|
COURT OF APPEALS DECISION DATED AND RELEASED October 17, 1995 |
NOTICE |
|
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and Rule 809.62, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-0364
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT I
THOMAS ROSKOS, D.O.,
M.D.,
Plaintiff,
v.
VICTOR HARDING and
WARSHAFSKY, ROTTER,
TARNOFF,
GESLER, REINHARDT AND
BLOCK, S.C.,
Defendants-Respondents,
S.A. SCHAPIRO,
Appellant.
APPEAL from orders of
the circuit court for Milwaukee County:
JOHN J. DiMOTTO, Judge. Affirmed.
Before Wedemeyer, P.J.,
Sullivan and Schudson, JJ.
PER CURIAM. Attorney S.A. Schapiro appeals from an order
requiring him to pay $6,930.28 as sanctions for filing and continuing to
prosecute a civil conspiracy claim against the defendants, the law firm of
Warshafsky, Rotter, Tarnoff, Gesler, Reinhardt and Block, S.C., and its
employee, Victor Harding, for presenting frivolous motions to strike
affirmative defenses pled by the defendants, and for violating a discovery
protective order and temporary restraining order. Attorney Schapiro challenges the trial court's conclusions
regarding the sanctions and also claims that the trial court's decision to
sanction him personally violated his due process rights. We reject his arguments and affirm.
I. BACKGROUND
The facts necessary for
an understanding of this appeal, while not particularly difficult, are quite
extensive. Therefore, we set forth
these initial facts and discuss the more specific facts for resolution of the
issues raised on appeal within each particular subsection.
A. The Underlying Lawsuit.
Attorney Harding and the
Warshafsky firm represent several persons who filed an underlying suit against
the plaintiff, Thomas Roskos, a radiologist.
(Kurzynski, et al. v. Spaeth, et al., Milwaukee County
Circuit Court Case No. 91-CV-016622.)
The plaintiffs in that suit alleged that Roskos, Alan Spaeth, a dentist,
and William Faber, a physician, “conspired to have unnecessary and unwarranted
dental care performed on the plaintiffs.”
The plaintiffs alleged that Dr. Faber referred his patients to Dr.
Roskos for x-rays, and that Dr. Roskos then determined that the plaintiffs'
panoral x-rays revealed cystic lesions on their jaws. After the patients returned to Dr. Faber, they were told that
they had infections in their jaws and were then referred to Dr. Spaeth for
“unnecessary” dental work.
B. The Complaint and Answer in This Case.
In a separate action
(the case out of which this appeal arises), Roskos brought suit against Harding
and the Warshafsky firm, alleging abuse of process, defamation/libel and
conspiracy to tortiously injure Roskos's “professional business reputation”
under § 134.01, Stats. The “[u]nartfully drafted” complaint, as it
was described by the trial court, alleged abuse of process based on libel,
claiming that the defendants used legal process (the filing of a second amended
complaint in Kurzynski) and “knew or should have known that there
was no basis in fact for [the] charges and allegations against [Roskos] and
thereafter, maliciously and wantonly and recklessly perverted the said issued
legal process to cause [Roskos] to be libeled in the media and to damage [his]
professional reputation.” The complaint
further alleged that Attorney Harding “reported to the Milwaukee Sentinel” that
Roskos had participated in a “‘scam’ by telling patients ‘falsely, fraudulently
and recklessly’ that they had conditions for which they needed dental work.”
The second cause of
action alleged defamation by virtue of a newsletter published by the Warshafsky
firm, which stated: “Vic Harding is representing
six people who were ‘scammed’ by three doctors into having unnecessary tooth
extractions. What follows is the
unbelievable story of how this scam was run.”
Although the newsletter did not mention any doctor by name, the
complaint alleged that the reference was intended to refer to Roskos. Finally, the complaint alleged a conspiracy
between Attorney Harding and the Warshafsky law firm under § 134.01 due to
the newsletter's publication.
The defendants filed an
answer, alleging ten affirmative defenses and requesting sanctions under
§§ 802.05(1) and 814.025, Stats. Attorney Schapiro responded by filing
motions to strike seven of the defendants' affirmative defenses and seeking
sanctions.
C. The Arkansas Depositions.
Following the
plaintiff's subpoena of Attorney Ted Warshafsky and the plaintiff's various
discovery requests, the defendants filed a motion for a protective order and a
stay of discovery pending resolution of the defendants' motion to
dismiss/motion for summary judgment. On
August 15, 1994, the trial court granted the defendants' motion. In the meantime, Roskos commenced litigation
in Arkansas, seeking to depose Ronald Naef, a former investigator with the
Wisconsin Department of Regulation and Licensing, who had been involved in the
investigation of the allegations underlying Kurzynski. On August 19, 1994, an Arkansas law
firm representing Roskos got an Arkansas Chancery Court to issue a subpoena for
Naef's deposition to be taken on August 26.
According to the affidavit of defense counsel, defense counsel spoke
with the Arkansas counsel on August 24 and was told that Arkansas counsel had
been hired by Attorney Schapiro “to initiate discovery on Mr. Naef.” Defense counsel told Arkansas counsel that
all discovery had been stayed.
That
same day (August 24), the Wisconsin trial court signed an ex parte temporary
restraining order prohibiting “Roskos, through his attorneys” from deposing
Naef to the extent that any deposition would conflict with the court's prior
order. Arkansas counsel nevertheless
deposed Naef on August 26 and September 9, 1994. Prior to both depositions, Attorney Schapiro wrote to the trial
court stating that Arkansas litigation was “totally unrelated to any issue in
this instant case.” Upon subsequent
review of the transcripts, however, the trial court found that a substantial
portion of the depositions focused on Naef's contacts with Attorney Harding and
the Warshafsky firm.
D. The Trial Court's Determination of the
Merits.
When the defendants'
summary judgment motion was heard on September 12, the trial court: (1) dismissed the abuse of process
claim without prejudice as being “premature”; (2) dismissed the
defamation/libel claim without reference to whether dismissal was with or
without prejudice because of Attorney Schapiro's failure to comply with
§ 895.05(2)'s requirement that a litigant seek a published correction by a
potential defendant prior to initiating suit,” and, (3) dismissed the
§ 134.01 conspiracy claim with prejudice because of the intra-corporate
conspiracy bar rule that a corporation cannot conspire with its own agent. Following the plaintiff's motion for
reconsideration, the trial court repeated its prior rulings on the abuse of
process and § 134.01 conspiracy claims, and further dismissed the
defamation/libel claim without prejudice.
E. The Trial Court's Imposition of Sanctions
Against Attorney Schapiro, Personally.
Both parties
subsequently filed motions for sanctions.
The trial court denied the plaintiff's motion and partially granted the
defendants' motion, ordering sanctions against Attorney Schapiro, personally. The trial court concluded that the plaintiff
commenced the § 134.01 conspiracy claim in violation of § 802.05(1), Stats., because it was not grounded in
law or in fact and a reasonable inquiry had not been undertaken before the
cause of action was filed. The trial
court further concluded that the § 134.01 conspiracy claim was continued
in violation of § 814.025(3)(b), Stats.,
“in light of the overwhelming law that does not support that cause of
action.” The trial court also concluded
that five of the plaintiff's motions to strike the defendants' affirmative
defenses were frivolous. Finally, the
trial court concluded that the Arkansas depositions of Naef were taken in
violation of the court's protective and temporary restraining orders, and that
Attorney Schapiro had misrepresented the scope of those depositions to the
court. The court thus ordered sanctions
against Attorney Schapiro under § 805.03, Stats. Attorney
Schapiro filed a motion for reconsideration on that portion of the sanctions
order that held he was involved in the Arkansas depositions. The trial court denied Attorney Schapiro's
motion, and he now appeals.
II. ANALYSIS
A. Sanctions Under § 802.05, Stats., Because of the Filing of the
§ 134.01 Conspiracy
Claim.
The trial court
concluded that the plaintiff's filing of the § 134.01 conspiracy claim
violated § 802.05(1)(a), Stats. Section 802.05(1)(a), in pertinent part,
provides:
The
signature of an attorney or party constitutes a certificate that the attorney
or party has read the pleading, motion or other paper; that to the best of the
attorney's or party's knowledge, information and belief, formed after
reasonable inquiry, the pleading, motion or other paper is well-grounded in
fact and is warranted by existing law or good faith argument for the extension,
modification or reversal of existing law; and that the pleading, motion or
other paper is not used for any improper purpose, such as to harass or to cause
unnecessary delay or needless increase in the cost of litigation.
If a
trial court concludes that an attorney or party has violated this section, the
trial court may:
impose
an appropriate sanction on the person who signed the pleading, motion or other
paper, or on a represented party, or on both.
The sanction may include an order to pay to the other party the amount
of reasonable expenses incurred by that party because of the filing of the
pleading, motion or other paper, including reasonable attorney's fees.
Id.
There are three prongs
to § 802.05(1)(a), Stats.: (1) the signer's certification that the
pleading, motion or other paper was not interposed for an improper purpose or
delay; (2) the signer's warranty that the paper is “well grounded in fact”
to the best of the signer's “knowledge, information and belief, formed after
reasonable inquiry”; and, (3) that the signer “has conducted a reasonable
inquiry and that the paper is warranted by existing law or a good faith argument
for a change in it.” Riley v.
Isaacson, 156 Wis.2d 249, 256, 456 N.W.2d, 619, 621 (Ct. App.
1990). If a trial court finds that any
prong has been violated, the trial court “may” impose appropriate
sanctions. Section 802.05(1)(a).
In determining whether
to impose sanctions, the trial court must decide the factual questions of “what
and how much pre-filing investigation was done.” Id. at 256, 456 N.W.2d at 622. These findings will not be overturned on
appeal unless they are clearly erroneous.
Id. Further,
“[d]etermining how much investigation should have been done ... is a
matter within the trial court's discretion because the amount of research
necessary to constitute ‘reasonable inquiry’ may vary, depending on such things
as the particular issue involved and the stakes of the case.” Id. (emphasis in original).
The trial court found
that the conspiracy claim pled by the plaintiffs was not grounded in law or
fact, and that Attorney Schapiro had failed to make a reasonable inquiry before
bringing the claim. The trial court
acknowledged Attorney Schapiro's submissions regarding the research undertaken
before pleading the conspiracy claim.
The trial court noted, however, that Attorney Schapiro could not find
any case law to support his theory that he could sue Harding and Harding's own
law firm for conspiracy. In concluding
that the conspiracy claim was not based upon a reasonable inquiry and was not
warranted by existing case law or a good faith argument for a change in case
law, the trial court quoted Elbe v. The Wausau Hospital Center,
606 F.Supp. 1491, 1502 (W.D. Wis. 1985), in which a federal judge from the
Western District of Wisconsin stated:
“‘In the absence of any explicit holding on the issue, I conclude that
the Wisconsin supreme court would adopt the approach taken in Dombrowski
[v. Dowling, 459 F.2d 190 (7th Cir. 1972)], based as it is on the well
accepted principles that a corporation cannot conspire with itself and that the
acts of an agent are the acts of the corporation.’”
The trial court's
findings that Attorney Schapiro violated § 802.05(1)(a), Stats., are not clearly erroneous. Elbe's direction was
clear. See also Ford Motor
Co. v. Lyons, 137 Wis.2d 397, 426-431, 405 N.W.2d 354, 366-368 (Ct.
App. 1987) (as a matter of law, parent and subsidiary companies are a “single
economic unit” and thus § 134.01 conspiracy claim could not be
maintained). Additionally, in Wausau
Medical Center, S.C. v. Asplund, 182 Wis.2d 274, 296-297, 514 N.W.2d
34, 44 (Ct. App. 1994), the Wisconsin court of appeals explicitly reiterated
the bar to intra-corporate conspiracy claims under § 134.01, Stats., by holding that a conspiracy
claim could not be maintained against a doctor and his service
corporation. Asplund was
decided February 8, 1994, almost five months before Attorney Schapiro
filed the complaint in this action.
Thus, in light of Attorney Schapiro's knowledge that Attorney Harding
worked for the Warshafsky firm, combined with the governing principles on the
intra-corporate conspiracy bar, the trial court's findings were not clearly
erroneous.
B. Sanctions Under § 814.025, Stats., For Continuing the
§ 134.01 Conspiracy Claim.
The trial court
determined that the plaintiff violated § 814.025(3)(b), Stats., by continuing to pursue the
conspiracy claim. In granting summary
judgment to the defendants and in dismissing the conspiracy claim, the trial
court stated that it was undisputed that Attorney Harding was an associate with
the Warshafsky firm. At the sanctions
hearing, the trial court concluded that it was frivolous for Attorney Schapiro
to have continued pursuing the conspiracy claim “after the issue was researched
with respect to the motion to dismiss and the motion for summary judgment ...
in light of the overwhelming law that does not support that cause of action.”
A trial court may assess
frivolous costs and fees against an attorney if the attorney “knew, or should
have known, that the action, special proceeding, counterclaim, defense or cross
complaint was without any reasonable basis in law or equity and could not be
supported by a good faith argument for an extension, modification or reversal
of existing law.” Section
814.025(3)(b), Stats. Whether an action is frivolous under this
section is a question of law, which we independently review. Lamb v. Manning, 145 Wis.2d
619, 628, 427 N.W.2d 437, 441 (Ct. App. 1988).
Whether a reasonable attorney would or should have concluded that a
claim is without a reasonable basis in law or equity is a mixed question of law
and fact. Stoll v. Adriansen,
122 Wis.2d 503, 513, 362 N.W.2d 182, 187 (Ct. App. 1984). A determination of what an attorney would or
should have known with regard to the facts requires the trial court to
determine what those facts were. This
presents a question of fact, findings on which we will not overturn on appeal
unless they are clearly erroneous. Id.
at 513, 362 N.W.2d at 187-188. The
legal significance of those findings, however, in terms of whether knowledge of
those facts would reasonably lead an attorney to conclude the claim is
frivolous, presents a legal question. Id. at 513, 362 N.W.2d at
188. A finding of frivolousness is
based on an objective standard, taking into consideration what a reasonable
attorney would or should have known or concluded. Robertson-Ryan & Assocs., Inc. v. Pohlhammer,
112 Wis.2d 583, 589, 334 N.W.2d 246, 250 (1983).
Here, the trial court
correctly determined that Attorney Schapiro's continuance of the conspiracy
claim was frivolous under § 814.025(3)(b), Stats. In light of
the case law interpreting § 134.01, Stats.,
a reasonable attorney would have or should have concluded that continuing the
conspiracy claim lacked a reasonable basis in law or equity.
C. Sanctions for the Plaintiff's Motions to
Strike the Defendants' Affirmative
Defenses.
At the sanctions
hearing, the trial court noted that Attorney Schapiro filed a motion to strike
a number of the defendants' affirmative defenses the day after the defendants
filed their answer and affirmative defenses.
Additionally, the trial court noted:
“The law is clear that if you don't set forth an affirmative defense,
it's deemed waived, with the exception of statute of limitations.” See § 802.06(8)(b), Stats.
The trial court then determined that:
(1) the plaintiff's motion to strike the defendants' failure to
state a claim for relief affirmative defense was frivolous because the
dismissed § 134.01 conspiracy claim did not state a claim for relief;
(2) the plaintiff's motions to strike the defendants' absolute and
conditional privilege affirmative defenses were frivolous given that the
underlying Kurzynski case was still pending; and, (3) the
plaintiff's attack on the intra-corporate conspiracy bar defense was frivolous
because “Harding and Warshafsky are in fact one in [sic] the same.” Additionally, the trial court concluded that
the plaintiff's motion to strike the defendants' statute of limitations defense
was frivolous, noting:
The complaint is [u]nartfully drafted, and in
fact I believe that plaintiff's counsel had difficulty in articulating to this
Court what the first cause of action is based on. To not bring an affirmative defense based on statute of
limitations I think would have perhaps been deficient by defense counsel.
The
trial court thus concluded that the plaintiff's motion to strike the
defendants' affirmative defenses was without “reasonable inquiry, which would
clearly have indicated that bringing the motion to strike was not warranted or
appropriate.”
A motion to strike
should be rejected if the affirmative defenses could be proven under any theory
of law recognized in Wisconsin. First
Nat'l Bank of Wisconsin Rapids v. Dickinson, 103 Wis.2d 428, 432, 308
N.W.2d 910, 912 (Ct. App. 1981). “The
pleading challenged by a motion to dismiss or to strike should be liberally
construed with a view to achieving substantial justice.” Id. On appeal, we review the trial court's finding that the
plaintiff's motion to strike was frivolous under § 802.05, Stats., under the clearly erroneous
standard. See Riley,
156 Wis.2d at 256, 456 N.W.2d at 622.
Here, the trial court
found frivolousness based on:
(1) the reasons underlying dismissal of the plaintiff's three
causes of action; (2) the fact that Attorney Schapiro filed the motion to
strike the day after the defendants filed their answer; (3) the fact that
the underlying suit was still pending such that motions to strike the absolute
and conditional privileges were not proper; and (4) the “[u]nartfully
drafted complaint.” In light of all of
these factors, the trial court's finding that the motion to strike violated
§ 802.05 was not clearly erroneous.
D. Sanctions Because of the Arkansas
Depositions.
The trial court
concluded that Attorney Schapiro violated two orders clarifying that the
plaintiff was not to proceed with discovery in the action until the defendants'
motion to dismiss/motion for summary judgment was decided, and that Attorney
Schapiro misrepresented to the trial court the nature of Naef's
depositions. Naef was deposed twice,
without notice to the Warshafsky firm.
In imposing sanctions under § 805.03, Stats., and under the trial court's inherent authority, the
trial court stated:
[T]he Court has had the benefit of
reviewing transcripts of the two separate depositions taken [of] Mr. Naef, and
over and over and over questions are asked of him regarding what Harding said,
what Harding did, all of which has a direct correlation in the manner in which
those questions were asked to Harding's conduct which is at issue in this
lawsuit.
This
Court is satisfied based on [Attorney Schapiro's letters to the court prior to
Naef's depositions] and then what happened thereafter that plaintiff's
counsel's conduct violated my order and that plaintiff's counsel misrepresented
to the Court what was going on in the State of Arkansas.
Now it is true it is not Mr. Schapiro who took
the depositions in Arkansas. It was an
Arkansas lawyer. However, I believe
that in essence the sins so to speak of Arkansas counsel are attributable to
Mr. Schapiro.
Thus,
relying on In re Kunstler, 914 F.2d 505 (4th Cir. 1990), cert.
denied, 499 U.S. 969 (1991), the trial court concluded that despite the
fact that Attorney Schapiro did not actually take Naef's depositions, the acts
of Arkansas counsel were nevertheless attributable to Attorney Schapiro. In Kunstler, attorney William
Kunstler was held liable for sanctions despite his argument that he “‘did not
actively participate in the instant litigation,’” but instead relied on
co-counsel. Id. at
513-514. The Fourth Circuit Court of
Appeals, however, rejected Kunstler's argument. Id.
Section 805.03, Stats., authorizes a trial court to
impose sanctions on a party or attorney for failing “to comply with the
statutes governing procedure in civil actions” or for failing to obey a court
order. Section 805.03, Stats.; see Strong v.
Brushafer, 185 Wis.2d 812, 821-825, 519 N.W.2d 668, 672-673 (Ct. App.
1994). Additionally, a trial court also
has the inherent authority to impose sanctions for “‘failure to prosecute,
failure to comply with procedural statutes or rules, and for failure to obey
court orders.” Schaefer v. Northern
Assur. Co., 182 Wis.2d 148, 162, 513 N.W.2d 615, 621 (Ct. App. 1994)
(citation omitted). We review the trial
court's decision to impose sanctions under § 805.03, Stats., and under a trial court's
inherent authority under the erroneous exercise of discretion standard. Strong, 185 Wis.2d at 822, 519
N.W.2d at 672; Schaefer, 182 Wis.2d at 163, 513 N.W.2d at 621.
Here, correspondence
from Arkansas counsel indicates that Arkansas counsel was reporting to Attorney
Schapiro. The letter, dated August 25,
1994, and which was “faxed” to Attorney Schapiro prior to Naef's first deposition,
recites that the Wisconsin trial court's order had not been registered in
Arkansas and that such an order would have to be “brought to the attention of
an Arkansas court before it may be enforced.”
The letter also recites that Roskos ordered him to proceed, despite his
warnings of possible sanctions in Wisconsin.
The letter also recites that it was the intent of Arkansas counsel to
depose Naef “unless instructed by you [Attorney Schapiro], Dr. Roskos, or an
Arkansas court.”
Additionally, Attorney
Schapiro made two representations to the trial court that Naef's depositions
would have nothing to do with the issues in this case. From our review of the transcripts, the
trial court accurately found that a substantial portion of Naef's depositions
focused on Naef's contacts with Attorney Harding and the Warshafsky firm. The trial court did not erroneously exercise
its discretion in imposing sanctions under its inherent authority and under
§ 805.03, Stats., against
Attorney Schapiro.
E. Attorney Schapiro's Due Process Claim.
Attorney Schapiro argues
that the trial court did not give him notice that sanctions would be imposed
against him personally and, thus, violated his due process rights. We disagree.
The sanctions hearing
had been “noticed-up” and the language of the various sanction statutes give
Attorney Schapiro notice that sanctions may be awarded against him. See Buchanan v. General
Casualty Co., 191 Wis.2d 1, 12, 528 N.W.2d 457, 462 (Ct. App. 1995)
(existence of § 805.03 is sufficient notice to parties that sanctions
could be imposed); cf. Donaldson v. Clark, 819 F.2d 1551,
1559-1560 (11th Cir. 1987) (existence of Rule 11 “constitutes a form of
notice”). As part of his notice
argument, Attorney Schapiro also claims that he was denied the opportunity to
obtain counsel, present his own testimony and present expert witnesses to
testify regarding his conduct. Here,
however, the relevant material facts that formed the bases for the trial
court's imposition of sanctions were undisputed. See Kelly v. Clark, 192 Wis.2d 633, 654-655,
531 N.W.2d 455, 462 (Ct. App. 1995) (unless facts are undisputed or right to
hearing is waived, party or attorney is entitled to evidentiary hearing prior
to imposition of sanctions). Therefore,
an evidentiary hearing was not required.
F. Appellate Costs to Defendants.
Finally, the Defendants
seek frivolous appeal costs and fees.
As we have previously stated:
[U]pon
an appeal from a ruling of frivolousness, the reviewing court need not
determine whether the appeal itself is frivolous before it can award appellate
costs and reasonable attorney's fees.
Rather, if the claim was correctly adjudged to be frivolous in the trial
court, it is frivolous per se on appeal.
Riley, 156
Wis.2d at 262, 456 N.W.2d at 624. The
“party prevailing in the defense of an award of fees under sec. 802.05 is also
entitled to a further award on appeal without a finding that the appeal itself
is frivolous under Rule 809.25(3), Stats.” Id. at 263, 456 N.W.2d at 624.[1]
By the Court.—Orders
affirmed.
This opinion will not be
published. See Rule 809.23(1)(b)5, Stats.