Commercial Litigation and Arbitration

Sanctions — Circuit Splits: (1) No Vicarious Liability under § 1927 — (2) No Bad Faith Required for § 1927 Sanctions

Gibson v. Solideal USA, Inc., 2012 U.S. App. LEXIS 14415 (6th Cir. July 10, 2012):

28 U.S.C. § 1927 and the Court's Inherent Power


Footnote 3. Notably, in this case, sanctions under § 1927 could be imposed only on Catlett [plaintiff’s counsel] and would not apply to Gibson [plaintiff] or the law firm. See Rentz, 556 F.3d at 396 n.6 ("Accordingly, § 1927 does not authorize the imposition of sanctions on a represented party, nor does it authorize the imposition of sanctions on a law firm.").

"The purpose of § 1927 is to deter dilatory litigation practices and punish aggressive tactics that far exceed zealous advocacy." Garner v. Cuyahoga Cnty. Juvenile Ct., 554 F.3d 624, 644 (6th Cir. 2009) (quotation omitted). A court may sanction an attorney under § 1927, even in the absence of bad faith, when the "attorney knows or reasonably should know that a claim pursued is frivolous, or that his or her litigation tactics will needlessly obstruct the litigation of nonfrivolous claims." Hall, 595 F.3d at 275-76 (quotation omitted); Rentz, 556 F.3d at 395-96 (quotation omitted). However, "there must be some conduct on the part of the subject attorney that trial judges, applying the collective wisdom of their experience on the bench, could agree falls short of the obligations owed by a member of the bar to the court and which, as a result, causes additional expense to the opposing party." Rentz, 556 F.3d at 396 (quotation omitted). This is an objective standard, requiring a "showing of something less than subjective bad faith, but something more than negligence or incompetence." Id. (quotation omitted). "A sanction is generally improper where a successful motion could have avoided any additional legal expenses by defendants." Riddle v. Egensperger, 266 F.3d 542, 553 (6th Cir. 2001) (quoting In re Ruben, 825 F.2d 977, 988 (6th Cir. 1987)).

In addition to Rule 11 and § 1927, the court may impose sanctions pursuant to its inherent power "'when a party has acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Metz v. Unizan Bank, 655 F.3d 485, 489 (6th Cir. 2011) (quoting Chambers, 501 U.S. at 45-46). We have held that ”bad faith' [or 'conduct that was tantamount to bad faith'] is a requirement for the use of the district court's inherent authority . . . ." First Bank of Marietta v. Hartford Underwriters, 307 F.3d 501, 519 (6th Cir. 2002); see BDT Prods., 602 F.3d at 752 ("This 'bad faith exception' to the American Rule - the imposition of sanctions under a court's inherent powers - thus requires a finding of bad faith or of conduct 'tantamount to bad faith.'") (emphasis in original).

The mere fact that an action is without merit does not amount to bad faith sufficient to invoke the court's inherent power to sanction. Rather,

the court must find something more than that a party knowingly pursued a meritless claim or action at any stage of the proceedings. Examples of "something more" include: a finding that the plaintiff filed the suit for purposes of harassment or delay, or for other improper reasons, a finding that the plaintiff filed a meritless lawsuit and withheld material evidence in support of a claim, or a finding that a party was delaying or disrupting the litigation or hampering enforcement of a court order.

Metz, 655 F.3d at 489 (emphasis in original) (citations and alteration omitted).

Solideal first contends that, as to both § 1927 and the court's inherent powers, the district court abused its discretion in failing to articulate its reasons for denying the motion for fees. We reject this argument. "While district courts are required to articulate a basis for awarding sanctions, nothing requires them to explain their reasons for not ordering sanctions." Runfola & Assocs., Inc. v. Spectrum Reporting II, Inc., 88 F.3d 368, 375 (6th Cir. 1996) (addressing a district court's silence on its reason to deny sanctions under its inherent powers); see also Eaton Aerospace, L.L.C. v. SL Montevideo Tech., 129 F. App'x 146, 153 (6th Cir. 2005) ("Finally, [the appellant]'s observation that the district court denied its motion [for sanctions under § 1927 and the court's inherent power] 'without examination, analysis, or explanation that [the appellant] had not been prejudiced by the misconduct' does not demonstrate an abuse of discretion as nothing requires a court to explain its reasons for not ordering sanctions.") (quoting Orlett v. Cincinnati Microwave, Inc., 954 F.2d 414, 417 (6th Cir. 1992)).

Solideal has not identified any unnecessary multiplication of proceedings based on "aggressive tactics that far exceed zealous advocacy" so as to implicate 28 U.S.C. § 1927. Garner, 554 F.3d at 644. Indeed, just the opposite appears true: Solideal complains of Catlett's "unacceptably lax attitude toward litigation" and languid litigation strategy, i.e., filing a meritless claim and then failing to conduct discovery or file adequately substantial briefs. While it alleges that Catlett should have made additional legal inquiries into the bases for Gibson's claim, this is insufficient: "the mere finding that an attorney failed to undertake a reasonable inquiry into the basis for a claim does not automatically imply that the proceedings were intentionally or unreasonably multiplied." Ridder v. City of Springfield, 109 F.3d 288, 290 (6th Cir. 1997). Likewise, the fact that Catlett could have done more to speed the adjudication of the claim — or was perhaps negligent for failing to do so — is not an appropriate basis for § 1927 sanctions. See Hall, 595 F.3d at 275-76. As above, if Gibson's claim was as baseless as Solideal suggests, it could have halted proceedings with an early motion to dismiss. See Riddle, 266 F.3d at 553. It did not do so, however, and the district court concluded that dismissal, not the imposition of sanctions, was the appropriate course of action. Under these circumstances, we cannot conclude that the district court abused its discretion in denying Solideal's motion for sanctions pursuant to § 1927.

Likewise, Solideal has not demonstrated that the district court abused its discretion in refusing to exercise its inherent power to sanction Appellees. The district court made an explicit finding that Appellees made no demonstration of bad faith, as would be required to impose sanctions pursuant its inherent power. See First Bank of Marietta, 307 F.3d at 519. While Solideal vehemently maintains that this case was meritless from its inception, it has identified nothing in the record to suggest that Gibson or his attorney filed the complaint for an improper motive, intentionally delayed or disrupted the litigation process, used the action as a means to harass Solideal, or otherwise acted vexatiously. In short, Solideal has failed to identify "something more" than the mere pursuit of a meritless claim — the existence of which is a prerequisite for the imposition of sanctions under a court's inherent power. Metz, 655 F.3d at 489. Without such a demonstration, it is unable to establish that Appellees engaged in conduct tantamount to bad faith or, consequently, that the district court abused its discretion in denying the motion for sanctions under the court's inherent powers. See id.; BDT Prods., 602 F.3d at 752.

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