
USCA1 Opinion

	




               [Systems note: Appendix available from Clerk's Office.]                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                _____________________        No. 92-2030                            ROBERTO NAVARRO-AYALA, ET AL.,                                Plaintiffs, Appellees,                                          v.                           RAFAEL HERNANDEZ-COLON, GOVERNOR                     OF THE COMMONWEALTH OF PUERTO RICO, ET AL.,                               Defendants, Appellants.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF PUERTO RICO                    [Hon. Hector M. Laffitte, U.S. District Judge]                                              ___________________                                 ____________________                                        Before                                 Breyer, Chief Judge,                                         ___________                        Torruella and Boudin, Circuit Judges.                                              ______________                                 ____________________            Carlos A. Del  Valle Cruz with  whom Ramirez  & Ramirez, Jorge  E.            _________________________            __________________  _________        Perez Diaz,  Secretary of Justice,  Commonwealth of  Puerto Rico,  and        __________        Anabelle  Rodriguez, Solicitor General,  Commonwealth of  Puerto Rico,        ___________________        were on brief for appellants.            Carlos Garcia  Gutierrez with whom  Armando Cardona Acaba,  Puerto            ________________________            _____________________   ______        Rico Legal Services, Inc.,  and Luis M.  Villaronga were on brief  for        _________________________       ___________________        appellees.                                 ____________________                                   August 20, 1993                                 ____________________                       BREYER, Chief Judge.  Kenneth Colon, an  attorney,                               ___________             appeals  a $500  sanction  that the  district court  imposed             after  finding that he had  violated Rule 11  of the Federal             Rules of  Civil Procedure.    The district  court based  the             sanction upon a motion  that Colon signed, on behalf  of the             Commonwealth of Puerto Rico, which asked the court to reduce             the compensation paid  to a special master.  After reviewing             the  motion and the record, we find no violation of Rule 11.             We conclude that the  sanction is without basis in  law, and             reverse the order imposing it.                                          I                                      Background                                      __________                       The  sanction  arose  in  the  context of  lengthy             litigation seeking  to reform  part of Puerto  Rico's mental             health system.  See, e.g., Navarro-Ayala v. Hernandez-Colon,                             ___  ____  _____________    _______________             956 F.2d 348 (1st Cir. 1992).  In 1974, a  group of patients             at Rio Piedras Hospital filed suit, claiming that conditions             there  violated  the federal  Constitution.    In 1977,  the             district  court entered  a Stipulation,  agreed upon  by the             parties, which  prescribes  reforms and  sets standards  for             care and treatment.  In 1985, the district court appointed a             Special Master  who, assisted  by  a staff,  was to  monitor             compliance  with the  Stipulation.   In  1987, the  district             court  began to  interpret  the Stipulation  as applying  to             other hospitals  in Puerto  Rico (at least  insofar as  they             treated patients transferred from Rio Piedras).  The Special             Master  began  to  monitor  treatment  conditions  and  seek             compliance  with the  Stipulation  at, at  least, one  other             hospital.                         In late 1991, this court held that the Stipulation             applied  only to conditions  at Rio Piedras;  in the court's             view,  the  parties  had   not  agreed  to  its  application             elsewhere.  Navarro-Ayala v. Hernandez-Colon, 951 F.2d 1325,                         _____________    _______________             1346 (1st Cir. 1991) ("Navarro I"). The court's opinion also                                    _________             observed that  Rio Piedras  Hospital seemed  to be  close to             achieving full compliance with the Stipulation's conditions.             Id. at 1329  n.3.  About one  month later, in  January 1992,             ___             the district  court reappointed the Special  Master, and his             monitoring staff, to serve until the end of the year.                       In  February  1992,  the  Commonwealth  filed  the             motion,  signed by  attorney Colon,  that is the  subject of             this  appeal.    The  motion  asked the  district  court  to             reconsider its  January  1992 reappointment  of the  Special             Master,  to   reduce  the  length   of  the  term   of  that             reappointment, to reduce the  level of compensation paid the             Master and his staff, and to relieve the Commonwealth of the                                         -3-                                          3             burden of paying for  a year's worth of  monitoring services             in advance.  After considering and rejecting the motion, the             district court decided that its signer had violated Rule 11.             The  district  court  ordered  a  sanction  of  $500.    The             sanctioned attorney, Kenneth Colon, now appeals.                                          II                             Review of the Sanction Order                             ____________________________                       Under  Rule 11  (in relevant part),  an attorney's             signature on a motion  paper certifies that "to the  best of             the signer's knowledge, information  and belief formed after             reasonable inquiry,  [the motion]  is well grounded  in fact             and  is warranted by existing  law or a  good faith argument             for the extension, modification, or reversal of existing law             . . ."   Fed. R. Civ.  P. 11.  The  district court concluded             that the signer of the motion paper  before us failed in his             duty  to undertake  reasonable inquiry.   In  reviewing that             holding,  we  must  take  account of  that  court's  greater             familiarity with  relevant context, and "apply  an abuse-of-             discretion standard."  Cooter & Gell  v. Hartmarx Corp., 496                                    _____________     ______________             U.S.  384, 399  (1990).   See  also  Muthig v.  Brant  Point                                       _________  ______     ____________             Nantucket,  Inc.,  838  F.2d   600,  603  (1st  Cir.  1988).             ________________             Applying that standard,  we have found  no lawful basis  for             applying a sanction in this case.                                         -4-                                          4                       The reader can most easily understand why we reach             this conclusion  by examining attorney Colon's motion paper,             attached to this  opinion as an Appendix.   Just what  is it             about this paper, one might rightly ask, that would  violate             Rule 11?  The  document makes three  requests.   First,  the             motion  asks the  district  court to  reappoint the  Special             Master to a  term shorter than  an additional (nearly)  full             year.   It relies on the fact that our then-recent Navarro I                                                                _________             opinion  both   1)  limited   the  Stipulation's  scope   to             conditions at Rio Piedras  Hospital, and 2) referred  to Rio             Piedras' conditions  as close  to compliance.   In light  of             those reasons,  the motion asserts that  the Master's duties             under the Stipulation  may be less  extensive in the  coming             year than the  district court had previously  thought.  And,             it  claims   that  the   parties'   briefs  discussing   the             implications of Navarro I  (scheduled for submission in mid-                             _________             March) would clarify the more limited scope  of those future             duties.                       Second, the motion asks  the district court not to             require  the Commonwealth  to "prepay[]"  a year's  worth of             monitoring services,  for such payment  would be "premature"             given  that "the need for  and extent of  these services has             not been defined."  It adds that there "is no reason why the                                         -5-                                          5             required  monitoring  services cannot  be  compensated after             ________             their  performance .  . . ."   As  authority, it  cites Rule             53(a) of the  Federal Rules of Civil  Procedure, which gives             federal  courts  broad  authority  to  structure  a  special             master's  compensation.     See   Fed.  R.  Civ.   P.  53(a)                                         ___             (compensation shall be paid "as the court may direct").                       Third,   the   motion   opposes   the   rates   of             compensation for the Special Master  and staff set forth  in             the court-approved  budget.  The  motion, in an  Appendix A,             presents   a  chart   which  says,   in  effect,   that  the             Commonwealth  compensates  its  judges,   inferior  judicial             officers, and comparable health care personnel at much lower             rates of  pay.  And the motion,  in referring to Rule 53(a),             makes clear that  the district court has  wide discretion to             set the proper amount of compensation.   See Fed. R. Civ. P.                                                      ___             53(a) (compensation "shall be fixed by the court").                       The  district  court  based its  Rule  11  finding             primarily  upon  the  motion's  third   request,  seeking  a             reduction   in  compensation.     The  January   1992  order             reappointing the Special Master provided for compensation at             the following hourly rates:                       Special Master              $100.00                        Special Master's assistant    30.00                                         -6-                                          6                       Psychiatrist                  75.00                       Psychologist                  75.00                       Social worker                 60.00                       Occupational therapist        25.00                       Quality assurance director    25.00             The  appellant's  motion in  opposition  set  forth (in  its             Appendix A) a different  and much lower set of  hourly rates             at   which,  it  said,   the  Commonwealth  paid  comparable             employees:                       Superior Court judge          $27.00                       Superior Court law clerk       10.00                       Psychiatrist                   11.20                       Psychologist                   11.20                       Social worker                   9.80                       Occupational therapist          7.90                       Quality assurance director      7.90             The district  court took objection to  this latter schedule.             The  court said that this  schedule did not  reflect the pay                                                     ___             that many  health care professionals  in the  Commonwealth's             employ actually receive.  The court said further  that Colon             had  failed to make a  reasonable prefiling inquiry into the                                    ____________________________             actual pay of such  professionals before suggesting Appendix             A's pay  scales, which  were "drastically below  the staff's             current  rates."   These  suggested  pay  scales, the  court             added, were  "insulting to the professionals  on the Special             Master's staff."                         In  our  view, the  record  does  not support  the             district court's conclusion that  Rule 11 required  attorney                                         -7-                                          7             Colon to make a further inquiry.   For one thing, the object             of  Rule 11's inquiry  requirement is to  avoid filings that             are baseless.  See  Fed. R. Civ. P. 11  (signature certifies                            ___             that "to the  best of the  signer's knowledge  . . .  formed             after reasonable  inquiry, [the motion] is  well grounded in             _________________________                   ________________             fact and  is warranted" by  law) (emphasis added);  Cooter &             ____      _____________________                     ________             Gell, 496 U.S. at 393 ("the central purpose of Rule 11 is to             ____             deter  baseless  filings").    Here, the  inquiry  that  the             district court believed the appellant should have made would             not  have  shown the  motion  to be  baseless  (i.e. legally             ___             unwarranted,  or without  adequate factual  grounding).   It             would   simply  have   weakened,  without   destroying,  the                                    ________             Commonwealth's argument.                        More specifically, the inquiry would have shown 1)             that the motion's Appendix A accurately reflects an official             Commonwealth pay scale, set by its central personnel agency,             for  permanent health  care professionals,  but 2)  that the                  _________             Commonwealth   hires  many   (perhaps   most)  health   care             professionals, not as permanent employees, but under special             contractual arrangements at higher rates.   In light of that             showing,  the   Commonwealth  might  have   found  it   more             difficult, but not  at all impossible,  to proceed with  its             claim for  lower compensation  on the  basis of  Appendix A.                                         -8-                                          8             The  legal standards  governing special  master compensation             leave much to the district court's discretion.  Fed. R. Civ.             P.  53(a).   And, an  effort to  tie the Special  Master and             staffs'  compensation more directly to judicial compensation             and   to   an   "official"   (though   frequently   skirted)             Commonwealth pay scale is plausible, and within the realm of             reasonable argument, even if that argument eventually  would             not  carry the day.  Cf. Newton v. Consolidated Gas Co., 259                                  ___ ______    ____________________             U.S. 101, 105 (1922)  (special master's compensation  should             be  "liberal, but  not exorbitant";  salaries "for  judicial             officers performing similar duties are valuable guides," but             a "higher rate of compensation is generally necessary").                        For  another thing, the  motion paper's failure to             set  forth  a  more  complete account  of  Commonwealth  pay             practices did not  impose significant additional  costs upon             the opposing party. See, e.g., Unioil, Inc. v. E.F. Hutton &                                 ___  ____  ____________    _____________             Co.,  809 F.2d 548, 557 (9th Cir. 1986) (cost of foreseeable             ___             response by  opposing parties relevant for  determining what             constitutes reasonable inquiry), cert. denied,  484 U.S. 822                                              ____________             (1987);  Jerold  S.  Solovy  et al.,  Sanctions  in  Federal                                                   ______________________             Litigation    2.04 at  2-18 (1991)  (magnitude of  burden in             __________             responding to filing  affects thoroughness of  investigation             that must  be performed).   That party, the  Special Master,                                         -9-                                          9             and the Master's staff, all had ready access to the relevant             compensation-related facts and quickly  brought them to  the             court's attention.   Of  course, presenting these  facts did             cost the opposing party  some time and effort.  But  Rule 11             normally  does not require one  party to uncover  and to set             forth the facts that support the other side's  position. Cf.                                                                      ___             Continental Air  Lines, Inc. v.  Group Systems International             ____________________________     ___________________________             Far East, Ltd., 109  F.R.D. 594, 598 (C.D. Cal.  1986) (Rule             ______________             11  does not impose general duty to call all important facts             to court's attention).                        Finally, the  motion, read fairly and  as a whole,             contains no  significant false statement  that significantly             harmed the other side.  We emphasize the word  "significant"             because  the district  court  found one  sentence  literally             false.  That sentence  says that the "rates of pay"  for the             Master's  staff "outpace by a factor of  6 or more to 1, the             rates of  pay  of their  counterparts in  the Public  Health             System."  This statement is not literally false, if one uses             the  "official"  pay  scale  for permanent  employees  as  a             comparison;  in  light of  actual  pay  practices, we  would             characterize   it   as    "overstatement"   or    "one-sided             characterization."   But were  it  literally inaccurate,  it             would   not  matter,   for   Rule   11   neither   penalizes                                         -10-                                          10             overstatement  nor authorizes  an overly literal  reading of             each  factual  statement.   Forrest  Creek  Assoc., Ltd.  v.                                         ____________________________             McLean Sav. and Loan Ass'n, 831 F.2d 1238, 1244-45 (4th Cir.             __________________________             1987) (Rule 11 "does not extend to isolated factual  errors,             committed in good faith, so long as the pleading as a  whole             remains  `well  grounded  in  fact.'");  Gregory P.  Joseph,             Sanctions: The  Federal Law  of Litigation  Abuse   9(D)  at             _________________________________________________             133-34 (1989)  ("The focus of .  . . Rule [11]  is the court             paper  as  a  whole,  not individual  phrases  or  sentences             construed separately or  taken out  of context. .  . .  [A]t             some level of analysis,  every unsuccessful litigation paper             contains an unsupported allegation or flawed argument").                           The   district   court   provided  several   other             justifications for  its sanctions.   It said that  Colon, in             the  motion  paper,  (1)  should  not  have  used  the  word             "bilking,"  (2)   should  not   have  called   the  payments             "burdensome" without first investigating the actual "effects             of these payments on the Department of Health's budget," (3)             should  not have said the litigation was in the "final stage             of proceedings" without asking government officials "if full             compliance  and an  end to this  case were in  fact close at             hand," and (4) should not have asked to change the budgeting                                         -11-                                          11             process without  first finding  out "how the  Special Master             had been paid in the past."                         In our view, these  circumstances do not justify a             Rule  11  sanction,  whether considered  separately  or  all             together.    (1)  We  concede that  the  word  "bilking"  is             pejorative and,  insofar  as it  implies  cheating,  without             justification.    We also  concede  the  obvious point  that             argument  made to a  judge is more  appropriate (and usually             works better)  without pejoratives.  But to find support for             a  Rule 11 sanction in  appellant's use of  a single, rather             mild  (albeit  unjustified)  pejorative,   is  to  impose  a             standard  of perfection  that  few lawyers  or judges  would             meet.    We  are  not  aware  of  any  reason  or  authority             suggesting that Rule 11 imposes such a standard.                                                                                          (2)   The  motion  paper  does  call  the  Special             Master's  budget "burdensome,"  but  we  do  not  understand             where,  or how, Rule 11 forbids such a characterization.  No             one disputes that the  total amount of the Special  Master's             court-approved budget  is $171,000.   Nothing in  the record             suggests   that   the   Commonwealth   found   this   amount             insignificant;  nor  do  we  understand  either  how further             consultation   with  government  officials  would  have  led             attorney Colon  to change  the characterization, or  how the                                         -12-                                          12             use of  the word "burdensome" made  a significant difference             to the litigation.                       (3) Neither do we understand  how, or why, Rule 11             would forbid  attorney Colon to characterize  the litigation             as  in  the "final  stage of  proceeding."   Our  opinion in             Navarro I  curtailed the scope  of the Stipulation  and also             _________             observed that "conditions"  at Rio Piedras may be "largely .             .  . in compliance."   The motion paper  made clear that the             Commonwealth  would soon  file a  brief arguing in  favor of             significantly  limiting  the  Special   Master's  monitoring             activity.    Thus  the  statement  seems  to  amount  to  an             argument, reasonable  in its  context, that might,  or might             not, help convince a court.  The record does not  make clear             how  further   "inquiry"   or  further   consultation   with             government officials  would have shown the  argument to have             lacked adequate "ground[ing] in fact."                        (4)  We agree  with  the district  court that  the             motion  paper, in  requesting that  "monitoring services  be             compensated after their performance," does  not take account             of the fact  that the current budgeting system  provided for             disbursement of  budget funds  (on a  monthly basis)  to the             Special   Master   only   after   he   performed   services.                                       _____             Nonetheless,  we  do  not  see  how  the  motion's  possible                                         -13-                                          13             misstatement can justify  a sanction.   Read fairly, and  in             context, the paper's request indicates that the Commonwealth             objected  to  having  to  budget   for  a  year's  worth  of             monitoring  services in  advance, a  portion of  which might                                  ___________             turn  out to have been  unnecessary.  At  worst, the paper's             statement  reflects a minor,  technical confusion  about the             budgeting process, and one  which apparently caused no harm.             (After all, the opposing party, the Special  Master, and the             court,  all  understood,  and  could  readily  explain,  how             current budgeting  worked.)   See Forrest  Creek Associates,                                           ___ __________________________             Ltd.,  831 F.2d at 1244-45; Joseph, Sanctions   9(D) at 133-             ____                                _________             34.                        In sum,  the district  court, at most,  could have             found a  few isolated  instances  of noncritical  statements             that further inquiry  might have shown  to be inaccurate  or             overstated.  That further inquiry  would not have shown  the             motion's requests  to have been  baseless.  And,  failure to             make that inquiry  did not  unfairly impose  upon the  other             party some  special litigation  cost or burden.   This  case             differs significantly from the kinds  of cases in which this             court has upheld  a district court's  imposition of Rule  11             sanctions.   Cf.  Muthig,  838 F.2d  at  605 (no  reasonable                          ___  ______                                         -14-                                          14             inquiry  where  counsel  could  have  readily  learned  from             clients  facts  that  would   have  shown  their  claim  for             intentional   infliction   of   emotional  distress   lacked             validity); Ryan v. Clemente, 901 F.2d 177, 179-81 (1st  Cir.                        ____    ________             1990)  (sanctioning harmful allegation  that state officials             failed to investigate illegal scheme where  available record             showed  the contrary); Cruz v.  Savage, 896 F.2d 626, 632-34                                    ____     ______             (1st  Cir.  1990)  (sanctioning  attorney  for  unreasonably             bringing and  pursuing nine frivolous claims, including some             with either no supporting  evidence or where record directly             contradicted claim); Bay State  Towing Co. v. Barge American                                  _____________________    ______________             21, 899 F.2d 129, 131 (1st Cir. 1990) (no reasonable inquiry             __             where extensive  record contains  nothing to suggest  why or             how a person could have believed most of filing's claims).We             do not see  how the district court  could find a failure  to             undertake the  "reasonable inquiry"  that Rule 11  requires.             The order of the district court is                       Reversed.                       ________             NOTE:  See Slip Opinion for copy of Appendix.                                         -15-                                          15
