Federal Court May Issue Sanctions under State Law for Sanctionable Acts In a State Court Action That Is Later Removed to Federal Court

Doss v. NPC Int’l, Inc., 2012 U.S. App. LEXIS 2762 (5th Cir. Feb. 10, 2012):

The magistrate judge ... imposed sua sponte sanctions against the appellants' attorneys for filing the five lawsuits [in state court arising out of the same incident] because the lawsuits "needlessly increase[d] the cost of litigation" in contravention of Federal Rule of Civil Procedure 11(b)(1). 2010 U.S. Dist. LEXIS 89996, [WL] at *2. The magistrate ordered the appellants' counsel to pay NPC's attorney's fees and appellants' counsel appealed the sanctions order to the district court. Id. The district court affirmed the magistrate's imposition of sanctions but reversed the specific award of attorney's fees, finding that Rule 11 does not authorize a court to grant attorney's fees as part of a sua sponte sanction. 2010 U.S. Dist. LEXIS 89996, [WL] at *4-5.

Moreover, in response to the appellants' counsel's claim that the magistrate judge lacked authority to sanction them for state court filings, the district court stated, in the alternative, that *** it had the authority to apply Mississippi's Rule 11 against the appellants' attorneys. Id.

On remand, the magistrate judge ordered the appellants' attorneys to pay monetary sanctions in the amount of $5,000.00 to the court by October 4, 2010. Doss v. NPC Int'l, Inc., 2010 U.S. Dist. LEXIS 112985, 2010 WL 3950578, at *2 (N.D. Miss. Oct. 7, 2010). Once again, the appellants' attorneys appealed the magistrate's decision to the district court. Id. The attorneys argued that "the court-ordered amount would be a financial hardship on them and their legal practice" and that "the amount could prevent further access to this court for the parties they represent[ed]." Id. The district court affirmed the magistrate's order to pay $5,000.00 in sanctions but reversed the ordered date of payment. 2010 U.S. Dist. LEXIS 112985, [WL] at *3. Instead of requiring payment by October 4, 2010, the district court ordered the appellants' counsel to "tender $5,000.00 on the fifth day following the date of entry of a final order terminating this litigation." Id. ***

The appellants' counsel argues that the magistrate judge and district court lacked the authority to sanction them for improperly filing repetitive lawsuits on behalf of the same plaintiffs in state court, even though the petitions were later removed to federal court. We disagree. The district court had the authority to impose sanctions in the case. However, we reverse and remand because those sanctions should have been imposed in accordance with the law of the state where the pleading was initially filed before the case's removal to federal court.

The appellants cite our decision in Positive Software to support their contention that the federal courts lack the authority to sanction their pre-removal state court conduct. See Positive Software Solutions, Inc. v. New Century Mortg. Corp., 619 F.3d 458 (5th Cir. 2010). In Positive Software, we held that the district court lacked the inherent authority to impose sanctions for conduct committed during a court-ordered arbitration proceeding. Id. at 461. Here, the appellants' reliance on Positive Software is misplaced. The Fifth Circuit has explicitly held that federal courts have the authority to issue sanctions under state law when a party commits a sanctionable act in a state court action that is later removed to federal court. See Tompkins v. Cyr, 202 F.3d 770, 787 (5th Cir. 2000).

We nevertheless hold that the district court abused its discretion when it affirmed the magistrate judge's sanctions pursuant to Federal Rule 11. Our decision in Tompkins established that "the federal rules do not apply to filings in state court, even if the case is later removed to federal court." Id. Instead, state pleading rules apply to cases that are initially filed in state court and later removed to federal court. Id. Thus, the district court abused its discretion by applying an erroneous view of the law when it affirmed the magistrate judge's imposition of sanctions pursuant to Federal Rule 11.

Specifically, the magistrate judge imposed a $5,000.00 sanction under Federal Rule 11 because the appellants' counsel "needlessly increas[ed] the cost of litigation" by filing multiple lawsuits in state court. Doss, 2010 U.S. Dist. LEXIS 89996, 2010 WL 3021533, at *2. The district court affirmed this penalty but reversed the date upon which the $5,000.00 payment would be due to the court. Doss, 2010 U.S. Dist. LEXIS 112985, 2010 WL 3950578, at *3.

We reverse and remand the district court's affirmance because Mississippi Rule 11 does not contain the same breadth as Federal Rule 11. With regard to sanctions, Mississippi Rule 11 states, in pertinent part:

If any party files a motion or pleading which, in the opinion of the court, is frivolous or is filed for the purpose of harassment or delay, the court may order such a party, or his attorney, or both, to pay to the opposing party or parties the reasonable expenses incurred by such other parties and by their attorneys, including reasonable attorneys' fees.

Miss. R. Civ. P. 11(b) (emphasis added). Unlike Federal Rule 11, Mississippi Rule 11 does not provide for sanctions based upon needlessly increasing the cost of litigation. Furthermore, Mississippi Rule 11 requires a determination that the offending pleading be "filed for the purpose of harassment or delay." Federal Rule 11 is broader, proscribing pleadings from "being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation." Fed. R. Civ. P. 11(b)(1) (emphasis added). Thus, on remand, the court must determine whether the appellants' counsel's conduct was sanctionable under Mississippi Rule 11.

Footnote 7. We also note that Mississippi Rule 11 does not explicitly authorize sanctions that are paid directly to the court, such as the $5,000.00 in this case. Instead, the focus of the rule is upon payment of the reasonable expenses of the opposing party.

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