Ayala v. Hernandez Colon

• Court: Court of Appeals for the First Circuit
• Decided: August 20, 1993
• Docket: 92-2030
• Status: Published

Opinion

USCA1 Opinion

[Systems note: Appendix available from Clerk's Office.]

                            UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT
                                _____________________

        No. 92-2030

                            ROBERTO NAVARRO-AYALA, ET AL.,

                                Plaintiffs, Appellees,

                                          v.

                           RAFAEL HERNANDEZ-COLON, GOVERNOR
                     OF THE COMMONWEALTH OF PUERTO RICO, ET AL.,

                               Defendants, Appellants.

____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

[Hon. Hector M. Laffitte, U.S. District Judge]
                                              ___________________

                                 ____________________

                                        Before

                                 Breyer, Chief Judge,
                                         ___________
                        Torruella and Boudin, Circuit Judges.
                                              ______________

                                 ____________________

            Carlos A. Del  Valle Cruz with  whom Ramirez  & Ramirez, Jorge  E.
            _________________________            __________________  _________
        Perez Diaz,  Secretary of Justice,  Commonwealth of  Puerto Rico,  and
        __________
        Anabelle  Rodriguez, Solicitor General,  Commonwealth of  Puerto Rico,
        ___________________
        were on brief for appellants.
            Carlos Garcia  Gutierrez with whom  Armando Cardona Acaba,  Puerto
            ________________________            _____________________   ______
        Rico Legal Services, Inc.,  and Luis M.  Villaronga were on brief  for
        _________________________       ___________________
        appellees.

____________________

                                   August 20, 1993
                                 ____________________

BREYER, Chief Judge.  Kenneth Colon, an  attorney,
                               ___________

             appeals  a $500  sanction  that the  district court  imposed

             after  finding that he had  violated Rule 11  of the Federal

             Rules of  Civil Procedure.    The district  court based  the

             sanction upon a motion  that Colon signed, on behalf  of the

             Commonwealth of Puerto Rico, which asked the court to reduce

             the compensation paid  to a special master.  After reviewing

             the  motion and the record, we find no violation of Rule 11.

             We conclude that the  sanction is without basis in  law, and

             reverse the order imposing it.

                                          I

                                      Background
                                      __________

                       The  sanction  arose  in  the  context of  lengthy

             litigation seeking  to reform  part of Puerto  Rico's mental

             health system.  See, e.g., Navarro-Ayala v. Hernandez-Colon,
                             ___  ____  _____________    _______________

             956 F.2d 348 (1st Cir. 1992).  In 1974, a  group of patients

             at Rio Piedras Hospital filed suit, claiming that conditions

             there  violated  the federal  Constitution.    In 1977,  the

             district  court entered  a Stipulation,  agreed upon  by the

             parties, which  prescribes  reforms and  sets standards  for

             care and treatment.  In 1985, the district court appointed a

             Special Master  who, assisted  by  a staff,  was to  monitor

             compliance  with the  Stipulation.   In  1987, the  district

court  began to  interpret  the Stipulation  as applying  to

             other hospitals  in Puerto  Rico (at least  insofar as  they

             treated patients transferred from Rio Piedras).  The Special

             Master  began  to  monitor  treatment  conditions  and  seek

             compliance  with the  Stipulation  at, at  least, one  other

             hospital.  

                       In late 1991, this court held that the Stipulation

             applied  only to conditions  at Rio Piedras;  in the court's

             view,  the  parties  had   not  agreed  to  its  application

             elsewhere.  Navarro-Ayala v. Hernandez-Colon, 951 F.2d 1325,
                         _____________    _______________

             1346 (1st Cir. 1991) ("Navarro I"). The court's opinion also
                                    _________

             observed that  Rio Piedras  Hospital seemed  to be  close to

             achieving full compliance with the Stipulation's conditions.

             Id. at 1329  n.3.  About one  month later, in  January 1992,
             ___

             the district  court reappointed the Special  Master, and his

             monitoring staff, to serve until the end of the year.

                       In  February  1992,  the  Commonwealth  filed  the

             motion,  signed by  attorney Colon,  that is the  subject of

             this  appeal.    The  motion  asked the  district  court  to

             reconsider its  January  1992 reappointment  of the  Special

             Master,  to   reduce  the  length   of  the  term   of  that

             reappointment, to reduce the  level of compensation paid the

             Master and his staff, and to relieve the Commonwealth of the

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burden of paying for  a year's worth of  monitoring services

             in advance.  After considering and rejecting the motion, the

             district court decided that its signer had violated Rule 11.

             The  district  court  ordered  a  sanction  of  $500.    The

             sanctioned attorney, Kenneth Colon, now appeals.

                                          II

                             Review of the Sanction Order
                             ____________________________

                       Under  Rule 11  (in relevant part),  an attorney's

             signature on a motion  paper certifies that "to the  best of

             the signer's knowledge, information  and belief formed after

             reasonable inquiry,  [the motion]  is well grounded  in fact

             and  is warranted by existing  law or a  good faith argument

             for the extension, modification, or reversal of existing law

             . . ."   Fed. R. Civ.  P. 11.  The  district court concluded

             that the signer of the motion paper  before us failed in his

             duty  to undertake  reasonable inquiry.   In  reviewing that

             holding,  we  must  take  account of  that  court's  greater

             familiarity with  relevant context, and "apply  an abuse-of-

             discretion standard."  Cooter & Gell  v. Hartmarx Corp., 496
                                    _____________     ______________

             U.S.  384, 399  (1990).   See  also  Muthig v.  Brant  Point
                                       _________  ______     ____________

             Nantucket,  Inc.,  838  F.2d   600,  603  (1st  Cir.  1988).
             ________________

             Applying that standard,  we have found  no lawful basis  for

             applying a sanction in this case.

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                                          4

The reader can most easily understand why we reach

             this conclusion  by examining attorney Colon's motion paper,

             attached to this  opinion as an Appendix.   Just what  is it

             about this paper, one might rightly ask, that would  violate

             Rule 11?  The  document makes three  requests.   First,  the

             motion  asks the  district  court to  reappoint the  Special

             Master to a  term shorter than  an additional (nearly)  full

             year.   It relies on the fact that our then-recent Navarro I
                                                                _________

             opinion  both   1)  limited   the  Stipulation's  scope   to

             conditions at Rio Piedras  Hospital, and 2) referred  to Rio

             Piedras' conditions  as close  to compliance.   In light  of

             those reasons,  the motion asserts that  the Master's duties

             under the Stipulation  may be less  extensive in the  coming

             year than the  district court had previously  thought.  And,

             it  claims   that  the   parties'   briefs  discussing   the

             implications of Navarro I  (scheduled for submission in mid-
                             _________

             March) would clarify the more limited scope  of those future

             duties.

                       Second, the motion asks  the district court not to

             require  the Commonwealth  to "prepay[]"  a year's  worth of

             monitoring services,  for such payment  would be "premature"

             given  that "the need for  and extent of  these services has

             not been defined."  It adds that there "is no reason why the

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                                          5

required  monitoring  services cannot  be  compensated after
             ________

             their  performance .  . . ."   As  authority, it  cites Rule

             53(a) of the  Federal Rules of Civil  Procedure, which gives

             federal  courts  broad  authority  to  structure  a  special

             master's  compensation.     See   Fed.  R.  Civ.   P.  53(a)
                                         ___

             (compensation shall be paid "as the court may direct").

                       Third,   the   motion   opposes   the   rates   of

             compensation for the Special Master  and staff set forth  in

             the court-approved  budget.  The  motion, in an  Appendix A,

             presents   a  chart   which  says,   in  effect,   that  the

             Commonwealth  compensates  its  judges,   inferior  judicial

             officers, and comparable health care personnel at much lower

             rates of  pay.  And the motion,  in referring to Rule 53(a),

             makes clear that  the district court has  wide discretion to

             set the proper amount of compensation.   See Fed. R. Civ. P.
                                                      ___

             53(a) (compensation "shall be fixed by the court").

The  district  court  based its  Rule  11  finding

             primarily  upon  the  motion's  third   request,  seeking  a

             reduction   in  compensation.     The  January   1992  order

             reappointing the Special Master provided for compensation at

             the following hourly rates:

                       Special Master              $100.00 
                       Special Master's assistant    30.00

                                         -6-
                                          6

Psychiatrist                  75.00
                       Psychologist                  75.00
                       Social worker                 60.00
                       Occupational therapist        25.00
                       Quality assurance director    25.00

             The  appellant's  motion in  opposition  set  forth (in  its

             Appendix A) a different  and much lower set of  hourly rates

             at   which,  it  said,   the  Commonwealth  paid  comparable

             employees:

                       Superior Court judge          $27.00
                       Superior Court law clerk       10.00
                       Psychiatrist                   11.20
                       Psychologist                   11.20
                       Social worker                   9.80
                       Occupational therapist          7.90
                       Quality assurance director      7.90

             The district  court took objection to  this latter schedule.

             The  court said that this  schedule did not  reflect the pay
                                                     ___

             that many  health care professionals  in the  Commonwealth's

             employ actually receive.  The court said further  that Colon

             had  failed to make a  reasonable prefiling inquiry into the
                                    ____________________________

             actual pay of such  professionals before suggesting Appendix

             A's pay  scales, which  were "drastically below  the staff's

             current  rates."   These  suggested  pay  scales, the  court

             added, were  "insulting to the professionals  on the Special

             Master's staff."  

                       In  our  view, the  record  does  not support  the

             district court's conclusion that  Rule 11 required  attorney

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                                          7

Colon to make a further inquiry.   For one thing, the object

             of  Rule 11's inquiry  requirement is to  avoid filings that

             are baseless.  See  Fed. R. Civ. P. 11  (signature certifies
                            ___

             that "to the  best of the  signer's knowledge  . . .  formed

             after reasonable  inquiry, [the motion] is  well grounded in
             _________________________                   ________________

             fact and  is warranted" by  law) (emphasis added);  Cooter &
             ____      _____________________                     ________

             Gell, 496 U.S. at 393 ("the central purpose of Rule 11 is to
             ____

             deter  baseless  filings").    Here, the  inquiry  that  the

             district court believed the appellant should have made would

             not  have  shown the  motion  to be  baseless  (i.e. legally
             ___

             unwarranted,  or without  adequate factual  grounding).   It

             would   simply  have   weakened,  without   destroying,  the
                                    ________

             Commonwealth's argument. 

                       More specifically, the inquiry would have shown 1)

             that the motion's Appendix A accurately reflects an official

             Commonwealth pay scale, set by its central personnel agency,

             for  permanent health  care professionals,  but 2)  that the
                  _________

             Commonwealth   hires  many   (perhaps   most)  health   care

             professionals, not as permanent employees, but under special

             contractual arrangements at higher rates.   In light of that

             showing,  the   Commonwealth  might  have   found  it   more

             difficult, but not  at all impossible,  to proceed with  its

             claim for  lower compensation  on the  basis of  Appendix A.

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                                          8

The  legal standards  governing special  master compensation

             leave much to the district court's discretion.  Fed. R. Civ.

             P.  53(a).   And, an  effort to  tie the Special  Master and

             staffs'  compensation more directly to judicial compensation

             and   to   an   "official"   (though   frequently   skirted)

             Commonwealth pay scale is plausible, and within the realm of

             reasonable argument, even if that argument eventually  would

             not  carry the day.  Cf. Newton v. Consolidated Gas Co., 259
                                  ___ ______    ____________________

             U.S. 101, 105 (1922)  (special master's compensation  should

             be  "liberal, but  not exorbitant";  salaries "for  judicial

             officers performing similar duties are valuable guides," but

             a "higher rate of compensation is generally necessary"). 

                       For  another thing, the  motion paper's failure to

             set  forth  a  more  complete account  of  Commonwealth  pay

             practices did not  impose significant additional  costs upon

             the opposing party. See, e.g., Unioil, Inc. v. E.F. Hutton &
                                 ___  ____  ____________    _____________

             Co.,  809 F.2d 548, 557 (9th Cir. 1986) (cost of foreseeable
             ___

             response by  opposing parties relevant for  determining what

             constitutes reasonable inquiry), cert. denied,  484 U.S. 822
                                              ____________

             (1987);  Jerold  S.  Solovy  et al.,  Sanctions  in  Federal
                                                   ______________________

             Litigation    2.04 at  2-18 (1991)  (magnitude of  burden in
             __________

             responding to filing  affects thoroughness of  investigation

             that must  be performed).   That party, the  Special Master,

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                                          9

and the Master's staff, all had ready access to the relevant

             compensation-related facts and quickly  brought them to  the

             court's attention.   Of  course, presenting these  facts did

             cost the opposing party  some time and effort.  But  Rule 11

             normally  does not require one  party to uncover  and to set

             forth the facts that support the other side's  position. Cf.
                                                                      ___

             Continental Air  Lines, Inc. v.  Group Systems International
             ____________________________     ___________________________

             Far East, Ltd., 109  F.R.D. 594, 598 (C.D. Cal.  1986) (Rule
             ______________

             11  does not impose general duty to call all important facts

             to court's attention). 

                       Finally, the  motion, read fairly and  as a whole,

             contains no  significant false statement  that significantly

             harmed the other side.  We emphasize the word  "significant"

             because  the district  court  found one  sentence  literally

             false.  That sentence  says that the "rates of pay"  for the

             Master's  staff "outpace by a factor of  6 or more to 1, the

             rates of  pay  of their  counterparts in  the Public  Health

             System."  This statement is not literally false, if one uses

             the  "official"  pay  scale  for permanent  employees  as  a

             comparison;  in  light of  actual  pay  practices, we  would

             characterize   it   as    "overstatement"   or    "one-sided

             characterization."   But were  it  literally inaccurate,  it

             would   not  matter,   for   Rule   11   neither   penalizes

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                                          10

overstatement  nor authorizes  an overly literal  reading of

             each  factual  statement.   Forrest  Creek  Assoc., Ltd.  v.
                                         ____________________________

             McLean Sav. and Loan Ass'n, 831 F.2d 1238, 1244-45 (4th Cir.
             __________________________

             1987) (Rule 11 "does not extend to isolated factual  errors,

             committed in good faith, so long as the pleading as a  whole

             remains  `well  grounded  in  fact.'");  Gregory P.  Joseph,

             Sanctions: The  Federal Law  of Litigation  Abuse   9(D)  at
             _________________________________________________

             133-34 (1989)  ("The focus of .  . . Rule [11]  is the court

             paper  as  a  whole,  not individual  phrases  or  sentences

             construed separately or  taken out  of context. .  . .  [A]t

             some level of analysis,  every unsuccessful litigation paper

             contains an unsupported allegation or flawed argument").    

The   district   court   provided  several   other

             justifications for  its sanctions.   It said that  Colon, in

             the  motion  paper,  (1)  should  not  have  used  the  word

             "bilking,"  (2)   should  not   have  called   the  payments

             "burdensome" without first investigating the actual "effects

             of these payments on the Department of Health's budget," (3)

             should  not have said the litigation was in the "final stage

             of proceedings" without asking government officials "if full

             compliance  and an  end to this  case were in  fact close at

             hand," and (4) should not have asked to change the budgeting

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                                          11

process without  first finding  out "how the  Special Master

             had been paid in the past."  

                       In our view, these  circumstances do not justify a

             Rule  11  sanction,  whether considered  separately  or  all

             together.    (1)  We  concede that  the  word  "bilking"  is

             pejorative and,  insofar  as it  implies  cheating,  without

             justification.    We also  concede  the  obvious point  that

             argument  made to a  judge is more  appropriate (and usually

             works better)  without pejoratives.  But to find support for

             a  Rule 11 sanction in  appellant's use of  a single, rather

             mild  (albeit  unjustified)  pejorative,   is  to  impose  a

             standard  of perfection  that  few lawyers  or judges  would

             meet.    We  are  not  aware  of  any  reason  or  authority

             suggesting that Rule 11 imposes such a standard.   

(2)   The  motion  paper  does  call  the  Special

             Master's  budget "burdensome,"  but  we  do  not  understand

             where,  or how, Rule 11 forbids such a characterization.  No

             one disputes that the  total amount of the Special  Master's

             court-approved budget  is $171,000.   Nothing in  the record

             suggests   that   the   Commonwealth   found   this   amount

             insignificant;  nor  do  we  understand  either  how further

             consultation   with  government  officials  would  have  led

             attorney Colon  to change  the characterization, or  how the

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                                          12

use of  the word "burdensome" made  a significant difference

             to the litigation.

                       (3) Neither do we understand  how, or why, Rule 11

             would forbid  attorney Colon to characterize  the litigation

             as  in  the "final  stage of  proceeding."   Our  opinion in

             Navarro I  curtailed the scope  of the Stipulation  and also
             _________

             observed that "conditions"  at Rio Piedras may be "largely .

             .  . in compliance."   The motion paper  made clear that the

             Commonwealth  would soon  file a  brief arguing in  favor of

             significantly  limiting  the  Special   Master's  monitoring

             activity.    Thus  the  statement  seems  to  amount  to  an

             argument, reasonable  in its  context, that might,  or might

             not, help convince a court.  The record does not  make clear

             how  further   "inquiry"   or  further   consultation   with

             government officials  would have shown the  argument to have

             lacked adequate "ground[ing] in fact." 

                       (4)  We agree  with  the district  court that  the

             motion  paper, in  requesting that  "monitoring services  be

             compensated after their performance," does  not take account

             of the fact  that the current budgeting system  provided for

             disbursement of  budget funds  (on a  monthly basis)  to the

             Special   Master   only   after   he   performed   services.
                                       _____

             Nonetheless,  we  do  not  see  how  the  motion's  possible

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                                          13

misstatement can justify  a sanction.   Read fairly, and  in

             context, the paper's request indicates that the Commonwealth

             objected  to  having  to  budget   for  a  year's  worth  of

             monitoring  services in  advance, a  portion of  which might
                                  ___________

             turn  out to have been  unnecessary.  At  worst, the paper's

             statement  reflects a minor,  technical confusion  about the

             budgeting process, and one  which apparently caused no harm.

             (After all, the opposing party, the Special  Master, and the

             court,  all  understood,  and  could  readily  explain,  how

             current budgeting  worked.)   See Forrest  Creek Associates,
                                           ___ __________________________

             Ltd.,  831 F.2d at 1244-45; Joseph, Sanctions   9(D) at 133-
             ____                                _________

             34. 

In sum,  the district  court, at most,  could have

             found a  few isolated  instances  of noncritical  statements

             that further inquiry  might have shown  to be inaccurate  or

             overstated.  That further inquiry  would not have shown  the

             motion's requests  to have been  baseless.  And,  failure to

             make that inquiry  did not  unfairly impose  upon the  other

             party some  special litigation  cost or burden.   This  case

             differs significantly from the kinds  of cases in which this

             court has upheld  a district court's  imposition of Rule  11

             sanctions.   Cf.  Muthig,  838 F.2d  at  605 (no  reasonable
                          ___  ______

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                                          14

inquiry  where  counsel  could  have  readily  learned  from

             clients  facts  that  would   have  shown  their  claim  for

             intentional   infliction   of   emotional  distress   lacked

             validity); Ryan v. Clemente, 901 F.2d 177, 179-81 (1st  Cir.
                        ____    ________

             1990)  (sanctioning harmful allegation  that state officials

             failed to investigate illegal scheme where  available record

             showed  the contrary); Cruz v.  Savage, 896 F.2d 626, 632-34
                                    ____     ______

             (1st  Cir.  1990)  (sanctioning  attorney  for  unreasonably

             bringing and  pursuing nine frivolous claims, including some

             with either no supporting  evidence or where record directly

             contradicted claim); Bay State  Towing Co. v. Barge American
                                  _____________________    ______________

             21, 899 F.2d 129, 131 (1st Cir. 1990) (no reasonable inquiry
             __

             where extensive  record contains  nothing to suggest  why or

             how a person could have believed most of filing's claims).We

             do not see  how the district court  could find a failure  to

             undertake the  "reasonable inquiry"  that Rule 11  requires.

             The order of the district court is

                       Reversed.
                       ________

NOTE:  See Slip Opinion for copy of Appendix.

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