880 F. 2d 416 - Kelly v. State of California

MEMORANDUM**

William Cody Kelly ("Kelly") appeals the district court's denial of his motion for Fed.R.Civ.P. 11 sanctions. We affirm.

In July of 1987 Kelly filed a complaint in Nevada state court seeking declaratory, injunctive and monetary relief based on claims alleging, inter alia, an unconstitutional taking of property without just compensation, denial of equal protection, and denial of civil rights under 42 U.S.C. Sec. 1983. Named as defendants were the State of California, the State of Nevada, the Attorney General of California, the Tahoe Regional Planning Agency ("TRPA") and members of TRPA's governing board (collectively "defendants").

Defendants removed Kelly's action to the United States District Court, District of Nevada. Kelly moved to remand the case to state court. He contended that the eleventh amendment to the United States Constitution barred federal jurisdiction over claims against the State of California and the State of Nevada for money damages. In opposition to the motion to remand, the defendants asserted a number of arguments to the effect that no claim for relief had been stated against the state defendants; therefore, their inclusion did not foreclose removal.

The district court granted Kelly's motion for remand. It based its decision on a theory not discussed by either party. Citing Bryant v. Ford Motor Co., 832 F.2d 1080 (9th Cir.1987), amended, 844 F.2d 602 (9th Cir.1988), cert. granted, 109 S.Ct. 54 (1988), vacated and cert. denied, 109 S.Ct. 542 (1988), the district court analogized the state defendants to "Doe" defendants whose presence required remand.

Kelly moved for sanctions pursuant to Fed.R.Civ.P. 11.1 He sought attorney fees and costs in the amount of $129,827.68. Kelly argued that the defendants' removal petition and papers opposing remand were frivolous. The district court denied the motion. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291.

Whether specific conduct violated Rule 112 is a legal question which we review de novo. Zaldivar v. City of Los Angeles, 780 F.2d 823, 828 (9th Cir.1986). Rule 11 addresses two separate problems: (1) the problem of frivolous filings and (2) the problem of misusing judicial procedures as a weapon for personal or economic harassment. Lemos v. Fencl, 828 F.2d 616, 618 (9th Cir.1987). Here we are concerned solely with the former category; Kelly alleges no harassment, nor is any apparent from the record.

Kelly contends that all papers submitted by defendants in relation to the removal were frivolous. He argues that the removal petition and the papers opposing remand fail to allege a legally reasonable basis for removal. The district court disagreed. It concluded that the defendants' argument that the state parties had been "fraudulently joined" was an "arguable position," as demonstrated by the opinion of another district court judge in the same district in a virtually identical situation. Kelly v. State of California, 687 F.Supp. 1494, 1495 (D.Nev.1988) (citing Stephans v. State of Nevada, 685 F.Supp. 217 (D.Nev.1988)). We agree with the district court that the removal petition "was filed in good faith and that there is no conceivable basis for an award" pursuant to Rule 11. Kelly v. State of California, 687 F.Supp. at 1496.

Kelly argues at length that his arguments opposing removal were correct and that defendants' arguments favoring removal were meritless. The district court, however, remanded without adopting either party's position. Its decision to remand under the circumstances of this case is not reviewable. See Lemos v. Fencl, 828 F.2d at 617. Thus we need not resolve the underlying legal issue in reviewing the denial of sanctions. Moreover, it is well established that even a removal petition correctly dismissed on its merits will not necessarily warrant sanctions. Id. at 618. See also Zaldivar v. City of Los Angeles, 780 F.2d at 830-31. The relevant inquiry is whether the proponent of a legal argument had an objectively good faith belief in its merit. Zaldivar v. City of Los Angeles, 780 F.2d at 831.

In their arguments favoring removal, defendants noted that Kelly's claims presented federal questions. As grounds for disregarding the presence of state defendants barred from suit in federal court by the eleventh amendment, the defendants essentially argued that the state parties were "sham" defendants, variously characterizing them in their papers before the district court as mere "nominal" parties, "fraudulently joined," or parties against whom a claim had not been stated. As the district court noted, this identical argument won the day in another district court. Kelly v. State of California, 687 F.Supp. at 1495, (citing Stephans v. State of Nevada, 685 F.Supp. 217 (D.Nev.1988)). Whether correct or not, defendants' argument was not frivolous.

Kelly relies heavily upon Hewitt v. City of Stanton, 798 F.2d 1230 (9th Cir.1986). Hewitt is inapposite. In that case, this court affirmed the imposition of Rule 11 sanctions upon an attorney who filed a second defective removal petition even after being informed of the defect in the first petition. Moreover, unlike the present case, the attorney's argument supporting removal in Hewitt was clearly foreclosed by extant case law. Id. at 1233.

Rule 11 sanctions are reserved "for the rare and exceptional case where the action is clearly frivolous, legally unreasonable or without legal foundation." Operating Engineers Pension Trust v. A-C Company, 859 F.2d 1336, 1344 (9th Cir.1988). This is not such a case.

AFFIRMED.