Sun Coast Resrc v. Conrad

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 19-20058

SUN COAST RESOURCES, INCORPORATED,

Plaintiff - Appellant

v.

ROY CONRAD,

Defendant - Appellee

Appeals from the United States District Court
for the Southern District of Texas

Before WIENER, HIGGINSON, and HO, Circuit Judges.
JAMES C. HO, Circuit Judge:
There is a time for punishment and a time for grace. Roy Conrad believes
this is the former. Having won on appeal, he now asks us to sanction Sun
Coast Resources, Inc., for pursuing a frivolous appeal. The sentiment is
understandable. So we provide this brief explanation why we deny his motion.
As we’ve explained, arbitration can be an efficient way to resolve
disputes—or a weapon for the economically powerful. See Sun Coast Res.,
Inc. v. Conrad, 956 F.3d 335, __ (5th Cir. 2020) (citing DIRECTV, Inc. v.
Imburgia, 136 S. Ct. 463, 477 (2015) (Ginsburg, J., dissenting)). Regardless,
Conrad dutifully agreed to arbitrate this dispute, as so many employers insist
employees do as a condition of employment.
United States Court of Appeals
Fifth Circuit
FILED
May 7, 2020

Lyle W. Cayce
Clerk
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No. 19-20058
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But then, Conrad won what perhaps Sun Coast did not but should have
anticipated in light of the plain language of its arbitration agreement: a clause
construction award from the arbitrator allowing him to proceed with class
arbitration. See id. at __.
In response, Sun Coast not only challenged the award in district court,
but then pursued a meritless appeal—an appeal premised on a theory not only
contradicted by the plain language of the arbitration agreement, but one that
Sun Coast had forfeited “not once, but twice” by failing to present the issue to
either the arbitrator or the district court. Id. at __.
But here’s the real problem: Sun Coast denied that it forfeited the issue,
claiming it cited a Third Circuit precedent (Opalinski) to the arbitrator. But
Sun Coast failed to disclose that there are actually two Opalinski decisions
from the Third Circuit—and that the one cited by Sun Coast was not the one
that (arguably) might have avoided forfeiture. See id. at __.
And then, to top it all off, after we announced that no member of our
panel saw any need to hear oral argument in this obviously meritless appeal,
Sun Coast responded with a remarkable motion insisting on oral argument.
Counsel wrongly claimed that “oral argument is the norm rather than the
exception,” and that our court would be guilty of “cafeteria justice” if we denied
the motion—ignoring the established federal circuit practice of sparing parties
the expense of having counsel prepare for argument in the overwhelming
majority of appeals. See id. at ___ & n.1.
We subsequently denied Sun Coast’s motion as well as its appeal. Id. at
__. We turn now to Conrad’s motion for sanctions.
Federal Rule of Appellate Procedure 38 confers broad discretion on
federal courts of appeals to award sanctions in any appeal the court determines
to be “frivolous.” See F
ED. R. APP. P. 38 (“If a court of appeals determines that
an appeal is frivolous, it may, after a separately filed motion or notice from the
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court and reasonable opportunity to respond, award just damages and single
or double costs to the appellee.”).
So courts have broad power under Rule 38 to sanction inadvertently as
well as intentionally frivolous and vexatious appeals. See, e.g., Coghlan v.
Starkey, 852 F.2d 806, 811, 814 (5th Cir. 1988) (per curiam) (“An appeal is
frivolous if the result is obvious or the arguments of error are wholly without
merit. . . . [H]arassment of appellants, delay, and other ill practice are not
required elements.”); Hill v. Norfolk & W. Ry. Co., 814 F.2d 1192, 1202 (7th
Cir. 1987) (“[P]roof of intentional or even negligent misconduct . . . is not a
prerequisite to imposing sanctions under Rule 38.”). See also 28 U.S.C. § 1927
(authorizing courts to impose “excess costs, expenses, and attorneys’ fees” on
attorneys who “unreasonably and vexatiously” multiply proceedings).
That said, the case for Rule 38 sanctions is strongest in matters involving
malice, not incompetence. See, e.g., Coghlan, 852 F.2d at 814 (“Bad faith may
aggravate the circumstances justifying sanctions.”); Hill, 814 F.2d at 1202
(calling “intentional or negligent misconduct . . . an added reason for a sanction
under Rule 38”). And our decision on Sun Coast’s appeal was careful not to
assume the former. As to the merits of its appeal—including the company’s
failure to disclose that it cited Opalinski II rather than Opalinski I to the
arbitrator—we observed that “[t]he best that may be said for Sun Coast is that
it badly misreads the record.” 956 F.3d at __. As to its demand for oral
argument, we stated that “Sun Coast’s motion misunderstands the federal
appellate process in more ways than one.” Id. at __. In sum, we found
incompetence, not malice.
Perhaps Sun Coast earnestly (if mistakenly) believed it had a valid legal
claim to press. Or perhaps it was bad faith—maximizing legal expense to drive
a less-resourced adversary to drop the case or settle for less. See id. at __
(“[A]nother tactic powerful economic interests sometimes use against the less
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resourced is to increase litigation costs in an attempt to bully the opposing
party into submission by war of attrition.”) (citing DIRECTV, 136 S. Ct. at 476
n.3 (Ginsburg, J., dissenting)). Or perhaps its decisions were driven by
counsel. See, e.g., Gurule v. Land Guardian, Inc., 912 F.3d 252, 262 (5th Cir.
2018) (Ho, J., concurring) (discussing churning by attorneys).
But we must resolve the pending motion based on facts and evidence—
not speculation. We sympathize with Conrad, for he has endured unfortunate
delay and expense in the enforcement of his rights, and those of his class
members, under the Fair Labor Standards Act. But we conclude that this is a
time for grace, not punishment. We hope that there will not be any further
unnecessary delay in these proceedings—and that Conrad can take some
comfort that we have warned Sun Coast about its behavior.
We exercise our discretion not to grant sanctions under Rule 38 in this
case and accordingly deny Conrad’s motion.
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