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SCHWARTZ v. FRANKLIN NAT. BANK

October 1, 1998

FREDERIC W. SCHWARTZ, JR., ET AL., APPELLANTS,
V.
FRANKLIN NATIONAL BANK, APPELLEE.



APPEAL FROM THE SUPERIOR COURT, COLLEEN KOLLAR-KOTELLY, J. [718 A2d Page 554]

Before Wagner, Chief Judge, and Steadman and Reid, Associate Judges.

The opinion of the court was delivered by: Reid, Associate Judge:

This case concerns sanctions imposed under Super. Ct. Civ. R. 11 after acrimonious litigation between appellants Julianne and Richard Meadows, and appellee Franklin National Bank ("the bank"). The parties settled their dispute, except for their respective motions for sanctions. After settlement, the trial court denied Mr. and Mrs. Meadows' motion for sanctions, but granted the bank's motion as to three of Mrs. Meadows' twenty counterclaims and imposed sanctions on her and her counsel. The bank was awarded $533.60 in attorneys' fees and $42.00 in costs. The Meadows and their counsel filed a timely appeal. We reverse in part and affirm in part.

FACTUAL SUMMARY

Mrs. Meadows was hired by the bank on August 13, 1990, as a marketing representative, at a monthly salary of $5,416.00. She was terminated on February 8, 1991. One month later, the bank sued Mrs. Meadows, alleging, inter alia, that she: (1) used the American Express card, issued by the bank for business purposes only, for unauthorized personal expenses; (2) engaged in a check kiting scheme by writing checks on her personal Franklin National Bank account covered by her Perpetual Bank account when there were insufficient funds in her Perpetual account; and (3) obtained an advance to cover personal medical expenses covered by her health insurance, but failed to repay the advance to the bank. In its complaint against Mrs. Meadows, the bank claimed breach of fiduciary duty; theft, embezzlement, false pretenses; recovery of compensation; breach of contract; and fraud.

On August 7, 1991, Mrs. Meadows filed an answer to the bank's complaint, and counterclaimed against the bank and two of its officers. Three of her twenty counterclaims were for negligent infliction of emotional distress (counterclaim fifteen); prima facie tort — intentional harm to a property interest (counterclaim seventeen); and intentional causing of liability (counterclaim eighteen). The bank filed a third amended complaint on April 7, 1992 in which it added Mrs. Meadows' husband as a defendant, and included a claim for civil conspiracy. The bank's theory was that Mr. Meadows aided and abetted his wife.

The demand for sanctions was hard fought. In an initial order, docketed on February 14, 1994, the trial court granted the bank's motion for sanctions as to counterclaims fifteen, seventeen and eighteen, but denied sanctions based on the other counterclaims. In addition, the court denied Mr. and Mrs. Meadows' motion for sanctions. After reconsidering its order of February 14, the trial court issued a second order, docketed on April 22, 1994. In essence, the April 22 order reiterated the court's previous findings and conclusions regarding the motions of Mrs. Meadows and the bank for sanctions, denied Mr. Meadows' motion for sanctions, and assessed Mrs. Meadows and her counsel $533.60 in attorneys' fees and $42.00 in costs for the filing of counterclaims fifteen, seventeen and eighteen without reasonable prefiling inquiry.

ANALYSIS

Mrs. Meadows and her counsel contend that counterclaims seventeen and eighteen were not sanctionable because they were "extracted from the Restatement (Second) of Torts," and counterclaim fifteen was not [718 A2d Page 555]

sanctionable because it "explor[ed] the penumbra of Williams v. Baker," 572 A.2d 1062 (D.C. 1990) (en banc). Further, they argue, the trial court erred in not imposing sanctions against the bank for its check kiting claim against Mrs. Meadows. Mr. Meadows maintains he was entitled to sanctions as to the civil conspiracy count against him.

Under the version of Super. Ct. Civ. R. 11 in effect at the time the bank's complaint and Mrs. Meadows' counterclaim were filed, we must determine whether the complaint and counterclaim were "well-grounded in fact, . . . warranted by existing law, or [whether there is] a good faith argument for the extension, modification, or reversal of existing law. . . ." *fn1 We have held previously:

[T]hat the trial court's decision on whether a violation of the factual inquiry or improper purpose prongs of Rule 11 has occurred is subject to review for abuse of discretion, but a decision on whether a paper was supported by law or a good-faith argument for change in the law is subject to de novo review because the issue is strictly one of law.

Montgomery v. Jimmy's Tire & Auto Ctr., Inc., 566 A.2d 1025, 1029 (D.C. 1989) (citing Westmoreland v. CBS, Inc., 248 U.S.App.D.C. 255, 261-62, 770 F.2d 1168, 1174-75 (1985)); see also Esteves v. Esteves, 680 A.2d 398, 406 (D.C. 1996). Our "proper focus . . . is the conduct of the parties at the time the pleading was submitted rather than the actions before or during trial." Kleiman v. Kleiman, 633 A.2d 1378, 1382 (D.C. 1993). Moreover, "the court [is required] to balance the potential 'chill' on innovative theories of law against the need to discourage frivolous or dilatory litigation. . . ." Cooper v. AFSCME, Local 1033, 656 A.2d 1141, 1145 (D.C. 1995) (quoting Williams v. Mount Jezreel Baptist Church, 589 A.2d 901, 911 (D.C. 1991)). Thus, "[R]ule 11 is violated only when it is patently clear that a claim has absolutely no chance of success." Gray v. Washington, 612 ...


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