UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

BERNARD OLCOTT,

Plaintiff - Appellant,

v.

DELAWARE FLOOD COMPANY, a limited partnership under the laws of Oklahoma; LAYTON OIL COMPANY, a Kansas corporation; DELAWARE FLOOD COMPANY 1976 DH; DELAWARE FLOOD COMPANY 1977 EH; DELAWARE FLOOD COMPANY 1978 FH; DELAWARE FLOOD COMPANY 1979 Ltd.; MICHAEL GALESI; WILLIAM DOUGLAS LAYTON, individually and as general partner,

Defendants - Appellees.

No. 03-5156

(N. District of Oklahoma)

(D.Ct. No. 83-CV-179-E)

ORDER AND JUDGMENT*

Before KELLY, ANDERSON, and O'BRIEN, Circuit Judges.

This case is before us for the fourth time after a long and tortured history.1 Bernard Olcott (Olcott), who was previously awarded sanctions against the defendants in the amount of $1,526,032.78,2 together with prejudgment interest in the amount of $2,573,974.77, all based on a $1.9 million investment turned sour, appeals the district court's denial of his application for additional sanctions and costs. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.

I. Background

The facts germane to this appeal are these. Between 1976 and 1979, Olcott invested a total of $1.9 million in four oil drilling and exploration limited

partnerships in Oklahoma. In 1982, he filed suit in federal court3 in which he alleged violations of federal securities law and various state claims based on tort, fraud and breach of contract.4 As defendants, he named Delaware Flood Company and others (Delaware Flood). The gist of Olcott's complaint was that Delaware Flood had diverted his investment to purposes other than those stated in the limited partnership agreements. On February 8, 1986, he moved the court to order Delaware Flood to produce a formal accounting of his investment. On March 18, 1986, the court ordered Delaware Flood to:

furnish [Olcott] with a full, complete, meaningful, and formal accounting of all of the financial affairs of [the four limited partnerships], setting forth all items of contribution, income, and expense as well as the disposition of all assets and monies, for each of the four limited partnerships, including a full and complete accounting for all monies paid by each of the partnerships under the turnkey drilling contracts . . . .

See Olcott II, 76 F.3d at 1550-51.

Delaware Flood submitted its accounting on January 13, 1987. Olcott complained it was insufficient and moved for sanctions, including entry of default judgment. The court agreed the accounting was insufficient. Although it declined to enter default judgment against Delaware Flood, finding no bad faith, it imposed sanctions against it on March 17, 1987, under Fed. R. Civ. P. 37:5

2. [Delaware Flood] shall pay all costs and fees incurred by [Olcott] from December 19, 1986 regarding the accounting issues until all accounting issues are resolved . . . .

5. [Olcott] shall file an application for costs and fees to date within ten (10) days of March 17, 1986 . . . .

6. . . . Statements for subsequent services may be rendered to the Court thereafter as appropriate.

(Appellant Supp. App. Vol. I at 11-11a.) The order directing Delaware Flood to produce an accurate accounting remained in effect.

On May 12, 1987, Delaware Flood filed its first supplemental accounting. Olcott complained it, like the previous accounting, was insufficient. Again, he sought sanctions, including entry of default judgment. Again, the court agreed the accounting fell short of the mark. On October 14, 1987, relying on Fed. R. Civ. P. 16 and 37(b), the court sanctioned Delaware Flood a second time. Although the court again declined to enter default judgment, due to insufficient evidence of bad faith, it ordered Delaware Flood to pay the fees and expenses Olcott incurred in challenging the accounting.6 The accounting order remained in effect, the court explaining:

So that there can be no further misunderstanding, [Delaware Flood is] hereby ordered to trace the monies contributed to each of these four limited partnerships so that the ultimate recipients and ultimate uses of these funds is revealed. [Delaware Flood] may not rest on simply disclosing what funds were received from limited partner contributions and what leases, wells, production, and income were received by the limited partnerships in return.

(Appellant Supp. App. Vol. I at 16.)

The court referred the calculation of fees and expenses to a magistrate judge. On July 28, 1988, the magistrate judge recommended a sanction award to Olcott in the amount of $386,637.98 for fees and expenses incurred between December 19, 1986, and October 14, 1987.7 On August 29, 1988, the magistrate judge recommended an additional $1,615.00 for fees and expenses Olcott incurred. Thus, the total sanction recommended by the magistrate judge was $388,252.98.

On April 15, 1988, Delaware Flood filed its second supplemental accounting. Again, Olcott contested its sufficiency and moved for sanctions, including entry of default judgment. This time, the court found Delaware Flood wilfully violated its order to produce an accurate accounting and demonstrated bad faith. On February 8, 1990, it sanctioned Delaware Flood by entering default8 against it, see Fed. R. Civ. P. 55(a), for $1.9 million

less any portion of those funds which [Delaware Flood] can establish were utilized for legitimate purposes under the terms and provisions of the Limited Partnership Agreements. There will be a [set-off hearing] at which the burden will be upon [Delaware Flood] to establish to the satisfaction of the fact finder that any portion of [Olcott's] contribution was utilized for legitimate purposes under the terms of the agreements among the parties.

(Appellant App. Vol. 1 at 171.) The court reserved until the end of the set-off hearing the issue of additional sanctions in favor of Olcott for fees and expenses. The order for an accurate accounting remained in effect pending the set-off hearing. In fact, the court ordered a supplemental accounting be produced by May 31, 1990. Although Delaware Flood submitted such an accounting, the court's own expert examined the submittal and reported to the court on September 26, 1990, that it was entirely insufficient.

On April 30, 1993, the court adopted the two recommendations of the magistrate judge (July 28, 1988, and August 29, 1988) and ordered Delaware Flood to pay sanctions to Olcott in the amount of $388,252.98 for the period December 19, 1986, through October 14, 1987. We affirmed the imposition of these sanctions. Olcott II, 76 F.3d at 1558.

The court eventually conducted the set-off hearing on August 29 through September 1, 2000. On June 6, 2001, the court ruled. It found "[Delaware Flood has] failed to render an accounting and [has] not accounted for the specific use of Mr. Olcott's moneys." (Appellant App. Vol. 1 at 268.) The court considered the parties' stipulation at the set-off hearing that Olcott received $623,161.00 in distributions from the partnerships.9 In addition, the court found Olcott enjoyed a net benefit of $199,824.30 for the exercise of a "put" relative to the 1977 partnership. The court thus concluded Olcott was entitled to default judgment in the amount of $1,077,014.70. It entered judgment in this amount, see Fed. R. Civ. P. 55(b), plus prejudgment interest. On January 29, 2002, the court fixed pre-judgment interest at $1,679,144.5510 and awarded additional attorneys fees in the amount of $60,765.10 relative to the period December 19, 1986, through October 14, 1987.11

In its June 6, 2001 order, the court also provided: "Consistent with the terms of the February 8, 1990 Order, any additional sanctions for fees[,] expenses and costs will be addressed separately upon proper application or motion." (Appellant App. Vol. 1 at 269.) On October 1, 2001, Olcott applied for fees, expenses and costs incurred between October 15, 1987, and June 6, 2001, in relation to resolving the sufficiency of Delaware Flood's accounting. In his application, relying alternatively on the court's earlier sanction orders (March 18, 1987, and October 14, 1987) and Fed. R. Civ. P. 16(f) and 37(b), he requested a $562,329.00 sanction for fees and expenses for the period October 15, 1987, through June 6, 2001. He also applied for costs of $48,544.00 pursuant to Fed. R. Civ. P. 54(d)(1) (allowing award of costs to prevailing party).12 He also requested sanctions under Fed. R. Civ. P. 11 (providing for attorney sanctions). In resisting Olcott's application, Delaware Flood moved for Rule 11 sanctions of its own.

On September 2, 2003, the court denied Olcott's application for additional sanctions and costs and denied Delaware Flood's motion for sanctions, stating:

The Court is convinced that further sanctions in this case, in favor of either party, are not warranted and would not serve the interest of justice. In reaching this conclusion, the Court considers not only the considerable sanction received by [Olcott] to date, but also the conduct of [Olcott's] counsel that delayed resolution of the case and made the [set-off hearing] more difficult than necessary. The Court is convinced that the sanctions already levied are a sanction appropriate to the severity of [Delaware Flood's] abuse of the legal process, and that any further sanction would inappropriately reward, or at best ignore, [Olcott's] counsel's abuse of the legal process. The Court is also convinced, in light of its earlier rulings on sanctions, that a Rule 11 sanction is not appropriate as against [Olcott] for his current application.

(Appellant Supp. App. Vol. III at 377-78 (quotation marks omitted).) Olcott appeals this order except insofar as it denies Rule 11 sanctions against Delaware Flood.

II. Standard of Review

We review an order imposing sanctions pursuant to Fed. R. Civ. P. 16(f) or 37(b)(2) for abuse of discretion. Olcott II, 76 F.3d at 1557. The same standard applies to an order denying sanctions. Gomez v. Martin Marietta Corp., 50 F.3d 1511, 1519 (10th Cir. 1995). We also review an award or denial of costs under Fed. R. Civ. P. 54(d) for abuse of discretion. Rodriguez v. Whiting Farms, Inc., 360 F.3d 1180, 1190 (10th Cir. 2004). We have previously stated:

Under the abuse of discretion standard[,] a trial court's decision will not be disturbed unless the appellate court has a definite and firm conviction that the lower court made a clear error of judgment or exceeded the bounds of permissible choice in the circumstances. When we apply the abuse of discretion standard, we defer to the trial court's judgment because of its first-hand ability to view the witness or evidence and assess credibility and probative value.

Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (quotation marks omitted). "An abuse of discretion occurs when the district court's decision is arbitrary, capricious or whimsical, or results in a manifestly unreasonable judgment." Id. at 1504-05 (quotation marks omitted).

"[E]rroneous findings of fact constitute an abuse of discretion." Quarles v. United States ex rel. Bureau of Indian Affairs, 372 F.3d 1169, 1171 (10th Cir. 2004). See also Olcott II, 76 F.3d at 1557 ("We accept the district court's factual findings underpinning its sanctions order unless clearly erroneous."). There is also an abuse of discretion "where the trial court fails to consider the applicable legal standard or the facts upon which the exercise of its discretionary judgment is based." Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir. 1997). However, "[w]here there are two permissible views of the evidence, the fact finder's choice between them cannot be clearly erroneous." Olcott II, 76 F.3d at 1558 (quotation marks omitted).

III. Discussion

We first observe that this appeal concerns the propriety of the district court's order denying sanctions (and Rule 54(d) costs) to Olcott, and nothing more. It does not concern the sufficiency of Delaware Flood's accounting. That issue is a dead letter. The accounting was insufficient and its insufficiency was the basis for the district court's judgment against Delaware Flood. We have previously affirmed the court's determination that "the accounting presented was not in substantial compliance with the court's prior orders." Olcott III, 327 F.3d 1125.

Olcott complains the court's order denying an additional sanction award rested on inadequate factual findings and is thus clearly erroneous and an abuse of discretion. In addition, he claims a due process entitlement to a sanction award based on the court's earlier orders that he was entitled to sanctions for his fees, expenses and costs related to contesting the sufficiency of Delaware Flood's accounting. Finally, he argues the court erred in failing to properly rule on his motion for costs under Fed. R. Civ. P. 54(d).

A. Sanctions Under Fed. R. Civ. P. 16(f) and 37(b)(2)

Olcott takes issue with the district court's findings in support of its decision to deny sanctions for the period of October 15, 1987, through June 6, 2001. The findings upon which the court relied in arriving at its decision were: 1) "the considerable sanction received by [Olcott] to date" and 2) "the conduct of [Olcott's] counsel that delayed resolution of the case and made the trial more difficult than necessary." (Appellant Supp. App. Vol. III at 377.) Reasoning from these findings to its decision, the court explained it was "convinced that the sanctions already levied are a sanction appropriate to the severity of [Delaware Flood's] abuse of the legal process, and that any further sanction would inappropriately reward, or at best ignore, [Olcott's] counsel's abuse of the legal process." (Id. at 377-78 (quotation marks omitted).) It concluded that "further sanctions in this case, in favor of either party, are not warranted and would not serve the interest of justice." (Id. at 377.)

We first evaluate the findings of fact for clear error. The first fact the court found, the considerable sanctions previously awarded to Olcott, is amply supported by the record. The most significant of the sanctions was the default judgment itself (together with prejudgment interest). When the court awarded default judgment as a sanction, Olcott was relieved of having to prove his case on the merits. This is no mean benefit, even for one who, like Olcott, clearly believes the rectitude of his case was self-evident from the beginning. Nonetheless, Delaware Flood, absent its self-defeating abuse of the legal process, would have enjoyed the right to have the claims against it considered on the merits. In addition to a default judgment, the court awarded Olcott a sanction for fees and expenses in an amount close to what he now claims as his due.13 We identify no error in the court's finding that it levied considerable sanctions against Delaware Flood.

The second fact the court found, "the conduct of [Olcott's] counsel that delayed resolution of the case and made the trial more difficult than necessary[,]" invites closer scrutiny.14 (Id.) Olcott claims there is no support in the record for it. However, the record of the set-off hearing, both standing alone and insofar as it is emblematic of Olcott's conduct throughout the litigation,15 is damning to his claim he did not abuse the process.16 The transcript is riddled with examples of argumentative and improper conduct on the part of Olcott's counsel. Brevity and clarity restrain a detailed elaboration. Suffice it to say, Olcott's counsel's conduct was plainly exasperating to the presiding judge.17 It dispels any notion of error in the court's finding.

In an attempt to divert attention from his conduct, Olcott points the finger at Delaware Flood and the court itself. In his view, the district court erred in failing to enter default judgment in his favor on February 8, 1990. He maintains that all of the evidence necessary to support entry of judgment on June 6, 2001, was available to the court on February 8, 1990, including proof of the set-off to which Delaware Flood eventually stipulated ($623,161.00 in distributions from the partnerships) and proof of the net benefit Olcott enjoyed from the exercise of a "put" relative to the 1977 partnership ($199,824.30). He faults the court for permitting the parties to drag the proceedings on for eleven additional years at great expense to him. As he colorfully puts it, "the District Court required [him] to proceed as an involuntary 'hostage' to the process that [defendants] 'hijacked' in 1986 in bad faith." (Appellant Br. at 52.)

We have previously suggested why the court, having entered default against Delaware Flood in 1990, gave it one last chance to render an accurate accounting of Olcott's investment. See Olcott II, 76 F.3d at 1558 ("The purpose of the [entry of default] was to coerce [Delaware Flood] into completing the accounting for trial."); Olcott III, 327 F.3d at 1121 n.7 (10th Cir. 2003) ("The set-off hearing was [Delaware Flood's] final opportunity to comply with the court's accounting orders. In the event [Delaware Flood] complied, the court presumably intended to lift the default sanction and proceed to trial on the merits. When [Delaware Flood] failed to comply, the court enforced the sanction by entering judgment.") (citations omitted). While Olcott may take issue with the manner in which the trial court managed the case, and its strategy in doing so, this is the court's prerogative.18

In reviewing a Rule 16(f) or 37(b)(2) sanction order, "we examine the totality of the circumstances involved in the case." Olcott II, 76 F.3d at 1557. The sanctions "must be in the interests of justice and proportional to the specific violation of the rules." Id. Examining the totality of the circumstances presented in this case, we conclude the facts found by the district court, in which we find no error, amply support its reasoning and decision that further sanctions were "not warranted and would not serve the interest of justice." (Appellant Supp. App. Vol. III at 377.) The district court has labored long in this vineyard. We are loath to substitute our judgment, drawn from a cold record, for that of the trial judge informed by events and tenured by time. Instead, we are mindful of our responsibility to "defer to the trial court's judgment because of its first-hand ability" to assess the proceedings over which it presides. Moothart, 21 F.3d at 1504 (quotation marks omitted). Applying these principles to the facts, we conclude the district court did not abuse its discretion in denying additional sanctions to Olcott.

B. Due Process Violation

Olcott contends he has been denied his right to procedural due process inasmuch as the court deprived him of a protected interest, to wit, his alleged entitlement to a sanction award, without notice and an opportunity to be heard. To make out a Fifth Amendment due process claim, an individual must "prove that he or she was deprived of a protected interest and that the deprivation occurred without the appropriate level of process." Fed. Lands Legal Consortium v. United States, 195 F.3d 1190, 1195 (10th Cir. 1999) (quotation marks omitted). "To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it." Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972) (stating requirements for Fourteenth Amendment due process claim). We need not reach the constitutional question because Olcott did not possess an entitlement, constitutional or otherwise, to prospective sanctions. Olcott contends the court's orders of March 17, 1987, October 14, 1987, February 8, 1990, and June 6, 2001, vested in him an entitlement to sanction awards for fees and expenses incurred until the conclusion of the litigation over the sufficiency of the accounting. This is not so.

While the March 17, 1987 order stated that "[Delaware Flood] shall pay all costs and fees incurred by [Olcott] from December 19, 1986 regarding the accounting issues until all accounting issues are resolved[,]" (Appellant Supp. App. Vol. I at 11), suggesting entitlement to sanctions for the entire period until the sufficiency of the accounting was resolved,19 the court later disavowed it as a sanction order. See supra note 6. Therefore, the operative sanction orders were those of October 14, 1987, February 8, 1990, and June 6, 2001. None of these orders contains prospective language, and only the order of October 14, 1987, actually fixes a sanction award.20 It provided: "[I]t is just that [Delaware Flood] pay all fees and expenses of [Olcott's] counsel and [Olcott's] accountants incurred for services rendered in connection with resolving the sufficiency of the accounting." (Id. at 17 (emphasis added).) The February 8, 1990 order provided: "The issue of additional sanctions for fees, expenses and costs are reserved until completion of trial." (Appellant App. Vol. 1 at 171 (emphasis added).) The June 6, 2001 order stated that "any additional sanctions for fees[,] expenses and costs will be addressed separately upon proper application or motion." (Id. at 269 (emphasis added).) Without language awarding prospective sanctions, there is no entitlement, constitutional or otherwise. Without an entitlement, there can be no deprivation subject to constitutional protection.

C. Costs Under Fed. R. Civ. P. 54(d)

Finally, Olcott contends the district court abused its discretion in failing to explain its reasons for denying his motion for Rule 54(d) costs. We have explained how we analyze Rule 54(d) claims:

Rule 54 creates a presumption that the district court will award the prevailing party costs. Thus the established rule is that costs are generally awarded to the prevailing party. The burden is on the non-prevailing party to overcome this presumption. When a district court exercises its discretion and denies costs to a prevailing party, it must provide a valid reason for the denial.

Rodriguez, 360 F.3d at 1190 (citations omitted).

In the district court, Delaware Flood opposed Olcott's motion for costs on the grounds he was not a prevailing party and, even if he was, he was not entitled to costs. While Delaware Flood has not in any great detail addressed on appeal the issue of Rule 54(d) costs, we construe its arguments in opposition to sanctions as its argument against costs as well. And while the district court did not separately outline its reasons for denying the motion, we construe the reasons it gave for its denial of the sanctions application as intended to also serve as the basis for its denial of the Rule 54(d) motion.

We need not reach the question whether Olcott was a prevailing party because, even if he was, the court did not abuse its discretion in denying him costs. We observe that all but $601.50 of the Rule 54(d) motion was included in Olcott's application for sanctions. The district court appropriately denied those costs for the reasons we have already explained in the sanctions discussion. As to the $601.50, the court's reasoning in denying sanctions equally serves to deny this sum.

IV. Conclusion

The order of the district court denying additional sanctions and costs to Olcott is AFFIRMED.21

Entered by the Court:

Terrence L. O'Brien

United States Circuit Judge