Commercial Litigation and Arbitration

Tenth Circuit Requires Subjective Bad Faith for Inherent Power Sanctions but Applies Objective Test to Determine Vexatiousness under § 1927

From Kornfeld v.Kornfeld, 2010 U.S. App. LEXIS 18329 (10th Cir. Aug. 31, 2010):

The district court's order summarizes some errant conduct on the part of defendants. However, it lacks a finding of "subjective wrongdoing . . . required to support a fee award" under the federal courts' inherent power. *** The cases relied upon by the district court for an objective standard have no relevance to this type of fee award because they do not concern bad-faith exception to the American Rule. Instead, they involve the application of 28 U.S.C. § 1927, which provides that an attorney who "multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct." Under the objective standard applicable to § 1927, we have affirmed fee awards against attorneys who manifested "intentional or reckless disregard of [their] duties to the court." Hamilton v. Boise Cascade Express, 519 F.3d 1197, 1202 (10th Cir. 2008) (quotation omitted). See also Dominion Video Satellite, Inc. v. Echostar Satellite L.L.C., 430 F.3d 1269, 1278 (10th Cir. 2005); Braley v. Campbell, 832 F.2d 1504, 1512 (10th Cir. 1987). The Supreme Court itself, however, has distinguished the bad-faith exception from the "many . . . other [statutory and procedural] mechanisms permit[ting] a court to impose attorney's fees as a sanction for conduct which merely fails to meet a reasonableness standard." Chambers, 501 U.S. at 47.

To repeat, "the narrow exceptions to the American Rule effectively limit a court's inherent power to impose attorney's fees as a sanction to cases in which a litigant has engaged in bad-faith conduct or willful disobedience of a court's orders." Id. Our cases are scrupulous in following the Supreme Court's dictates. We have stated that for "the exceedingly narrow bad faith exception" to the American Rule to apply, "there must be clear evidence that the challenged claim is entirely without color and has been asserted wantonly, for purposes of harassment or delay, or for other improper reasons." F.T.C. v. Kuykendall, 466 F.3d 1149, 1152 (10th Cir. 2006) (quotation marks omitted). "Whether the bad faith exception applies turns on the party's subjective bad faith," based on a district court's factual findings. Id.

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