In re Sanction of Berman [1996] FMSC 16; 7 FSM Intrm. 654 (App. 1996) (18 December 1996)

FEDERATED STATES OF MICRONESIA
SUPREME COURT APPELLATE DIVISION
Cite case as In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654 (App. 1996)

IN RE SANCTION OF MARY BERMAN,
Appellant.

__________________________________________

APPEAL CASE NO. P4-1996

BEFORE:

Hon. Richard H. Benson, Associate Justice, FSM Supreme Court
Hon. Martin G. Yinug, Associate Justice, FSM Supreme Court
Hon. Ramon G. Villagomez, Temporary Justice, FSM Supreme Court*

*Associate Justice, Supreme Court of the Commonwealth of the Northern Marianas Islands

OPINION

Argued: September 18, 1996
Decided: December 18, 1996

APPEARANCE:

For the Appellant:
Mary Berman, Esq., pro se
P.O. Box 163
Kolonia, Pohnpei FM 96941

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HEADNOTES

Appeal and Certiorari - Decisions Reviewable; Civil Procedure - Sanctions
A sanction against an attorney who is not a party to the underlying case is immediately appealable if the sanctioned attorney proceeds under her own name and as the real party in interest. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654, 656 (App. 1996).

Appeal and Certiorari - Standard of Review
Rule 11 sanction orders are reviewed under an objective abuse of discretion standard. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654, 656 (App. 1996).

Civil Procedure - Sanctions
Rule 11 requires that an attorney undertake a reasonable inquiry before signing to determine whether a pleading, motion, or other paper is well-grounded in fact and warranted either by current law, or a good faith argument of what the law ought to be. A purely frivolous, though good faith, argument is sanctionable. A reasonable inquiry means an inquiry reasonable under all the circumstances of the case. An attorney whose answer copied the list of affirmative defenses directly from Civil Rule 8(c), giving no thought to the applicability of any one defense to the particular facts or issues of the case, has not made a reasonable inquiry. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654, 656-57 (App. 1996).

Civil Procedure - Frivolous Actions; Civil Procedure - Sanctions
A litigant pleading non-frivolous along with frivolous claims cannot expect to avoid all sanctions under Rule 11 merely because the pleading or motion under scrutiny was not entirely frivolous. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654, 657 (App. 1996).

Civil Procedure - Pleadings
Counsel does not risk waiver of affirmative defenses if she does not list them immediately because additional time may obtained in which to respond to a complaint, or after an answer is filed the answer may be amended within twenty days without leave of court. If pretrial investigation and discovery uncovers an unanticipated defense, a defendant can move to amend the pleading, for which leave will be freely given when justice so requires. Finally, the pleadings do not necessarily bind the parties because issues not raised in the pleadings may be tried by the paries' express or implied consent. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654, 657 (App. 1996).

Appeal and Certiorari - Decisions Reviewable; Civil Procedure - Sanctions
An objection to the amount of a monetary sanction cannot be raised for the first time on appeal. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654, 658 (App. 1996).

Civil Procedure - Sanctions
A sanction of $135 is not an abuse of discretion because it is presumptively within the ability of an attorney in private practice to pay. In re Sanction of Berman[1996] FMSC 16; , 7 FSM Intrm. 654, 658 (App. 1996).

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COURT'S OPINION

MARTIN G. YINUG, Associate Justice:

The only issue presented in this appeal is whether the trial court erred in sanctioning the appellant for her failure to conduct the reasonable inquiry required by FSM Rule of Civil Procedure 11 before pleading her clients' affirmative defenses. We affirm the award of sanctions.

I.

A group of Filipino construction workers living on Pohnpei filed a complaint and various motions against their employer, Micro Customize Construction ("MCC"), its owner, Bismarck Weilbacher, and others. The plaintiffs alleged breach of contract, and sought legal and injunctive relief. Weilbacher and MCC retained Mary Berman to represent them. Berman obtained an enlargement of time in which to respond to the complaint, then signed and filed an Answer and Counterclaims. The Answer contained the following paragraph 14:

As affirmative defenses, the defendant alleges accord and satisfaction, arbitration and award, assumption of risk, contributory negligence, discharge in bankruptcy, duress, estoppel, failure of consideration, fraud, illegality, injury by fellow servant, laches, license, payment, release, res judicata, statute of frauds, statute of limitations, waiver, and any other matter constituting an avoidance or affirmative defense.

The plaintiffs moved to strike paragraph 14, and for sanctions pursuant to Rule 11, arguing that Berman had made no attempt to analyze the affirmative defenses to see if there was a legal or factual basis for asserting any of them. In opposing the motion, Berman stated that at the early stage of litigation it was not possible for her to determine whether an affirmative defense may exist. She then made arguments on how some of the asserted defenses might be applicable.

The trial court struck paragraph 14 and levied sanctions:

The Court finds that Ms. Berman, counsel for the defendants, has violated Rule 11 by certifying with her signature that defendants' affirmative defenses are well-grounded in fact and warranted by existing law, or a good faith argument for the extension or modification of existing law. It is plain that counsel failed to conduct the reasonable inquiry required by Rule 11 before pleading defendants' affirmative defenses, and for that reason, the Court finds that sanctions are warranted.

The trial court granted the requested monetary sanction of $135.^[1] The trial court also ordered that Berman submit memoranda explaining in general each of the nineteen affirmative defenses asserted in the stricken paragraph. No hearing was held before the sanction was levied, although plaintiffs' new counsel requested rulings on all pending motions at an in-chambers status conference Berman attended.

II.

A. Appellate Jurisdiction

The only other case in which we reviewed a Rule 11 attorney sanction followed a final decision at the trial level. Berman v. Kolonia Town, [1994] FMSC 16; 6 FSM Intrm. 433 (App. 1994). The posture of this case is different. Berman has taken an immediate appeal from an ongoing case before the Trial Division. We therefore consider first our jurisdiction.

Appellate Division jurisdiction to hear this appeal exists under FSM Rule of Appellate Procedure 4(a)(1)(E), which allows appeals to be taken in any other civil case in which an appeal is permitted as a matter of law. See Damarlane v. United States, [1995] FMSC 35; 7 FSM Intrm. 202, 204-05 (App. 1995). In the United States, federal circuit courts of appeal allow for the immediate appeal of orders of sanctions against attorneys who are not parties to the underlying case, frequently citing the collateral order doctrine. See, e.g., Frazier v. Cast, [1985] USCA7 867; 771 F.2d 259, 261-62 (7th Cir. 1985). Such an order is immediately appealable, but only if the sanctioned attorney proceeds, as Berman has here, under her own name, and as the real party in interest. See, e.g., Federal Trade Comm'n v. Amy Travel Serv., Inc., [1989] USCA7 339; 894 F.2d 879, 881 (7th Cir. 1989).

B. Standard of Review

We review Rule 11 sanction orders under an abuse of discretion standard. Berman v. Kolonia Town, 6 FSM Intrm. at 435. We also use an objective standard, rather than assessing an attorney's subjective intent. Id. United States cases construing sanctions under the counterpart to the FSM Rule 11 may be used when there is no FSM law on point. Id. at 435 n.1.

C. Reasonable Inquiry

Rule 11 requires that an attorney undertake a reasonable inquiry before signing to determine whether a pleading, motion, or other paper is well-grounded in fact and warranted either by current law, or a good faith argument of what the law ought to be. Berman v. Kolonia Town, 6 FSM. Intrm. at 435. A purely frivolous, though good faith, argument is sanctionable. Id. A reasonable inquiry means an inquiry reasonable under all the circumstances of the case. Cooter & Gell v. Hartmarx Corp., [1990] USSC 100; 496 U.S. 384, 401[1990] USSC 100; , 110 S. Ct. 2447, 2459[1990] USSC 100; , 110 L. Ed. 2d 359, 379 (1990).

Under this standard, we find no error in the trial court's ruling sanctioning Berman for signing and filing an answer containing the stricken paragraph. The trial court was justified in finding that defendants' counsel lifted the list of affirmative defenses directly from Rule 8(c) of the FSM Rules of Civil Procedure and gave no thought to the applicability of any one defense to the particular facts or issues presented in the case. Berman admitted as much in her opposition papers. The lack of inquiry was unreasonable under the circumstances of this case.

The appellant makes the same argument on appeal that she did before the trial court, that she can posit how some of the affirmative defenses might be applicable. In support of her argument, the appellant cites three U.S. Ninth Circuit decisions: Partington v. Gedan, [1992] USCA9 1922; 961 F.2d 852 (9th Cir. 1992); Romero v. Pomona, 883 F.2d 1418 (9th Cir. 1989); and Murphy v. Business Cards Tomorrow, Inc., [1988] USCA9 845; 854 F.2d 1202 (9th Cir. 1988). Together, these decisions consider the applicability of Rule 11 sanctions by viewing the pleading as a whole. Berman argues that the sanction is unfounded when only part of the pleading may be considered frivolous.

Neither Murphy nor Romero are good law after the en banc decision in Townsend v. Holman Consulting Corp., 914 F.2d 1136, 1141 (9th Cir. 1990), specifically overruled them. The Ninth Circuit held that pleading non-frivolous along with frivolous claims does not constitute a complete defense to sanctions. Id. at 1141-43. "A litigant cannot expect to avoid all sanctions under Rule 11 merely because the pleading or motion under scrutiny was not entirely frivolous." Melrose v. Shearson/American Express, Inc., [1990] USCA7 467; 898 F.2d 1209, 1215 (7th Cir. 1990) (emphasis in original).^[2] We believe the Townsend decision more persuasive and adopt its reasoning.

We do not accept the appellant's argument that prudent defense counsel should list every affirmative defense or risk waiver. First, Berman obtained without objection additional time in which to respond to the Complaint. Second, even after filing an answer, a defendant has an additional twenty days in which to amend without leave of court. FSM Civ. R. 15(a). If prudent counsel was concerned that certain defenses could have been missed, she could have used that additional twenty days to make the reasonable inquiry as to their applicability. Likewise, if discovery and pretrial investigation uncovers an unanticipated defense, a defendant can move for leave to amend the pleading, "and leave shall be freely given when justice so requires." Id. Unanticipated affirmative defenses are protected by Rule 15(a). Bobbit v. Victorian House, Inc., 532 F. Supp. 734, 736 (N.D. Ill. 1982).

Finally, the pleadings do not necessarily bind the parties. Issues not raised in the pleadings may be tried by the express or implied consent of the parties. FSM Civ. R. 15(b). Berman's shotgun defense of asserting all nineteen listed affirmative defenses abused the notice requirements of the Rules of Civil Procedure. We find disingenuous appellant's argument that prudence dictated pleading all the affirmative defenses.

D. Monetary Sanction

Berman also argues that the trial court abused its discretion in levying a monetary sanction without determining her ability to pay.^[3] It does not appear that the issue was raised before the trial court. Berman did not object to the requested monetary sanction before the trial court granted the Rule 11 motion. Likewise, there was no specific objection afterwards. The appellant's only cited evidence of financial hardship is Berman's affidavit in support of her motion to withdraw as counsel of record filed 28 days after the imposition of the monetary sanction, and designated by her as a "Court-Ordered Motion." An objection to the amount of a monetary sanction cannot be raised for the first time on appeal. Traina v. United States, [1990] USCA5 1942; 911 F.2d 1155, 1158 (5th Cir. 1990). We therefore hold that the issue of monetary sanctions was not raised in the Trial Division or preserved for appeal. Loney v. FSM, [1987] FMSC 8; 3 FSM Intrm. 151, 154 (App. 1987).

Even if the issue were raised, we would not be compelled to reverse. We find no abuse of discretion in levying a monetary sanction of $135. Such an amount is presumptively within the ability of an attorney in private practice to pay. As noted earlier, the trial court denied the plaintiffs' request for an additional $405 in monetary sanctions. We also note that the sanction in appellant's only cited authority on this point was $25,000. Doering v. Union County Bd. of Chosen Freeholders, 857 F.2d 191, 192 (3d Cir. 1988). There was no abuse of discretion in levying a monetary sanction of $135.

We affirm the trial court's sanction.

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^[1] The trial court granted plaintiffs' motions to strike other portions of the Answer and Counterclaims, but did not levy the additional requested sanction of $405.

^[2] In Partington, only a minor part of the pleadings were arguably frivolous. Partington, 961 F.2d at 866.

^[3] The appellant does not raise a specific objection to the remaining portion of the sanction, the nineteen one-page memoranda. United States courts have imposed educational, non-monetary sanctions. 5A CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 1336, at 43 (Supp. 1995).