STATE OF MINNESOTA
IN COURT OF APPEALS
Susan Ung, as Trustee for the Next-of-Kin
of Chao Tang, Deceased,
Leo Victor Bradley,
Defendant and Third-Party Plaintiff,
Lyon County Cooperative Oil Company,
Ivanhoe Farmers Co-op,
Co Tang Ma, third-party defendant,
Filed June 29, 1999
Affirmed in part and reversed in part
Scott County District Court
File No. 199704925
Sharon L. Van Dyck, Mark G. Gruesner, Schwebel, Goetz & Sieben, P.A., 5120 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for respondent Ung)
William A. Moeller, Dustan J. Cross, Gislason, Dosland, Hunter & Malecki, PLLP, 2700 South Broadway, P.O. Box 458, New Ulm, MN 56073 (for appellant)
Reid R. Lindquist, Lommen, Nelson, Cole & Stageberg, P.A., 1800 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402 (for respondent Co Tang Ma)
Considered and decided by Klaphake, Presiding Judge, Willis, Judge, and Foley, Judge.[*]
Appellant Lyon County Cooperative Oil Company challenges the denial of its motion for sanctions under Minn. R. Civ. P. 11 against respondent Susan Ung, claiming the district court erred in determining that notice to respondent was a precondition to sanctions. Respondent seeks review of the district court's finding that there was no objectively reasonable basis for filing her amended complaint against appellant. We affirm in part and reverse in part.
On August 12, 1997, respondent moved to amend her complaint to include appellant as a defendant in a wrongful-death action, arguing that defendant Leo Victor Bradley, a truck driver, was acting within the course and scope of his employment with appellant at the time of an October 20, 1996, motor-vehicle accident. The district court granted respondent's motion. Appellant then moved for summary judgment, claiming that Bradley was an independent contractor, not its employee, and the district court granted the motion, dismissing appellant from the action.
Following summary judgment, appellant moved for sanctions against respondent under rule 11. The district court found that respondent did not have an objectively reasonable basis for filing the "offensive pleading." But the court denied appellant's motion, concluding that appellant failed to provide proper notice to respondent regarding the possibility of and reasons for such sanctions. This appeal followed.
Every pleading, motion and other paper of a party represented by an attorney shall be personally signed by at least one attorney of record * * * . * * * The signature of an attorney * * * constitutes a certification that the pleading, motion or other paper has been read; that to the best of the signer's knowledge, information and belief formed after reasonable inquiry it 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, and that it is not interposed for any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation. * * * If a pleading, motion or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed it, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion or other paper, including reasonable attorney fees.
Minn. R. Civ. P. 11.
The Minnesota Supreme Court has established minimum procedural guidelines to facilitate an orderly and uniform approach to the imposition of sanctions under rule 11. Uselman, 464 N.W.2d at 143. First, an attorney or party "must have fair notice of both the possibility of a sanction and the reason for its proposed imposition." Id. (citing Donaldson v. Clark, 819 F.2d 1551, 1559-60 (11th Cir. 1987)). This requirement applies to parties intending to seek sanctions. Id. (stating that parties should notify court and other parties with specificity). Second, an attorney or party against whom sanctions are contemplated should have an opportunity to respond to the notice of possible sanctions. Id. at 144.
The supreme court explained that because one of the primary purposes of rule 11 is to deter litigation abuse, notice should be given as early as possible, providing an attorney or party with an opportunity to correct future conduct. Id. at 143 (noting that policy of deterrence is not well served by tolerating abuses and punishing offender at end of trial and that, instead, sanctions should be considered at time of transgression). "Only in very unusual circumstances" may a district court "wait until the conclusion of the litigation to announce that sanctions will be considered or imposed." Id.
Here, although the district court found that respondent did not have an objectively reasonable basis for filing her amended complaint, it also found that appellant failed to provide respondent with proper notice regarding the possibility of and reasons for rule 11 sanctions. Furthermore, the court noted the absence of "very unusual circumstances." Because the court concluded that the Uselman guidelines had not been satisfied and that, therefore, the rule's policy of deterrence would not be served, it denied appellant's motion for sanctions against respondent.
Appellant argues that the district court erroneously read Uselman to require explicit, written notice from a party seeking sanctions. Conceding that it provided no such notice before its motion for sanctions, appellant claims that respondent had implicit notice based on rule 11 itself, citing Donaldson, 819 F.2d at 1560 (providing that rule alone should constitute sufficient notice when attorney is alleged to have submitted complaint without any basis in fact, distinguishing questions of bad faith that may require more specific notice). But the supreme court did not make this distinction in Uselman, and neither this court nor the district court is bound by Donaldson. See Northpointe Plaza v. City of Rochester, 457 N.W.2d 398, 403 (Minn. App. 1990) (recognizing that, with regard to federal decisions, state courts are bound only by decisions of United States Supreme Court), aff'd, 465 N.W.2d 686 (Minn. 1991). But see Uselman, 464 N.W.2d at 142 (stating that, although not binding, cases interpreting federal rule are valuable guides to understanding rule's purpose and application).
Appellant also notes that a court itself may provide sufficient notice to a party or attorney, citing Faribo Oil Co. v. Tatge Oil Co., 501 N.W.2d 699, 702-03 (Minn. App. 1993) (stating that court's pretrial observations, without explicit warning of danger of sanctions, provided sufficient notice to claimants of the risk of going forward with frivolous claim), review denied (Minn. Aug. 24, 1993), and Radloff v. First Am. Nat'l Bank, 470 N.W.2d 154, 159 (Minn. App. 1991) (noting that summary judgment orders, along with other orders denying relief, were ample warning to alert plaintiffs that they could be subject to sanctions), review denied (Minn. July 24, 1991).
Before granting summary judgment, the district court told respondent's counsel that unless he was "able to come up with something very substantial," the court would grant appellant's motion for summary judgment. But the court did not otherwise indicate that respondent was in danger of being sanctioned, and we conclude that the court's comment was not sufficient to put respondent on notice. Instead, appellant's motion for sanctions was the first notice respondent had regarding the possibility of and the reasons for sanctions.
Although the supreme court has not defined the "very unusual circumstances" that would allow a district court to wait until the conclusion of litigation to impose sanctions, the district court concluded that respondent's conduct did not rise to such a level. See Uselman, 464 N.W.2d at 143 (noting exception for "very unusual circumstances"). The supreme court has stated that the abuse-of-discretion standard affords district courts "the flexibility necessary to resolve the initial questions and most readily accomplishes the policy goals of the rule." Id. at 145. From our review of the record, the district court did not abuse its discretion in denying appellant's motion for sanctions against respondent under rule 11.
Respondent claims the district court abused its discretion in finding that she did not have an objectively reasonable basis for filing her amended complaint, arguing that Bradley's deposition provided a reasonable basis to conclude he was an employee of appellant.
Rule 11 embodies an objective standard of reasonableness under the circumstances, and sanctions
should not be imposed when counsel has an objectively reasonable basis for pursuing a factual or legal claim or when a competent attorney could form a reasonable belief a pleading is well-grounded in fact and law.
Id. at 143 (citations omitted). An inquiry under rule 11 includes an examination of the reasonableness of counsel's pre-filing investigation. Id.
In making such an inquiry, district courts may consider
"how much time for investigation was available to the signer; whether he had to rely on a client for information as to the facts underlying the pleading, motion, or other paper; whether the pleading, motion, or other paper was based on a plausible view of the law; or whether he depended on forwarding counsel or another member of the bar."
Id. (quoting Fed. R. Civ. P. 11 1983 advisory comm. note). The district court considered these factors in analyzing the reasonableness of the pre-filing investigation and concluded that respondent did not have an objectively reasonable basis for filing her amended complaint.
But respondent asserts that a district court must review the reasonableness of a pre-filing investigation from the perspective of the moment the challenged pleading was signed, citing ABA Section of Litigation, Standards and Guidelines for Practice Under Rule 11 of the Federal Rules of Civil Procedure, 121 F.R.D. 101, 112 (1988) (stating that courts must strive to avoid wisdom of hindsight in determining whether certification was valid when paper was signed and that all doubts must be resolved in favor of signer). Respondent claims that the district court analyzed the relationship between Bradley and appellant with the advantage of hindsight, improperly relying on information unknown to respondent when her amended complaint was filed.
In moving to amend her complaint to include appellant as a defendant in the wrongful-death action, respondent relied exclusively on Bradley's deposition testimony. Respondent submitted the relevant portions of the deposition transcript, along with a memorandum of law in support of her motion, to the district court. The court, basing its decision on "all the files, records and proceedings," granted respondent's motion. The court's subsequent finding regarding the reasonableness of respondent's pre-filing investigation directly contradicts its decision to grant respondent leave to amend her complaint.
Because the district court analyzed the reasonableness of respondent's pre-filing investigation with the benefit of hindsight, and not based on an objective standard of reasonableness under the circumstances, we conclude that the court abused its discretion in finding that respondent did not have an objectively reasonable basis for filing her amended complaint.
Affirmed in part and reversed in part.
[*] Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.