# Opposition Brief — Barry v. McShares, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1999
- **Citation:** 526 U.S. 1158

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386018_1456%3A2. Public record. Not legal advice.