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HEADNOTES
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COURT’S OPINION
MARTIN YINUG, Designated Justice:
For the following reasons, the disciplinary complaint filed by the Seventh Kosrae State Legislature ("the Legislature") on August 5, 2002, is dismissed with prejudice.
A
The complaint is based on the conduct of Ronald P. Bickett ("Bickett") and Paul J. Simonett ("Simonett") in the course of Kosrae Civil Action 6-02 ("the underlying action.") Bickett is the Kosrae attorney general, while Simonett at relevant times was an Kosrae assistant attorney general. In the underlying action, the Legislature filed a motion for sanctions against both Bickett and Simonett under Rule 11 of the Kosrae Rules of Civil Procedure. That rule provides that "[f]or a wilful violation of this rule an attorney or trial counselor may be subjected to appropriate disciplinary action." Rule 4(2) of the Kosrae Rules for Admission to Practice Law ("the Practice Rules") states that Kosrae practitioners "may be disciplined by the Chief Justice after notice and hearing." Given that Kosrae Civil Rule 11 in conjunction with Rule 4(2) of the Practice Rules contemplates a separate disciplinary proceeding for a Rule 11 violation, this court denied the Rule 11 motion in the underlying case without prejudice to the
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institution of the appropriate disciplinary action before the chief justice. [Kosrae v. Seventh Kosrae State Legislature, 11 FSM Intrm. 56, 59 (Kos. S. Ct. Tr. 2002).] The Legislature then filed the disciplinary complaint and the chief justice assigned the matter to this court.
Two preliminary matters bear noting. The disciplinary complaint itself makes no mention of any violation of Kosrae Civil Rule 11, the alleged violation of which gave rise to the instant action. However, the complaint does allege violations of Rules 3.1, 5.1, and 8.4 of the Model Rules of Professional Conduct ("the Model Rules"). Kosrae General Court Order 2001-5 makes the Model Rules applicable to attorneys and trial counselors practicing before the Kosrae State Court. Rule 3.1 of the Model Rules proscribes the filing of "frivolous pleadings," which is sufficiently expansive to encompass Kosrae Civil Rule 11's requirement that a pleading have "good ground" to support it. Rule 5.1 of the Model Rules goes to Bickett’s supervisory role, while Rule 8.4 is somewhat circular in its proscription of any conduct in violation of the Model Rules. The latter rule also proscribes any conduct involving dishonesty or misrepresentation. Taken together, these allegations are sufficient to allege a Rule 11 violation. 1
A second preliminary matter is the lack of specific rules governing a disciplinary proceeding in Kosrae State Court. But that is not of moment here, where the disciplinary complaint, the Legislature’s memorandum in support of the complaint, the answer, Simonett’s separate memorandum in opposition to the complaint, and the extensive papers filed in the underlying action have explored the relevant issues at length. The legal issues are fully briefed, and no further factual development is necessary. Sufficient undisputed material facts of record exist to enable the court to render a decision on the merits of the disciplinary complaint.
B
In the underlying action, Simonett filed on January 28, 2002, a complaint for declaratory relief on behalf of the executive branch of the Kosrae state government. The complaint sought two things, a declaration that Kosrae S.L. 6-132 was constitutional, rather than unconstitutional, and a declaration that certain proposed legislation then before the Legislature, alleged to be identical in form to S.L. 6-132, was also constitutional. S.L. 6-132 had lowered the salaries of the governor, lieutenant governor, and the chief and associate justices of the Kosrae state court.2 The proposed legislation raised the salaries of these same officials and did so by the same mechanism employed in S.L. 6-132 to reduce the salaries. According to the arguments urged in support of the complaint for declaratory judgment, if S.L. 6-132 was constitutional, then so was the proposed legislation. In the underlying action, the Legislature moved to dismiss the declaratory judgment complaint for lack of subject matter jurisdiction. By order of May 29, 2002, this court granted the motion to dismiss. [Kosrae v. Seventh Kosrae State Legislature, 10 FSM Intrm. 668 (Kos. S. Ct. Tr. 2002).]
As background, subjective bad faith on the part of the filing attorney was required to sustain a violation under Rule 11 of the United States Federal Rules of Civil Procedure prior to its 1983 amendment. Nemeroff v. Abelson , 620 F.2d 339, 350 (2d Cir. 1980) ("Rule 11 speaks in plainly subjective terms.") In a departure from its prior formulation,
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Rule 11 [of the Federal Rules of Civil Procedure] was amended in August 1983 to increase its effectiveness in deterring abuses. Most importantly, the previous requirement that the attorney against whom sanctions were imposed must have acted in bad faith was eliminated. "The new language is intended to reduce the reluctance of courts to impose sanctions * * * by emphasizing the responsibilities of the attorney and reenforcing those obligations by the impositions of sanctions." Fed. R. Civ. P.11 advisory committee note (citation omitted). The standard used is an objective "one of reasonableness under circumstances," id., rather than a subjective one.
Rodgers v. Lincoln Towing Serv., Inc. , 771 F.2d 194, 205 (7th Cir. 1985).3 "Although the subjective beliefs of a person who signed or advocated a document are irrelevant in determining whether the certification requirements of the [amended] rule have been violated, subjective factors may be considered, since 'Rule 11 sanctions are based on "an objective standard of reasonableness under the circumstances.’" 2 James Wm. Moore et al., Moore’s Federal Practice § 11.11[3] (3d. ed. 1999) (footnotes omitted but citing in n.32 to Martin v. Brown, 63 F.3d 1252, 1264 (3d Cir. 1995) for quoted material; all emphases added by Moore.) However, it is the pre-1983 version of Federal Rule 11 that has been adopted as Rule 11 of the Kosrae Rules of Civil Procedure. It follows that a finding of subjective bad faith on the part of the attorney filing the pleading is required in order to impose sanctions under Kosrae’s Civil Rule 11.
In re Lavine, 126 F. Supp. 39 (S.D. Cal. 1954), rev’d in part sub nom., In re Los Angeles County Pioneer Soc’y, 217 F.2d 190 (9th Cir. 1954) (reversing sanction of disbarment on basis of lack of notice that the court was considering the sanction, and lack of opportunity to be heard) was decided under the pre-1983 version of United States Federal Rule 11. Lavine illustrates the kind of attorney conduct sufficient to sustain a violation under that rule. In Lavine, Lavine as the attorney for the Pioneer Society ("Pioneer"), a charitable organization, filed a bankruptcy petition in Federal District Court4 in California in which he sought $13,414.21 from Pioneer. 126 F. Supp. at 39, 42. Of the amount sought, $13,000 was for attorney’s fees owed to Lavine. Id. at 42. Pioneer had previously been the subject of a state court dissolution proceeding in which Lavine’s claim had been denied; in which the state court had found that Pioneer, which held its assets for charitable purposes, had abused and abandoned its trust; and in which the state court had appointed a successor trustee. Id. at 42-43. Lavine had represented Pioneer in the appeal to the California Supreme Court, which affirmed the lower state court. Id. at 43. Among the essential aspects of the state court proceedings that Lavine did not disclose to the District Court was the fact that the state court had more than four years prior to the filing of the petition rejected Lavine’s claims; and that the California Supreme Court had affirmed the lower court judgment taking from Pioneer all its assets and placing them in the hands of the successor trustee. Id. at 45. The District Court noted the "practiced concealment" and "chicane and deceit practiced by Mr. Lavine." Id. at 45, 44.
In contrast with Lavine, where the highest state court had resolved the matters in controversy over four years before the filing of the offending petition, it is plain that a live, hotly contested
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unresolved controversy existed, at least among the attorneys for the parties, at the time that the underlying lawsuit was filed. The executive branch presented that dispute to the court through its complaint for declaratory judgment and in support of that claim cited authority, including 22A Am. Jur. 2d Declaratory Judgments § 39 (1988), which arguably supported its legal position. While the claim did not survive the motion to dismiss, it was colorable, and the fact that the court later found that the dispute in question was not justiciable as a matter of law does not change that. Not every colorable claim will succeed, and the benefit of hindsight may not serve to bootstrap a Rule 11 violation. It follows that the complaint for declaratory judgment was not brought in subjective bad faith. Simonett did not violate Rule 11 of the Kosrae Rules of Civil Procedure when he filed it.
In Nemeroff v. Abelson, 469 F. Supp 630 (S.D.N.Y. 1979), aff’d in part, rev’d in part, 620 F. 2d 339 (2d Cir. 1980), on remand, 94 F.R.D. 136 (S.D.N.Y. 1982), the court imposed sanctions under Rule 11 of the Federal Rules of Civil Procedure and § 9(e) of the Securities Exchange Act against plaintiff’s counsel where the complaint alleged that the defendants engaged in statutory securities violations involving manipulation of stock prices. The trial court noted variously that neither plaintiff nor his counsel "had one iota of proof" concerning the material allegations of the complaint when it was filed, 469 F. Supp. at 635; that the lawsuit was filed "solely on the basis of unsupported gossip and inadmissible hearsay," id. at 636; and that plaintiff’s attorney "must have realized the weakness of the 'facts’ he had to back up his claims." Id. Noting that "relief under Rule 11 is discretionary and requires a showing of a claim not simply lacking in merit, but bordering on frivolity," id. at 640, the court concluded that
at any rate, prudent, ethical counsel would not have begun this litigation with the meagre facts Walker [plaintiff’s attorney] possessed in March, 1977. The suit was filed either with the knowledge that counsel had no adequate factual basis to sustain the allegations or in reckless disregard of the fact that proof of charges was not available. In either circumstance, plaintiff and his counsel knowingly proceeded with litigation that lacked foundation. Clearly, the purpose could not have been to litigate on the merits.
Id. at 636.
In the face of the District Court’s "comprehensive, reasoned opinion," the Court of Appeals for the Second Circuit reversed as clearly erroneous the trial court’s finding that the action had been commenced in bad faith. Nemeroff v. Abelson, 620 F.2d 339, 342, 347 (2d Cir. 1980). It did so by applying the even more stringent reasonable attorney standard
) as opposed to subjective bad faith standard of the pre-1983 U.S. federal rule and Kosrae’s current rule) since it conducted the bulk of its analysis of plaintiff’s counsel’s conduct under a court’s "exceptional power" to shift fees where an action is prosecuted in bad faith. 620 F.2d at 348-49 (citing Alyeska Pipeline Serv. v. Wilderness Soc’y, 421 U.S. 240, 258-59, 95 S. Ct. 1612, 1622, 44 L. Ed. 2d 141, 153-55 (1975)). As a predicate to a bad faith finding in that context, the court held there "must be 'clear evidence’ that the claims 'were entirely without color and made for reasons of harassment or delay or for other improper purposes.’" Id. at 348 (quoting Browning Debenture Holders’ Comm. v. DASA Corp., 560 F. 2d 1078 (2d Cir. 1977) (emphasis supplied by Nemeroff court)). "The question is whether a reasonable attorney could have concluded that facts supporting the claim might be established, not whether such facts actually had been established." Id. The appellate panel held thata reasonable attorney could have concluded that there was an unusual pattern of short sales of Technicare stock and that this patterns of sales was intended to depress and manipulate the price of Technicare stock.
Even if some or all of these facts were not in fact true or might later fail to be
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established that is irrelevant to the determination of bad faith under our law. These reasonable beliefs were factually and legally sufficient. To require more would promote the unwarranted abortion of many potentially meritorious claims.
Id. at 349. In light of this finding, the court also held that the imposition of attorney’s fees under "Rule 11 [which] speaks in plainly subjective terms," were "necessarily preclude[d]." Id. at 350.
The main thrust of the two Nemeroff decisions is the sufficient factual basis necessary to support the allegations of pleading under Rule 11. Here, the question largely centers on how, or if, existing law supports the claim made in the allegedly offending complaint for declaratory judgement. Still, taken together the two Nemeroff cases supply a sense of things insofar the type of conduct required on the part of an attorney to sustain a violation under Kosrae’s Rule 11. Applying the rule applied by the trial court in Nemeroff, this court is disinclined to conclude in the case at bar that the complaint for declaratory judgment constitutes "a claim not simply lacking in merit, but bordering on frivolity." 469 F. Supp. at 640. Nor is this court persuaded, looking to the appellate decision in Nemeroff, that there is "clear evidence" that the claim for declaratory judgment was "entirely without color and made for reasons of harassment or delay or for other improper purposes." 620 F. 2d at 348 (emphasis in original). On the facts of the case at bar a colorable claim, supported by some authority, existed. Neither Simonett, nor Bickett in his supervisory authority, violated Rule 11 of the Kosrae Rules of Civil Procedure when Simonett filed the complaint for declaratory judgment in the underlying action.
Finally, the Legislature alleges in the disciplinary complaint that Simonett failed to obtain opposing counsel’s acquiescence regarding certain motions as required by Rule 6(d) of the Kosrae Rules of Civil Procedure; that the complaint for declaratory judgment was miscaptioned; that various averments made by Kosrae in its pleadings were not properly numbered because they contained two sets of circumstances that could have been easily separated for pleading purposes; and that the complaint was not prosecuted in the name of the real party in interest. If the court understands the Legislature’s argument correctly, the Legislature appears to urge that these defects in themselves constitute sanctionable conduct. No authority leads to this conclusion, and the court finds these contentions to be without merit.
Accordingly,
it is hereby ordered that the disciplinary complaint is dismissed with prejudice. The remaining pending motions are denied as moot.
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Footnotes:
1. Were the court to view the complaint as alleging only Model Rules violations, the same disposition would result.
2. S.L. 6-132 also lowered the salaries of Kosrae public service system employees, but those salary reductions are not at issue here.
3. If numbers alone are any indication, the 1983 the amendment to the Federal Rules of Civil Procedure had a substantial impact on the pursuit of Rule 11 sanctions. For example, West’s Ninth Decennial Digest covers the period 1976 to 1986. Key number 661 under Federal Civil Procedure, which addresses attorney bad faith in the context of the Rule 11 signature provision, shows just five cases decided from 1976 to 1981, while cases of this type from 1981 to 1986 run to many dozens.
4. Section 15.1 of Title 28 of the United States Code, which established the United States Bankruptcy Court as an adjunct to the United States District Court became effective on date July 10, 1984.