorily explain why the

state law claims are an “obstacle to the purposes and

objectives of Congress” and a close examination of this

contention reveals that it is devoid of merit.

The premise of petitioners’ preemption argument is

that state malicious prosecution and abuse of process

claims will act as a disincentive to persons contemplating

pursuing antitrust claims. Petitioners cite no legal or

factual basis in support of this assumption. There is cer-

tainly no federal policy encouraging unfounded or frivo-

lous antitrust actions or of discouraging persons injured

by wrongful litigation from seeking redress. See Del Rio v.

Jetton, 55 Cal. App. 4th 30, 63 Cal. Rptr. 2d 712 (1997) (tort

action for malicious prosecution does not conflict with

Section 1988’s purpose of encouraging good faith civil

rights actions).

Further, assuming that persons with meritorious anti-

trust claims are not deterred by the prospect of sanctions

under Federal Rule of Civil Procedure 11, there is no

reason to believe that state remedies will operate as a

disincentive. Federal Rule of Civil Procedure 11 currently

subjects a lawyer signing a federal court pleading to an

objective standard of reasonable inquiry, a standard simi-

lar to the probable cause inquiry presently required

under Kansas law of malicious prosecution. Nelson v.

Miller, 227 Kan. 271, 607 P.2d 438, 449 (1980); Business

Guides, Inc. v. Chromatic Communications Enterprises, Inc.,

498 U.S. 533, 112 L. Ed. 2d 1140, 119 S. Ct. 922 (1991). In

this case, it is not necessary to deprive Kansas citizens of

their state law remedies for abuse of process and mali-

cious prosecution in order to avoid creating a disincen-

tive for plaintiffs with meritorious antitrust claims.

This Court has clearly rejected federal preemption of

state laws in antitrust cases on the basis of speculative

antitrust claim “disincentives” which are merely inciden-

tal to state law claims. Assuming, arguendo, that there is

any basis for the dubious speculation that plaintiffs with

meritorious antitrust claims will, despite the prospect of

recovering treble damages and attorneys fees, be deterred

by the prospect of state court remedies, it is an insuffi-

cient basis upon which to eliminate state tort remedies.

In California v. ARC American Corporation, 490 U.S. 93,

104 L. Ed. 2d 86, 109 S. Ct. 1661 (1989), this Court held

that state antitrust statutes permitting recovery by indi-

rect purchasers were not preempted by the federal anti-

trust law rule barring indirect purchasers from recovering

damages for violations of federal antitrust laws. Revers-

ing the Ninth Circuit, this Court held that state laws

permitting indirect purchaser recoveries from antitrust

defendants did not pose an obstacle to the accomplish-

ment of the purposes and objectives of Congress even

though the state laws might have an indirect effect on

incentives to bring suit. This Court rejected the reasoning

that allowing state indirect purchaser claims could reduce

the incentives of direct purchaser to bring antitrust

actions by reducing their potential recoveries, that the

presence of indirect purchaser claims would reduce set-

tlement offers to direct purchasers, and that if the total

liability was to exhaust an antitrust defendant's assets,

the direct purchasers would have to share the antitrust

defendant’s estate in bankruptcy with indirect pur-

chasers. This Court stated, in language that is instructive

for the instant case.

Indeed, taken to its extreme, the Court of

Appeals’ logic would lead to the preemption of

any state law claims against antitrust defen-

dants, even if wholly unrelated, because the

presence of other litigation could threaten the

defendants with bankruptcy and reduce their

willingness to settle.

490 U.S. at 104.

This Court rejected the contention that indirect pur-

chasers’ claims under state law should be preempted

because those claims would operate as a disincentive by

reducing the amount that can be paid to direct pur-

chasers. In this case, assuming the prospect of a state

malicious prosecution and abuse of process claim oper-

ates as a disincentive to meritorious federal antitrust

claims, that disincentive is even more de minimis and

remote than the “disincentive” at issue in the California v.

ARC American Corporation case, supra in light of the exis-

ting disincentive under the standards of Federal Rule of

Civil Procedure 11.

Finally, petitioners raise the specter of state court

“collateral attacks” on federal court decisions. This is also

an illusory “risk.” Petitioners seem to suggest that if

respondent is allowed to seek redress under state law for

abuses of a federal antitrust action, there is a risk of

inconsistent results or “interference” with federal anti-

trust law. First of all, by definition, a malicious prosecu-

tion claim cannot be brought until the federal court has

resolved the antitrust claim in favor of the party asserting

the malicious prosecution claim. Therefore, “interference”

is an impossibility. Second, any risk of a Kansas court

reaching a decision inconsistent with a federal court on

an identical issue is illusory in light of Kansas law recog-

nizing collateral estoppel. Bud Jennings Carpets & Drap-

eries, Inc. v. Greenhouse, 210 Kan. 92, 499 P.2d 1096, 1100

(1972).

B. Federal Rule of Civil Procedure 11 Does Not

Preempt State Law Claims for Abuse of Process

and Malicious Prosecution

The Kansas Supreme Court correctly decided that

Federal Rule of Civil Procedure 11 does not preempt state

common-law actions for malicious prosecution and abuse

of process claims that arise out of federal antitrust litiga-

tion. The Kansas Supreme Court correctly recognized that

Federal Rule of Civil Procedure 11 is a procedural tool,

which under the Rules Enabling Act cannot “abridge,

enlarge or modify any substantive right.” 28 U.S.C.

§ 2072. The Kansas Supreme Court also recognized that

the Advisory Committee Notes on the 1993 Amendments

to Federal Rule of Civil Procedure 11 provide:

“Rule 11 is not the exclusive source for control

of improper presentations of claims, defenses, or con-

tentions. It does not supplant statutes permitting

awards of attorney’s fees to prevailing parties or

alter the principles governing such awards. It

does not inhibit the court in punishing for con-

tempt, in exercising its inherent powers, or in

imposing sanctions, awarding expenses, or

directing remedial action authorized under

other rules or under 28 U.S.C. § 1927. See Cham-

bers v. NASCO, 501 U.S. 32, 115 L. Ed. 2d 27, 111

S. Ct. 2123 (1991)... . Finally, it should be noted

that Rule 11 does not preclude a party from initiat-

ing an independent action for malicious prosecution

or abuse of process.” (Emphasis added.)

McShares v. Barry, 266 Kan. 479, 970 P.2d 1005, 1015 (Kan.

1998).

Even before the 1993 revisions to Federal Rule of

Civil Procedure 11 were enacted by Congress, this Court

10

made it clear that Federal Rule of Civil Procedure 11 is

not intended to preempt independent tort law claims. In

Business Guides, Inc. v. Chromatic Communications Enter-

prises, Inc., 498 U.S. 533, 111 S. Ct. 922, 112 L. Ed. 2d 1140

(1991), the appellant Business Guides appealed a trial

court’s order imposing monetary sanctions against it and

dismissing its case for Federal Rule of Civil Procedure 11

violations. Business Guides argued that imposing sanc-

tions under Federal Rule of Civil Procedure 11 violated

the Rules Enabling Act (28 U.S.C.S. § 2072) because it

“effectively creates a federal tort of malicious prosecu-

tion, thereby encroaching upon various state law causes

c* action.” Id. at 551-552. This Court stated, unequivo-

cally, that “Business Guides’ argument that Federal Rule of

Civil Procedure 11 creates a federal common law of mali-

cious prosecution” is “without merit.” 498 U.S. at 553

(emphasis added).

The main objective of the Rule is not to reward

parties who are victimized by litigation; it is to

deter baseless filings and curb abuses. [citation

omitted]. . . . Additionally, we are confident

that district courts will resist the temptation to

use sanctions as substitutes for tort damages.

Id. (emphasis added). No language could be clearer. The

1993 revisions to Federal Rule of Civil Procedure 11 and

the Advisory Committee Notes explaining those revisions

codify the Business Guides’ holding — Federal Rule of Civil

Procedure 11 is not intended to preclude or be a substi-

tute for an independent action for malicious prosecution

or abuse of process.

In Cohen v. Lupo, 927 F.2d 363 (8th Cir. 1991), a case

decided the same year as Business Guides, a 1 which is

11

closely analogous to the instant case, Cohen was sued in

an underlying class action for federal securities fraud.

After four years of discovery, the securities’ claims

against Cohen were dismissed on summary judgment.

Cohen then moved for Federal Rule of Civil Procedure 11

sanctions and the trial court awarded $100,000.00 in mon-

etary sanctions against the Lupo plaintiffs and their attor-

neys. Cohen then filed a separate state law action for

malicious prosecution to recoup the extensive fees and

costs of nearly one million dollars incurred in defending

the securities fraud case. Id. at 364-365. The malicious

prosecution defendants argued that the doctrine of res

judicata, based on the Federal Rule of Civil Procedure 11

sanctions, precluded Cohen’s state action for malicious

prosecution. Id. at 365. The Court rejected Lupo’s argu-

ments holding that “the common law tort of malicious

prosecution is a claim in its own right under applicable

state law.” Id. The Cohen court opined that Federal Rule of

Civil Procedure 11 and the tort of malicious prosecution

differ “in their nature, the elements of the claim, and the

potential remedies.” Id. The court instructed:

[W]hether Lupo & Stemmler acted with malice,

or the amount of damages Cohen suffered as a

result of Lupo & Stemmler’s misconduct [are]

irrelevant under Rule 11, but are the sum and

substance of the tort of malicious prosecution.

The nucleus of operative fact necessary to main-

tain an action for malicious prosecution includes

the conclusion of the underlying action.

Whether Cohen would be victorious in the Bas-

tien litigation could not have been determined

until the conclusion of that case.

Id. at 365.

12

The Third Circuit has also firmly rejected the argu-

ment that a motion under Federal Rule of Civil Procedure

11 preempts a state malicious prosecution action. In Light-

ning Lube, Inc. v. Witco Corp., 4 F.3d 1153 (3rd Cir. 1993),

Witco argued that the district court’s denial of two Fed-

eral Rule of Civil Procedure 11 motions against Witco and

Witco’s counsel, based on Witco’s filing a counterclaim,

barred the jury from inferring any malice in determining

punitive damages in Lightning Lube’s tortious interfer-

ence claim. Id. at 1196. The trial court rejected this argu-

ment and the Third Circuit affirmed holding:

Inasmuch as the denial of a Rule 11 motion does

not foreclose the assertion of a subsequent mali-

cious prosecution suit, [citations omitted], nei-

ther should it automatically prevent an award of

punitive damages predicated on conduct of

which the moving party on the Rule 11 motion

complained.

Id. at 1196. Accord, Amwest Mortg. Corp. v. Grady, 925 F.2d

1162 (9th Cir. 1991) (denial of Federal Rule of Civil Pro-

cedure 11 motion will not support federal court’s enjoin-

ing state malicious prosecution proceeding).

Petitioners argue that Federal Rule of Civil Procedure

11 preempts state law malicious prosecution and abuse of

process claims based on underlying causes of action

wherein the federal courts have exclusive jurisdiction.

Petitioners’ argument is as follows: (1) antitrust is an

exclusively federal action; (2) the issue of whether the

underlying claim was instituted without probable cause

is necessarily a question involving federal law decisions

and (3) therefore, the probable cause issue must only be

13

decided through Federal Rule of Civil Procedure 11 in

federal court.

Petitioners offer no persuasive reason or authority

supporting the conclusion that Federal Rule of Civil Pro-

cedure 11 is the exclusive remedy for frivolous antitrust

federal claims. This Court has consistently held that state

courts may decide questions of federal law. State courts

are quite capable of reviewing and following federal pre-

cedent and do so routinely in nonremovable cases where

federal defenses and counterclaims are asserted. See, Cat-

erpillar, Inc. v. Williams, 482 U.S. 386, 96 L. Ed. 2d 318, 107

S. Ct. 2425 (1987) and Merrell Dow Pharmaceuticals, Inc. v.

Thompson, 478 U.S. 804, 92 L. Ed. 2d 650, 106 S. Ct. 3229

(1986).

In Berz v. Leason, 32 F.3d 422 (9th Cir. 1994) the

defendant in a federal securities action was granted sum-

mary judgment by the federal court. The defendant then

sued the plaintiff for malicious prosecution in state court.

The matter was removed to federal court on the grounds

that since the malicious prosecution claim was based on

an alleged violation of federal law, it presented a federal

question thereby conferring jurisdiction on the federal

court. Although the district court denied the plaintiff’s

motion to remand, the Ninth Circuit reversed, holding

that no federal question jurisdiction existed for three

reasons: (1) the state court need only decide whether the

underlying claim was “legally tenable;” (2) the cause of

action was created by state law, and (3) state law controls

the standard by which the strength of a federal claim in

the underlying action is measured. Berg, 32 F.3d at 423. In

coming to its conclusions, the federal appellate court

14

considered the following arguments raised by the defen-

dant. First, the defendant argued that the state court

would have to analyze federal securities and RICO claims

and whether probable cause supported them, which pre-

sented pivotal and substantial questions of federal law.

Id. at 424. Rejecting this first argument, the court stated:

Berg’s burden is not to show that RICO, or the

securities law, were or were not violated; that, of

course, was favorably determined in the under-

lying action. Rather, “the probable cause ele-

ment calls on the trial court to make an objective

determination of the ‘reasonableness’ of the

defendant’s conduct, i.e., to determine whether,

on the basis of the facts known to the defendant,

the institution of the prior action was legally

tenable.” [citation omitted]. “Legally tenable” is a

low level of generality... .

Berg, 32 F.3d at 424-425. More significantly, the court held

that “how much merit the underlying action must have is

a state-law matter . . . that federal law is not dispositive

because the degree of strength required to put the under-

lying federal claim over the probable cause threshold is

determined by state law.” Id. at 425.

Second, the defendant argued that allowing indepen-

dent state court actions for abusive federal litigation

would inhibit plaintiffs from bringing legitimate actions

under federal law. Id. at 425. The Berg appellate court

rejected this second argument. “We do not see how: Two

federal courts have already determined that Leason’s fed-

eral claims lacked merit. The federal interest, which lies

in providing a forum for the protection of federally-

created rights, has already been served and will not be

15

disserved by a state court determining whether the fed-

eral complaint met the test of being ‘legally tenable.’ ” Id.

at 425.

Finally, the defendant raised a “preemption-like”

argument that since Congress has given the federal court

exclusive jurisdiction over the 1934 Federal Securities

Act, that federal judges know more about the securities

laws than do state judges. Again, the Ninth Circuit

rejected the argument, although acknowledging that fed-

eral judges may have more expertise in the area of the

federal securities law.

State courts resolve matters of federal law in

similar circumstances with no difficulty. ... In

these circumstances state courts directly decide

issues of federal law, yet their capacity to do so

is inherently a part of the well-pleaded com-

plaint rule. [citation omitted] We therefore see

no reason why concern for consistency of fed-

eral law — which animates the doctrine of pre-

emption as well as the doctrine of exclusive

jurisdiction — should convert a state cause of

action with only a tangential federal element

into a substantial federal question.

Berg, 32 F.3d at 426.

Berg makes clear that all the Kansas trial court is

required to do in respondent’s malicious prosecution case

is to make a determination as to whether or not the

underlying federal complaint filed in the Albert City anti-

trust class action was “legally tenable.” This analysis

requires the trial court to determine, on the basis of facts

known by the defendants, whether their actions in initiat-

ing and maintaining the antitrust complaint against

16

plaintiff was “objectively reasonable” under the stan-

dards for probable cause and malice set forth by Kansas

law. “The federal element in an action for malicious pros-

ecution is not substantial when the probable cause thresh-

old is crossed by a legally tenable claim.” Berg, 32 F.3d at

425. Since neither the factual part of the probable cause

element, nor the separate question of malice, turns at all

on federal law, the Kansas trial court is well-qualified to

make the threshold determinations necessary to test the

sufficiency of plaintiff's malicious prosecution and abuse

of process claims and no special expertise in federal

antitrust law is required.

The petitioners primarily cite cases from the bank-

ruptcy arena in support of their argument that Federal

Rule of Civil Procedure 11 preempts state law malicious

prosecution and abuse of process claims. The Kansas

Supreme Court correctly recognized that these cases are

distinguishable. With respect to bankruptcy, the Kansas

Supreme Court correctly noted that unlike federal juris-

diction of antitrust law, federal bankruptcy law preempts

the entire field of bankruptcy.

Congress was charged with establishing

“Uniform Laws on the subject of Bankruptcies

throughout the United States.” U.S. Const., Art.

I, § 8. Thus, it enacted the Bankruptcy Act, 11

U.S.C. § 101 et seq. (1994) and delegated power

to the Supreme Court to prescribe bankruptcy

procedural rules, 28 U.S.C. § 2075 (1994), and

established the system of bankruptcy courts.

Preemption occurs in bankruptcy law because

the Constitution grants Congress plenary

powers over bankruptcies, and the preemption

of the field.

17

McShares v. Barry, 266 Kan. 479, 970 P.2d 1005, 1011

(Kan.1998)

Unlike bankruptcy preemption, this Court has

already decided that federal antitrust laws do not pre-

empt the field. See California v. ARC America Corp., 490

U.S. 93, 104 L. Ed. 2d 86, 109 S. Ct. 1661 (1989).

Similarly, the argument that Federal Rule of Civil

Procedure 11 preempts state malicious prosecution and

abuse of process claims based on Labor Management

Relations Act cases is also flawed. The case of Furillo v.

Dana Corp. Parish Div., 866 F. Supp. 842 (E.D. Pa. 1994) is

distinguishable because it involved the construction of a

collective bargaining agreement, a task which this Court

has previously held must be decided under federal law.

In Local 174, Teamsters, Chauffeurs, Warehousemen and

Helpers of America v. Lucas Flour Co., 369 U.S. 95, 7

L. Ed. 2d 593, 82 S. Ct. 571 (1962), this Court explained

why the meaning given to terms in collective bargaining

agreements must be determined by federal law:

“(T]he subject matter of § 301(a) ‘is peculiarly

one that calls for uniform law.’ . . . The possibility

that individual contract terms might have different

meanings under state and federal law would inevita-

bly exert a disruptive influence upon both the nego-

tiation and administration of collective agreements.

Because neither party could be certain of the

rights which it had obtained or conceded, the

process of negotiating an agreement would be

made immeasurably more difficult by the neces-

sity of trying to formulate contract provisions in

such a way as to contain the same meaning

under two or more systems of law which might

someday be invoked in enforcing the contract.

18

Once the collective bargain was made, the possi-

bility of conflicting substantive interpretation

under competing legal systems would tend to

stimulate and prolong disputes as to it inter-

pretation . . . [and] might substantially impede

the parties’ willingness to agree to contract

terms providing for final arbitral or judicial res-

Olution of disputes” (footnote omitted).

(emphasis supplied). Id. at 103-104.

The existence of the possibility that individual con-

tract terms might have different meanings under state

and federal law is not applicable in this case. Here, the

trial court will be required to ascertain, inter alia, whether

or not the federal antitrust claim was instituted without

probable cause and with malice. While this determination

may require the trial court to determine whether or not

defendants possessed sufficient evidence or information

to support a federal antitrust claim at the time they

instituted their claims, it will not require the trial court to

develop federal antitrust laws different than the body of

law that has been fashioned by the federal courts.

Petitioners cannot cite to even one case holding that

independent tort claims for malicious prosecution or

abuse of process arising from federal antitrust litigation

are preempted by Federal Rule of Civil Procedure 11. The

authorities cited by the petitioners for extending Federal

Rule of Civil Procedure 11’s preemption beyond the

bankruptcy area include two 1987 federal civil rights

cases and a RICO case. East-Bibb Twiggs Neighborhood

Ass'n v. Macon-Bibb Planning & Zoning Commission, 674

F. Supp. 1475 (M.D. Ga. 1987), Great Western Bank v.

Southeastern Bank, 234 Ga. App. 420, 507 S.E.2d 191 (1998)

and Szabo Food Services, Inc. v. Canteen Corp., 823 F.2d 1073

19

(7th Cir. 1987). East-Bibb, Great Western Bank and Szabo

Food are factually and legally distinguishable from this

case.

In East-Bibb, a federal civil rights suit defendant

brought a counterclaim against the plaintiffs for abusive

litigation based on Georgia state law. The district court

dismissed the counterclaim on the basis that the counter-

claim was preempted by the combination of 42 U.S.C.

§ 1988, the Attorney’s Fees Awards Act of 1976 which

allows a “prevailing” civil rights litigant to recover for its

attorney's fees, and by Federal Rules of Civil Procedure

11. Id. at 1476. Without any citation to case authority and

noting that the issue was one of first impression for the

circuit, the East-Bibb court reasoned that by enacting 42

U.S.C. § 1988 and Federal Rule of Civil Procedure 11,

Congress simply preempted the entire area of abusive

claims based upon federal law. Id. at 1476-1477. Unlike

the aggrieved defendant in East-Bibb, respondent

McShares had no similar remedies available to recover its

costs, including its reasonable attorneys’ fees, in defend-

ing the frivolous antitrust litigation brought by the defen-

dants herein. There is no comparable federal statute

allowing prevailing federal antitrust defendants to

recoup their attorneys’ fees, such as the Attorneys’ Fees

Award Act of 1976, 42 U.S.C. § 1988, which is available to

civil rights litigants. Although successful federal antitrust

plaintiffs can recover their costs, including reasonable

attorneys’ fees, 15 U.S.C. § 15, there is no similar statu-

tory remedy for prevailing antitrust defendants. Second,

East-Bibb was analyzed under the 1983 version of Federal

Rule of Civil Procedure 11, which made the award of

20

expenses [including reasonable attorneys’ fees] manda-

tory for Federal Rule of Civil Procedure 11 violations.

. If a pleading, motion or other paper is

signed in violation of this rule, the court, upon

motion or upon its own initiate, shall impose

upon the person who signed it, . . . an appropri-

ate sanction, which may include an order to pay

to the other party or parties the amount of the

reasonable expenses incurred because of the fil-

ing of the pleading, motion, or other paper,

including a reasonable attorney’s fee.

East-Bibb Twiggs Neighborhood, 674 F. Supp. at 1476, n.1

(citing entire text of former Federal Rule of Civil Pro-

cedure 11, 1987 supplement) (emphasis added); accord,

Schrag v. Dinges, 153 F.R.D. 665, 666 (D. Kan. 1994).

Similarly, the Georgia court in Great Western Bank v.

Southeastern Bank, 234 Ga. App. 420, 507 S.E.2d 191 (1998)

did not take into account the 1993 changes to Federal

Rule of Civil Procedure 11. Further, all the cases relied

upon by the Great Western court were decided prior to the

1993 changes to Federal Rule of Civil Procedure 11.

Today, parties such as respondent herein, who are forced

to incur hundreds of thousands of dollars to defend

against the initiation and prosecution of a frivolous civil

antitrust suit, have no guaranteed remedy available

under federal law or federal procedure to recover dam-

ages, including reasonable attorneys’ fees expended in

defense of the frivolous suit. Even if the respondent had

successfully brought a Federal Rule of Civil Procedure 11

motion against the defendants in the underlying federal

antitrust litigation, the federal trial court was required to

follow a policy of applying the least severe sanctions

21

adequate to serve the purpose. Kiser v. Boeing Co., 163

F.R.D. 13 (D. Kan. 1995). Even where the court imposes a

monetary sanction, it should ordinarily be paid into the

Court as a penalty, not paid to the injured party. Thomas v.

Treasury Management Ass'n, 158 F.R.D. 364, 370 (D.C. Md.

1994); Federal Rule of Civil Procedure 11, Notes of 1993

Advisory Committee. Thus, federal antitrust litigants,

unlike civil rights litigants, have no adequate remedy

under federal law or federal procedure; the only adequate

remedy for antitrust defendants to recover their damages,

including attorney’s fees incurred in defending frivolous

federal antitrust lawsuits, is through an independent

state law action for malicious prosecution and abuse of

process.

The petitioners’ reliance on Szabo Foods, supra, is also

misplaced. In Szabo Foods, after a federal civil rights

plaintiff voluntarily dismissed its claims, the defendant

brought a motion under Federal Rule of Civil Procedure

11 for sanctions, including an award of its costs and

attorneys’ fees. The Seventh Circuit held that despite the

plaintiff's voluntary dismissal of its claim, the plaintiff

was still liable for the defendant’s attorneys’ fees as a

sanction under Federal Rule of Civil Procedure 11 for

bringing a frivolous claim. Szabo Foods, 823 F.2d at 1084.

Szabo Foods is factually distinguishable from the case at

hand because it did not involve an independent state law

claim for malicious prosecution or abuse of process. The

case does not even discuss whether Federal Rule of Civil

Procedure 11 motions preempt state law claims for abu-

sive litigation. Instead, the Szabo Foods court analyzes the

fact that even though the defendant could not bring a

claim under the civil rights Attorneys’ Fees Awards Act

22

of 1976, 42 U.S.C. § 1988, since the plaintiff had volun-

tarily dismissed its suit, Federal Rule of Civil Procedure

11 still provided the defendant with a remedy to recover

its attorneys’ fees. Id. at 1077. Like East-Bibb, the Szabo

Foods court relied on and applied the 1983 version of

Federal Rule of Civil Procedure 11 to the defendant's

arguments, finding that an award of costs, including

attorneys’ fees, were mandatory even against prevailing

parties if the court finds that the claim was frivolous.

Discussing former Federal Rule of Civil Procedure 11’s

mandatory sanctions, the court stated: “This implies that

a court always should be able to award fees, whether the

plaintiff wins, loses on the merits, or dismisses his own

case.” Szabo, 923 F.2d at 1077.

a

23

CONCLUSION

The Petition for Writ of Certiorari should be denied

because the issues raised by petitioners have previously

been resolved by this Court. The Kansas Supreme Court

correctly followed the precedents of this Court and there

is no reason why the Petition merits further review. The

Petition presents no important question of federal law

nor any conflicts among or between the circuit courts of

appeal and state courts of last resort. For the foregoing

reasons, respondent respectfully requests that the Petition

for Writ of Certiorari be denied.

Respectfully submitted,

ARMSTRONG TEASDALE, LLP

THomas M. BrapsHAw KS 16867

(Counsel of Record)

JENNIFER P. Kyner KS 18107

2345 Grand Boulevard, Suite 2000

Kansas City, MO 64108

Telephone: (816) 221-3420

Telecopier: (816) 221-0786

J. Stan Sexton, Esa.

Hampton, Royce, ENGLEMAN & NELSON

Ninth Floor United Building

119 West Iron

Salina, KS 67402-1247

Telephone: (785) 827-7251

Telecopier: (785) 827-2815

Counsel for Respondent

McShares, Inc. d/b/a

Research Products