USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 94-1870
MANUEL RODRIGUEZ O'FERRAL, ET AL.,
Plaintiffs, Appellants,
v.
TREBOL MOTORS CORPORATION, ET AL.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Carmen C. Cerezo, U.S. District Judge]
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Before
Torruella, Chief Judge,
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Boudin, Circuit Judge,
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and Boyle,* Senior District Judge.
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Luiz G. Rullan with whom Limeres, Vergne, Duran & Rullan was on
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brief for appellants.
Maria del Carmen Taboas with whom Fiddler, Gonzalez & Rodriguez
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was on brief for appellees.
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January 27, 1995
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*Of the District of Rhode Island, sitting by designation.
Per Curiam. In May 1991 Manuel Rodriguez-O'Ferral, his
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wife and their conjugal partnership brought a civil RICO
action in the district court in Puerto Rico against Trebol
Motors Corp., which distributes Volvos there. 18 U.S.C.
1961 et seq. Also named were the Swedish manufacturer of the
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car, its North American distributor, and officers of Trebol.
The gist of the complaint was a garden variety consumer
deception charge sought to be brought within RICO by claims
that pertinent advertising comprised mail and wire fraud.
In brief, the complaint charged that Volvo had earlier
made two related models, a 240 DL and a more expensive 240
GLE with additional features; that in 1984 Volvo had ceased
to make (or at least to export to Puerto Rico) the latter
model; that Trebol had thereafter ordered the DL model with
extra features and attached its own GLE badge; that Trebol
had advertised these cars as GLEs; that the added features
cost Trebol significantly less than its mark-up over the DL
price; and that Rodriguez and his wife had been duped and
injured when in 1986 they had brought one of these upgraded
DLs under the impression that it was a factory made GLE.
None of the advertisements cited by the plaintiffs had
occurred until after plaintiffs bought their own car; but,
framing the RICO suit as a class action on behalf of 15,000
customers allegedly so deceived, plaintiffs' counsel asserted
that this did not matter. The complaint sought treble
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damages, as permitted by RICO, 18 U.S.C. 1964(c); given an
alleged $5,000 loss per customer, this brought the total ad
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damnum to $225 million. The complaint was signed by Jose
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Quetglas Jordan, one of the plaintiffs' attorneys.
The district court ordered the plaintiffs to submit a
"RICO case statement," which sets forth answers to a standard
questionnaire that the court by standing order routinely
employed in civil RICO cases. See Miranda v. Ponce Federal
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Bank, 948 F.2d 41, 44 n.3 (1st Cir. 1991). The filing is
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intended to adduce the specifics that underlie general claims
of RICO misconduct. In this instance, the filing--signed
both by Quetglas and by co-counsel Luis Rullan Marin--was
extensive but it failed substantially to bolster the general
claims of fraud.
In particular, there was nothing even by way of
allegation to show that the features added at Trebol's
request were fewer than, or inferior to, those that Volvo
ordinarily supplied in its GLE car. It was alleged that
Trebol represented the cars as factory-made, but those
allegations were not borne out by the advertisements. The
case statement did not point to any other express statement
in the advertising alleged to be false. Nor were there other
allegations of fact from which fraudulent intent could easily
be inferred.
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The district court then dismissed the case, ruling that
no RICO claim had been set forth, Fed. R. Civ. P. 12(b)(6),
and that the plaintiffs had failed to alleged fraud with the
required particularity, Fed. R. Civ. P. 9. On appeal, this
court affirmed in a unpublished per curiam opinion; without
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resolving plaintiffs' standing, we held that in this context
mere nondisclosure, absent some affirmative misrepresentation
or a special duty of disclosure, does not comprise RICO
fraud. Rodriguez O'Ferral v. Trebol Motors Corp., No. 92-
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2303, slip op. at 8-9 (1st Cir., July 9, 1993) (citing cases
from other circuits).
While the appeal was pending, defendants moved for
sanctions against plaintiffs' attorneys under Fed. R. Civ. P.
11 for filing a groundless action. Finding a lack of
reasonable inquiry, the court awarded the defendants $8,000
as attorney's fees as a sanction. Independently, the court
awarded the defendants costs in the amount of $3,973.40. On
this appeal, Rullan disputes the award of attorney's fees
against him as to both basis and amount (co-counsel have not
appealed). The award of costs is also challenged.
Starting with the sanction, we think it plain that the
plaintiffs' suit was extremely thin. The question whether it
was so thin as to warrant sanctions is, as is typical in Rule
11 matters, a "judgment call," Anderson v. Beatrice Foods
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Co., 900 F.2d 388, 394 (1st Cir.), cert. denied, 498 U.S. 891
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(1990), ordinarily reviewed only for abuse of discretion.
Kale v. Combined Ins. Co., 861 F.2d 746, 757-58 (1st Cir.
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1988). Still, there may be a determination of law that
underpins an award of sanctions, and Rullan raises such an
issue here.
Pointing out that he did not sign the complaint, Rullan
says that the only pleading to which he is connected is the
RICO case statement. This case statement, he says, did not
institute the action or amend the complaint; the fault, if
any, is with the original complaint; and to impose sanctions
on him is therefore to impose on him a "continuing
obligation" to assure that a case does not continue unless it
is well grounded. Although this court used "continuing
obligation" language in Cruz v. Savage, 896 F.2d 626, 630
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(1st Cir. 1990), Rullan says that the Fifth Circuit
precedents relied on in Cruz have been overruled and that all
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other circuits reject the continuing obligation theory.1
Rule 11 is not all of a piece. Much of its language is
directed to the signing of documents, see Rule 11(a), but at
least one sentence concerns "later advocating" an earlier
filed document. Rule 11(b). We have no occasion to pursue
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1Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 874-
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75 (5th Cir. 1988) (en banc) (rejecting any such continuing
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obligation); see also Dahnke v. Teamsters Local 695, 906 F.2d
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1192, 1200-01 (7th Cir. 1990) (same); Corporation of
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Presiding Bishop of Jesus Christ of Latter-Day Saints v.
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Associated Contractors, Inc., 877 F.2d 938, 942-43 (11th Cir.
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1989) (same), cert. denied, 493 U.S. 1079 (1990).
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the problem in this case because Rullan did sign the RICO
case statement which effectively reasserted the positions
taken in the complaint. Indeed, the intended purpose of the
case statement was to flesh out and particularize the
complaint; and at the time that Rullan placed his signature
on the document, the fraud claims which remained inadequate
became his own.
As we have said, it is a judgment call whether the
defects were so severe as to justify a court in concluding
that the assertion of the RICO claims was done in bad faith
or without reasonable inquiry. Here, other circuits prior to
the case statement had already ruled that mere nondisclosure
in a context like this one did not support a claim of RICO
fraud; but we had not done so and, if this were the only
flaw, one might argue about whether Rullan was obliged to
anticipate our ruling.
But even if nondisclosure were here enough for RICO
fraud, nothing in the case statement here points directly to
fraudulent intent. Fraudulent intent is often easy to infer
from an affirmative false statement; but no one could fairly
infer fraudulent intent merely from the nondisclosure
attributed to Trebol. The car did have extra features; as it
happens they were installed in the Volvo factory; and the
central, identified nondisclosure appears to be that the
badge was added in Puerto Rico. To say that the cars were
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not genuine GLEs without pointing to material differences is
unpersuasive.
As to the amount of the sanction, admittedly the
district court did not explain the basis for the calculation
that led to the $8,000 figure. But the complaint sought $225
million for a large class, and the litigation consumed more
than two years and generated a record that stands nearly a
foot high. Further, the case statement was not some
incidental filing--say, a dispute about one deposition or
discovery request--but related to the core of the case and
was a condition of any further proceedings.
No one remotely familiar with lawyer fees can doubt that
the defense spent vastly more than $8,000 on this case. The
district court plainly chose a figure that, measured by
defense costs, was practically nominal but was large enough
to serve as a warning and deterrent to counsel. Explanations
are always helpful, and in some cases explanations may be
required for appellate review of a Rule 11 award; but the
logic of the district court's approach here is not
mysterious, and the result is well within the wide latitude
allowed for remedial judgments.
Finally, we find no error in the award of other defense
costs in the amount of $3,973.40, for such matters as
photocopying, translation, delivery, and other logistics.
Despite plaintiffs' contrary claim, the award was timely even
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though made after the original judgment; the district court
may wait until a judgment is affirmed on appeal before
awarding costs. See 10 C. Wright & A. Miller, Federal
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Practice and Procedure 2668, at 212 (2d Ed. 1983).
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Plaintiffs also claim that because RICO provides for an
award of costs to plaintiffs, 18 U.S.C. 1964(c), it
implicitly bars costs for defendants even if elsewhere
authorized. We see no basis for such an implication. Fed.
R. Civ. P. 54(d)(1) allows costs other than attorney's fees
to the prevailing party as a matter of course unless the
court directs otherwise; the introductory proviso to the rule
("Except when express provision therefor is made . . . in a
statute of the United States") might limit a court's
discretion to deny costs to a prevailing RICO plaintiff, but
does not affect an award of defense costs--which RICO does
not address.
It is true that some of the costs allowed by the
district court went beyond those listed in 28 U.S.C. 1920,
but a district court has discretion to award costs other than
those so enumerated. Although this discretion "should be
used sparingly" for such expenses, Farmer v. Arabian Amer.
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Oil Co., 379 U.S. 227, 235 (1964), we have examined the costs
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allowed and conclude that there was no abuse of discretion in
this case.
Affirmed.
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