                                                                              F I L E D
                                                                       United States Court of Appeals
                                                                               Tenth Circuit
                                       PUBLISH
                                                                                MAY 7 1998
                      UNITED STATES COURT OF APPEALS
                                                                          PATRICK FISHER
                                                                                   Clerk
                                   TENTH CIRCUIT



 RENETTA M. MIERA,

        Plaintiff-Appellant,
 v.
                                                        Nos. 97-2048, 97-2135
 DAIRYLAND INSURANCE
 COMPANY,

        Defendant-Appellee.


           APPEAL FROM THE UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF NEW MEXICO
                        (D.C. No. CIV-96-136-M)



Edmund R. Pitts (David Graham with him on the briefs), Law Firm of David Graham,
Taos, New Mexico), for Plaintiff-Appellant.

Kathryn D. Lucero (J. Douglas Foster with her on the briefs), Foster, Johnson, Harris, and
McDonald, Albuquerque, New Mexico, for Defendant-Appellee.


Before PORFILIO, LOGAN, and MURPHY, Circuit Judges.


PORFILIO, Circuit Judge.
       Renetta M. Miera instituted this action in New Mexico state court seeking a

declaratory judgment and other relief to confirm the terms of an arbitration award

assessing her property and personal injury damages resulting from a collision she had

with an uninsured motorist. Dairyland Insurance Company, her insurer, removed the

action to federal court based on diversity jurisdiction and obtained not only judgment on

the merits but also attorney’s fees and costs levied personally against Ms. Miera’s

attorney under 28 U.S.C. § 1927. We hold the district court properly exercised

jurisdiction over this action and correctly applied Quinones v. Pennsylvania General Ins.

Co., 804 F.2d 1167 (10th Cir. 1986), to permit Dairyland to offset amounts previously

paid against the total award of damages under the uninsured motorist provision of the

insurance contract. However, the court erred in finding, under the circumstances of this

case, Ms. Miera’s counsel’s failure to cite Quinones demonstrated reckless disregard of

his duty of candor to the court, unreasonably and vexatiously multiplying the proceedings.

       Ms. Miera purchased her car on March 15, 1994, for $9,108.50, and the following

month, on April 17, 1994, the collision occurred seriously injuring Ms. Miera and leaving

her car totally damaged. Ms. Miera’s automobile insurance policy with Dairyland (the

Policy) included a provision for uninsured motorist insurance1 as well as medical payment


       That provision states:
       1



              We promise to pay damages, excluding punitive or exemplary
       damages, the owner or operator of an uninsured motor vehicle is legally
       obligated to pay because of bodily injury you suffer in a car accident while
                                                                               (continued...)

                                           -2-
and collision coverage. Ms. Miera promptly notified Dairyland of the accident and

submitted claims under the Policy’s collision and medical payment coverage for which

Dairyland respectively paid $5,137.50 to GMAC, the vehicle’s lienholder, and $1,134.91

to Ms. Miera to reimburse her medical expenses. Later unable to resolve Ms. Miera’s

total personal and property losses, the parties submitted the dispute to arbitration, each

side selecting one arbitrator and then agreeing to the selection of a third. Prior to the

arbitration hearing, David Graham, Ms. Miera’s attorney, wrote Dairyland to document

four stipulations, one of which embodied the prior payments.2 Dairyland, in turn, wrote

back, articulating its understanding of the scope of the arbitration.3 Mr. Graham did not


       1
        (...continued)
       occupying a car ....
       2
        The letter stated, “We agree that Dairyland paid $5,137.50 to GMAC, pursuant to
the collision coverage purchased by Renetta Miera, and that Dairyland paid $1,134.91 to
Family Practice and Taos Physical Therapy pursuant to the medical payments coverage
purchased by Renetta Miera.”
       3
        The letter stated in part:

               This letter is to memorialize our telephone conversation this morning
       about how to present some issues to the arbitrators next week. We finally
       agreed not to submit the third issue (the “legal issue”) to the arbitrators next
       week, but agreed only to have them decide what damages should be
       awarded. In fact, we agreed not to bring up the legal issue at the arbitration.
       If necessary we will submit written briefs to the arbitrators regarding the
       legal issue of whether Dairyland is entitled to a credit or offset of amounts
       already paid on Ms. Miera’s behalf. If we do submit briefs, we agreed to do
       so on a time schedule.

               Thus, we have stipulated as to the “legal responsibility of the
                                                                                 (continued...)

                                             -3-
respond to that letter. Subsequently, the Arbitration Panel found the total amount of

damages was $17,134.91. Dairyland promptly paid Ms. Miera $10,862.50, a sum

reflecting its deduction of the $6,272.41 already advanced.

       Ms. Miera then filed the underlying action in the district court of Taos County

seeking relief under three New Mexico statutory provisions: N.M. Stat. Ann. § 44-7-11 to

confirm the arbitration award; N.M. Stat. Ann. §§ 59A-16-20 and 59A-16-30, Unfair

Claim Practices Act; and §§ 57-12-2 and 57-12-10, Unfair Trade Practices. Alleging Ms.

Miera was a citizen of New Mexico and it was not, and damages exceeded $50,000,

Dairyland removed the action to federal court. Ms. Miera contested removal, alleging the

amount in controversy on the face of her complaint did not exceed $50,000. The district

court denied the motion to remand, concluding although the complaint alleged damages

only of $41,028.51 were plaintiff to succeed on all of her claims, the Unfair Claim

       (...continued)
       3

       uninsured motorist to pay your damages” and agreed that the arbitration
       would focus on what damages Ms. Miera suffered from the collision with
       Stephen Eich, or “the total amount of damages” to which she is entitled to
       recover as a result of this accident. You agreed to prepare a verdict form on
       which the arbitrators will denote the total amount of damages awarded,
       separating out the amount awarded for personal injury and the amount
       awarded for property damage.
              ....

               We also agreed to inform the arbitrators about the amounts already
       paid by Dairyland for Ms. Miera as follows: $5,137.50 from collision
       coverage (if that is where it came from), and $1,134.91 from med-pay
       coverage. We agreed to tell the arbitrators that these amounts are provided
       for information purposes only and are not to be considered in determining
       the total amount of damages that Ms. Miera suffered from this collision.

                                           -4-
Practice Act and Unfair Trade Practice Act provided for the recovery of attorney’s fees,

potentially bumping up the total recovery to the $50,000 requisite. The district court then

granted Dairyland’s motion for summary judgment dismissing all of Ms. Miera’s statutory

causes of action. In a separate order, the court found Mr. Graham’s failure to cite the

controlling case law was “reckless” and a “needless” increase of the cost of litigation and

awarded $2,584.17 in attorney’s fees and costs to be paid personally by Mr. Graham to

Dairyland.

                                I. Diversity Jurisdiction

       Ms. Miera maintains the district court erred in denying her motion to remand,

insisting the total damages sought in her underlying complaint cannot exceed $41,028.51.

She contends this figure already contains an award of attorney’s fees under N.M. Stat.

Ann. § 59A-16-30 and N.M. Stat. Ann. § 57-12-10. Thus, the court’s speculating an

award of attorney’s fees would increase the total to meet the $50,000 jurisdictional

amount was unfounded, she insists.

       The courts must rigorously enforce Congress’ intent to restrict federal jurisdiction

in controversies between citizens of different states. St. Paul Mercury Indem. Co. v. Red

Cab Co., 303 U.S. 283, 288 (1938). For diversity jurisdiction under 28 U.S.C. § 1332(a),

the amount in controversy must exceed $50,000. St. Paul Mercury examined this rule:

       The rule governing dismissal for want of jurisdiction in cases brought in the
       federal court is that, unless the law gives a different rule, the sum claimed
       by the plaintiff controls if the claim is apparently made in good faith. It
       must appear to a legal certainty that the claim is really for less than the

                                            -5-
       jurisdictional amount to justify dismissal. The inability of plaintiff to
       recover an amount adequate to give the court jurisdiction does not show his
       bad faith or oust the jurisdiction. Nor does the fact that the complaint
       discloses the existence of a valid defense to the claim. But if, from the face
       of the pleadings, it is apparent, to a legal certainty that the plaintiff cannot
       recover the amount claimed or if, from the proofs, the court is satisfied to a
       like certainty that the plaintiff never was entitled to recover that amount,
       that his claim was therefore colorable for the purpose of conferring
       jurisdiction, the suit will be dismissed.

Id. at 288-89 (citations omitted). Once jurisdiction has attached, events subsequently

defeating it by reducing the amount in controversy are unavailing. Id. Where a plaintiff

has not instituted suit in federal court, “[t]here is a strong presumption that the plaintiff

has not claimed a large amount in order to confer jurisdiction on a federal court....” Id. at

290.

       Nevertheless, plaintiff’s claims for damages control if they are made “in good

faith,” that is, if they evince to a “legal certainty” the claims total at least $50,000. Here,

although we indulge a presumption in plaintiff’s favor, we look to the face of her

complaint to decide whether the jurisdictional amount is satisfied. Accepting plaintiff’s

argument that New Mexico law does not allow duplicative damages, see Hale v. Basin

Motor Co., 795 P.2d 1006, 1012 (N.M. 1990), the Count III claim alone reasonably read

totals more than $50,000. That claim under the Unfair Trade Practice Act sought “triple

damages calculated at present to be $41,028.51, attorneys fees, pre-judgment interest at

the maximum allowable rate of fifteen percent form [sic] the date of the breach of the

defendant’s obligations to the plaintiff, post-judgment interest, costs, the expenses in


                                              -6-
bringing this action and for such further relief as the court deems just, proper and

necessary.”

       Thus, plaintiff sought in addition to $41,028.51 the attorney’s fees permitted by

statute. See N.M. Stat. Ann. § 57-12-10(c). The Supreme Court has long held that when

a statute permits recovery of attorney’s fees a reasonable estimate may be used in

calculating the necessary jurisdictional amount in a removal proceeding based upon

diversity of citizenship. Missouri State Life Ins. Co. v. Jones, 290 U.S. 199, 202 (1933).

Plaintiff alleged in the fact section of her complaint that she had incurred “attorneys’ fees

in the amount of $6,854.00 to date to prosecute her uninsured motorist claim against the

Defendant.” These fees, together with plaintiff’s claim for $41,028.51 treble damages in

Count III, amount to $47,882.51, $2,117.50 short of the $50,000 jurisdictional threshold.

Considering the realities of modern law practice and the complexities of this case, we

cannot say that, viewed as of the date of removal, it would be unreasonable to expect

plaintiff to incur an additional $2,117.50 in attorney’s fees. The court therefore agrees

with the district court that a reasonable attorney’s fee alone, when added to the

$41,028.51, would push the amount of plaintiff’s claim in Count III above $50,000,

without consideration of the pre-judgment interest or other costs and expenses sought.

                                II. Offset under Quinones

       Ms. Miera urges the district court ignored the dictates of Erie R.R. Co. v.

Tompkins, 304 U.S. 64 (1938), and resolved Dairyland’s motion for summary judgment


                                            -7-
under federal law while exercising its diversity jurisdiction. This result, she complains,

overlooks a line of New Mexico cases prohibiting the insurer from offsetting any

payments it made under the insured’s uninsured motorist coverage (UMC).

       The district court prefaced its reliance upon the Tenth Circuit case of Quinones,

804 F.2d at 1167, with the statement that New Mexico appellate courts had not yet

decided whether an insurer is entitled to receive credit for amounts paid under medical

payment and collision coverages prior to the entry of a final award. New Mexico has

decided an insurer may not offset amounts paid under a separate workers’ compensation

policy from amounts paid under UMC, Continental Ins. Co. v. Fahey, 106 N.M. 603,

747 P.2d 249 (N.M. 1987); the employee may retain the difference between uninsured

motorist benefits and workers’ compensation benefits, although the employer paid the

premiums for each coverage, Draper v. Mountain States Mut. Cas. Co., 116 N.M. 775,

867 P.2d 1157 (N.M. 1994); the insurer could not offset benefits paid under workers’

compensation coverage to an employee who then proceeded to arbitration of his UMC

claim, Mountain States Mut. Cas. Co. v. Vigil, 121 N.M. 812, 918 P.2d 728 (N.M. Ct.

App. 1996); and an insurer does not satisfy its duty to treat its interests and the interests of

its insured equally when it requires the insured to release all claims, including subrogation

claims, against its insured as a condition precedent to a policy limits settlement when

there is a substantial likelihood of a recovery in excess of the policy limits. Dairyland

Ins. Co. v. Herman, ___, P.2d ___, No. 1998-NMSC-005, 1997 WL 836531 (NM


                                              -8-
Dec. 18, 1997). The result in each of these cases is premised upon New Mexico’s express

intention to liberally construe its statutory provisions on UMC. N.M. Stat. Ann. § 66-5-

301; see Chavez v. State Farm Mut. Auto. Ins. Co., 87 N.M. 327, 329, 533 P.2d 100, 102

(N.M. 1975); Fahey, 747 P.2d at 250, and where related statutes might affect those

protections, to assure “reimbursement and [the] equitable distribution of the risk of loss.”

Draper, 867 P.2d at 1159 (citation omitted).

       Nevertheless, New Mexico has not decided the precise issue presented here:

whether under New Mexico law the insurer can offset against an arbitration award of

UMC damages amounts previously paid under medical payment and collision coverages

in the same automobile insurance policy. Quinones has decided the question albeit in a

different procedural posture.

       There, Lubin Quinones, injured in an automobile accident with an uninsured

motorist, sued his insurer to recover damages under his UMC policy. The insurer

removed the action to federal court. Although the jury found Mr. Quinones suffered

damages of $25,000, he appealed the judgment contending the court erred in refusing to

instruct the jury on the collateral source rule, which would have allowed him to recover

past medical expenses although his insurer had already paid those claims under a separate

clause in the insurance contract.

       This court rejected the argument, confining the reach of the collateral source rule

to the tort-feasor who should not benefit from the injured party’s reimbursement from


                                            -9-
another source, often insurance. 804 F.2d at 1171 (citing, D. Dobbs, Handbook on the

Law of Remedies § 8.10, at 581 (1973)). “The collateral source rule removes the

disincentive otherwise faced by potential victims to insure against harm or to accept

gratuitous compensation from sources other than the tortfeasor for fear that the tortfeasor

will not then be required to pay.” Id.

       However, in Mr. Quinones’ case, the defendant, the insurer, is proverbially the

collateral source. Id. “No policy would be served by requiring [the insurer] to twice pay

[plaintiff’s] past medical expenses,” the court observed. Id. In effect, the source must be

“sufficiently collateral” or independent to assure an unwarranted double recovery has not

occurred. The court concluded the insurer’s having already completely reimbursed

plaintiff’s past medical expenses should not be charged twice.

       Here, too, Dairyland paid medical and property loss bills totaling $6,272.41 prior

to arbitration. The arbitrators awarded $17,134.91, $1,134.91 of which represented

“expense of necessary medical care.” Dairyland had already paid $1,134.91 to Ms. Miera

to reimburse medical and physical therapy expenses. For loss of personal property, the

arbitrators awarded $7,000. Dairyland had already reimbursed $5,137.50 to the

lienholder on Ms. Miera’s automobile. The parties agreed the scope of arbitration would

be limited to deciding the total amount of damages due, reserving the legal question of the

offset to later resolution. We think the answer to that legal question was resolved by

Quinones; therefore, we are bound by its holding to conclude, in New Mexico, the


                                           - 10 -
insurer may offset from payment under a UMC policy monies previously paid under the

insured’s medical payment and collision coverage. We thus affirm the district court’s

grant of summary judgment to Dairyland on this issue.

                                      III. Sanctions

       In its response in opposition to Ms. Miera’s motion for partial summary judgment

to confirm the arbitration award, Dairyland made reference to the application of the

collateral source rule to this case, citing, in support, “See, Quinones v. Pennsylvania

General Ins. Co., 804 F.2d 1167, 1171 (10th Cir.1986) (application of the collateral

source rule inappropriate in a case where plaintiff was seeking to recover his medical

expenses twice, once under his policy’s medical expense provisions and again under the

uninsured motorist provisions).” Ms. Miera had not referenced the collateral source rule

to frame her entitlement to full payment. In its subsequent motion for summary

judgment, Dairyland again cited Quinones in another single reference while focussing the

bulk of its brief on the same New Mexico cases Ms. Miera cited.

       Against this background, once the district court granted summary judgment in

Dairyland’s favor, relying on Quinones, counsel for defendant moved for sanctions under

28 U.S.C. § 1927, claiming plaintiff’s counsel’s filing of the complaint was frivolous,

brought to harass Dairyland and needlessly increased the cost of the litigation because of

that conduct. The court agreed, finding plaintiff’s counsel’s failure to cite Quinones in

any motion or response was unreasonable and vexatious, demonstrating “reckless


                                           - 11 -
disregard of his duty of candor toward this Court.” The court relied upon Braley v.

Campbell, 832 F.2d 1504 (10th Cir. 1987), in which we articulated the proper standard

for imposing attorney’s fees and costs personally against an attorney under § 1927.4

       That standard rejected a subjective good faith inquiry and concluded, instead,

“conduct that, viewed objectively, manifests either intentional or reckless disregard of the

attorney’s duties to the court,” warrants the imposition of excess costs, expenses, or

attorney’s fees personally against the attorney responsible for unreasonably multiplying

the proceedings. Id. at 1512. After all, “[t]o excuse objectively unreasonable conduct by

an attorney would be to state that one who acts ‘with an empty head and a pure heart’ is

not responsible for the consequences.” Id. (quoting McCandless v. Great Atlantic &

Pacific Tea Co., 697 F.2d 198, 200 (7th Cir. 1983).

       This standard is then used to decide whether “by acting recklessly or with

indifference to the law, as well as by acting in the teeth of what he knows to be the law,”

an attorney subjects himself to sanctions under § 1927. In re TCI Ltd., 769 F.2d 441, 445

(7th Cir. 1985). “A lawyer’s reckless indifference to the law may impose substantial

costs on the adverse party. Section 1927 permits a court to insist that the attorney bear the



       Section 1927 of 28 U.S.C. states:
       4



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

                                           - 12 -
costs of his own lack of care.” Id. Sanctions are appropriate, then, when an attorney is

cavalier or “bent on misleading the court,” Herzfeld & Stern v. Blair, 769 F.2d 645, 647

(10th Cir. 1985); intentionally acts without a plausible basis, Knorr Brake Corp. v.

Harbil, Inc., 738 F. 2d 223, 227 (7th Cir. 1984); when the entire course of the

proceedings was unwarranted, FDIC v. Calhoun, 34 F.3d 1291 (5th Cir.1994); or when

certain discovery is substantially unjustified and interposed for the improper purposes of

harassment, unnecessary delay and to increase the costs of the litigation, Resolution Trust

Corp. v. Dabney, 73 F.3d 262 (10th Cir. 1995). Because § 1927 is penal in nature, “the

award should be made ‘only in instances evidencing serious and standard disregard for

the orderly process of justice.’” White v. American Airlines, Inc., 915 F.2d 1414, 1427

(10th Cir. 1990) (quoting Dreiling v. Peugeot Motors of Am., Inc., 768 F.2d 1159, 1165

(10th Cir. 1985)).

       We do not believe plaintiff’s counsel’s failure to cite Quinones evidences a

reckless disregard of his duty to the district court to inquire into the law prior to filing the

complaint and the motion for summary judgment as the district court found. First,

plaintiff’s counsel filed this action in New Mexico state court relying upon a line of New

Mexico cases broadly interpreting UMC coverage under the statutory scheme. Were

counsel to reasonably research any of these New Mexico cases for the state proceeding he

had filed, he would have uncovered no mention of Quinones. Although the district court

found once the case was removed counsel should have looked into the federal court


                                             - 13 -
interpretation of state law, that specific inquiry would have borne scant result because

Quinones does not cite any New Mexico law. Indeed, Quinones is cited for the

proposition of acquiring personal jurisdiction over a non-resident defendant. Quinones

does appear in a Tenth Circuit search using the terms “offset” and “uninsured motorist

coverage.” However, if counsel had followed Dairyland’s own characterization deeming

its conduct as subrogating itself to its prior payments, plaintiff’s counsel might have also

missed Quinones.

       In Wigood v. Chicago Mercantile Exchange, 981 F.2d 1510 (7th Cir. 1992), the

Seventh Circuit reversed the imposition of § 1927 sanctions based upon plaintiffs’

attorney’s failure to address a key Seventh Circuit case which barred a claim for judicial

review of the Chicago Mercantile’s disciplinary hearing. Instead, the Seventh Circuit

deciphered what counsel sought was a review of the legality of the underlying procedures

upon which the disciplinary hearing was based. While acknowledging the “subtlety of the

distinction,” id. at 1522, the court concluded counsel’s argument was not completely

without merit and his failure to cite the case was an inappropriate basis for sanctions.

       While we would hardly applaud plaintiff’s counsel’s failure to respond in any

manner to Dairyland’s motion for summary judgment based on his belief Quinones was

not “important precedent,” we cannot find that failure alone rises to the level of

intentional or reckless disregard of counsel’s duties to the court under Braley, nor that it

is tantamount to bad faith. Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980).


                                            - 14 -
      Thus, though not laudable, plaintiff’s counsel’s failure to cite Quinones is not such

objectively unreasonable conduct under the circumstances of this case to warrant the

imposition of sanctions. Although no New Mexico case had addressed the precise issue

presented here, New Mexico cases had consistently voiced policy concerns protecting

uninsured motorist recoveries under certain circumstances. Plaintiff’s counsel did not

misrepresent the state of New Mexico law to the district court. While inappropriate and

unavailing under Tenth Circuit law, we believe this conduct does not warrant § 1927

sanctions under Braley. We thus hold the court abused its discretion in imposing

attorney’s fees and costs of $2,584.17 personally against David Graham.

      We therefore AFFIRM the denial of plaintiff’s motion to remand the action to

state court and the court’s judgment offsetting previously paid medical and property

expenses from the total arbitration award. We REVERSE the district court’s imposition

of § 1927 sanctions.




                                          - 15 -
