Commercial Litigation and Arbitration

Sanctions — Resort to Inherent Power Error Where Rule 11 Applies — Complaint Barred by Settlement Agreement Violates Rule 11 — Failure to Comply with Safe Harbor Forgiven on Theory of Substantial Compliance

United States v. Rogers Cartage Co., 2015 U.S. App. LEXIS 12927 (7th Cir. July 27, 2015):

The villages of Sauget and Cahokia, Illinois, located along the east bank of the Mississippi River just south of East St. Louis, are home to a three-and-a half-mile storm water conveyance channel known as Dead Creek. The name is morbid, but fitting. For more than a century, the area has been dominated by industrial activity, and for much of that time, Dead Creek was the recipient of a broad array of waste materials, including polychlorinated biphenyls ("PCBs"). Because of its extensive contamination, the creek became the center of a cleanup site designated by the U.S. Environmental Protection Agency ("EPA") as Sauget Area 1. In 1999, the government sued several potentially responsible parties ("PRPs") regarding the cleanup of Sauget Area 1, and many of those PRPs brought contribution claims against one another. One PRP, Rogers Cartage Company, [*2]  settled with the other PRPs, but later it sought contribution from them again via a third-party complaint in a separate action. After that third-party complaint was severed and transferred back to the EPA action, the district court dismissed it and imposed sanctions against Rogers Cartage based on the settlement agreement. Rogers Cartage appeals those decisions, and we affirm.


In the EPA action, MS&P [Monsanto, Solutia, and Pharmacia] moved to enforce the settle-ment [*8]  agreement and dismiss Rogers Cartage's recently transferred third-party complaint. At a hearing on October 15, 2012, the district court orally granted that motion, finding that the settlement agreement unambiguously encompassed claims for cleanup of the Cahokia property. At the end of the hearing, the court asked MS&P's counsel to quickly move for attorney's fees if he intended to do so.

On October 19, 2012, Solutia moved for sanctions against Rogers Cartage, its attorney (Robert Schultz), and Travelers under 28 U.S.C. § 1927, Federal Rule of Civil Procedure 11, and the court's inherent power, seeking $200,000 in attorney's fees. Among other things, Solutia argued that Rogers Cartage's third-party complaint was frivolous because it was plainly barred by the settlement agreement.

On November 14, 2012, the district court granted Solutia's motion for sanctions, reasoning simply that Rogers Cartage "filed a complaint in the face of an unambiguous settlement agreement." The court ordered Rogers Cartage to pay Solutia $200,000 in fees, but it did not impose any sanctions on Mr. Schultz or Travelers. In doing so, the court purported to rely on all three of the bases suggested by Solutia: § 1927, Rule 11, and the court's inherent [*9]  power.



The district [*15]  court granted Solutia's motion for sanctions and ordered Rogers Cartage to pay $200,000 in attorney's fees based on its finding that Rogers "filed a complaint in the face of an unambiguous settlement agreement." In doing so, the court purported to rely on all three of the bases suggested by Solutia: 28 U.S.C. § 1927, Federal Rule of Civil Procedure 11, and the court's inherent power. Under any of these authorities, we review the district court's sanctions order for abuse of discretion. Lightspeed Media Corp. v. Smith, 761 F.3d 699, 708 (7th Cir. 2014) (§ 1927); Tucker v. Williams, 682 F.3d 654, 661 (7th Cir. 2012) (inherent power); Golden v. Helen Sigman & Assocs., Ltd., 611 F.3d 356, 363 (7th Cir. 2010) (Rule 11).

To the extent the court relied on § 1927 in imposing sanctions against Rogers Cartage, it abused its discretion. That statute provides as follows:

Any attorney or other person admitted to con-duct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred be-cause of such conduct.

28 U.S.C. § 1927. Under the statute, sanctions may be levied against an attorney who files a claim that is "without a plausible legal or factual basis and lacking in justification." Lightspeed, 761 F.3d at 708 (quoting Walter v. Fiorenzo, 840 F.2d 427, 433 (7th Cir. 1988)) (internal quotation mark omitted). [*16]  But as MS&P concedes, § 1927 cannot be used to impose sanctions against a party.

MS&P argues that we should remedy the district court's mistake by finding "that the sanction applies to both Rogers and its counsel, and that the division of payment should be left to them." However, the district court's order is not susceptible to such an interpretation. See Memorandum and Order at 3, United States v. Rogers Cartage, No. 3:99-cv-63-GPM (S.D. Ill. Aug. 21, 2013), ECF No. 907 ("Rogers Cartage is ORDERED to pay attorney fees and costs to Solutia, Inc. in the amount of $200,000."). Therefore, we cannot affirm the district court's sanctions order based on § 1927.

The district court also abused its discretion to the extent it relied on its inherent power in sanctioning Rogers Cartage. It is true that "the inherent power of a court can be invoked even if procedural rules exist which sanction the same conduct." Chambers v. NASCO, Inc., 501 U.S. 32, 49 (1991). But "when there is bad-faith conduct in the course of litigation that could be adequately sanctioned under the Rules, the court ordinarily should rely on the Rules rather than the inherent power." Id. at 50. And when the court chooses to exercise its inherent power, it should [*17]  explain "why Rule 11 was inadequate to serve [its] purposes." Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1059 (7th Cir. 1998). In this case, the district court did not explain why exercising the inherent power was necessary. Indeed, it purported to rely on both § 1927 and Rule 11 in addition to the inherent power. And as we will explain, Rule 11 was adequate for the court's purposes. Therefore, we cannot affirm the court's sanctions order based on the inherent power.

The filing of a complaint that is precluded by an unambiguous settlement agreement is conduct that fits squarely within the ambit of Rule 11. Rule 11(b) prohibits the filing of frivolous claims, and when a frivolous claim is made, Rule 11(c)(1) gives the court discretion to "impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation." As discussed above, we agree with the district court that the settlement agreement unambiguously barred Rogers Cartage's third-party claims against MS&P. Therefore, we find no abuse of discretion in the court's conclusion that sanctions were appropriate under Rule 11, and we may affirm the court's sanctions order on that basis.

Rogers Cartage argues that MS&P failed to abide by Rule 11's procedural safeguards, and therefore the [*18]  court erred in imposing sanctions pursuant to that rule. A motion for sanctions under Rule 11 "must be served under Rule 5, but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is with-drawn or appropriately corrected within 21 days after service or within another time the court sets." Fed. R. Civ. P. 11(c)(2). However, we have suggested that strict compliance with this so-called "safe harbor" provision may be excused where there was substantial compliance, where it was im-possible to comply, or where the party against whom sanctions are sought waived compliance. See Methode Elecs., Inc. v. Adam Techs., Inc., 371 F.3d 923, 927 (7th Cir. 2004).

We conclude that MS&P substantially complied with Rule 11's safe-harbor provision in this case. MS&P's motion to dismiss not only contained arguments that Rogers Cart-age's third-party complaint was frivolous, it also included a request for attorney's fees. The only plausible basis for an award of attorney's fees would have been sanctions under one of the authorities discussed above. As a result, Rogers Cartage was on notice that MS&P was requesting sanctions in the form of attorney's fees, and it had more than a month to withdraw its third-party complaint before the district [*19]  court ruled on MS&P's motion to dismiss. In sum, the district court did not commit reversible error in imposing sanctions under Rule 11.

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