Appeals from the United States District Court for the District of Columbia (No. 1:02-cv-02271)
The opinion of the court was delivered by: Karen Lecraft Henderson, Circuit Judge:
Before: HENDERSON, GARLAND and BROWN, Circuit Judges.
Ali appeals the district court's grant of summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, on her claim that Richard Tolbert and Anthony L. Noble violated the District of Columbia Consumer Protection Procedures Act (CPPA) by inducing her to sell her house to Noble and then failing to pay her the full amount promised. See Ali v. Mid-Atl. Settlement Servs., Inc., 640 F. Supp. 2d 1 (D.D.C. 2009). In addition, Noble appeals the district court's sanction under Rule 11 of the Federal Rules of Civil Procedure awarding Ali $25,230 for litigation expenses incurred because Noble evaded service of the complaint and failed to file an answer after service was effected. See Ali v. Mid-Atl. Settlement Servs., Inc., 235 F.R.D. 1 (D.D.C. 2006). We affirm the summary judgment because the court correctly concluded on the record before it that Tolbert is not a "merchant" subject to the CPPA. We vacate the sanction award because Noble's conduct did not involve "[r]epresentations to the Court" made by "presenting to the court . . . a pleading, written motion, or other paper" sanctionable under Rule 11 and we remand to the district court to decide whether to sanction Noble instead under its inherent judicial authority.
The record reveals the following facts. In 1998, Ali inherited a house at 1010 G St. S.E. after her parents died. In 1999, she listed the house for sale for $299,000 but was unable to sell it. In January 2000, she secured a mortgage on the house for approximately $100,000. As of July 2000, the mortgage balance was approximately $105,000 and Ali was some $11,000 in arrears. Faced with foreclosure, Ali met with an employee of the "EZ Mortgage" company in Lanham, Maryland to refinance her mortgage but was turned down. As the meeting ended, Ali learned that Tolbert, whom she knew from junior high school, was affiliated with EZ Mortgage and on the premises. She asked Tolbert-who was an "advertising consultant" at the company-for assistance in securing a loan but he was unable to help. In the days following the conversation, Ali telephoned Tolbert more than once to ask if he wanted to purchase her property and Tolbert eventually agreed to buy it on behalf of Noble, whom Tolbert referred to as his "step-son."
On August 3, 2000, Ali and Noble signed a sales contract under which Noble was to purchase the property from Ali for $150,000. They also signed an "Addendum Contract" which provided that Ali pay six per cent of the sales contract price toward Noble's closing costs and which further stated: "Both parties realize property is facing forecloser [sic]. Property is sold below market value to prevent forecloser [sic] sale." Addendum Contract to D.C. Real Estate Sales Contract, Ali v. Mid-Atl. Settlement Servs., Inc., C.A. No. 02-2271 (D.D.C. Sept. 17, 2007) (JA 474). Noble paid Ali an immediate deposit of $500.00. On August 9, 2000, Noble paid $11,404.53 to Riggs Bank to bring Ali's mortgage current and prevent foreclosure. From that date to the closing on November 21, 2000, Noble tendered Ali six checks totaling $15,600.
Ali and Tolbert both attended the closing but Noble did not. At that time, Ali signed a "HUD-1" settlement sheet that identified Ali as the seller, Noble as the purchaser and the purchase price as $150,000. HUD-1 at 1, Ali v. Mid-Atl. Settlement Servs., Inc., C.A. No. 02-2271 (D.D.C. Oct. 21, 2007) (Ex. C, Ali's Resp. to Def. Tolbert's Mot. for Summ. J) (JA 623). The HUD-1 also stated that Noble was paying Ali $199.22 for prepaid taxes, increasing the "GROSS AMOUNT DUE TO SELLER" to $150,199.22, and listed deductions from this amount of $105,725.14 to satisfy the existing mortgage, $300 for a water bill escrow and $9,000 for Noble's closing costs, leaving $35,174.08 identified as "CASH TO SELLER." Id. Ali also signed a notarized "Agreement" of the same date, which stated:
I, Betty G. Ali, hereby acknowledge that I have received a total sum of $29,996.42 from Anthony Noble for the real property located at 1010 G Street, S.E., Washington, D.C. All monies advanced through November 21, 2000 will be reimbursed to Mr. Noble at closing. Pre pay [sic] rent in the amount of $1,500.00 good thru [sic] January 2 . Grand total of $31,496.42.
Agreement, Ali v. Mid-Atl. Settlement Servs., Inc., C.A. No. 02-2271 (D.D.C. Jan. 24, 2006) (Ex. D, Opp'n to Pl.'s Mot. for Recons. of Ord. Denying Pl. Atty's Fees & Req. that Court Vacate Default J.) (JA 242). The settlement company then issued Ali a check in the amount of $3,177.66 reflecting the balance due Ali after these sums were deducted.*fn1
On October 28, 2002, Ali filed an action in District of Columbia Superior Court, which was removed to the district court pursuant to 28 U.S.C. § 1441 based on diversity of citizenship. See Notice of Removal, Ali v. Mid-Atl. Settlement Servs., Inc., C.A. No. 02-2271 (D.D.C. Nov. 18, 2002). The amended complaint asserts six counts against Tolbert, Noble or both but this appeal involves only Count 1 alleging that Tolbert violated the CPPA, D.C. Code § 28-3904.*fn2
On July 13, 2004, Ali filed a request for entry of default against Noble on the ground he had not filed an answer despite having been served multiple times, in both Forest Heights, Maryland, where he maintained his permanent residence, and in Philadelphia, where he was attending law school. The clerk of court entered a default the same day. The court then issued an order to show cause why the motion for default judgment should not be granted. Noble moved to set aside the entry of default, asserting he had not been personally served and therefore was not on legal notice of the court filings. Ali opposed the motion and requested Rule 11 sanctions against Noble and his counsel in the form of attorney's fees to cover the costs of repeated service attempts and of responding to Noble's motion to set aside default, asserting she had served Noble three times over a one-year period and characterizing his denial of service as "frivolous and unfounded." Pl.'s Resp. to [Noble's] Mot. to Lift Entry of Default, at 6, 8, Ali v. Mid-Atl. Settlement Servs., Inc., C.A. No. 02-2271 (D.D.C. Oct. 12, 2004) (JA 75, 77). The court denied the motion to set aside default as "deficient" because it was "not accompanied by a verified answer as is required by Local Civil Rule 7(g)" and directed Noble, inter alia, to respond with supporting affidavits to Ali's claim that he had been served with the complaint and to her request for attorney's fees. Ali subsequently filed a formal motion for sanctions.
Following additional filings, the court issued a decision on January 6, 2006 granting the sanctions motion in part. The court concluded that Ali had indeed effected service on Noble three times-in November 2002, May 2003 and September 2003-and declared Noble's counsel "admonished for his role in Noble's failure to respond as required after Noble was served with the summons and complaint by making factual assertions that were not based on a reasonable inquiry or supported by the evidence, and by making fact-based legal arguments that were not based on a reasonable inquiry into the facts and not warranted by existing law." Mem. Op. & Order at 19-20, Ali v. Mid-Atl. Settlement Servs., Inc., C.A. No. 02-2271 (D.D.C. Jan. 6, 2006) (JA 211-12).*fn3 The court denied the sanctions motion "in all other respects." Id. at 20 (JA 212). The court advised both Noble and his counsel, however, that "any further delays attributable in whole or in part to any continued baseless ...