Commercial Litigation and Arbitration

Inherent Power Sanctions — How Bad Faith May Be Demonstrated

Miller v. Am. Family Mut. Ins. Co., 2013 U.S. App. LEXIS 13744 (9th Cir. July 8, 2013):

Mr. Miller acknowledges that the district court has the inherent power to impose sanctions for bad faith conduct by litigants. See generally Chambers v. NASCO, Inc., 501 U.S. 32, 46-51 (1991). He nevertheless contends that the district court erred in imposing sanctions in this case because, in his view, the record does not support the requisite finding of bad faith. See Lahiri, 606 F.3d at 1219; B.K.B. v. Maui Police Dep't, 276 F.3d 1091, 1108 (9th Cir. 2002). Mr. Miller contends that the defendants had actual notice of the bankruptcy, and, therefore, it is the defendants who have acted in bad faith.

Mr. Miller's notice argument misunderstands the district court's order. He was not sanctioned for failing to disclose this action in the bankruptcy proceeding; he was sanctioned for failing to take appropriate actions in this litigation, given his bankruptcy. Whether notice was technically sufficient for purposes of the bankruptcy is an issue we need not decide. We need only decide whether the district court's imposition of sanctions in this litigation was an abuse of discretion. We conclude that it was not.

Bad faith or its equivalent may be demonstrated by "a variety of types of willful actions," B.K.B., 276 F.3d at 1108 (internal quotation marks omitted), including not only acts to delay litigation, Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir. 1997), but also filing a frivolous action or "abus[ing] judicial processes" in the conduct of an action, Roadway Express, Inc. v. Piper, 447 U.S. 752, 766-67 (1980). In nearly two years of litigation, Mr. Miller pursued claims that were properly the property of the bankruptcy estate as if they were his own claims, and he never asserted the discharge as a defense to the defendants' counterclaims. The district court made an explicit finding that Mr. Miller's conduct was more than negligent, calling it neither "misleading or ambiguous," but instead "deceptive." This finding is sufficient to demonstrate the bad faith necessary for the imposition of sanctions.

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