No Fed.R.App.P. 38 Sanctions Absent Separate Motion — § 1927 Sanctions Particularly Apt for Groundless Appeal of Arbitration Award

From Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Whitney, 2011 U.S. App. LEXIS 7041 (10th Cir. April 4, 2011):

Defendants-Appellants Pamela Whitney, the Estate of Mary Whitney, and the Estate of Suzanne Whitney appeal from the district court's order granting plaintiff Merrill Lynch's motion to confirm an arbitration award in this interpleader action. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm the judgment of the district court and grant Merrill Lynch's request for appellate fees and costs pursuant to 28 U.S.C. § 1927. ***

[FRAP 38.]

[Footnote] 6. "A statement inserted in a party's brief that the party moves for sanctions is not sufficient notice" under Rule 38. Fed. R. App. P. 38 advisory committee's notes to 1994 amendments. Instead, "[a] separately filed motion requesting sanctions" is required. Id. Because Merrill Lynch has not filed a separate motion requesting sanctions pursuant to Rule 38, we cannot rely on Rule 38 as a basis for imposing sanctions on Appellants.

[Section 1927 Sanctions for Meritless Arbitration-Related Appeal.]

Although "we do not take sanction decisions lightly," Lewis v. Circuit City Stores, Inc., 500 F.3d 1140, 1153 (10th Cir. 2007), we have emphasized that "[b]ecause arbitration presents a 'narrow standard of review,' Section 1927 sanctions are warranted if the arguments presented are 'completely meritless.'" Id. (quoting Dominion Video, 430 F.3d at 1279). Further, in Lewis, we cited with approval the following statement from the Eleventh Circuit explaining "why the availability of sanctions may be more appropriate in an appeal involving a prior arbitration award":

When a party who loses an arbitration award assumes a never-say-die attitude and drags the dispute through the court system without an objectively reasonable belief it will prevail, the promise of arbitration is broken. Arbitration's allure is dependent upon the arbitrator being the last decision maker in all but the most unusual cases. The more cases there are, like this one, in which the arbitrator is only the first stop along the way, the less arbitration there will be. If arbitration is to be a meaningful alternative to litigation, the parties must be able to trust that the arbitrator's decision will be honored sooner instead of later.

Courts cannot prevent parties from trying to convert arbitration losses into court victories, but it may be that we can and should insist that if a party on the short end of an arbitration award attacks that award in court without any real legal basis for doing so, that party should pay sanctions.

Id. at 1153-54 (quoting B.L. Harbert Int'l, LLC v. Hercules Steel Co., 441 F.3d 905, 913 (11th Cir. 2006)).

Applying the Lewis and Dominion Video standards to this case, we agree with Merrill Lynch that sanctions are appropriate in this appeal. To begin with, it is beyond dispute that the first two issues asserted on appeal by Appellants are "completely meritless." As we have already discussed, neither of those issues were presented by Appellants to the district court, and neither come close to satisfying the narrow, plain-error type standard applicable to issues raised for the first time on appeal. Similarly, Appellants' challenge to the Panel's fee award, though presented to the district court, is meritless. Considering the entire history of this dispute, it is apparent that Appellants and their counsel have, as suggested by Merrill Lynch, adopted the "never-say-die" attitude that we have previously condemned. Indeed, Appellants and their counsel have stubbornly refused to honor the Panel's decision, even though they have no realistic basis for overturning it. Thus, we conclude it is necessary to sanction Appellants' counsel pursuant to § 1927 by directing them to pay Merrill Lynch's appellate fees and costs.

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