Commercial Litigation and Arbitration

Denial of Summary Judgment and Two Directed Verdict Motions Does Not Insulate Counsel from § 1927 Sanctions — De Novo Review of Legal Analysis and Statutory Interpretation

Holland v. Standley & Assocs., LLC, 2013 U.S. App. LEXIS 4881 (10th Cir. Mar. 12, 2013):

[Plaintiffs’ counsel] argues that the district court misapplied the principles governing imposition of attorney's fees sanctions under § 1927 when the court decided that he proceeded to trial without plausible evidence to support the abusive-language claim. He asserts that because the court denied Standley's motion for summary judgment on the claim and twice denied Standley's motions for a directed verdict, allowing the case to go to the jury, the court necessarily decided that there was a plausible factual basis for proceeding to trial. By allowing the claim to proceed, he contends it was inappropriate for the court to impose sanctions on him for continuing to pursue a claim with the court's permission. Also, he contends that the claim was plausible in law because Ms. Danielson-Holland had alleged that Standley's employee violated § 1692d(2) by using abusive language.

"We review an award of sanctions under § 1927 only for an abuse of discretion." Hamilton v. Boise Cascade Express, 519 F.3d 1197, 1202 (10th Cir. 2008). "But we review de novo any statutory interpretation or other legal analysis underlying the district court's decision concerning attorneys' fees." Steinert v. Winn Grp., Inc., 440 F.3d 1214, 1221 (10th Cir. 2006) (internal quotation marks omitted).

Under § 1927, "[a]ny 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 attorney's fees reasonably incurred because of such conduct." Section 1927 focuses on whether an attorney's conduct "imposes unreasonable and unwarranted burdens on the court and opposing parties." Braley v. Campbell, 832 F.2d 1504, 1510 (10th Cir. 1987) (en banc). "Sanctions under § 1927 are appropriate when an attorney acts recklessly or with indifference to the law. They may also be awarded when an attorney is cavalier or bent on misleading the court; intentionally acts without a plausible basis; [or] when the entire course of the proceedings was unwarranted." Dominion Video Satellite, Inc. v. Echostar Satellite L.L.C., 430 F.3d 1269, 1278 (10th Cir. 2005) (alteration in original) (citation omitted) (internal quotation marks omitted). An attorney is expected to exercise judgment. See Braley, 832 F.2d at 1512. We will not "excuse objectively unreasonable conduct." Hamilton, 519 F.3d at 1202; see also Riddle & Assocs., P.C. v. Kelly, 414 F.3d 832, 835 (7th Cir. 2005) ("If a lawyer pursues a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound, the conduct is objectively unreasonable and vexatious." (internal quotation marks omitted)). An attorney must "regularly re-evaluate the merits" of claims and "avoid prolonging meritless claims." Steinert, 440 F.3d at 1224.

Applying these legal standards to the facts of this case, we conclude the district court did not abuse the court's discretion in awarding Standley attorney's fees against Mr. Ehrlich. Although Ms. Danielson-Holland's deposition testimony persuaded the magistrate judge and the district court that the abusive-language claim should proceed, Mr. Ehrlich should have realized upon careful continual re-evaluation of the claim as he prepared for trial that he lacked evidence, particularly telephone records, supporting her assertion and testimony. Ms. Danielson-Holland was unable during trial to answer questions about details of the allegedly abusive telephone call, including when it occurred, even though the case was filed two years before trial and despite having been questioned about the call during her deposition. Indeed, there was no evidence, apart from Ms. Danielson-Holland's testimony, to support a finding that a Standley employee made a telephone call using abusive language. Mr. Ehrlich therefore either failed to properly prepare for trial or the evidence did not exist to establish the call occurred. In either case, he proceeded to trial when he should have known there was no basis to proceed. In addition, during trial, the district court noted that Mr. Ehrlich was pursuing the smallest claim after all other claims had been dismissed and that the court did not know why he was pursuing it. Based on these facts, Mr. Ehrlich objectively vexatiously and unreasonably multiplied the proceedings at Standley's expense. See Hamilton, 519 F.3d at 1203.

Mr. Ehrlich cites Medtronic Navigation, Inc. v. BrainLAB Medizinische Computersysteme GmbH, 603 F.3d 943, 954-55 (Fed. Cir. 2010), to support his argument that because the district court denied summary judgment and two motions for a directed verdict, it was objectively reasonable to pursue the abusive-language claim. Medtronic, a patent case, is procedurally and factually dissimilar and therefore distinguishable. In that case, after the district court had denied the defendants' summary judgment motions in full and two motions for judgment as a matter of law (JMOL), the jury found in favor of the plaintiff. Id. at 950. Following trial, the district court granted a new motion for JMOL, which the Federal Circuit affirmed. Id. at 951-52. Defendants then sought attorney's fees under § 1927 and patent law. The district court granted fees, but the Federal Circuit reversed. The Federal Circuit determined that fees were not warranted because the evidence was sufficient to go forward with the trial, and the attorney did not prolong the proceedings by going to trial. Id. at 957, 965.

n contrast, in this case, the summary judgment decision significantly diminished the number of pending claims to one, the abusive-language claim. The evidence supporting that claim actually was insufficient to go forward. Nonetheless, Mr. Ehrlich improperly prolonged the case proceedings. Cf. id. at 954 ("Absent misrepresentation to the court, a party is entitled to rely on a court's denial of summary judgment and JMOL, as well as the jury's favorable verdict, as an indication that the party's claims were objectively reasonable and suitable for resolution at trial.").

Mr. Ehrlich also argues that the district court failed to sufficiently explain the imposition of § 1927 sanctions against him. A court must give reasons for imposing a sanction, but we do not require the court to discuss the court's decision at length. See Hamilton, 519 F.3d at 1204; see also Braley, 832 F.2d at 1513 (requiring district court to provide basis for imposing § 1927 sanctions). The district court imposed the sanction in the amount of Standley's attorney's fees incurred after the entry of summary judgment. Stating it had considered the evidence presented to support the abusive-language claim, the court found that Mr. Ehrlich decided to go to trial without plausible evidence to support that claim. While the court's discussion was brief, we conclude it was sufficient for us to understand the court's basis for imposing the sanction.

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