A04-2004

A04-2051

Brent A. Johnson, etc.,

Plaintiff,

Robert M. Gardner,

Appellant,

vs.

Jill M. Wright, f/k/a Jill M. Gavle, et al.,

Respondents,

Daniel J. Boivin, et al.,

Respondents.

Filed August 23, 2005

Reversed

Willis, Judge

Dakota County District Court

File Nos. C1-03-9706 & C7-03-10293

Robert M. Gardner, Gardner Law Office, P.O. Box 22071, St. Paul, MN 55122-0071 (attorney pro se)

Richard G. McGee, 8028 Morgan Circle, Brooklyn Park, MN 55444 (for respondents Jill M. Wright, et al.)

Charles E. Lundberg, Bassford Remele, P.A., 33 South Sixth Street, Suite 3800, Minneapolis, MN 55402-3787 (for respondents Daniel J. Boivin, et al.)

Considered and decided by Willis, Presiding Judge; Klaphake, Judge; and Shumaker, Judge.

U N P U B L I S H E D O P I N I O N

WILLIS, Judge

In this appeal from an imposition of sanctions for violations of Minn. R. Civ. P. 11.02, appellant argues that the district court abused its discretion by imposing sanctions without providing appellant with an opportunity to withdraw the offending claims. Because the sanctions imposed violate the Minnesota Rules of Civil Procedure, we reverse.

FACTS

In 1994, Money Changer LLC financed respondent Jill Wright’s lawsuit against her former employer. Throughout the litigation, Money Changer assisted Wright with her litigation and personal expenses, and, in 1999, Wright signed a promissory note payable to Money Changer in the amount of $140,000, with an annual interest rate of 4%. Brent Johnson, the sole owner of Money Changer, assigned the note to himself. Wright also assigned to Johnson 27.67% of any recovery she received from the litigation.

In 2000, Wright settled her lawsuit against her employer, and in 2002, Johnson sued Wright to enforce the note and the assignment agreement (Johnson I). The district court granted summary judgment in favor of Johnson, and Wright appealed. This court affirmed summary judgment on the note but reversed summary judgment on the assignment, holding that the assignment was champertous. Johnson v. Wright, 682 N.W.2d 671, 677-78 (Minn. App. 2004), review granted (Minn. Oct. 19, 2004) and appeal dismissed (Minn. Jan. 10, 2005).

In August 2003, Johnson, represented by appellant Robert M. Gardner, commenced another lawsuit (Johnson II) in connection with his financing arrangement with Wright. In Johnson II, he sued Wright and her husband, as well as the attorneys that represented Wright in her lawsuit against her employer and their law firms (the attorney defendants), alleging consumer fraud, conspiracy, breach of contract, breach of implied covenant of good faith and fair dealing, tortious interference, penalties for deceit or collusion, attorney misconduct, conversion, and negligence.

In October 2003, Johnson, again represented by Gardner, commenced a third lawsuit against Wright (Johnson III). Johnson III arose from a fee agreement in which Wright allegedly agreed to pay Duckson & Carlson, LLC one-third of any recovery that she received from an enrollment action that Duckson & Carlson pursued against the Shakopee Mdewakanton Sioux Community on behalf of Wright’s daughter. After the successful enrollment of Wright’s daughter, Duckson & Carlson sought payment under their fee agreement. Duckson & Carlson later was dissolved, and Johnson purchased its interest in Wright’s enrollment action. Johnson, as the successor in interest, sued Wright individually and as the parent of her daughter, alleging fraud, tortious interference, breach of contract, breach of implied covenant of good faith and fair dealing, specific performance, and conversion. In June 2004, Johnson amended the complaint to include DC Dissolved, apparently the successor entity to Duckson & Carlson, as an additional plaintiff. The amended complaint included the attorney defendants and the alleged father of Wright’s daughter as additional defendants. It also alleged claims of penalties for deceit or collusion, attorney misconduct, and conspiracy.

The district court granted summary judgment for the defendants and dismissed Johnson’s claims with prejudice in both Johnson II and Johnson III, determining that Johnson’s claims were unsupported by the facts and were based on erroneous assertions of law. In its order granting summary judgment and dismissing the claims in Johnson III, the district court noted that “[m]ost of the allegations and other factual contentions have no evidentiary support, and are . . . a substantial departure from acceptable litigation conduct.” In that order, the district court gave the defendants in Johnson III “leave to file motions for sanctions” against Johnson and Gardner, and it ordered Johnson and Gardner to appear at a hearing and show cause why they did not violate Minn. R. Civ. P. 11.02. The attorney defendants moved for sanctions against Johnson and Gardner for rule 11 violations in connection with Johnson II and Johnson III.

After the show-cause hearing, the district court issued two orders imposing sanctions against Johnson and Gardner for violations of rule 11. In connection with Johnson II, the district court imposed sanctions against Johnson and Gardner, jointly and severally, awarding Wright and her husband $10,000 and the attorney defendants $5,000 each. In Johnson III, the district court awarded Wright and her husband a $5,000 sanction against Johnson and Gardner, jointly and severally, and the attorney defendants a $14,773.50 sanction against Gardner alone.

Johnson filed notices of appeal in Johnson II and Johnson III, challenging both the dismissal of the claims and the imposition of sanctions. This court consolidated the appeals and construed Johnson’s appeals as having been taken by Gardner as well. The parties settled the appeals in part, and, by order of this court, only Gardner’s challenge of the sanctions imposed on him remains on appeal.

D E C I S I O N

The decision to impose rule 11 sanctions lies within the discretion of the district court, and we will not reverse absent an abuse of that discretion. Gibson v. Coldwell Banker Burnet, 659 N.W.2d 782, 787 (Minn. App. 2003). Gardner argues that the district court abused its discretion by imposing sanctions without providing proper notice that sanctions were being contemplated, denying him the “opportunity to rectify any allegedly sanctionable conduct.”

The district court may impose sanctions against attorneys, law firms, or parties “[i]f, after notice and a reasonable opportunity to respond, the court determines that Rule 11.02 has been violated.” Minn. R. Civ. P. 11.03. Parties may move for sanctions or the district court may, on its own initiative, “enter an order describing the specific conduct that appears to violate Rule 11.02 and directing an attorney, law firm, or party to show cause why it has not violated Rule 11.02.” Minn. R. Civ. P. 11.03(a)(1), (2). If a party moves for sanctions, the motion “shall be served . . . but shall not be filed with or presented to the court unless, within 21 days after service of the motion . . . , the challenged paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected.” Minn. R. Civ. P. 11.03(a)(1). It is not clear from the district court’s orders imposing sanctions whether the sanctions are based on the attorney defendants’ motion or on the court’s own initiative, or both.

It is not clear from the record whether the attorney defendants followed the 21-day safe-harbor provision in rule 11.03(a)(1). But even if they hadfiled their motion for sanctions more than 21 days after serving the motion on Johnson and Gardner, “motions for sanctions brought after the conclusion of the trial must be rejected precisely because the offending party is unable to withdraw the improper papers or otherwise rectify the situation.” Gibson, 659 N.W.2d at 790 (quotation omitted). When the attorney defendants filed their motion for sanctions, the district court had already granted the attorney defendants’ motion for summary judgment and dismissed the claims in both Johnson II and Johnson III; neither Johnson nor Gardner was able to withdraw the claims or rectify the situation. To the extent that the sanctions imposed are based on the attorney defendants’ motion, we conclude that the district court abused its discretion.

But the district court also initiated sanctions as described in Minn. R. Civ. P. 11.03(a)(2). The memorandum attached to the district court’s August 30, 2004 order describes Johnson’s claims in Johnson III as “not warranted by existing law nor by a nonfrivolous argument for the extension of existing law.” It also notes that the claims in Johnson III are the “mirror image” of the claims in Johnson II. The order directed Johnson and Gardner to appear and show cause why the claims were not violations of rule 11.02. But court-initiated sanctions are limited to “directives of a nonmonetary nature [or] an order to pay a penalty into court.” Minn. R. Civ. P. 11.03(b). A district court may impose monetary sanctions payable to a party only on a party’s motion. Id. If the monetary sanctions imposed here are based on the district court’s initiative, they also are an abuse of the district court’s discretion.

Because the attorney defendants’ motion for sanctions was filed after the district court dismissed Johnson’s claims and because the district court may not on its own initiative impose monetary sanctions payable to a party, we conclude that the sanctions imposed by the district court are an abuse of discretion.

Reversed.