UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: HOWARD M. COHEN,
Appellant,

JOE G. BOST,
Plaintiff,

v.

MARTHA ERWIN FOX,
                                   No. 94-2652
Defendant-Appellee,

and

JUDITH M. BOST; LEE ALTON
DENNEY, d/b/a Lee Denney Private
Investigators; PATRICK GALVIN;
LINDA STEED; LEE ALTON DENNEY,
Defendants.
JOE G. BOST,
Plaintiff-Appellee,

HOWARD M. COHEN,
Respondent-Appellee,

v.

MARTHA ERWIN FOX,
                                                                      No. 95-1008
Defendant-Appellant,

and

JUDITH M. BOST; LEE ALTON
DENNEY, d/b/a Lee Denney Private
Investigators; PATRICK GALVIN;
LINDA STEED; LEE ALTON DENNEY,
Defendants.

Appeals from the United States District Court
for the Western District of North Carolina, at Charlotte.
Graham C. Mullen, District Judge.
(CA-91-279-3-MU)

Argued: November 2, 1995

Decided: September 17, 1997

Before WILKINSON, Chief Judge, and HALL and ERVIN,
Circuit Judges.

_________________________________________________________________

Affirmed in part and reversed in part by unpublished opinion. Judge
Ervin wrote the opinion, in which Chief Judge Wilkinson and Judge
Hall joined.

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COUNSEL

ARGUED: Thomas Drake Garlitz, CANSLER, LOCKHART &
EVANS, P.A., Charlotte, North Carolina, for Appellant. E. Fitzgerald
Parnell, III, POYNER & SPRUILL, L.L.P., Charlotte, North Caro-
lina, for Appellee. ON BRIEF: Deborah L. Edwards, POYNER &
SPRUILL, L.L.P., Charlotte, North Carolina, for Appellee.

_________________________________________________________________

Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

ERVIN, Circuit Judge:

Appellant Howard M. Cohen (Cohen) appeals from a district court
order imposing sanctions against him under 28 U.S.C.§ 1927 in an
action he filed on behalf of his client Joe G. Bost (Joe) under 18
U.S.C. §§ 2510-2521 and North Carolina law. Cross-Appellant Mar-
tha E. Fox (Fox) appeals from the district court's order denying Rule
11 sanctions against Cohen. We affirm in part and reverse in part for
the reasons hereinafter set forth.

I.

In June 1989, Joe and his wife Judith Bost (Judith) separated.
Judith hired attorney Fox to represent her in a divorce action. Because
Judith suspected her husband of having an affair, she hired a private
investigator to surveil Joe.

Apparently, the investigator Lee Alton Denney (Denney) located
Joe and his girlfriend in an Atlantic Beach, North Carolina, condo-
minium. Denney placed a wireless microphone near the condominium
door but never intercepted any conversation with the device. Joe
became aware of the bugging device and also believed that his tele-

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phone had been tapped and that documents had been taken from his
car.

On December 18, 1989, Fox filed a complaint in the District Court
of Catawba County on behalf of Judith seeking divorce, alimony, and
child support. Before trial, the court heard a motion in limine regard-
ing evidence obtained by Denney. The court ruled that placing the
bug was a "clear violation of 18 U.S.C. § 2511" and excluded from
evidence any information obtained from Denney's investigation. See
J.A. at 20-22, 26.

After Joe learned about Denney's investigation, he contacted an
attorney, Jan Warner, who had expertise on illegal wiretapping in
divorce cases. Warner contacted prospective defendant Fox to discuss
the possibility of settlement. When it appeared that settlement was
unlikely, Warner advised Joe to obtain North Carolina counsel and
file suit.

On May 15, 1991, Joe retained the firm of appellant Cohen. Cohen
determined that the statute of limitations on any claim under the
Omnibus Crime Control Act would run on August 30, 1991. Cohen
contends that he immediately began to investigate the facts and law,
but that because of the surreptitious nature of the alleged acts and
their potential criminal implications, it was virtually impossible to
fully discover all the facts before filing a complaint.

Cohen filed a lawsuit on behalf of Joe under the Wiretap Act on
August 29, 1991, naming Judith, investigator Denney, and Fox as
defendants. The complaint alleged that Fox was liable for the acts of
the investigator because he was her agent, she had aided and abetted
his action, and he was acting in concert with Fox and Judith. Cohen
argues that he relied on the following facts in making the claim
against Fox: 1) Fox communicated with Denney before Denney's
Atlantic Beach activities; 2) Fox received a written report, surveil-
lance videotapes, and Joe's car key from Denney shortly after the sur-
veillance; 3) Fox used information gathered by Denney in preparing
the divorce complaint and to influence settlement; 4) Joe's attorney
in the domestic proceeding warned Fox not to use Denney's report
because he believed it to be illegally obtained; and 5) the domestic

                    4
court judge excluded the Denney reports and testimony from evi-
dence.

In October 1991, before any discovery had been initiated, Fox, as
counsel for Judith, notified Cohen that she intended to file a motion
for summary judgment seeking Rule 11 sanctions against him. Cohen
was provided affidavits from the defendants stating that Fox did not
hire or direct investigator Denney. Cohen contends that the affidavits
did not address several pertinent issues and raised questions about
Fox's role in the investigation. Cohen was given five days in which
to voluntarily dismiss his action, after which time the summary judg-
ment/Rule 11 motion would be filed.

Cohen refused to dismiss the action and, on March 9, 1992, the
defendants filed a joint motion for summary judgment. On March 25,
1992, Cohen deposed Fox and Judith. The depositions confirmed that
Fox was not involved in hiring or controlling Denney. After the depo-
sitions, Cohen offered to dismiss the action against Fox if she would
dismiss her Rule 11 claims. Fox rejected the offer.

Cohen then recommended to Joe that the claim against Fox be dis-
missed even though Fox did not agree to waive the Rule 11 claims.
Joe would not agree to dismiss his claim. Cohen then suggested that
Joe retain new counsel, and Joe, in turn, stated that he was already
seeking to replace Cohen. Joe's replacement counsel entered an
appearance on April 14, 1992.

In June 1992, Joe dismissed all claims against Fox, and on August
24, 1992, the district court granted summary judgment in favor of the
remaining defendants on the federal claims. The district court
declined to exercise its supplemental jurisdiction over the state law
claims.

On September 10, 1992, Fox filed a Rule 11 motion for sanctions
against Cohen and Joe. On November 14, 1992, the district court
found no violation of Rule 11, but on its own motion held that Cohen
had violated 28 U.S.C. § 1927 by continuing to prosecute the claims
against Fox after she had filed a motion for summary judgment. The
court fixed the amount of sanctions at $6,320.51, the total fees and

                    5
expenses incurred from the time the summary judgment motion was
filed until the Rule 11 motion. See J.A. at 222.

Cohen appealed the district court's order imposing sanctions under
§ 1927 and Fox cross-appealed from the denial of her Rule 11 motion.

II.

Cohen argues that the district court violated the Due Process
Clause when, after dismissing the motion for Rule 11 sanctions
against Cohen, it sanctioned Cohen under § 1927,1 on its own motion
and without notice. Attorney Fox had filed a motion for sanctions
under Rule 11, contending that Cohen and his client Joe continued to
prosecute meritless claims against her. The district court ruled that
neither Joe nor Cohen had violated Rule 11, but on its own motion
held that Cohen had violated § 1927 by deposing the defendants after
Fox had filed a motion for summary judgment.

An attorney facing sanctions is entitled to notice and some opportu-
nity to respond to the charges. See Roadway Express, Inc. v. Piper,
447 U.S. 752 (1980). No fast rule dictates the content of due process
in all cases; the constitutional minimum varies within differing con-
texts. Determining what constitutes due process involves a balancing
of various factors, including fairness to sanctioned attorneys, the risk
of error and the likely value of additional notice or hearing, and judi-
cial and administrative efficiency. See Donaldson v. Clark, 819 F.2d
1551, 1558 (11th Cir. 1987) (en banc).

In considering a nearly identical claim, the Third Circuit held that
imposing sanctions under § 1927 without prior notice violated due
process. See Jones v. Pittsburgh Nat'l Corp., 899 F.2d 1350 (3d Cir.
1990). According to the Third Circuit, minimum due process is not
_________________________________________________________________
1 28 U.S.C. § 1927 provides:

          Any attorney or other person admitted to conduct cases in any
          court of the United States or any Territory thereof who so multi-
          plies 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.

                     6
satisfied by the mere existence of § 1927; particularized notice is
required. See id. at 1357. The court reasoned that because the appel-
lant was unaware that § 1927 was being relied upon, he had no notice
of the particular factors he must address in order to avoid sanctions.
See id.

While this court has not addressed the same issue, it has indicated
that it might adopt a different view. Green v. Foley, an unpublished
Rule 11 decision of this court relied upon by Fox, held that the exis-
tence of the rule in itself gives some notice to attorneys. 907 F.2d
1137, 1990 WL 86210 at *4 (4th Cir. June 6, 1990), cert. denied, 498
U.S. 900 (1990). The court pointed out that a separate evidentiary
hearing is not usually required before imposing Rule 11 sanctions,
particularly where the relevant evidence has already been included in
the record. In In Re Kunstler, 914 F.2d 505, 521 (4th Cir. 1990), cert.
denied sub nom. Kunstler v. Britt, 499 U.S. 969 (1991), we noted that
"satellite litigation over sanctions should be limited to the extent pos-
sible . . . to the record."

In addition to notice provided by the mere existence of § 1927, Fox
argues that, as the district court reasoned, Cohen received adequate
notice because Fox's Rule 11 motion was "briefed and heard by the
court on the theory that Cohen pursued the lawsuit against Fox long
after it should have been dismissed." Cohen had the opportunity to
justify the conduct that Fox identified as sanctionable and chose not
to do so.

While the district court was certainly justified in considering some
possible sanctions against Cohen, we are persuaded by the Third Cir-
cuit's view that due process requires notice designed to inform the
respondent of what matters he must address to avoid sanctions. In
defending against Rule 11 sanctions, Cohen was free to choose
whether to justify his continued prosecution of the case or to argue
that such conduct was not sanctionable under Rule 11. That Rule 11
did not apply was a clear-cut argument; it was unnecessary for Cohen
to attempt to justify his post-summary judgment motion conduct. If
he had been forewarned that sanctions were also to be considered
under § 1927, Cohen would have known that he had to address the
vexatious prosecution issue in order to avoid sanctions.

                     7
Factoring in cost and efficiency issues, it does not seem particu-
larly burdensome, costly, or time-consuming to have provided Cohen
an opportunity to respond to the § 1927 issues.

Fox argues that providing notice would not have significantly
improved the accuracy of the district court's decision because Cohen
had no basis to justify his conduct. Fox argues further that because the
district court was completely familiar with the case and had before it
all the relevant facts, Cohen could add nothing to aid the decision-
making process. We might agree that, in making its determinations
based on highly objective standards, the district court had all the rele-
vant facts before it and additional process would contribute nothing
to accuracy or fairness. But the importance of the professional and
financial interest at stake and principles of due process mandate great
caution before assuming that the court knows all it needs to know and
the respondent has nothing to add.

The inquiry into whether an attorney has multiplied the proceed-
ings "unreasonably and vexatiously" is an inherently subjective one
in which an attorney's testimony about what information was avail-
able at the time, available alternatives, client pressures, and the exis-
tence of good or bad faith may be relevant. The assertion that, even
if Cohen had had notice, he could not possibly have justified his con-
duct and avoided sanctions under § 1927 is belied by Cohen's brief
to us which convincingly argues that he acted neither unreasonably
nor vexatiously in deposing the defendants. Although his arguments
may not have won in the district court, they would have been relevant
and helpful.

Under other circumstances, we would vacate the district court's
award of sanctions under § 1927 and remand the issue to the district
court for further proceedings after proper notice and a reasonable
opportunity to be heard was accorded to Cohen. However, we hold on
these facts that Cohen's conduct did not constitute a violation of
§ 1927 as a matter of law.

The district court imposed sanctions under § 1927 because it found
that Cohen "continued a meritless lawsuit far beyond the time when
it should have been dismissed." J.A. at 221. The court found that
Cohen recklessly maintained a claim he knew to be factually

                     8
unsupported--conduct tantamount to bad faith. In pursuing the merit-
less claim against Fox, Cohen caused Fox unnecessary costs,
expenses and attorney's fees.

As an attorney, Cohen had an obligation to zealously represent his
client which required him to attempt to verify the accuracy of the
defendants' affidavits, rather than accept them at face value. The
depositions constituted reasonable and limited investigation into the
nature of Fox's involvement with investigator Denney. After the
depositions confirmed information in the affidavits, Cohen offered to
settle the claim, then advised his client to dismiss the claims against
Fox, then withdrew from the case. Current case law does not establish
clear standards and direction for attorneys caught between the
requirement not to prosecute a meritless claim and the duty to zeal-
ously represent a client.

Without a doubt, Cohen's ill-considered conduct caused additional
and unnecessary costs. Overall, though, this is one of those cases
where the line dividing a yet uninvestigated case from a meritless
case is easier to make in hindsight then it was for the attorney at the
time. While, clearly, Cohen did not draw the line in the right place,
he persuades us he did not act with the purpose of increasing costs for
the defendants.

We hold as a matter of law that Cohen did not engage in sanction-
able conduct under § 1927 and that the district court's award of §
1927 sanctions must be reversed. The district court abused its discre-
tion by awarding § 1927 sanctions in this case.2

III.

Cross-Appellant Fox argues that the district court abused its discre-
tion in denying her motion for sanctions under Rule 11. Rule 11,
designed to deter baseless lawsuits, requires that
_________________________________________________________________
2 Since we reverse the award of§ 1927 sanctions as a matter of law, we
need not consider whether the district court erred in fixing the amount
of the sanctions under § 1927 in this case, since sanctions imposed in any
amount were unjustified.

                    9
          to the best of the person's knowledge, information and
          belief, formed after an inquiry reasonable under the circum-
          stances, [a court document]

          (1) is not being presented for any improper purposes . . . ;

          (2) the claims, defenses, and other legal contentions therein
          are warranted by existing law or by a nonfrivolous argument
          for the extension, modification, or reversal of existing law
          or the establishment of new law;

          (3) the allegations and other factual contentions have evi-
          dentiary support or, if specifically so identified, are likely to
          have evidentiary support after a reasonable opportunity for
          further investigation or discovery; . . .

Fed. R. Civ. P. 11(b).

In considering Rule 11 sanctions, a court should first focus on the
objective inquiry into "whether a reasonable attorney in like circum-
stances would believe his actions to be legally and factually justified."
NCNB Nat'l Bank v. Tiller, 814 F.2d 931, 941 (4th Cir. 1987),
overruled on other grounds by Busby v. Crown Supply, Inc., 896 F.2d
833 (4th Cir. 1990). We use a three pronged inquiry to analyze Rule
11 issues: 1) whether the complaint was well grounded in fact; 2)
whether the complaint was well grounded in law; and 3) whether the
complaint was filed for an improper purpose. See Kunstler, 914 F.2d
at 513.

The district court found that Cohen engaged in a reasonable inquiry
into the facts and the law before he filed the action. The court found
that, given the limited time available for investigation before the stat-
ute of limitations ran, Cohen's investigation was adequate and that
sufficient circumstantial evidence existed to state a cause of action
against Fox. The court also found that Cohen undertook a reasonable
investigation of the law, including legal research and expert consulta-
tion. Cohen's analysis, while incorrect in the court's view, was never-
theless well grounded in the law or in a good faith argument for the
extension, modification, or reversal of existing law. Finally, the dis-
trict court found insufficient evidence of any improper purpose.

                     10
We believe that the district court applied the correct legal analysis
and that its decision was supported by the record. We do not believe
that the district court abused its discretion in rejecting the Rule 11
sanctions and we affirm its decision on that aspect of the case.

IV.

We hold as a matter of law that Cohen was not guilty of conduct
sanctionable under § 1927 and that the district court's award of
§ 1927 sanctions was an abuse of discretion and must be reversed. We
affirm the district court's decision rejecting Fox's motion for Rule 11
sanctions.

AFFIRMED IN PART; REVERSED IN PART

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