Commercial Litigation and Arbitration

Inherent Power Sanctions — Bad Faith Inferable If Acts Are “So Completely without Merit” — More Exacting Abuse of Discretion Standard in Sanctions Appeals — Claim Colorable If It Has Some Legal, Factual Support and a Reasonable Belief in It

Hollon v. Merck & Co., Inc., 2014 U.S. App. LEXIS 20237 (2d Cir. Oct. 20, 2014):


Gary J. Douglas appeals from the judgment of the United States District Court for the Southern District of New York (Keenan, J.), imposing sanctions on him for his conduct in delivering his closing argument during a trial in which the plaintiff alleged defective design of Fosamax, a drug manufactured by Merck & Co., Inc. We assume the parties' familiarity with the underlying facts, the procedural history, and the issues presented for review.

The district court described [*2]  Douglas' closing argument as having been given "in an agitated tone, scuttling about the well of the courtroom, oddly gesturing, singing, and laughing." The court described his style as "aggressive and boisterous," even "manic." Counsel for Merck called it "vaudeville."

After an order to show cause and a hearing, the district court imposed sanctions on the ground that Douglas acted contrary to an earlier ruling that "punitive damages [were] out of the case," when Douglas "insidiously sought to inject [the issue of punitive damages] into the trial during his summation." The court concluded that Douglas' intent could be inferred from his remarks, which included urging the jury to "say something to Merck," and describing Merck's conduct as "reprehensible" and "disgusting."

A district court has inherent power to impose sanctions if: (1) the challenged claim was without a colorable basis and (2) the claim was brought in bad faith. Wolters Kluwer Fin. Servs., Inc. v. Scivantage, 564 F.3d 110, 114 (2d Cir. 2009). "[A] claim is colorable when it has some legal and factual support, considered in light of the reasonable beliefs of the individual making the claim." Schlaifer Nance & Co. v. Estate of Warhol, 194 F.3d 323, 337 (2d Cir. 1999) (internal quotation marks omitted). 78

"We review a district court's decision to impose sanctions under its inherent [*3]  powers for abuse of discretion. Even under this deferential standard of review, however, this Court must be careful to ensure that any such decision to sanction a[n] . . . attorney is made with restraint and discretion." Wilson v. Citigroup, N.A., 702 F.3d 720, 723 (2d Cir. 2012) (per curiam) (internal citations and quotation marks omitted). "Because the trial court imposing sanctions may act as accuser, fact finder and sentencing judge all in one, our review of such an order is more exacting than under the ordinary abuse-of-discretion standard." Enmon v. Prospect Capital Corp., 675 F.3d 138, 143 (2d Cir. 2012) (internal quotation marks, citations and alterations omitted).

"Bad faith can be inferred when the actions taken are so completely without merit." Schlaifer, 194 F.3d at 338 (internal quotation marks omitted). But Douglas' remarks in summation are not self-evidently improper, and the district court did not expressly link these remarks with other behaviors or other factors that might bear upon the issue of bad faith. In short, the district court did not make the requisite "factual findings of bad faith . . . characterized by a high degree of specificity." Id. For that reason, the record is insufficient to support the requisite review.

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