Midwest Feeders, Inc. v. The Bank of Franklin

Filing 410

ORDER denying 396 Motion for Attorneys' Fees and Related Nontaxable Expenses. Signed by Honorable David C. Bramlette, III on 3/22/2017 (EB)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
WESTERN DIVISION
MIDWEST FEEDERS, INC.
V.

PLAINTIFF
CIVIL ACTION NO. 5:14-cv-78-DCB-MTP

THE BANK OF FRANKLIN

DEFENDANT

MEMORANDUM OPINION AND ORDER
This cause is before the Court on defendant Bank of Franklin’s
Motion for Attorneys’ Fees and Related Nontaxable Expenses (docket
entry 396).

Having carefully considered the motion, responses,

and applicable law, and being otherwise fully informed in the
premises, the Court finds as follows:
I. Background
Midwest Feeders, Inc. (“Midwest”) filed this action against
the Bank of Franklin on September 5, 2014, alleging a number of
claims against the bank in connection with a fictitious payee
scheme orchestrated against Midwest by Robert Rawls, a Bank of
Franklin customer.1

Early in the litigation, the Bank of Franklin

filed a motion to dismiss, which the Court granted in part on July,
7, 2015. See Doc. 33.

Pursuant to its July Order, the Court

dismissed Midwest’s conversion claims under Federal Rule of Civil
Midwest’s Complaint alleged: (1) conversion under Mississippi Code
Annotated § 75-3-420; (2) failure to exercise ordinary care under Mississippi
Code Annotated § 75-3-404(d); (3) common law conversion; (4) negligence; (5)
negligent hiring and supervision; and (6) civil conspiracy.
The facts and
circumstances surrounding these alleged claims are more fully explained in the
Court’s Order Granting in Part and Denying in Part Motion to Dismiss [docket
entry 33] and Memorandum Opinion and Order granting summary judgment [docket
entry 394].
1

1

Procedure

12(b)(6).

Midwest’s

remaining

claims

survived

the

motion to dismiss, and the parties proceeded to discovery.
Midwest and Bank of Franklin each produced a copious amount
of paperwork during the discovery phase, which led to approximately
31 depositions and 108 exhibits being placed before the Court. See
Doc. 408, p. 4.

After carefully considering all of the exhibits

and legal arguments presented on Bank of Franklin’s Motion for
Summary Judgment, the Court entered an Order dismissing Midwest’s
remaining claims on January 18, 2017. See Doc. 396.

The Bank of

Franklin filed its Bill of Costs and Motion for Attorneys’ Fees
and Related Nontaxable Expenses on January 30, 2017, and Midwest
Feeders filed its Notice of Appeal and response to the defendant’s
motion shortly thereafter.
II. Discussion
Relying upon correspondence exchanged between the parties
during the course of litigation, the Bank of Franklin urges the
Court

to

award

the

defendant

attorneys’

fees

and

nontaxable

expenses pursuant to the Mississippi Litigation Accountability Act
(“MLAA”), 28 U.S.C. § 1927, and the Court’s inherent authority.
The Court shall address each potential basis for recovery in turn.
A. Mississippi Litigation Accountability Act
A party may recover reasonable attorneys’ fees and costs under
the

MLAA

if

the

action

was

brought

“without

substantial

justification,” for the purpose of delay or harassment, or if an
2

attorney or party “unnecessarily expanded the proceedings by other
improper conduct.” Miss. Code Ann. § 11-55-5(1).

The statute

defines

“frivolous,

“without

substantial

justification”

as

groundless in fact or law, or vexatious.” § 11-55-3(a).

“A claim

is frivolous when, objectively speaking, the pleader or movant has
no hope of success.” Expro Americas, LLC v. Walters, 179 So. 3d
1010, 1021 (Miss. 2015) (internal citations omitted); see Estate
of Pannagl v. Lambert, 166 So. 3d 39, 41 (Miss. Ct. App. 2014)
(“Whether a party has ‘hope of success’ is an objective standard
to be analyzed from the vantage point of a reasonable plaintiff at
the time the complaint was filed.”).

“Though a case may be weak

or ‘light-headed,’ that is not sufficient to label it frivolous.”
Scruggs v. Saterfiel, 693 So. 2d 924, 927 (Miss. 1997).

When

considering whether to grant an award under the MLAA, the Court is
guided by a number of factors, including those enumerated within
the statute:
(a) The extent to which any effort was made to determine
the validity of any action, claim or defense before it
was asserted, and the time remaining within which the
claim or defense could be filed;
(b) The extent to which any effort was made after the
commencement of an action to reduce the number of claims
being asserted or to dismiss claims that have been found
not yet to be valid;
(c) The availability of facts to assist in determining
the validity of the action, claim or defense;

3

(d) Whether or not the action was prosecuted or defended,
in whole or in part, in bad faith or for improper
purpose;
(e) Whether or not issues of fact, determinative of the
validity of a party’s claim or defense, were reasonably
in conflict;
(f) The extent to which the party prevailed with respect
to the amount of and number of claims or defenses in the
controversy;
(g) The extent to which any new action, claim or defense
was asserted by an attorney or party in a good faith
attempt to establish a new theory of law in the state,
which purpose was made known to the court at the time of
filing;
(h) The amount or conditions of any offer of judgment or
settlement in relation to the amount or conditions of
the ultimate relief granted by the court;
(i) The extent to which a reasonable effort was made to
determine prior to the time of filing of an action or
claim that all parties sued or joined were proper parties
owing a legally defined duty to any party or parties
asserting the claim or action;
(j) The extent of any effort made after the commencement
of an action to reduce the number of parties in the
action; and
(k) The period of time available to the attorney for the
party asserting any defense before such defense was
interposed.
Miss. Code Ann. § 11-55-7.
Applying these factors, the Bank of Franklin argues that it
is entitled to attorneys’ fees under the MLAA because Midwest’s
claims were brought without any legal or factual basis and “without
substantial

justification.”

According

to

the

bank,

Midwest

ignored the “almost universal law” in this country that banks owe
4

a duty of care only to their own customers and embarked on a costly
fishing expedition to recoup losses the plaintiff suffered due to
its own lack of care.

After the Court’s Order of partial dismissal

in July 2015, the bank sent letters to Midwest on three separate
occasions,

urging

the

plaintiff

to

voluntarily

dismiss

all

remaining claims against the defendant. See Doc. 396-4, pp. 4, 26,
30.

The bank contends that by refusing to dismiss its baseless

claims, Midwest also failed in its duty to evaluate its claims at
each stage of the litigation.
Though Midwest asserts that the MLAA should not apply in this
federal action, federal courts within the Northern and Southern
Districts of Mississippi have applied the MLAA in diversity cases
such as this. See Vazzana v. City of Greenville, 2007 WL 465634
(N.D. Miss. Feb. 8, 2007); Alradai v. Riverhills Bank, 2007 WL
2001647 (S.D. Miss. July 5, 2007); Bryant v. Military Dept. of
State of Miss. ex rel. Miss. Air. Nat’l Guard, 381 F. Supp. 2d
586, 594 n.12 (S.D. Miss. Aug. 26, 2005); Swift Fin. Corp. v. Bath
Planet of Miss., LLC, 2016 WL 4572222, *2 (S.D. Miss. Aug. 31,
2016) (attorneys’ fees were unwarranted “assuming but not holding
that [MLAA] applie[d]”).
Assuming the MLAA applies, the Court finds that Midwest’s
claims do not rise to the level of frivolity contemplated by the
Act.

It

cannot

be

said

that

Midwest’s

claims,

when

objectively, were filed without any hope of success.
5

viewed
Though

ultimately found to be without merit, Midwest’s arguments appear
to have been made in good faith, based on the facts and the law in
Mississippi and surrounding jurisdictions.

As to the UCC and

negligence-based claims, the case presented novel issues, which
required the Court to push the bounds of the clearly defined law
in this jurisdiction and make an educated, Erie “guess” as to which
party’s interpretation should prevail. “To deem a question of law
frivolous, groundless in fact or in law, or vexatious merely
because there is no existing Mississippi law on the subject would
have a chilling effect on all litigation involving questions of
first impression.” Scruggs, 693 So. 2d at 927 (internal quotations
omitted).

And though the Court granted summary judgment based on

the speculative nature of Midwest’s conspiracy claim, the alleged
conspiracy was at least plausible insofar as the claim survived
the motion to dismiss and proceeded to discovery.
Furthermore,

Midwest’s

refusal

to

dismiss

its

remaining

claims following this Court’s order of partial dismissal does not,
without more, justify the imposition of attorneys’ fees under the
MLAA. See Swift Fin. Corp., 2016 WL 4572222 at *2 (finding that “a
successful motion to dismiss, standing alone, does not indicate
sanctions against the plaintiff are warranted”).

The Bank of

Franklin’s argument is based, in large part, on its ultimate
success on the merits.

But where sanctions such as these are

concerned, to the victor does not always go the spoils.
6

It is

true that “[s]ome cases should be won; some cases should be lost
and some cases should never have been filed.” Vazzana v. City of
Greenville, 2007 WL 465634, *4 (N.D. Miss. Feb. 8, 2007).

The

Court, however, is unconvinced that this case falls into the latter
category.

Upon consideration of all relevant factors, the Court

declines to award attorneys’ fees based on the MLAA.
B. 28 U.S.C. § 1927
Under 28 U.S.C. § 1927, the Court may award sanctions against
offending attorneys, not parties. Maguire Oil Co. v. City of
Houston, 143 F.3d 205, 208 (5th Cir. 1998). Section 1927 provides:
Any attorney . . . who so multiplies the proceedings in
any case unreasonably and vexatiously” may be required
by the court to satisfy personally the excess costs,
expenses, and attorneys’ fees reasonably incurred
because of such conduct.
28 U.S.C. § 1927.

Attorney fee awards under § 1927 are penal in

nature, and the Court construes the statute narrowly so that the
“legitimate zeal of an attorney in representing her client is not
dampened.” Browning v. Kramer, 931 F.2d 340 (5th Cir. 1991).
Sanctions under this statute must be predicated on actions that
are both “unreasonable” and “vexatious,” which requires evidence
of “bad faith, improper motive, or reckless disregard of the duty
owed to the court.” Edwards v. Gen. Motors Corp., 153 F.3d 242,
246 (5th Cir. 1998).

To award sanctions under § 1927 requires

clear

evidence

and

convincing

that

sanctions

are

justified.

Lawyers Title Inc. Corp. v. Doubletree Partners, L.P., 739 F.3d
7

848, 872 (5th Cir. 2014); see Bryant v. Military Dept. of Miss.,
597 F.3d 678, 694 (5th Cir. 2010) (“Sanctions under 28 U.S.C. §
1927 . . . require ‘clear and convincing evidence, that every facet
of the litigation was patently meritless’ and ‘evidence of bad
faith, improper motive, or reckless disregard of the duty owed to
the court.’”).
In advocating for sanctions under the statute, the Bank of
Franklin claims that Midwest’s counsel, through the guise of
settlement, engaged in a “scorched earth” policy by threatening
financial ruin for the bank and criminal prosecution for its
officers.

According to the bank, these threats came in the form

of settlement offers sent to the bank by Midwest Feeders, wherein
the plaintiff outlined the bank’s dismal financial forecast and
proposed various forms of corporate restructuring.

The Bank of

Franklin also argues that Midwest attempted to intimidate the bank
by

asking

confidential

the

defendant

documents

to

to

consent

law

to

enforcement

the

production

agencies

and

of
by

requesting the names of independent counsel retained by bank
employees, along with the names of those employees who planned to
invoke their rights under the Fifth Amendment during deposition
questioning.

Midwest

disputes

this

characterization

of

the

parties’ correspondence, maintaining that all settlement offers
were made in good faith based on the plaintiff’s estimated damages
and

the

defendant’s

insurance

coverage
8

as

disclosed

to

the

plaintiff.

Midwest also maintains that all other inquiries were

made in a good faith effort to expedite discovery and comply with
the stipulated protective order entered between the parties.2
Though it appears that litigation between the parties has
been contentious, contention alone is insufficient to upend the
“American Rule” and shift the Bank of Franklin’s entire cost of
defense to Midwest Feeders.3

The Court cannot order one party to

bear

burden,

the

other’s

proposes,

unless

financial
“the

entire

as

course

the

Bank

of

Franklin

of

proceedings

were

unwarranted and should neither have been commenced or persisted
in.” Ratliff v. Stewart, 508 F.3d 225, 235 (5th Cir. 2007) (quoting
Browning, 931 F.2d at 344).

Section 1927 authorizes reimbursement

“only for the excess costs, expenses and attorneys’ fees incurred
because

of

the

attorney’s

unreasonable

and

vexatious

multiplication of the proceedings.” Browning, 931 F.2d at 344-45.
With a unique set of facts giving rise to unsettled legal issues,
the Court is unpersuaded that Midwest’s suit was frivolous and
“should neither have been commenced or persisted in.”

Midwest was

The Stipulated Protective Order allowed the parties to designate
documents as “confidential” and limited disclosure of those “confidential”
documents to non-parties. See Doc. 50. But “nothing in [the] Order [prevented]
any party or other person from seeking modification of [the] Order or from
objecting to discovery that it [believed] to be otherwise improper.” Doc. 50,
¶ 14.
Midwest claims that it requested the bank’s consent to produce
confidential documents after an FBI agent asked Midwest for copies. After the
bank refused to provide such consent, Midwest maintains that it honored the
Order and informed the agent that it could not comply with his request.
3 “The general rule in federal court, the so-called ‘American Rule,’ is
that litigants are responsible for their own fees.” Moench v. Marquette Trans.
Co. Gulf-Inland, LLC, 838 F.3d 586, 595 (5th Cir. 2016).
2

9

unsuccessful on the merits of its case, but the plaintiff was not
without some arguable basis to support its claims.
Additionally, the Court is unconvinced that Midwest’s conduct
rises to the level of bad faith necessary to justify an award of
attorneys’ fees under the statute.

The parties’ correspondence,

while less than collegial, does not present clear and convincing
evidence that Midwest or its counsel acted in a manner that was so
“unreasonable” and “vexatious” as to warrant sanctions.
assuming

that

Midwest’s

communications

may

be

Even

construed

as

threatening and “vexatious,” it is unclear how these implicit
threats

actually

multiplied

the

proceedings.

See

Shavers

v.

Shavers, 2007 WL 312705, *7 (S.D. Miss. Jan. 30, 2007) (noting
that sanctions require “multiplied proceedings” and “unreasonable
and vexatious” conduct); see also Lawyers Title Inc. Corp., 739
F.3d at 872 (noting that § 1927 sanctions should be employed “only
in instances evidencing a serious and standard disregard for the
orderly process of justice”).

Following the motion to dismiss,

Midwest was free to proceed with its remaining claims.

Both

parties partipated in extensive discovery, and there is no evidence
that

Midwest

conducted

unnecessary

depositions,

engaged

in

needless motion practice, or otherwise expanded the proceedings,
any more so than the Bank of Franklin.

While the record may

reflect a course of exceedingly zealous advocacy on behalf of the

10

plaintiff, coupled with presumptuous settlement offers, the Court
declines to grant attorneys’ fees on that basis.
C. The Court’s Inherent Authority
The Bank of Franklin also argues that the Court may, through
its inherent authority, impose sanctions and attorneys’ fees as it
deems necessary.

Certainly, federal courts are vested with the

inherent authority to sanction parties and attorneys for conduct
that abuses the judicial process. Shavers, 2007 WL 312705 at *9.
But “[a] court should invoke its inherent power to award attorney’s
fees only when it finds that ‘fraud has been practiced upon it, or
that the very temple of justice has been defiled.’” Swift Fin.
Corp. v. Bath Planet of Miss., LLC, 2016 WL 4572222, *2 (S.D. Miss.
Aug. 8, 2016) (quoting Boland Marine & Mfg. Co. v. Rihner, 41 F.3d
997,

1005

(5th

Cir.

1995)).

The

Court

is

unconvinced

that

Midwest’s alleged conduct defiles “the very temple of justice” or
amounts to fraud upon the Court justifying an attorney fee award
in this case.
Accordingly,
IT IS HEREBY ORDERED AND ADJUDGED that defendant Bank of
Franklin’s

Motion

for

Attorneys’

Fees

Expenses (docket entry 396) is DENIED.

11

and

Related

Nontaxable

SO ORDERED AND ADJUDGED, this the 22nd day of March, 2017.

/s/ David Bramlette
UNITED STATES DISTRICT JUDGE

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