Filing 9 Separate Suits on Behalf of 9 Tenants Against Landlord Sanctionable under Rule 11(b)(1) and Inherent Power, But Not § 1927 — Motion to Disqualify Based on Opposing Counsel’s Alleged Breach of Duty to His Own Client Violates § 1927

From DeDios v. International Realty & RC Investments, 2011 U.S. App. LEXIS 7421 (9th Cir. Apr. 11, 2011):

The district court did not abuse its discretion in sanctioning De Dios's counsel $500 for "vexatious litigation strategy" in filing nine separate but identical actions [on behalf of nine separate tenants in an apartment building against the managing agent] for alleged violations of the [Fair Debt Collection Practices] Act instead of a single action naming all nine tenants as plaintiffs. In its order to show cause on sanctions, the district court wrote:

[T]here appears to be no legitimate reason for the filing of nine individual actions rather than a single action naming nine Plaintiffs. By filing the case as they did, Plaintiffs' counsel unnecessarily multiplied the costs of litigation and the burden on the Court.

We agree. To begin, counsel failed to file a notice of related case in violation of the local rules. As referenced in the court's detailed findings, counsel attempted to justify her actions by professing that conflicts in the clients' respective settlement positions prevented her from filing one suit. This argument is singularly unpersuasive. The district court pointedly noted that "merely filing separate lawsuits does not alleviate the ethical issues related to collective representation." The district court also documented its concern that some of the clients undertook the litigation to punish International Realty rather than to resolve claims under the Act.

Although De Dios is correct that sanctions under 28 U.S.C. § 1927 do not apply to complaints or initial pleadings, see Moore v. Keegan Mgmt. Co. (In re Keegan Mgmt. Co., Sec. Litig.), 78 F.3d 431, 435 (9th Cir. 1996), the district court had ample grounds on this record to impose the sanctions under Rule 11 and its inherent authority to curb abusive litigation practices. See Fed. R. Civ. P. 11(b)(1) (allowing sanctions for filings that "harass, cause unnecessary delay, or needlessly increase the cost of litigation"); Gomez v. Vernon, 255 F.3d 1118, 1133-34 (9th Cir. 2001) (imposing inherent power sanctions for counsel's abusive tactics that resulted in unnecessary litigation).

The district court's additional sanctions award under 28 U.S.C. § 1927 — $12,000 in attorneys' fees to counsel for International Realty — arose from De Dios's motion to disqualify defense counsel because of an alleged conflict of interest in representing his client. According to De Dios, the conflict purportedly arose in earlier litigation because defense counsel, then representing Norton, the property owner, suggested that either International Realty or the receiver, not Norton, was the proper party defendant. The district court quickly dispatched this claim, finding that by virtue of a conflict waiver and an indemnity agreement there was no actual conflict. The district court further found that the motion was procedurally defective — De Dios filed it without complying with local meet and confer rules, see C.D. Cal. Local Rule 7-3 — and finally that De Dios lacked standing to seek disqualification for defense counsel's alleged breach of duties to his client, see Kasza v. Browner, 133 F.3d 1159, 1171 (9th Cir. 1998). It is not surprising that De Dios's counsel does not challenge the court's rulings, as its findings are well grounded and legally correct. Instead, De Dios pleads that the motion was not so vexatious as to warrant sanctions and that she was unaware of the indemnification agreement. Given that there was no legal basis for the motion, these after-the-fact justifications do not save the day. The district court did not abuse its discretion in awarding sanctions under 28 U.S.C. § 1927.

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