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Magnus Electronics Inc. v. Masco Corp.

decided: March 22, 1989.

MAGNUS ELECTRONICS, INC., PLAINTIFF,
v.
MASCO CORPORATION OF INDIANA, AN INDIANA CORPORATION; R.T.D. CORP., AS SUCCESSOR IN INTEREST TO BROWNING COMMUNICATIONS, INC. AND BROWNING COMMUNICATIONS, INC., BOTH ILLINOIS CORPORATIONS; AND A. N. FISCHER, AN INDIVIDUAL, DEFENDANTS-APPELLEES. APPEAL OF: SCOTT BRAINERD AND BRAINERD & BRIDGES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 85 C 0494--Brian Barnett Duff, Judge.

Bauer, Chief Judge, Wood, Jr., and Flaum, Circuit Judges.

Author: Wood

WOOD, JR., Circuit Judge.

This is a case in which the dispute between the attorneys has outlasted the underlying legal claims. The district judge imposed sanctions pursuant to Rule 11 and Rule 37 of the Federal Rules of Civil Procedure on counsel for Magnus Electronics, Inc. (Magnus) after a long history of friction between opposing counsels. Counsel for Magnus appeals. We affirm the district judge's sanction of $6,631.13 in attorneys' fees but vacate the district judge's decision to add $1,000 to the amount of attorneys' fees requested.

I. FACTS

This appeal has a convoluted past that we will describe in some detail. Defendant-appellee Masco Corporation of Indiana (Masco), a secured creditor of defendant Browning Communications, Inc. (Browning), seized certain inventory possessed by Browning when it became apparent to Masco that Browning was facing financial difficulties. Plaintiff Magnus promptly complained that some of the inventory seized by Masco actually belonged to Magnus. Masco and Magnus began to negotiate the return of that portion of the inventory that belonged to Magnus. Eventually, Magnus signed a release in exchange for the return of the inventory. Dissatisfied with the goods as returned to it, however, Magnus later claimed that Masco secured the release through fraud and duress. Magnus's counsel, Andrew and Scott Brainerd (the Brainerds),*fn1 filed a complaint which alleged that the release was void and that Masco was liable to Magnus for damages resulting from Masco's possession of the inventory.

During a preliminary hearing to establish a discovery schedule, Masco raised the issue of whether the Brainerds should withdraw as Magnus's counsel because the Brainerds helped to negotiate the terms of the release agreement in dispute. The Brainerds claimed that they did not negotiate the release for Magnus and did not intend to act as witnesses if the matter went to trial. Faced with a withdrawal problem and counsel who were reluctant to withdraw, the magistrate*fn2 ruled that the Brainerds could continue representing Magnus, at least temporarily, but also invited the Brainerds to suggest a solution to the withdrawal problem. This set the stage for what transpired next in the district court.

Apparently attempting to remedy the withdrawal problem by deleting references to its counsel in the pleadings, Magnus brought a motion to amend its complaint before the district judge. The district judge sensed, however, that the substantive withdrawal problem remained unresolved and questioned whether he could rule on Magnus's motion if the withdrawal issue remained before the magistrate. Scott Brainerd argued that the magistrate had definitively ruled on the withdrawal issue in Magnus's favor, but Masco's counsel stated that Masco had a pending request to depose the Brainerds to determine whether they were involved in the release negotiations. The district judge, perplexed by the magistrate's conflicting orders and counsels' arguments, ordered the attorneys to wait until he heard the other motions before him that morning, after which they could continue to argue the issue.

Without disclosing his plans to Masco's counsel seated in the courtroom, Scott Brainerd went to the magistrate's office during this break to obtain a letter explaining the magistrate's position on the withdrawal issue. Scott Brainerd talked to the magistrate's clerk who then spoke to the magistrate. Under the impression that the district judge had asked for a letter, the magistrate wrote to the district judge and Scott Brainerd presented the letter to him. The district judge, however, stated that he would not rely upon a letter obtained ex parte and referred the motion to the magistrate.

When the magistrate realized that the district judge had not himself requested the letter, the magistrate became irritated. He felt that Scott Brainerd had misrepresented the situation to obtain the letter. The magistrate wrote in his subsequent order that, unless the district judge had specifically requested the letter, the magistrate would never have written this hasty missive.

To make matters worse, the magistrate felt that Magnus was not cooperating in discovery. According to the magistrate, Magnus repeatedly challenged his orders, filed a frivolous motion to reconsider, refused to make a witness available for deposition after the magistrate so ordered, requested information that the magistrate ruled had already been provided, and dwelled on matters involving personality rather than the issues of the case. The magistrate had enough. He sanctioned Scott Brainerd, the firm, and the client under Federal Rules of Civil Procedure 11 and 37 for their actions during discovery and for filing a frivolous motion to reconsider the discovery order.

One tangential incident needs to be added at this point, as it bears on some of what the magistrate believed to be the Brainerds' extraneous arguments. Andrew Brainerd claimed that Masco's counsel disparaged him in a public elevator following a status hearing. Andrew Brainerd moved the court for an evidentiary hearing on the "truth of the statements made," but the magistrate denied the motion because he believed that a hearing would be a misuse of judicial resources and a waste of time. Despite the magistrate's ruling, the incident remained on Andrew Brainerd's mind, became one of the issues in the motion to reconsider, and resurfaced again in this appeal.

On May 29, 1986, the Brainerds voluntarily withdrew as counsel for Magnus; Magnus's new counsel eventually settled the case. Under the terms of the settlement, Magnus dismissed the suit and the defendants waived the $2,762.12 in sanctions assessed against Magnus.

The Brainerds objected in the district court to the magistrate's sanctions. The district judge adopted the magistrate's recommendation of $4,031.13 in sanctions and added some sanctions of his own. The district judge awarded Masco $2,600 in attorneys' fees for defending the motions brought in the district court and added an extra $1,000 to Masco's request in order to penalize the Brainerds. Scott Brainerd and his firm appeal the district court's award of attorneys' fees; Magnus takes no part in this appeal.

II. ANALYSIS

The district judge adopted the magistrate's recommendation to sanction Magnus's counsel pursuant to both Rule 11 and Rule 37 and added his own sanctions under Rule 11. Because the bulk of the sanctions come under Rule 11, we will begin by analyzing the ...


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