Bell v. Vacuforce, LLC

908 F.3d 1075

Richard N. BELL, Plaintiff-Appellee,

v.VACUFORCE, LLC, Defendant,

Appeals of: Paul B. Overhauser.

Nos. 18-1159

18-1368

United States Court of Appeals, Seventh Circuit.

Argued October 3, 2018

Decided November 14, 2018

Richard N. Bell, Attorney, Pro Se.

Maura K. Kennedy, Attorney, LAW OFFICE OF MAURA K. KENNEDY LC, Indianapolis, IN, for Plaintiff-Appellee.

Paul B. Overhauser, Attorney, Pro Se.

Paul B. Overhauser, Attorney, OVERHAUSER LAW OFFICES LLC, Greenfield, IN, for Defendant-Appellant.

Before Manion, Hamilton, and Brennan, Circuit Judges.

Hamilton, Circuit Judge.

Richard Bell brought a copyright infringement lawsuit against Vacuforce, LLC, accusing it of publishing his photograph of the Indianapolis skyline on its website without a license. Vacuforce hired attorney Paul Overhauser to defend it. The parties quickly settled, so the federal lawsuit was dismissed with prejudice.

That was not the end of the story. Overhauser then moved to recover attorney fees from plaintiff Bell. He argued that since the settlement produced a dismissal with prejudice, Vacuforce was the "prevailing party" for purposes of fees under the Copyright Act, 17 U.S.C. § 505. The district court considered Overhauser's motion frivolous and misleading. The court denied the motion and ordered two monetary sanctions against Overhauser: one under Federal Rule of Civil Procedure 11 and another under 28 U.S.C. § 1927. Overhauser appeals both sanctions, but we affirm both of them.

I. Factual Background and Procedural History

This litigation is not the first bout between Bell and Overhauser. Bell has prosecuted dozens of similar copyright lawsuits before, and Overhauser successfully defended at least one of them on behalf of an unrelated defendant. See Bell v. Lantz , 825 F.3d 849 (7th Cir. 2016). In this case, however, his client settled after answering the complaint. Vacuforce agreed to pay, or to cause its insurer to pay, $7,000 to Bell in exchange for voluntary dismissal of the case. The insurer paid Bell, and he dismissed the suit with prejudice.

After the court had entered judgment, Overhauser moved under 17 U.S.C. § 505 to recover attorney fees and costs. Overhauser argued that Bell's voluntary dismissal of the lawsuit with prejudice necessarily made Vacuforce the "prevailing party" under § 505 and that Bell's lawsuit was "frivolous" and "unreasonable."¹ Remarkably, the motion seeking fees did not mention the settlement agreement or the payment to Bell. Overhauser also advised the district court that this suit presented the "identical scenario" as Bell v. Lantz , in which Bell had voluntarily dismissed a copyright infringement claim after the defendant filed an answer. In Lantz , however, Bell had dismissed because his claim lacked a sufficient factual basis, not because the defendant had paid him. Overhauser was well aware of the differences between these cases. He had represented defendant Lantz. 825 F.3d at 850.

Bell's response to the motion told the judge about the settlement. The judge deemed Vacuforce's motion for attorney fees frivolous and misleading. The judge denied the motion and ordered Overhauser to show cause why he should not be sanctioned $500 under Federal Rule of Civil Procedure 11. In response to the show-cause order, Overhauser primarily contested the merits of Bell's case and re-asserted his unusual theory that Vacuforce had prevailed. He maintained that settlements are irrelevant to who "prevails" in a lawsuit and that a dismissal "with prejudice" should count as a win for any defendant. He also argued that Rule 11 sanctions cannot be imposed for an omission of fact, but only for an affirmative misrepresentation. Finally, he said, only Vacuforce's insurer had paid Bell, so that Vacuforce did not lose anything by settling.

The district court rejected all of Overhauser's arguments. The judge explained that Overhauser's position that Vacuforce was the prevailing party was incompatible with existing law. Further, Overhauser had not made a non-frivolous argument for what the law ought to be under the circumstances of this case. Instead, he had misrepresented the events leading up to the voluntary dismissal. The court then entered a modest but symbolic $500 sanction against Overhauser. The court also invited Bell to move under 28 U.S.C. § 1927 for his attorney fees incurred in responding to Overhauser's motion. Bell filed the motion, and the parties had another round of briefing about whether Overhauser's request for fees was sanctionable. Overhauser stuck to his argument that a settlement is "completely irrelevant" to the determination of who prevails in litigation. The court again rejected Overhauser's arguments and ordered him to pay Bell's fees. Overhauser moved to reconsider the Rule 11 sanction and to modify the court's finding that he had misrepresented certain facts. See Fed. R. Civ. P. 52(b) & 59. The court summarily denied the motion.

Overhauser appealed on behalf of himself and his client the orders denying costs and fees, denying reconsideration, sanctioning him $500, and awarding attorney fees to Bell as another sanction. We consolidated the appeals and dismissed as untimely the appeal from the denial of Vacuforce's original motion for attorney fees. We then dismissed Vacuforce as an appellant because no sanctions were imposed against it.²

II. Analysis

A. Rule 11 Sanctions

We review a sanctions order under Rule 11 for an abuse of discretion. See Cooter & Gell v. Hartmarx Corp. , 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). Overhauser maintains that the district judge erred in imposing the $500 sanction against him under Rule 11 because his contention that Vacuforce was a "prevailing party" under the Copyright Act, 17 U.S.C. § 505, was not frivolous, misleading, or otherwise improper.

Bell makes no arguments about the propriety of Rule 11 sanctions except to claim that we cannot review the findings in the district court's March 13, 2017 ruling denying Vacuforce's motion for fees and issuing a show-cause order because we have already dismissed the appeal from that ruling. That is not correct. When sanctions are imposed for filing a motion, that underlying motion lies at the heart of the sanction issues. Overhauser's arguments against the sanction necessarily echo the points he made when he first sought fees for Vacuforce, but Overhauser's timely appeal from the district court's later order actually entering the Rule 11 sanction against him is properly before us.

Under Rule 11, a district court may impose sanctions on a lawyer who submits frivolous legal arguments—those not warranted "by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law." Fed. R. Civ. P. 11(b)(2) ; Berwick Grain Co. v. Illinois Dep't of Agriculture , 217 F.3d 502, 504 (7th Cir. 2000) (affirming Rule 11 sanction for frivolous post-judgment motion).

Overhauser's principal argument here is that his motion for fees was not frivolous because he cited cases awarding fees to defendants after courts dismissed the cases with prejudice. See, e.g., HyperQuest, Inc. v. N'Site Solutions, Inc. , 632 F.3d 377, 379 (7th Cir. 2011) (affirming fee award to copyright defendant after suit dismissed for plaintiff's lack of standing); FM Industries, Inc. v. Citicorp Credit Services, Inc ., 614 F.3d 335, 337, 339–40 (7th Cir. 2010) (affirming fee award to copyright defendant after claim dismissed for want of prosecution); Riviera Distributors, Inc. v. Jones , 517 F.3d 926, 927–28 (7th Cir. 2008) (reversing denial of fees to copyright defendant after plaintiff conceded it lacked evidence to prove its claim and voluntarily dismissed case).

None of the cases Overhauser cited in the district court involved an agreed settlement. None offers even tangential support for the motion filed in this case, by a defendant who paid the plaintiff to obtain dismissal. In the briefing and argument in this court, Overhauser has offered no support from any case in American law for the proposition that such a settlement authorizes treating the defendant as the prevailing party entitled to costs and attorney fees. His argument that settlement is just not relevant to the question of prevailing party status is also groundless. The reason opinions usually do not discuss the relevance of a settlement is that the point has, apparently, been sufficiently obvious to all.

On appeal, Overhauser asserts that the holding in Riviera Distributors supporting his position was recently reaffirmed in Alliance for Water Efficiency v. Fryer , 892 F.3d 280 (7th Cir. 2018). Our decision in Alliance for Water Efficiency actually undermines his argument. In that copyright case, the parties settled, but on terms that required the district court to retain jurisdiction over the case to enforce their long-term compliance with the settlement terms. We affirmed the district court's denial of fees under § 505. We distinguished between settlements and judgments, explaining that the party seeking fees never obtained a judgment in his favor on the copyright question. Id . at 287. Overhauser argues that his client actually obtained a judgment of dismissal with prejudice, which is true, but the client obtained that judgment only by arranging to pay an amount satisfactory to the plaintiff. The most salient language in Alliance for Water Efficiency for our purposes is that a "defendant does not prevail under § 505 just because the parties settle." Id . For future reference, we'll make this explicit here: a settling defendant is not a "prevailing" defendant for purposes of a statute that authorize fee awards for prevailing parties, whether or not the settlement calls for a judgment of dismissal.

Since Overhauser did not even admit that a settlement agreement existed, he developed no non-frivolous argument that a "prevailing party" includes a defendant that obtains a voluntary dismissal with prejudice through a settlement paid by its insurer. His...