Commercial Litigation and Arbitration

§ 1927 Sanctions — Circuit Split as to Whether Bad Faith Is Required or Recklessness Suffices — Failure to Name Counsel as Appellant Not Fatal If Appealed Order Sanctions Counsel Only — One Appellate Panel Cannot Overrule Another

McKenzie v. Norfolk S. Rwy., 2012 U.S. App. LEXIS 24171 (4th Cir. Nov. 20, 2012):

Appellants next challenge the district court's entry of attorneys' fees against Schmidt under 28 U.S.C. § 1927. Prior to addressing the merits of the § 1927 sanctions, we must determine whether we have jurisdiction. *** Federal Rule of Appellate Procedure 3(c)(1)(A) requires that a notice of appeal "specify the party or parties taking the appeal by naming each one in the caption or body of the notice." Schmidt is not a named party in the notice of appeal of the attorneys' fees. As a result, Norfolk Southern contends that we lack jurisdiction over the appeal of the attorneys' fees because there is a "risk of ambiguity and confusion" as to who the appellant is and what matter is appealed. See Newport News Holdings Corp. v. Virtual City Vision, Inc., 650 F.3d 423, 443 (4th Cir. 2011) cert. denied, 132 S. Ct. 575, 181 L. Ed. 2d 425 (2011).

We find that there is no ambiguity or confusion because the attorneys' fees were assessed individually against Schmidt, and only Schmidt was entitled to bring the appeal of this sanction. As such, we have jurisdiction to address the merits of the appeal of attorneys' fees. **

On the merits, Appellants contend the district court erred in issuing attorneys' fees against Schmidt under 28 U.S.C. § 1927. We review a district court's decision to impose sanctions pursuant to § 1927 for abuse of discretion. Miltier v. Beorn, 896 F.2d 848, 855 (4th Cir. 1990).

Pursuant to § 1927, "Any attorney . . . who so 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." We have repeatedly stated that "[b]ad faith on the part of the attorney is a precondition to imposing fees under § 1927." E.E.O.C. v. Great Steaks, Inc., 667 F.3d 510, 522 (4th Cir. 2012) (citing Chaudhry v. Gallerizzo, 174 F.3d 394, 411 n.14 (4th Cir. 1999); Brubaker v. City of Richmond, 943 F.2d 1363, 1382 n. 25 (4th Cir. 1991).

Relying on Sanford v. Virginia, 689 F. Supp. 2d 802 (E.D. Va. 2010), Norfolk Southern contends that § 1927 does not require a finding of bad faith. Sanford discusses our line of cases which clearly state the proposition that bad faith is a precondition to sanctions under § 1927. 689 F. Supp. 2d at 806-808. Sanford asserts, however, that our decisions merely state this proposition in dicta because a finding of bad faith was not necessary to reach our conclusions in those cases. Id. We disagree. In Great Steaks, our most recent decision on this issue decided after Sanford, we restated the proposition that bad faith is required for § 1927 sanctions and affirmed the district court's denial of the defendant's motion for attorneys' fees where the district court expressly found that the plaintiff had not acted in bad faith. 667 F.3d at 522-23. Accordingly, this Circuit requires a finding of bad faith prior to the imposition of sanctions pursuant to § 1927.

Footnote 5. We recognize that our sister circuits have come to differing conclusions on whether bad faith is a precondition to imposing sanction under § 1927. The First, Fifth, Sixth, Seventh, Eight, Tenth, and Eleventh Circuits have found bad faith is not a predicate to imposing § 1927 sanctions. See Rentz v. Dynasty Apparel Indus., Inc., 556 F.3d 389, 396 (6th Cir. 2009); Hamilton v. Boise Cascade Exp., 519 F.3d 1197, 1202 (10th Cir. 2008); Amlong & Amlong, P.A. v. Denny's, Inc., 500 F.3d 1230, 1241 (11th Cir. 2007); Clark v. United Parcel Serv., Inc., 460 F.3d 1004, 1011 (8th Cir. 2006); Claiborne v. Wisdom, 414 F.3d 715, 721 (7th Cir. 2005); Edwards v. Gen. Motors Corp., 153 F.3d 242, 246 (5th Cir. 1998); Cruz v. Savage, 896 F.2d 626, 631-32 (1st Cir. 1990). The Second and Third Circuits have held that bad faith is necessary to impose sanctions under § 1927. See Oliveri v. Thompson, 803 F.2d 1265, 1273 (2d Cir. 1986); Baker Indus., Inc. v. Cerberus Ltd., 764 F.2d 204, 209 (3d Cir. 1985). The Ninth Circuit's case law is unclear on this issue, see In re Girardi, 611 F.3d 1027, 1061 (9th Cir. 2010), and the D.C. Circuit has not decided this issue, see LaPrade v. Kidder Peabody & Co., Inc., 146 F.3d 899, 905 (D.C. Cir. 1998).

Recognizing this split in authorities, we are nonetheless bound by our precedent which explicitly states bad faith is a precondition to imposing sanctions under § 1927. United States v. Chong, 285 F.3d 343, 346 (4th Cir. 2002) ("It is well settled that a panel of this [C]ourt cannot overrule, explicitly or implicitly, the precedent set by a prior panel of this [C]ourt. Only the Supreme Court or this [C]ourt sitting en banc can do that.") (citation and quotation marks omitted)).

Here, in awarding attorneys' fees, the district court stated:

having observed Plaintiff's counsel and judged his credibility, and having listened to his arguments in justification for his actions, finds that Plaintiffs' counsel's errors and omissions are the result of inefficiency and lack of competence in dealing with an excessive number of clients, and not the result of bad faith or willful misconduct.

Curtis v. Norfolk S. Ry. Co., No. 1:05-CV-115, 2010 WL 2662269, at *3 (D.S.C. June 21, 2010) (emphasis added). In denying Appellants' Rule 60(b) motion for relief from attorneys' fees, the district court stated:

Certainly[,] the court was loath to reach a conclusion that [Schmidt] intentionally and with improper motive disregarded evidence of res judicata presented by Defendant with respect to the state court proceedings at issue. It is the court's expectation that all counsel appearing before the court will comport themselves in accordance with the rules of professional conduct, and the court was willing to give [Schmidt] the benefit of the doubt by not making a finding of bad faith. Nevertheless, sanctions are appropriate. Counsel engaged in reckless behavior that demonstrated a conscious disregard for a foreseeable risk that proceedings would be unreasonably and vexatiously multiplied.

(J.A. 1968-69 (emphasis added).) We note that at the time of its decision, the district court did not have the benefit of Great Steaks. Yet, our precedent on the necessity of a bad faith finding prior to the imposition of § 1927 sanctions is clear. Because the district court expressly and specifically refrained from finding bad faith, it was error to impose attorneys' fees on Schmidt. Accordingly, the district court's order imposing attorneys' fees is reversed.

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