                     IN THE COURT OF APPEALS OF TENNESSEE
                                 AT NASHVILLE
                                              July 10, 2001 Session

                   YONA BOYD, ET AL. v. PRIME FOCUS, INC., ET AL.

                    Direct Appeal from the Chancery Court for Davidson County
                           No. 99-3716-II   Carol L. McCoy, Chancellor



                       No. M2000-02105-COA-R3-CV - Filed December 5, 2001


This case began as a dispute between the plaintiffs and their employers. The defendant was awarded
summary judgment, and plaintiffs were sanctioned by the court pursuant to Rule 11 of the Tennessee
Rules of Civil Procedure. Plaintiffs now appeal this sanction. We affirm sanctions but modify the
order.

    Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed as
                                 Modified; and Remanded

DAVID R. FARMER , J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and HOLLY K. LILLARD, J., joined.

David E. Danner, Nashville, Tennessee, for the appellants, Yona Boyd and Brenda Collier.

Thomas L. Whiteside, Nashville, Tennessee, for the appellees, Prime Focus, Inc., Donald Bruce,
M.D. and D&C Property Management Corp.

                                                       OPINION

        This dispute originated in August of 1999, when Plaintiffs/Appellants (“Plaintiffs”) filed suit
in Chancery Court for Davidson County against Donald Bruce, M.D. (“Dr. Bruce”) and D&C
Property Management Corp. (“D&C”) alleging breach of employment contract. For simplicity, we
shall refer to this as “Boyd I.” In response, Dr. Bruce and D&C filed a motion to dismiss for failure
to state a claim and failure to join an indispensable party. The claim was heard on November 19,
1999, and the trial court found that no employer-employee relationship existed between the parties,
and that an employer-employee relationship did exist between the Plaintiffs and Prime Focus, Inc.1


         1
          The trial court based this finding on the emp loyment hand boo k which Plaintiffs attached to their co mplaint.
The court’s order stated: “The Trial Court after taking all of the factual allegations contained in the Comp laint as true
and construing the Compla int liberally in favor of the plaintiffs, the court finds, based upon the plaintiffs[’] allegations
                                                                                                               (continued...)
Accordingly, on December 8, 1999, the trial court granted the motion to dismiss for failure to state
a claim and failure to join an indispensable party. Plaintiffs did not appeal this order.

         Plaintiffs next filed suit in chancery court against Prime Focus, Inc. (“Prime Focus”) in
December of 1999, which we shall refer to as “Boyd II..” In February of 2000, Prime Focus filed
a Tenn. R. Civ. P. 12.02(6) motion to be considered a motion for summary judgment under Rule 56,
arguing that Plaintiffs were employed by Dr. Bruce and D&C. The trial court denied this motion for
failure to comply with Tenn. R. Civ. P. 56.03, but stated that Prime Focus could still file a motion
for summary judgment. The trial court ultimately granted summary judgment to Prime Focus on
June 6, 2000.

        During the course of litigation in Boyd II, the question again arose as to whether the Plaintiffs
were actually employed by Prime Focus or by Dr. Bruce and D&C. Plaintiffs thus filed a motion
for leave to join Dr. Bruce and D&C as indispensable parties on February 25, 2000, and filed an
amended complaint on March 10, 2000, to include Dr. Bruce and D&C. Prime Focus did not
respond to the motion, and it was therefore granted on March 22, 2000. We note, however, that
leave to amend had not yet been granted by the court when Plaintiffs in fact filed the amended
complaint.2 Dr. Bruce and D&C responded through counsel to Plaintiffs’ counsel, advising him that
the complaint against Dr. Bruce and D&C was unwarranted due to the court’s action in Boyd I,
where Plaintiffs’ cause of action was dismissed for failure to state a claim. This response notified
Plaintiffs that Dr. Bruce and D&C would seek sanctions pursuant to Tenn. R. Civ. P. 11 if the
amended complaint was not withdrawn.3 The complaint was not withdrawn, and in May of 2000,
Dr. Bruce and D&C filed a Rule 11 motion for sanctions against Plaintiffs, Plaintiffs’ counsel or
both. Dr. Bruce and D&C moved that the complaint against them be dismissed per the decision in
Boyd I, and requested expenses and attorney’s fees.

       The issue of sanctions was heard by the trial court on June 2, 2000. After hearing arguments
by counsel for both parties, and after reviewing the entire records of Boyd I and Boyd II, the court
ordered that the amended complaint of March 10, 2000, joining Dr. Bruce and D&C, be stricken


         1
            (...continued)
contained in ¶ 5 of the Complaint and the do cument attached to Plaintiffs[’] complaint as attachment one, finds that the
emp loyer-em ployee relationship w as governed by the document which plaintiffs relied upon in their C omp laint. Said
document unequivo cally establish[es] the existence of an employer-employee relationship by and between the named
plaintiffs and Prime Focus, Inc.”

         2
          The Tennessee Rules of Civil Procedure permit a party to amend his complaint once without leave of the court
if no responsive pleading has yet been served by the opposing party. Once a responsive pleading has been served,
however, the party must secure w ritten agre ement from the op posing party or leave of the co urt to am end. Leave to
amend is liberally granted. Tenn. R. Civ. P. 15.01.

         3
           Rule 11.03 provides that sanctions may be initiated by motion of a party or on the initiative of the court. When
made by mo tion, the m otion must be serve d as p rovid ed in R ule 5, b ut may not be filed with the court until 21 d ays after
service, providing the party against whom it is served opp ortunity to make approp riate corrections before consideration
by the court. Tenn. R. Civ. P. 11.03(1)(a), (b).

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from the record. The court further granted the motion for sanctions, and awarded Dr. Bruce and
D&C $1,337.50 in attorney’s fees and expenses. It is this order which Plaintiffs now appeal.

       The issue in this case, as we perceive it, is whether the trial court erred by imposing Rule 11
sanctions on the Plaintiffs.

        Our review of the trial court’s ruling on a Rule 11 motion is under an abuse of discretion
standard. Krug v. Krug, 838 S.W.2d 197, 205 (Tenn. Ct. App. 1992). An abuse of discretion occurs
when the decision of the lower court has no basis in law or fact and is therefore arbitrary, illogical,
or unconscionable. State v. Brown & Williamson Tobacco Corp., 18 S.W.3d 186, 191 (Tenn.
2000). Our review of Rule 11 decisions is governed under this deferential standard since the
question of whether a Rule 11 violation has occurred requires the trial court to make highly fact-
intensive determinations regarding the reasonableness of the attorney’s (and client’s) conduct. Krug,
838 S.W.2d at 205. We review the trial court’s findings of fact with a presumption of correctness.
Tenn. R. App. P. 13(d).

        When an attorney signs a motion, document, or other paper submitted to the court, he
certifies to the court that he has read it, that he has reasonably inquired into the facts and law it
asserts, that he believes it is well-grounded in both fact and law, and that he is acting without
improper motive. Andrews v. Bible, 812 S.W.2d 284, 287 (Tenn. 1991). The purpose of Rule 11
sanctions is to emphasize to the attorney that his signature is not meaningless, but conveys a message
to the court for which he alone is responsible. Andrews, 812 S.W.2d at 288. Rule 11 establishes
that an attorney who signs such a paper without the required belief is subject to appropriate sanction
by the court. Id. It has been characterized by this State’s Supreme Court as a “potent weapon that
can and should be used to curb litigation abuses.” Id. at 292. However, our Supreme Court has
cautioned that while trial courts should impose sanctions when a Rule 11 violation is found, it should
do so only with the utmost care. Id. Such sanctions may include payment of the opposing party’s
legal expenses. Id. at 288.

         The Tennessee Supreme Court has established the standard for determining whether an
attorney’s conduct is sanctionable under Rule 11 as one of objective reasonableness under the
circumstances. Id. The reasonableness of the attorney’s belief must be evaluated in light of the
circumstances as they existed when the document was signed. Id. Sanctions are appropriate when
an attorney submits a motion or other paper on grounds which he knows or should know are without
merit, and a showing of subjective bad faith is not required. Alside Supply Center of Knoxville v.
Smith Heritage Siding Co., No. 03A01-9702-CH-00069, 1997 WL 414982, at *2 (Tenn. Ct. App.
July 25, 1997) (no perm. app. filed). When assessing whether a Rule 11 violation has occurred, the
trial court should consider all circumstances bearing on the reasonableness of the attorney’s conduct,
including his experience and past performance and the general standards of conduct of the bar, and
whether his actions were the result of neglect, willfulness, incompetence or deliberate choice.
Andrews, 812 S.W.2d at 293, FN4.




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        In imposing sanctions in this case, the trial court found that the doctrine of res judicata
barred Plaintiffs from pursing their claims against Dr. Bruce and D&C in Boyd II. Res judicata bars
a second suit between parties or their privies on the same claim. It precludes a second suit with
respect to all issues which were or which could have been litigated in the first action. Hampton v.
Tennessee Truck Sales, Inc., 993 S.W.2d 643, 645 (Tenn. Ct. App. 1999). The doctrine applies
only to final judgments on the merits. See id. An order granting a Tenn. R. Civ. P. 12.02(6) motion
to dismiss for failure to state a claim upon which relief can be granted is an adjudication on the
merits. Dyer v. Intera Corp., 870 F.2d 1063, 1066 (6th Cir. 1989). A dismissal for failure to join
an indispensable party, however, does not act as an adjudication upon the merits. Id.; ROBERT
BANKS , JR., ET AL., TENNESSEE CIVIL PROCEDURE §11-5(b) (1999). It is within the discretion of the
trial court to specify that a claim has been dismissed without prejudice, or that the dismissal shall
not operate as an adjudication on the merits. Id. §11-5(b). If the order of the trial court dismissing
an action for failure to state a claim does not specify that it is without prejudice or that it should not
operate as an adjudication on the merits, the order should be treated by the enforcing court as an
adjudication on the merits. Id.

        On appeal, Plaintiffs argue that the doctrine of res judicata does not apply to the trial court’s
order of December 1999, which granted Dr. Bruce and D&C’s motion to dismiss in Boyd I. Plaintiffs
contend that the only issue addressed in the order in Boyd I was the question of the appropriate party.
Accordingly, Plaintiffs submit that the decision was not a decision on the merits or a final
adjudication, but a procedural order which allowed the cause of action to survive.

        We cannot agree with this argument. In its order in Boyd I, the trial court specifically found:
1) Plaintiffs’ claims were dependent on the existence of an employer-employee relationship between
the Plaintiffs and Defendant; 2) that an employer-employee relationship existed between Plaintiffs
and Prime Focus; 3) that Prime Focus was an indispensable party to the claim; and, 4) that no
employer-employee relationship existed between Plaintiffs and Dr. Bruce and D&C. The trial court
thus granted the motion to dismiss for failure to state a claim, as well as for failure to join an
indispensable party. This was not a procedural order, nor did the court specify that it was not to be
considered an adjudication on the merits. We read the order as plainly granting the motion to
dismiss for failure to state a claim. Since it was not appealed, this order became a final judgment
30 days after entry. Tenn. R. Civ. P. 59.02; see Jerkins v. McKinney, 533 S.W.2d 275 (Tenn. 1976).
Once this order became final, the doctrine of res judicata operated to bar Plaintiffs from asserting
a claim against Dr. Bruce and D&C which was or which could have been litigated in the first action.
Clearly, the question of whether an employer-employee relationship existed between the parties not
only could have been but in fact was an issue resolved in Boyd I.

         Plaintiffs further assert that even if res judicata did apply, the trial court’s subsequent orders
in Boyd II essentially nullified what Plaintiffs characterize as the “procedural order” in Boyd I. We
cannot agree with this contention. The order in Boyd I was not procedural. It did not grant Dr.
Bruce’s and D&C’s motion to dismiss only for failure to join an indispensable party, but also for
failure to state a claim upon which relief can be granted. Plaintiffs’ proper course of action would
have been to appeal the order in Boyd I, not to merely reassert the claim in Boyd II.


                                                   -4-
        Plaintiffs also argue that Dr. Bruce and D&C should have raised res judicata as an
affirmative defense, rather than using it as the basis for sanctions. Plaintiffs assert that Rule 11 was
used as a “scare tactic . . . with the complicity of a court that was willing to shift blame to appellants
and their counsel for its own prior error . . . .” Regardless of how the Rule 11 “tactic” was used by
opposing party, a Rule 11 sanction is imposed by the court at its informed discretion based on an
examination of the facts and history of the case in question. We suggest that if Plaintiffs believed
the court’s action in Boyd I to be in error, Plaintiffs should have appealed that action in a timely
manner pursuant to Tenn. R. App. P. 3. Plaintiffs cannot fail to appeal and then simply reassert the
same claim in a later action. Whether the court erred in dismissing the claim in Boyd I, and we do
not suggest that it did so err, Plaintiffs’ remedy is to appeal, not to seek an end-run around the rules
by raising a claim they know or reasonably should know is res judicata.

        Plaintiffs’ final assertion is that the court in Boyd II erred when it found that Plaintiffs failed
to secure leave of the court before amending their complaint against Prime Focus to join Dr. Bruce
and D&C. As we understand it, Plaintiffs assert that they were not required to seek leave of the court
to amend their complaint because, although an answer had been filed by Prime Focus, no answer had
been filed by Dr. Bruce and D&C, to whom the amendments applied. This argument is without
merit and reflects Plaintiffs’ misreading of the rules. Tenn. R. Civ. P. 15.01 permits a party to
amend his complaint once as a matter of course before a responsive pleading is served. Once a
responsive pleading has been filed by the named opposing party, that party’s written consent or leave
of the court is required for later amendments. See ROBERT BANKS , JR., ET AL., TENNESSEE CIVIL
PROCEDURE , § 5-7(d) (1999). Since the defendant in Boyd II, Prime Focus, had filed an answer,
leave of the court was required for Plaintiffs to amend their complaint. The record shows that
Plaintiffs improperly filed their amendment on March 10, 2000, before obtaining leave of the court
to do so.

        In light of the foregoing, we must determine whether the trial court abused its discretion in
imposing Rule 11 sanctions on Plaintiffs in its July 2000 order. The court ordered sanctions after
finding that Plaintiffs failed to comply with Rule 15, in that Plaintiffs did not obtain leave of the
court before amending their complaint in Boyd II. The court further found that the December order
in Boyd I clearly granted Dr. Bruce and D&C’s motion to dismiss, and that the doctrine of res
judicata therefore barred Plaintiffs from asserting the same claim against Dr. Bruce and D&C in a
subsequent case. Plaintiffs were properly notified that Dr. Bruce and D&C would seek sanctions,
and were given the opportunity to withdraw their claim as required by Tenn. R. Civ. P. 11.03.
Considering the circumstances as they existed at the time Plaintiffs filed their amended complaint
joining Dr. Bruce and D&C, Plaintiffs’ counsel should have known that the December order in Boyd
I, which Plaintiffs failed to appeal, was a final judgment on the merits and thus precluded litigation
of the same claim against the same parties in Boyd II. Plaintiffs’ counsel also should have known
that leave of the court was required before the amended complaint could be filed. We therefore do
not find that the trial court abused its discretion in imposing Rule 11 sanctions.

        While we affirm the imposition of sanctions, we modify the trial court’s order to the extent
that judgment was awarded against Plaintiffs. The trial court’s order states, “IT IS FURTHER


                                                   -5-
ORDERED, ADJUDGED AND DECREED that the defendants, Donald Bruce, M.D. and D&C
Property Management Corp., Inc., are awarded a [judgment] against plaintiffs in the amount of One
Thousand Three Hundred Thirty-Seven Dollars ($1,337.50) and Fifty Cents, for which execution
may issue if necessary.” We modify this order and award judgment against Plaintiffs’ counsel, David
Danner, rather than against Plaintiffs in this cause of action.

         Dr. Bruce and D&C requested this Court to regard this appeal as frivolous. We decline to
do so.

        The order of the trial court is affirmed as modified in this opinion. Costs of this appeal are
taxed to the Appellants’ counsel, David E. Danner, for which execution may issue if necessary.



                                                       ___________________________________
                                                       DAVID R. FARMER, JUDGE




                                                 -6-
