Rodriguez O'Ferral v. Trebol Motors Corp.

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 94-1870

                          MANUEL RODRIGUEZ O'FERRAL, ET AL.,

                               Plaintiffs, Appellants,

                                          v.

                          TREBOL MOTORS CORPORATION, ET AL.,

                                Defendants, Appellees.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                     [Hon. Carmen C. Cerezo, U.S. District Judge]
                                             ___________________

                                 ____________________

                                        Before

                                Torruella, Chief Judge,
                                           ___________

                                Boudin, Circuit Judge,
                                        _____________

                         and Boyle,* Senior District Judge. 
                                     _____________________

                                 ____________________

            Luiz G.  Rullan with whom Limeres,  Vergne, Duran &  Rullan was on
            _______________           _________________________________
        brief for appellants.
            Maria del  Carmen Taboas with  whom Fiddler,  Gonzalez & Rodriguez
            ________________________            ______________________________
        was on brief for appellees.

____________________

                                  January 27, 1995 
                                 ____________________

____________________

        *Of the District of Rhode Island, sitting by designation.



Per Curiam.  In  May 1991 Manuel Rodriguez-O'Ferral, his
                 __________

            wife  and their  conjugal  partnership brought  a civil  RICO

            action in  the district court  in Puerto Rico  against Trebol

            Motors Corp.,  which distributes Volvos there.   18 U.S.C.   

            1961 et seq.  Also named were the Swedish manufacturer of the
                 _______

            car, its North American  distributor, and officers of Trebol.

            The  gist  of the  complaint  was a  garden  variety consumer

            deception charge sought to be  brought within RICO by  claims

            that pertinent advertising comprised mail and wire fraud.

                 In brief,  the complaint charged that  Volvo had earlier

            made two  related models, a 240  DL and a more  expensive 240

            GLE with additional  features; that in 1984  Volvo had ceased

            to  make (or  at least to  export to Puerto  Rico) the latter

            model; that Trebol  had thereafter ordered the  DL model with

            extra features  and attached its  own GLE badge;  that Trebol

            had advertised these  cars as GLEs;  that the added  features

            cost Trebol significantly less than  its mark-up over the  DL

            price; and that  Rodriguez and  his wife had  been duped  and

            injured when in 1986  they had brought one of  these upgraded

            DLs under the impression that it was a factory made GLE.

                 None of  the advertisements cited by  the plaintiffs had

            occurred until  after plaintiffs  bought their own  car; but,

            framing  the RICO suit as a  class action on behalf of 15,000

            customers allegedly so deceived, plaintiffs' counsel asserted

            that this  did  not  matter.   The  complaint  sought  treble

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damages,  as permitted by RICO, 18 U.S.C.   1964(c); given an

            alleged $5,000 loss  per customer, this brought the  total ad
                                                                       __

            damnum to $225  million.   The complaint was  signed by  Jose
            ______

            Quetglas Jordan, one of the plaintiffs' attorneys.

                 The district  court ordered  the plaintiffs to  submit a

            "RICO case statement," which sets forth answers to a standard

            questionnaire  that the  court  by  standing order  routinely

            employed in civil RICO  cases.  See Miranda v.  Ponce Federal
                                            ___ _______     _____________

            Bank, 948  F.2d 41, 44  n.3 (1st Cir.  1991).  The  filing is
            ____

            intended to adduce the specifics that underlie general claims

            of  RICO misconduct.   In  this instance,  the filing--signed

            both  by Quetglas  and by  co-counsel Luis  Rullan Marin--was

            extensive but it failed  substantially to bolster the general

            claims of fraud.

                 In  particular,  there  was   nothing  even  by  way  of

            allegation  to  show  that  the features  added  at  Trebol's

            request  were fewer than,  or inferior  to, those  that Volvo

            ordinarily  supplied in  its GLE  car.   It was  alleged that

            Trebol  represented  the  cars  as  factory-made,  but  those

            allegations  were not borne  out by the  advertisements.  The

            case statement did  not point to any  other express statement

            in the advertising alleged to be false.  Nor were there other

            allegations of fact from which fraudulent intent could easily

            be inferred.  

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The district court then  dismissed the case, ruling that

            no RICO claim had been  set forth, Fed. R. Civ.  P. 12(b)(6),

            and  that the plaintiffs had failed to alleged fraud with the

            required particularity, Fed. R.  Civ. P. 9.  On  appeal, this

            court affirmed  in a unpublished per  curiam opinion; without
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            resolving plaintiffs' standing, we  held that in this context

            mere nondisclosure, absent some affirmative misrepresentation

            or a  special  duty of  disclosure,  does not  comprise  RICO

            fraud.   Rodriguez O'Ferral v.  Trebol Motors Corp.,  No. 92-
                     __________________     ___________________

            2303,  slip op. at 8-9 (1st Cir., July 9, 1993) (citing cases

            from other circuits).

                 While  the appeal  was  pending,  defendants  moved  for

            sanctions against plaintiffs' attorneys under Fed. R. Civ. P.

            11  for  filing  a groundless  action.    Finding  a lack  of

            reasonable inquiry, the  court awarded the defendants  $8,000

            as  attorney's fees as a  sanction.  Independently, the court

            awarded  the defendants costs in the amount of $3,973.40.  On

            this  appeal, Rullan  disputes the  award of  attorney's fees

            against  him as to both basis and amount (co-counsel have not

            appealed).  The award of costs is also challenged.

                 Starting with the  sanction, we think it  plain that the

            plaintiffs' suit was extremely thin.  The question whether it

            was so thin as to warrant sanctions is, as is typical in Rule

            11 matters,  a "judgment call,"   Anderson v.  Beatrice Foods
                                              ________     ______________

            Co., 900 F.2d 388, 394 (1st Cir.), cert. denied, 498 U.S. 891
            ___                                ____________

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(1990),  ordinarily  reviewed only  for abuse  of discretion.

            Kale v. Combined  Ins. Co.,  861 F.2d 746,  757-58 (1st  Cir.
            ____    __________________

            1988).    Still, there  may be  a  determination of  law that

            underpins an award  of sanctions, and  Rullan raises such  an

            issue here.

                 Pointing out that he did not sign the  complaint, Rullan

            says that the  only pleading to which he  is connected is the

            RICO case statement.   This case statement, he says,  did not

            institute the  action or amend  the complaint; the  fault, if

            any, is with the original complaint;  and to impose sanctions

            on  him  is   therefore  to  impose  on  him   a  "continuing

            obligation" to assure that a case does not continue unless it

            is  well  grounded.   Although  this  court used  "continuing

            obligation" language  in Cruz  v. Savage,  896 F.2d  626, 630
                                     ____     ______

            (1st  Cir.   1990),  Rullan  says  that   the  Fifth  Circuit

            precedents relied on in Cruz have been overruled and that all
                                    ____

            other circuits reject the continuing obligation theory.1

                 Rule 11 is not all of a piece.  Much of  its language is

            directed  to the signing of documents, see Rule 11(a), but at

            least  one sentence  concerns "later  advocating" an  earlier

            filed document.  Rule  11(b).  We have no  occasion to pursue

                                
            ____________________

                 1Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 874-
                  ______    _________________________
            75 (5th Cir. 1988)  (en banc) (rejecting any such  continuing
                                 _______
            obligation); see also Dahnke v. Teamsters Local 695, 906 F.2d
                         ________ ______    ___________________
            1192,   1200-01  (7th  Cir.   1990)  (same);  Corporation  of
                                                          _______________
            Presiding  Bishop of  Jesus  Christ of  Latter-Day Saints  v.
            _________________________________________________________
            Associated Contractors, Inc., 877 F.2d 938, 942-43 (11th Cir.
            ____________________________
            1989) (same), cert. denied, 493 U.S. 1079 (1990).
                          ____________

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the problem in  this case  because Rullan did  sign the  RICO

            case statement  which  effectively reasserted  the  positions

            taken  in the complaint.  Indeed, the intended purpose of the

            case  statement  was  to  flesh  out  and  particularize  the

            complaint; and at  the time that Rullan  placed his signature

            on the  document, the fraud claims  which remained inadequate

            became his own.

                 As  we  have said,  it is  a  judgment call  whether the

            defects  were so severe as  to justify a  court in concluding

            that the assertion of  the RICO claims was done  in bad faith

            or without reasonable inquiry.  Here, other circuits prior to

            the case statement had  already ruled that mere nondisclosure

            in a  context like this one  did not support a  claim of RICO

            fraud; but  we had not  done so  and, if this  were the  only

            flaw, one  might argue about  whether Rullan  was obliged  to

            anticipate our ruling.

                 But  even if  nondisclosure  were here  enough for  RICO

            fraud, nothing  in the case statement here points directly to

            fraudulent intent.  Fraudulent intent is  often easy to infer

            from  an affirmative false statement; but no one could fairly

            infer  fraudulent   intent  merely  from   the  nondisclosure

            attributed to Trebol.  The car did have extra features; as it

            happens they  were installed  in the  Volvo factory;  and the

            central,  identified nondisclosure  appears  to be  that  the

            badge was  added in Puerto Rico.   To say that  the cars were

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not genuine GLEs without  pointing to material differences is

            unpersuasive.

                 As  to  the  amount  of  the  sanction,  admittedly  the

            district court did not explain the basis for the  calculation

            that led to the $8,000 figure.  But the complaint sought $225

            million  for a large class, and  the litigation consumed more

            than  two years and generated  a record that  stands nearly a

            foot  high.    Further,  the  case  statement  was  not  some

            incidental filing--say,  a  dispute about  one deposition  or

            discovery request--but related  to the core  of the case  and

            was a condition of any further proceedings.

                 No one remotely familiar with lawyer fees can doubt that

            the defense  spent vastly more than $8,000 on this case.  The

            district  court  plainly chose  a  figure  that, measured  by

            defense costs,  was practically nominal but  was large enough

            to serve as a warning and deterrent to counsel.  Explanations

            are  always helpful, and  in some  cases explanations  may be

            required for appellate  review of  a Rule 11  award; but  the

            logic  of   the  district   court's  approach  here   is  not

            mysterious, and the  result is well within the  wide latitude

            allowed for remedial judgments.

                 Finally,  we find no error in the award of other defense

            costs  in  the  amount  of $3,973.40,  for  such  matters  as

            photocopying,  translation,  delivery,  and other  logistics.

            Despite plaintiffs' contrary claim, the award was timely even

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though made  after the original judgment;  the district court

            may  wait  until a  judgment  is  affirmed  on appeal  before

            awarding  costs.  See  10  C. Wright  &  A.  Miller,  Federal
                              ___                                 _______

            Practice and Procedure   2668, at 212 (2d Ed. 1983).
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                 Plaintiffs also claim that  because RICO provides for an

            award  of  costs  to  plaintiffs,  18  U.S.C.    1964(c),  it

            implicitly  bars  costs  for  defendants  even  if  elsewhere

            authorized.   We see no basis for  such an implication.  Fed.

            R. Civ. P. 54(d)(1)  allows costs other than attorney's  fees

            to  the prevailing  party as  a matter  of course  unless the

            court directs otherwise; the introductory proviso to the rule

            ("Except when express provision therefor is  made . . .  in a

            statute  of  the  United   States")  might  limit  a  court's

            discretion to deny costs to  a prevailing RICO plaintiff, but

            does not  affect an award  of defense costs--which  RICO does

            not address.

                 It  is  true  that some  of  the  costs  allowed by  the

            district  court went beyond those listed in 28 U.S.C.   1920,

            but a district court has discretion to award costs other than

            those  so enumerated.   Although  this discretion  "should be

            used sparingly"  for such  expenses, Farmer v.  Arabian Amer.
                                                 ______     _____________

            Oil Co., 379 U.S. 227, 235 (1964), we have examined the costs
            _______

            allowed and conclude that there was no abuse of discretion in

            this case.

                 Affirmed.
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