ÿWPCf …4Vj 0(y¡w@© 0Jé 0T3 0^‡ 0hå 0rM 0|¿ 0†; 0Á 1uQ 0dÆ UB* %l U6r U>¨ B)æ DC AMR U*Ÿ É v~à B^vÓ{ D3N 0@ AOÁÆ 0DÖ D/ BIÚƒç"ÔøÔô3|x‹($¡¡ wxDyzD{|E}~D€Ó€2 ÿÿ0Indent1Ô2ÔÔ3  Ô2" ÿÿ0Indent2à0 àÔ2ÔÔ3  Ô2, ÿÿ0Indent3à0 àà0 àÔ2ÔÔ3  Ô26 ÿÿ0Indent4à0 àà0 àà0 àÔ2ÔÔ3  Ô2@ ÿÿ0Indent5à0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2J ÿÿ0Indent6à0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2T ÿÿ0Indent7à0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô2^ ÿÿ0Indent8à0 àà0 àà0 àà0 àà0 àà0 àà0 àÔ2ÔÔ3  Ô  ÿÿ?AGMSYaioIndent0I.A.1.a.(1)(a)i)a)P ÿÿ8Mac DefaultMac DefaultÓ ` °šXÓ<þ6X9`(*Courier 12pt10cpiX< Œ 9p`(Courier New< Œ 9p`(&Times New Roman% Line 7 d7Border 1dd€- Cþÿ << Gÿÿ< Œ 9p`(Arial Ý ƒ!ÝÑ  ÑÑ#€d#ÑÔ€ÔÝ  ÝÔ€"ÔÔ€"ÔÓ  ÓÔ YYY ÔFILEDÔ€"XÔÌÌò òJuly€25,€1997ÌÌCecil€Crowson,€Jr.ÌÔ€"ôÔAppellate€Court€Clerkó óPtPtHHÚ(ÿáÿâùFG(üHHÚ(d'h dStyl{WP}01•ÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃÃà Ãà Ãà Ãà Ãà ÃÃÃÃÃÃÃÃÃÃÃÐ ÐÐHHÐÐ  ÐÐ2ÐÐÿÿ¸æ$ÿÐÐHHÐÐÐÐÐÐÐÐ  ÐÐ ÐÐ ÐÑÑÑGenevaÑÑ ÑÑ € ÑÑ<Px–ÈÑÒÒÒ443!#4ÒÒ$ *$ÒÒ$*$ÒÒ ÿKK ÒÒ  Geneva ÒÒ  Geneva ÒÓ.,ÓÓÓÓ6ÓÓ ÓßßßßßßßßßßßßßßßßßßÑGenevaÑÑ ÑÒ  h HD: Geneva ÒÒ  h HD: Geneva Ò%%%%'ÿÿdxd("ÿÿ$££Ò  ÒÒ  Ò€-‚ƒCþÿ<< CÿÿƒLevel 1Level 2Level 3Level 4Level 5($$””ò òÚ  Ú1Ú  Úó ó„„'÷ÿ dxdüÿP PdÝ ƒ!ÝÔ . ÔÔ€ÔÝ  ÝÑ  ÑÒ Ü ÒÒ ° ÒÑ ý ÑÑ\R AØ'\ÑÑ\R AØ'\ÑÑ7€jXXdÈdÈ7ÑÔ€ÔÔ€ŠÔÙ€€ÙßR€!# A1-j|` Å `€€@ÿRß›Þ ÞÌ€€€€à@ àò òIN€THE€COURT€OF€APPEALS€OF€TENNESSEEÌÌà@ àEASTERN€SECTIONÌó óÌÌÌALSIDE€SUPPLY€CENTER€OF€à àà à)€C/A€NO.€03A01„9702„CH„00069ÌKNOXVILLE,à àà àà àà à)€Ìà àà àà àà àà àà à)€KNOX€CHANCERYÌà àPlaintiff„Appellant,à àà àà à)Ìà àà àà àà àà àà à)€HON.€SHARON€BELL,Ìv.à àà àà àà àà àà à)€CHANCELLORÌà àà àà àà àà àà à)ÌSMITH€HERITAGE€SIDING€à àà à)ÌCOMPANY,€INC.,€and€DENNIS€à àà à)ÌCLEMMER,à àà àà àà àà à)Ìà àà àà àà àà àà à)Ìà àDefendants,à àà àà àà à)Ìà àà àà àà àà àà à)Ìandà àà àà àà àà àà à)Ìà àà àà àà àà àà à)ÌMETROPOLITAN€LIFE€INSURANCEà à)ÌCOMPANY,à àà àà àà àà àœ)€VACATED›Ìà àà àà àà àà àà àœ)€AND›Ìà àAppellee.à àà àà àà àœ)€REMANDED›ÌÌÌÌÌJACK€B.€DRAPER,€ARNETT,€DRAPER€&€HAGOOD,€Knoxville,€for€Plaintiff„Appellant.ÌÌJOHN€A.€LUCAS€and€MARTIN€B.€BAILEY,€HUNTON€&€WILLIAMS,€Knoxville,€forÏAppellee.ÌÌÌÌÌà@ àò òòòO€P€I€N€I€O€Nóóó óÌÌÓÓÌà àà àà àà àà àà àà àà àFranks.€J.ÌœÌÔ€XÔ›à àà àIn€this€action,€the€Chancellor,€pursuant€to€T.R.C.P.€Rule€11,€sanctioned€AlsideÏSupply€Center€of€Knoxville€(Alside)€$10,000.00,€and€Alside€has€appealed.Ìà àà àThis€dispute€arose€out€of€garnishment€proceedings€initiated€by€Alside€againstÏMetropolitan€Life€Insurance€Company€(Metlife).€€Alside€had€previously€been€awarded€aÏjudgment€against€a€Mr.€Clemmer,€who€owned€annuity€contracts€with€Metlife.Ìà àà àœProtracted›€litigation€occurred€as€a€result€of€the€initiation€of€this€action,€due€inÏpart€to€Metlifeððs€initially€failing€to€answer€the€garnishment€in€a€timely€fashion€and€ClemmerððsÏfiling€for€bankruptcy.€€However,€Metlife€incurred€approximately€one€hundred€thousand€dollarsÏ($100,000.00)€in€attorney€fees€and€expenses€in€Chancery€and€Bankruptcy€courts,€and€theÏactions€of€Alsideððs€attorney,€David€Lufkin,€were€found€to€be€a€cause€of€much€of€the€time€andÏmoney€expended.€€Sanctions€were€entered€against€Lufkin€in€the€Bankruptcy€Court€in€theÏamount€of€$20,000.00€by€Judge€Richard€Stair.€€Ìà àà àThis€action€deals€with€Metlifeððs€efforts€to€have€further€sanctions€assessedÏagainst€Alside€in€Chancery€Court.€€The€basis€of€the€Chancellorððs€award€of€sanctions€was€œmadeÏlargely›€on€the€submission€of€inaccurate€pleadings,€such€as€the€representation€to€the€ChanceryÏCourt€that€the€Bankruptcy€Court€had€ruled€that€the€garnishment€action€in€Chancery€Court€didÏnot€violate€the€automatic€bankruptcy€stay.€€Lufkin€also€represented€to€the€Chancery€Court€thatÏMetlife€had€not€forwarded€Clemmerððs€funds€to€it,€when€the€moneys€had€been€submitted€fourÏmonths€earlier.à àà àRule€11€sanctions€are€reviewed€by€examining€whether€the€Trial€CourtÏabused€its€discretion.€€òòKrug€v.€Krugóó,€838€S.W.2d€197€(Tenn.App.€1992),€òòciting€Cooter€&ÏGell€v.€Hartmarx€Corp.óó,€496€U.S.€384,€400,€110€S.Ct.€2447,€2458,€110€L.Ed.2d€359€(1990).€ÏAn€abuse€of€discretion€occurs€if€the€trial€courtððs€ruling€is€based€on€an€erroneous€view€of€theÏlaw€or€on€a€clearly€erroneous€assessment€of€the€evidence.€€òòCooteróó€at€405.Ìà à€à àAlside€essentially€conceded€the€existence€of€Rule€11€violations,€but€argues€thatÍit€should€not€be€responsible€for€its€local€counselððs€misconduct€because€it€was€not€aware€of€hisÏviolations.€€An€affidavit€submitted€by€its€in„house€counsel,€Mr.€Cespedes,€states€that€he€wasÏnot€aware€of€Lufkinððs€false€statements€ð ðat€the€time.ðð€Ìà àà àThe€Chancellor€acknowledged€in€her€memorandum€opinion€that€the€corporationÏdid€not€appear€to€be€instigator€or€ð ðcatalystðð€of€bad€faith€or€malice.€€She€characterized€theÏcorporate€counselððs€role€as€involving€a€ð ðlack€of€attention€or€over€reliance€on€local€counsel.ððÌà àà àHowever,€she€found€that€in„house€counsel€for€Alside€had€been€keptÏð ðmeticulously€apprised€of€every€step€takenðð€by€virtue€of€memos,€letters,€and€facsimile€whichÏwere€ð ðprovided€at€each€and€every€stage€of€the€proceedings.ðð€€She€went€on€to€state€that€AlsideÏhad€ð ðcomplete€knowledge€of€the€nature€of€the€proceedingsðð€and€that€the€inaccuracy€of€theÏpleadings€ð ðshould€have€been€apparent,ðð€had€Alside€ð ðexercised€a€minimal€degree€of€care,ðð€sinceÏit€was€ð ðconstantly€apprised€of€every€step€in€the€proceedings€and€whose€advice€was€sought€atÏeach€state€of€the€proceedings.ðð€€The€record€before€the€Chancellor€comprised€affidavits,Ïsubmitted€by€both€partiesðð€attorneys,€and€the€opinion€of€Judge€Stair,€who€assessed€sanctionsÏagainst€œAlsideððs›€œattorney,›€œLufkin,›€in€the€bankruptcy€court,€and€other€documents.Ìà àà àAlside€œinsists›€that€a€client€cannot€be€liable€when€it€did€not€sign€the€defectiveÏpleading.€€œÌà àà àWe›€note€preliminarily€that€federal€authority€may€be€used€for€guidance€inÏinterpreting€Rule€11.òò€€Andrews€v.€Bibleóó,€812€S.W.2d€284€(Tenn.€1991).Ìà àà àRule€11€states€in€part€that:€€ÌÓÓà0 àà0 àRepresentations€to€Court.„€By€presenting€to€the€court€òò(whether€by€signing,Ïfiling,€submitting,€or€later€advocating)óó€a€pleading,€written€motion,€or€otherÏpaper,€an€attorney€or€unrepresented€party€is€certifying€that€to€the€best€of€theÏpersonððs€knowledge,€information,€and€belief,€formed€after€an€inquiryÏreasonable€under€the€circumstances,€„ÌÌà0 àà0 à(1)€it€is€not€being€presented€for€any€improper€purpose,€such€as€to€harass€or€toÏcause€unnecessary€delay€or€needless€increase€in€the€cost€of€litigation€.€.€.€(3)€theÍallegations€and€other€factual€contentions€have€evidentiary€support€after€aÏreasonable€opportunity€for€further€investigation€or€discovery€.€.€.€.ÌÒ Ü ÒÒ  ÒÒ  ÒÒ  ÒÌÒ Ü ÒÒ  ÒÒ Ü ÒÒ ° Òà0 àà0 àTenn.R.Civ.Pro.11.02€(emphasis€added).€ÌÌÓÓà àà àThis€Court€has€held€that€the€above€emphasized€portion€permits€assessment€ofÏRule€11€sanctions€against€anyone€who€ð ðadvocatesðð€a€pleading,€including€the€non„signingÏclient.€€òòAl„Haddad€v.€Ritteróó,€1997€WL€44389€(Tenn.App.€1997)€(homeowner€could€beÏassessed€sanctions€for€requiring€$8,000.00€in€damages€when€plumbing€problem€had€arguablyÏbeen€repaired€at€$35.00€cost).€€Liability€for€a€non„signing€client€also€can€be€found€in€the€nextÏsection,€which€states:€€ÌÓÓà0 àà0 àIf,€after€notice€and€a€reasonable€opportunity€to€respond,€the€court€determinesÏthat€subdivision€11.02€has€been€violated,€the€court€may,€subject€to€theÏconditions€stated€below,€impose€an€appropriate€sanction€upon€the€òòattorneys,€lawÏfirms,€or€partiesóó€that€have€violated€subdivision€11.02€or€are€responsible€for€theÏviolation€of€Tennessee€Rules€of€Civil€Procedure,€11.03.€€(Emphasis€œadded).Ì›ÌÓÓFederal€œRule›€11€contains€parallel€provisions€which€have€similarly€been€œrelied€on›€whenÏsanctioning€non„signing€parties.€€òòSee,€e.g.,€Bergeron€v.€Northwest€Publications€Inc.óó,€165ÏF.R.D.€518,€521€(D.Minn.€1996).€€Contrary€to€Alsideððs€contentions,€a€non„signing€party€mayÏbe€subject€to€sanctions.€€Ìà àà àAttorneys€are€held€to€an€ð ðobjectiveðð€standard€of€reasonableness€whenÏdetermining€whether€they€have€complied€with€Rule€11.òò€€Business€Guides€v.€ChromaticÏCommunicationsóó,€498€U.S.€533,€549,€111€S.Ct.€922,€932€(U.S.€1991);€€òòAndrews,€óóat€288;ÏòòKrug,€óóat€205.€€Accordingly,€sanctions€are€appropriate€when€an€attorney€submits€a€pleading,Ïmotion,€or€other€paper€on€grounds€which€he€knew€or€should€have€known€were€meritless.€ÏòòVekris€v.€Peoples€Express€Airlineóó,€707€F.Supp.€679,€682€(S.D.N.Y.€1988).€€A€subjectiveÏshowing€of€bad€faith€is€no€longer€necessary.€€òòU.S.€v.€Intððl€Brotherhood€of€Teamstersóó,€948ÏF.2d€1338,€1344€n.€3€(2d€Cir.€1991).€€€€Ìà àà àSigning€parties€are€held€to€a€standard€that€varies€with€the€clientððs€sophisticationÍand€experience.€òò€Business€Guides,€óóat€550.€€Business€Guides,€œwas›€an€experienced€litigant€withÏin„house€counsel€to€make€the€necessary€ð ðreasonable€inquiryðð€on€its€behalf,€œbut€was›€held€to€anÏobjective€standard€and€œassessed›€sanctions€without€a€showing€that€it€acted€in€bad€faith.òò€€œId.€ÏBusiness›€Guidesóó€declined€to€reach€the€issue€of€the€standard€to€be€applied€to€non„signingÏparties.€€òòId.€óóat€554.€€At€least€one€court€has€declined€to€impose€an€objective€standard€ofÏreasonable€inquiry€on€such€a€client.€€òòTaylor€v.€U.S.óó,€151€F.R.D.€389,€397€(D.Kan.€1993).€ÏHowever,€that€case€dealt€with€a€lay€litigant€who€relied€on€her€attorney€with€regard€to€the€meritsÏof€her€case.òò€€Id.óóÌà àà àIn€òòContinental€Insurance€Co.€v.€Construction€Industries€Services€Corp.,óó€anÏexperienced,€non„signing€corporate€entity€with€an€in„house€counsel€was€held€to€a€standard€ofÏð ðreasonableness€under€the€circumstances.ðð€149€F.R.D.€451,€455€(E.D.€N.Y.€1993).€€The€courtÏdid€not€elaborate€as€to€what€ð ðreasonableness€under€the€circumstancesðð€required,€although€œthe›Ïend€result€was€to€sanction€the€corporation€whose€in„house€counsel€had€not€conducted€aÏð ðreasonable€inquiryðð€into€the€facts€and€law€and€had€misinformed€local€counsel€of€theÏcompanyððs€principal€place€of€business.€€The€Court€obviously€applied€an€objective€standard€thatÏdoes€not€require€a€showing€of€bad€faith.€€€€Ìà àà àWe€believe€the€use€of€an€objective€standard€for€a€sophisticated,€non„signingÏparty€is€œappropriate.€òòSeeCoburn›€v.€Cilcoóó,€œ610›€F.Supp.€656€(M.D.N.C.€œ1985)òò;›€also€seeÏTerminix€Intððl€Co.€v.€Kayóó,€150€F.R.D.€532,€539€n.€7€(E.D.€Penn.€œ1993);›€òò€also€see€generallyÏPainewebber,€Inc.€v.€Can€Am€Financial€Group,€Ltd.óó,€121€F.R.D.€324€(N.D.Ill.€œ1988);€ÏòòIndependent›€Fire€Insurance€Co.€v.€Leaóó,€€979€F.2d€377,€378„379€(5th€Cir.€1992);€òòChevronÏU.S.A.€v.€Handóó,€763€F.2d€1184,€1187€(10th€Cir.€1985).Ìà àà àWe€hold€that€sanctions€are€appropriate€against€a€corporate€client€when€there€hasÏbeen€meaningful€participation€by€an€in„house€counsel,€and€the€in„house€counsel€does€not€meetÍthe€criteria€of€the€objective€standard,€meaning€that€he€or€she€knew€or€should€have€known€thatÏthe€actions€of€local€counsel€were€in€violation€of€Rule€œ11€and€took€no€steps€to€ameliorate.›€As€toÏwhether€œAlside›€played€an€active€role€in€the€representations,€the€affidavits€submitted€do€little€toÏshed€light€on€the€level€of€in„house€counselððs€participation.€The€affidavit€of€in„house€counselÏCespedes€indicates€that€he€was€unaware€of€improper€actions€by€Lufkin€and€had€not€directedÏthose€actions.€€It€is€unclear€what€the€basis€was€for€the€Chancellorððs€finding€that€in„house€wasÏkept€meticulously€informed€of€the€proceedings.€€Ìà àà àRegarding€whether€Alside,€through€its€in„house€counsel,€failed€to€meet€anÏobjective€standard€of€conduct,€we€recognize€that€the€purpose€of€hiring€local€counsel€is€to€gainÏfamiliarity€and€expertise€with€local€variances€in€the€law.€€This€type€of€reliance€is€common€andÏreasonable€and€seems€to€have€played€a€role€here,€as€Alsideððs€in„house€counsel€states€in€hisÏaffidavit€that€Ohio€law€does€not€use€the€writ€of€òòscire€faciasóó€that€was€necessary€in€Tennessee.€€Ìà àà àThe€conflicting€evidence€in€this€record€cannot€be€properly€evaluated€on€appeal.€ÏAn€evidentiary€hearing€is€necessary€in€œsanction€cases›€where€there€are€disputed€facts€or€issues€ofÏcredibility.€€òòChemiakin€v.€Yefimovóó,€932€F.2d€124,€130€(2d€Cir.€1991);òò€also€see€Didie€v.ÏHowesóó,€988€F.2d€1097,€1105€n.€8€(11th€Cir.€1993)€(ð ðWhile€notice,€ððfrom€the€party€seekingÏsanctions,€or€from€the€court,€or€from€both,ðð€and€an€opportunity€to€respond€to€a€motion€for€RuleÏ11€sanctions€comports€underòò€Donaldson€óówith€the€due€process€requirements€of€Rule€11,€weÏconsider€it€prudent€for€a€district€judge€to€hold€a€hearing€before€imposing€sanctions.€ÏòòDonaldsonóó,€819€F.2d€at€1560").€€Ìà àà àWe€believe€under€the€circumstances€of€this€case€that€it€is€appropriate€to€vacateÏthe€Trial€Courtððs€judgment€and€remand€for€an€evidentiary€hearing,€where€the€Trial€Judge€œcanÏhear€evidence€and€›€assess€the€credibility€of€the€witnesses.€€Accordingly,€we€vacate€the€TrialÏCourtððs€judgment€and€remand€with€the€cost€of€the€appeal€assessed€to€the€appellee.ÌÌÌÓÓÌà àà àà àà àà àà àÔ€ŠÔ_______________________Ìà àà àà àà àà àà àHerschel€P.€Franks,€J.Ô€XÔ€€ÌÌÌÌÔ€ŠÔCONCUR:ÌÌÌÌÌÌ___________________________ÌHouston€M.€Goddard,€P.J.ÌÌÌÌÌÌ___________________________ÌÔ€XÔCharles€D.€Susano,€Jr.,€J.Ô€ŠÔÌÌÓ  ÓÌÌÌÌà àà àà àà àà àà àà àà àÌÌÌÌ