CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 1 of 14 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA File No. 14-CV-1597 (MJD/FLN) Sheldon Peters Wolfchild, Ernie Peters Longwalker, Scott Adolphson, Morris Pendleton, Barbara Buttes and Thomas Smith, on behalf of themselves and all others similarly situated, Plaintiffs, vs. Redwood County, Paxton Township, Sherman Township, Honner Township, Renville County, Birch Cooley Township, Sibley County, Moltke Township, John Goelz III, Gerald H. Hosek, Allen J. and Jacalyn S. Kokesch, Paul W. and Karen J. Schroeder, Chad M. and Amy M. Lund, Rockford L. and Janie K. Crooks, UT School District, Episcopal Diocese of Minnesota, Michael R. Rasmussen, Lee H. Guggisberg Trust UWT, Patrick T. and Nancy S. Hansen, Kelly M. Lipinski, Cynthia Johnson, Mitchell H. Unruh, William and Norma Schmidt, Prouty Properties LLC, Robert D. and Lori A. Rebstock, Allan D. Eller, Elmer C. and Barbara L. Dahms, Marlene A. Platt RT, Eugene A. Engstrom, Enid Guggisberg, Melvin W. and Kerry D. Maddock, Thomas J. Heiling, Keefe Family Farm LLC, Larry Lussenhop, Jon Lussenhop, TJ & CC Properties LLC, Dennis A. and Michelle D. Auslam, Dale R. and Nancy Hanna, Harold Guggisberg, Sandra Clarken, Julie Anna Guggisberg, Steven R. and Dawn R. Helmer, George J. Schottenbauer, John and Alice and Francis Goelz, Edward J. Gaasch, Simmons Valley Trust, John C. and Mary J. Simmons, John (L.) Hogan, Timothy H. and Theresa J. Kerkhoff, Sherman Acres LLC, Kenneth Larsen, Henry G. and Judith A. O Neil, Charles D. Neitzel, Scott A. and Kimberly A. MEMORANDUM OF LAW IN SUPPORT OF MOTION TO STAY THE REQUIREMENT FOR THE APPELLATE COST BOND
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 2 of 14 Olafson, Kim M. Cunningham, John H. and Jeanne A. Reynolds, Douglas and Brenda Scherer, Willard and Eugenie Scherer, Bruce Robert Black, Lila L. Black, Neil and Donna Berger Family, Charles Case, Lyle Black Living Trust, Lower Sioux Indian Community, Defendant Doe Nos. 1-500, Defendants. INTRODUCTION Pursuant to Rule 8(a) of the Federal Rules of Appellate Procedure, Plaintiffs move for a stay pending appeal of this Court s order requiring the Plaintiffs to file an appellate cost bond of $200,000 under Rules 7 and 38 of the Federal Rules of Appellate Procedure. The imposition of this cost bond has significant consequences to constitutionally-protected access of appeal rights in the Eighth Circuit. The District Court includes new interpretations of the Court s authority under Rules 7 and 38 contradicted by decisions of other circuits, but not determined by the Eighth Circuit. A stay pending appeal is appropriate so that the Eighth Circuit can determine the limitations of district court authority under Rules 7 and 38, and because the $200,000 bond would be an impediment to a determination of the merits of Plaintiffs appeal. This Court determined projected costs such as printing the record and briefs at $25,000 which this Court deemed reasonable. 1 Then the Court ordered an appeal bond of 1 Memo. & Or. Granting Defs. Mot. for Sanctions, App. Cost Bond at 26 (June 9, 2015), ECF Dckt. No. 291. 2
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 3 of 14 $200,000 as the Defendants requested to cover both costs and damages. 2 Thus, based on Defendants request, $175,000 of the requested bond is to cover Defendants damages. However, this Court has exceeded its authority to determine damages arising from a frivolous appeal under Rule 38. Other than Rule 38, there is no other statute or rule that applies to this case to impose damages on an appellant for filing an appeal. This Court concluded that because it dismissed the Amended Complaint on multiple grounds there can be little merit to Plaintiffs appeal and that such appeal was brought in bad faith. 3 The rationale that the District Court dismissed the Amended Complaint is no justification to impose damages for a frivolous appeal where the appellate court, not the District Court, determines whether a frivolous appeal exists. Rule 38 requires that the appellate court provide notice and motion prior to making a determination of a frivolous appeal and prior to imposing damages for a frivolous appeal The District Court s order here preempts the Eighth Circuit s Rule 38 process to impose sanctions for a frivolous appeal. The appeal bond here, in and of itself, appears as a sanction against a frivolous appeal. However, under Rule 38, it is the court of appeals that has the exclusive procedure to sanction for frivolous appeals. Alternatively, if any cost bond is necessary, based on the appellate costs analyzed below, an appellate cost bond in the amount of $6,300 would appear to be reasonable. 2 Memo. & Or. Granting Defs. Mot. for Sanctions, App. Cost Bond at 29 (June 9, 2015), ECF Dckt. No. 291. 3 Id. 3
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 4 of 14 ARGUMENT AND AUTHORITIES I. Importing Rule 38 Damages Under A Rule 7 Imposition Of An Appellate Cost Bond Is An Issue Of First Impression, Ripe For Appellate Court Adjudication And Supports Staying The Imposition Of The Bond. The imposition of prospective damages under Rule 38 is within the express province of the appellate court: If the court of appeals determines that an appeal is frivolous, it may, after a separately filed motion, or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellees. 4 The question of whether to impose an appeal bond is distinct from the issue of what costs the bond can and should cover. 5 This Court ordered an appeal bond of $200,000 as the Defendants requested to cover both costs and damages. 6 Thus, any amount over $25,000 must be attributed to damages of at least $175,000. Likewise, the declaration this Court relied upon, by Defendants counsel Ken Schueler, 7 was explicit in what was asked for damages : Given the evidence of Landowner loss that has already been evidenced, it is estimated that Defendant Landowners loss could suffer from $175,000 to $1,000,000 in damages during the pendency of Plaintiffs appeal. 8 4 Fed. R. App. P. 38 (emphasis added). 5 In re AOL Time Warner, Inc., Sec. & "Erisa" Litig., No. 02 CV. 5575 (SWK), 2007 WL 2741033, at *3 (S.D.N.Y. Sept. 20, 2007). 6 Memo. & Or. Granting Defs. Mot. for Sanctions, App. Cost Bond at 29 (June 9, 2015), ECF Dckt. No. 291. 7 Schlueler Aff. (Apr. 1, 2015) ECF Dckt. No. 218. 8 Id. at 3 4. 4
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 5 of 14 Plaintiffs note that the damages are not attorney fees as the submitted affidavit reflects and upon which the district court relied: 9 Based upon information and belief, since commenced last May, this litigation has clouded the title to Defendant Landowners properties, making it difficult to impossible for these Landowners to conduct any transaction with respect to the subject properties. 10 There remains a conflict within the circuits as to the meaning under Rule 7 to precisely what costs on appeal means. In Tennille v. Western Union, Co., the Tenth Circuit, reviewing the issue as one of first impression, examined the existing conflicts between the circuits: For example, the D.C. and Third Circuits restrict an appeal bond to only costs listed in Fed. R.App. P. 39, which include (1) the preparation and transmission of the record; (2) the reporter's transcript, if needed to determine the appeal; (3) premiums paid for a supersedeas bond or other bond to preserve rights pending appeal; and (4) the fee for filing the notice of appeal. See In re Am. President Lines, Inc., 779 F.2d 714, 716 (D.C.Cir.1985) (per curiam); Hirschensohn v. Lawyers Title Ins. Corp., No. 96 7312, 1997 WL 307777, at *1 *3 (3d Cir. June 10, 1997) (unpublished). Other circuits permit an appeal bond also to cover costs which are expressly recoverable as costs under the substantive statute underlying the claims at issue. See Adsani, 139 F.3d at 71 75 (2d Cir.); see also Azizian v. Federated Dep't Stores, Inc., 499 F.3d 950, 953 54 (9th Cir.2007); Young, 419 F.3d at 1203 04 (11th Cir.) (applying Pedraza v. United Guar. Corp., 313 F.3d 1323, 1328 35 (11th Cir.2002)); Int'l Floor Crafts, Inc. v. Dziemet, 420 Fed.Appx. 6, 17 (1st Cir.2011) (unpublished). The Sixth Circuit goes further, permitting an appeal bond to cover appellate attorneys' fees recoverable under the substantive statute underlying the litigation, even if that statute does not expressly state that those fees can be recovered as costs. In re Cardizem CD Antitrust Litig., 391 F.3d at 815 18 & 817 n. 4 (6th Cir.). And the First Circuit, contrary to several other circuits, 9 Memo. & Or. Granting Defs. Mot. for Sanctions, App. Cost Bond at 28, citing the affidavits of Larsen (ECF Dckt. No. 203) and Gugsiberg. 10 Schlueler Aff. at 3 3. 5
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 6 of 14 permits an appeal bond to cover attorneys' fees recoverable under Fed. R.App. P. 38, which provides that [i]f a court of appeals determines that an appeal is frivolous, it may... award just damages and single or double costs to the appellee, if there is a real possibility that the court of appeals will deem the appeal to be frivolous. Sckolnick v. Harlow, 820 F.2d 13, 14 15 (1st Cir.1987) (per curiam). But see Vaughn v. Am. Honda Motor Co., 507 F.3d 295, 298 99 (5th Cir.2007) (per curiam) (holding an appeal bond cannot cover appellate attorneys' fees under Fed. R.App. P. 38); Azizian, 499 F.3d at 954, 960 61 (9th Cir.) (same); In re Am. President Lines, 779 F.2d at 716 17 (D.C.Cir.) (same). 11 The Tennille court concluded that regardless of the conflict, the circuits have consistently defined costs on appeal for Rule 7 as appellate costs expressly provided for by rule or by statute. 12 However, here, the District Court did not specify what rule or statute it relied upon to grant a $200,000 appellate cost bond. However, even if concluding Appellate Rule 38 damages is the basis for Rule 7 costs of appeal, there is no Eighth Circuit decision which reaches this conclusion. This Court did not discuss the conflicts existing in the Circuits and the absence of an Eighth Circuit case on point. Accordingly, it would be appropriate at this stage of the proceedings to issue a stay to allow the Eighth Circuit to reach the merits of the Court s determination as both the Defendants and Plaintiffs have now procedurally set the stage. Regardless, and setting aside the deficiencies of the Schueler declaration previously noted, this Court nevertheless adopted his allegations and concluded, without an evidentiary hearing, unknown estimated damages related to assertions of clouded titles as worthy to 11 Tennille v. W. Union Co., 774 F.3d 1249, 1255 (10th Cir. 2014). 12 Id. 6
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 7 of 14 include in an appellate cost bond. However, the declarations submitted show little evidence of title interference. There were no declarations from real estate experts supporting a cloud on title. There were no declarations from title insurance companies that stated that title insurance companies would not cover under current policies any consequences arising from the lawsuit. Finally, Plaintiffs have not filed any notice of lis pendens against the subject properties. The District Court imported Appellate Rule 38 damages to Rule 7. As noted, no precedent in the Eighth Circuit supports this proposition. Instead, this Court s order relied on the sole case cited by the Defendants, from a District Court in New York, that the appellate damages estimate could be included as costs, citing In re Gen. Elc. C. Sec. Litig., 13 for the proposition that under Appellate Rule 7, the district court may include Appellate Rule 38 damages as costs to impose a substantial appellate cost bond. The cited case involved a class member s objections to a proposed class action $40 million settlement agreement of a Securities Act action against a corporation. The damages to be incurred cited by the General Electric court were actually administrative costs associated with the distribution of the settlement funds. 14 Such administrative costs would decrease the amount of the settlement funds available for distribution to the class of the already estimated $40 million settlement amount. 15 The court was concerned about professional objectors to class action settlement [that] may extort payments from a class 13 In re Gen. Elec. Co. Sec. Litig., 998 F. Supp. 2d 145, 151 (S.D.N.Y. 2014). 14 Id. 15 Id. at 151. 7
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 8 of 14 simply by filing frivolous appeals. 16 Repeat objectors in class actions can make a living simply by filing frivolous appeals and thereby slowing down the execution of settlements. The larger the settlement, the more cost-effective it is to pay the objectors rather than suffer the delay of waiting for an appeal to be resolved. 17 To reach its conclusion, the General Electric court found that because a court of appeals could impose damages under Rule 38, [s]uch damages can therefore, under the appropriate circumstances, be included in a Rule 7 bond. 18 And in an effort to support this proposition, the court cited the 1967 Advisory Committee Notes to Rule 38 that expressed the discretion available to the appellate court to allow damages, attorney s fees and other expenses incurred by an appellee if the appeal is frivolous, 19 also citing two other decisions, Adsani v. Miller, 139 F.3d 67, 73 (2d Cir. 1998) and Sckolnick v. Harlow, 820 F.2d 13, 15 (1st Cir. 1987) which further crystallize the need to stay the imposition of the cost bond here, to allow the Eighth Circuit to opine on the issue. However, Plaintiffs note that Sckolnick did not rule on whether Rule 38 damages can be imported under Rule 7 by a district court. In Adsani, the appellate court interpreted Rule 7 to permit a bond which sought security for a possible sanction in the form of attorney's fees upon appeal. By implication, costs under Rule 7 would not exclude attorney's fees as a blanket rule for that court. Here, this Court has interpreted costs under Rule 7 to include damages. 16 Id. at 152. 17 Id. at 152 quoting Barnes v. Fleetboston Fin. Corp., No. 01-10395 (NG), 2006 WL 6916834, at *1 (D. Mass. Aug. 22, 2006). 18 Id. at 151. 19 Fed. R. App. P. 38, 1967 Advisory Committee Notes. 8
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 9 of 14 However, there exists a split in the circuits this Court has not recognized. In Vaughn v. Am. Honda Motor Co., 507 F.3d 295, 299 (5th Cir. 2007), the Fifth Circuit concluded that the district court abused its discretion with its inclusion of attorney fees in a $150,000 bond for costs on appeal. The appellate court opined that the district court could not use Rule 7 in conjunction with Rule 38 as a vehicle to erect a barrier to 20 the appeal: There is no provision in the rules of procedure for a district court to predict that an appellate court will find an appeal frivolous and to set a bond for costs on appeal based on an estimate of what just damages and costs the appellate court might award. We have observed that Rule 38 only allows an appellate court to impose damages and costs in a frivolous appeal. We have held that the appellate court is generally better qualified to determine whether an appeal lacks merit. 21 Hence, the underlying procedural issues under Rules 7 and 38 are matters of first impression for the Eighth Circuit. And, this Court s own order for an appellate cost bond, has put the issue squarely before the Eighth Circuit. Indeed, on matters of first impression, this Court should be cautious to impose an impediment to resolve the conflict among the courts of appeal and allow the appellate court to adjudicate its Appellate Rules to guide all district courts within our circuit. As this Court knows, the Appellants have filed an appeal of this Court s order for a $200,000 appellate cost bond. The Court did not impose a deadline for the filing of the bond. We note that this Court s decision did not occur until after the Appellants filed their principal brief with the appellate court and well into the deadline for the filing of the Appellees response briefs. 20 Vaughn v. Am. Honda Motor Co., 507 F.3d 295, 299 (5th Cir. 2007) 21 Id. (citations omitted) (original emphasis). 9
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 10 of 14 Nevertheless, in turn, the Defendants have filed an appellate motion to dismiss the appeal because the Plaintiffs have yet to file the appellate cost bond. Staying the filing of the appellate cost bond would serve the interests of efficiency and judicial economy. The issues before the court of appeals firmly present the issues raised here through the vehicles of principal and responsive memoranda on the motions as submitted or to be submitted by the parties. We dispute whether a bond of $200,000 is required under Rule 7 as the Appellees have defined that issue: Appellee Landowners also request that this appeal be dismissed should Appellants fail to post the $200,000 bond required by Rule 7 22 The Plaintiffs agree with the finding of yet another court in conflict with this Court s determination, In re Am. President Lines, Inc., 23 that the appellate cost bond is not a means to protect the defendants from an asserted frivolous appeal: [T]he challenged bond fails as a legitimate means of protecting APL against the possibility that Safir's appeal might turn out to be frivolous. The traditional countermeasure for an appeal thought to be frivolous is a motion in the appellate court to dismiss, which is available at the outset of the appeal and before expenses thereon begin to mount. Additionally, a monetary remedy is afforded by Federal Appellate Rule 38, which authorizes an assessment of damages and single or double costs, including reasonable attorneys' fees, [i]f [the] court of appeals shall determine that [the] appeal is frivolous. It is, however, for the court of appeals, not the district court, to decide whether Rule 38 costs and damages should be allowed in any given case. The District Court's bond order effectively preempts this court's prerogative to determine, should Safir's appeal be found to be frivolous, whether APL is entitled to a Rule 38 recovery. 24 22 Appellees Mot. for Expedited Proc. & to Dismiss at 8 (June 15, 2015). 23 In re Am. President Lines, Inc., 779 F.2d 714 (D.C. Cir. 1985) 24 In re Am. President Lines, Inc., 779 F.2d at 717 (citations omitted). 10
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 11 of 14 By granting the stay, some unnecessary proceedings and supplemental motions before the appellate court will be avoided. 25 If the appellate court agrees with the Appellees motion to dismiss the appeal for failure to file a $200,000 appeal bond, the matter is moot. On the other hand, if the court of appeals denies the motion for dismissal, then, if not determined on the merits of this Court s decision to impose the $200,000 cost bond, the filed appeal on that order will proceed accordingly. Either way, a stay will not prejudice the Appellees. 26 II. The Amount Of The Appellate Cost Bond Of $25,000 Attributed To Costs Is Unreasonable; $6,300 Would Be Reasonable. A district court may include the costs listed in Appellate Rule 39(e) and 28 U.S.C. 1920 when calculating the amount of an appeal bond. 27 Appellate Rule 39(e) authorizes the taxing of the cost of the preparation and transmission of the record. Fed. R. App. P. 39(e). The $25,000 costs included in the calculated as part of the $200,000 is excessive. This Court s reliance on a factually unsubstantiated declaration estimate of $25,000 should not be the basis for the determination of reasonableness: 25 See Collier v. Marshall, Dennehy, Warner, Colman & Goggin, 1991 WL 52770 (E.D.D.C. Pa. Apr. 3, 1991). 26 If the district court did not have the authority to grant damages through the importing of Rule 38 to Rule 7, then a claim of prejudice is inapplicable. However, if the appeal is found frivolous, the appellate court has an opportunity to impose damages in a separate proceeding under Rule 38 curing the prejudicial assertion. Either with a bond or later under Rule 38 proceedings, if substantiated, the affected Appellee would not receive any moneys until the end of the appellate adjudication. 27 See 20 Moore's Federal Practice P.307.10[2] (2007); see also Fed. R. App. P. 39(e) (listing costs taxable by district court for benefit of prevailing party on appeal); 28 U.S.C. 1920 (listing costs taxable by federal judges and clerks). 11
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 12 of 14 [T]he costs associated with the generation and reproduction of the record, preparation of the briefs, and other costs associated with this appeal will be substantial. It is estimated that Defendants to this litigation will incur at least $25,000 in costs related to the appeal. Appellate costs under Local Rule 39A are set amounts: Reproduction per page per copy..$.15 Binding per brief, separate addendum, or appendix $2.00 Cover per brief, separate addendum, or appendix.$2.00 Sales tax (if any) Other costs are not allowed as taxable costs associated with the preparation of the brief or appendix. In our review of the filed briefs and appendices of the Appellees, calculations of costs are far below this Court s initial finding that $25,000 is reasonable. A four volume joint appendix at 1,347 pages, times 16 separate reproductions (3 to the court and 13 to counsel) equals: $4,647.15 (1,347 pages x $.15) $128 for binding (4 volumes x 16 x $2.00) $128 for appendix covers (4 volumes x 16 x $2.00) Total: $4,903.15 Briefs: Lower Sioux Community: $234.60 - ($10.20 68 pages x $.15 x 23 copies (10 to court; 13 to counsel)) $46 for binding ($2.00 x 23) $46 for brief covers ($2.00 x 23) Total: $326.60 Municipal Appellees $134.40 ($8.40 --56 pages x $.15 x 23 copies (10 to court; 13 to counsel)) $46 for binding ($2.00 x 23) $46 for brief covers ($2.00 x 23) Total: $226.40 12
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 13 of 14 Landowners $134.40 ($8.40 --56 pages x $.15 x 23 copies (10 to court; 13 to counsel)) $46 for binding ($2.00 x 23) $46 for brief covers ($2.00 x 23) Total: $226.40 Episcopal Diocese $43.20 ($2.70 18 pages x $.15 x 23 copies (10 to court; 13 to counsel) $46 for binding ($2.00 x 23) $46 for brief covers ($2.00 x 23) Total: $135.20 Total: $5,817.75. Inclusive of sales tax (calculated for Hennepin County and inclusive of Minnesota s sales tax) of $452.33, the total is $6,270.08. This Court, without any calculations, accepted as fact a Defendant s declaration and granted an over generous amount of $25,000. That is four times as much as is necessary to cover taxable costs in the instant appeal. Even if this number is rounded to $6,300, the $25,000 amount awarded and required as part of the appellate cost bond under Rule 7 is on its face unreasonable. Appellants ask this Court to stay the order requiring the appellate cost bond to allow for a determination of a more reasonable bond under Rule 7. CONCLUSION A stay of the appellate cost bond is appropriate under the circumstances of this case and the motion should be granted accordingly. Alternatively, if any cost bond is necessary, based on the actual costs analyzed above and allowed under the Rules, an appellate cost bond in the amount of $6,300 would appear to be reasonable. 13
CASE 0:14-cv-01597-MJD-FLN Document 295 Filed 06/25/15 Page 14 of 14 Dated: June 25, 2015. /s/erick G. Kaardal Erick G. Kaardal, 229647 Mohrman, Kaardal, & Erickson P.A. 150 South Fifth Street, Suite 3100 Minneapolis, Minnesota 55402 Telephone: (612) 341-1074 Facsimile: (612) 341-1076 Email: kaardal@mklaw.com Attorney for the Plaintiffs 14
CASE 0:14-cv-01597-MJD-FLN Document 295-1 Filed 06/25/15 Page 1 of 1 UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA Sheldon Peters Wolfchild, et al., Case No. 14-CV-1597 MJD/FLN Plaintiffs, vs. Redwood County (Minnesota), et al., Defendants. LR 7.1(c) WORD COUNT COMPLIANCE CERTIFICATE REGARDING PLAINTIFFS MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR STAY I, Erick G. Kaardal, certify that Plaintiffs Memorandum of Law in Support of Motion for Stay complies with Local Rule 7.1(c). I further certify that, in preparation of this memorandum, I used Microsoft Word 2007, and that this word processing program has been applied specifically to include all text, including headings, footnotes, and quotations in the following word count. I further certify that the above referenced memorandum contains 3,452 words. Dated: June 25, 2015. MOHRMAN, KAARDAL & ERICKSON, P.A. /s/erick G. Kaardal Erick G. Kaardal, Attorney No. 229647 150 South Fifth Street, Suite 3100 Minneapolis Minnesota 55402 Telephone: (612) 341-1074 Facsimile: (612) 341-1076 kaardal@mklaw.com ATTORNEYS FOR PLAINTIFFS