§ 1927 Sanctions — Filing a Heavily-Redacted, Misleading Transcript of a Relevant Prior Proceeding That Prolonged the Case Constitutes Bad Faith

Agnew v. United Leasing Corp., 2017 U.S. App. LEXIS 3140 (4th Cir. Feb. 22, 2017):

Plaintiffs appeal a district court order related to a forbearance agreement between Barbara and Michael Agnew and United Leasing [“ULC”]. For the reasons that follow, we affirm.

I.

On June 2, 2000, Barbara and Michael Agnew, their company AGM Development Corporation, and United Leasing Corporation executed an agreement (the "Forbearance Agreement") to resolve a dispute over how much the Agnews owed ULC under a promissory note and several leases. The Agnews agreed to confess judgment in favor of ULC for up to almost $1.2 million. At the time, the Agnews were engaged in litigation against [*2]  Resource Bank, and the Forbearance Agreement contemplated their recovery from that litigation as a means of paying part of the confessed judgment. The Agnews would be released from personal liability under the Forbearance Agreement after a "final unappealable verdict or full settlement" in their suit against Resource Bank. J.A. 24. The Agnews also appointed an attorney-in-fact to confess the judgment against them, "ratifying and confirming the acts of said attorney-in-fact as if done by themselves." J.A. 26.

The Agnews' litigation against Resource Bank was dismissed in 2005 because of the Agnews' failure to prosecute it. In 2007, the Agnews and ULC were involved in a separate lawsuit (the "2007 Litigation"). ULC sought a foreclosure of the Agnews' personal house in Virginia Beach to satisfy a debt secured by a deed of trust that had not been released by the Forbearance Agreement. This dispute was settled, and the lawsuit was dismissed.

By 2008, the Agnews still had not paid the amount owed under the confessed judgment. ULC filed suit in Virginia state court seeking to sell the Agnews' house, this time to satisfy ULC's lien under the confessed judgment. The Agnews raised several challenges [*3]  to the foreclosure, asserting that the confessed judgment was void because it had not properly been served, that they had no personal liability under the Forbearance Agreement, and that ULC had breached the Forbearance Agreement. After years of litigation, the Circuit Court of the City of Richmond rejected these arguments and ordered a foreclosure sale of the Agnews' property to take place on September 22, 2014. The foreclosure, however, was stayed on September 19, 2014 when the Agnews filed a Chapter 11 bankruptcy petition.

On October 3, 2014, the Agnews filed the present suit against ULC in bankruptcy court seeking a determination of the amount they owed to ULC. The Agnews again argued that the confessed judgment was void because of lack of service, that they had no personal liability under the terms of the Forbearance Agreement, and that ULC had breached the Forbearance Agreement. The Agnews requested a jury trial, and the bankruptcy court referred the proceeding to the district court.

After the district court granted ULC's motion to dismiss the Agnews' breach of contract claims as barred by the statute of limitations, both parties filed motions for summary judgment. The Agnews missed [*4]  the deadline for filing their brief in opposition to ULC's motion for summary judgment and filed a motion for leave to file their brief twelve days late, which ULC opposed. On August 10, 2015, the district court denied the Agnews leave to file their brief late.

On November 13, 2015, the district court granted ULC's motion for summary judgment, holding that the Agnews had failed to rebut a presumption that the confessed judgment had been served and that the Agnews were subject to personal liability under the terms of the Forbearance Agreement. In addition, the district court instructed ULC to prepare a draft judgment with sanctions against the Agnews for their submission of a heavily redacted transcript from the 2007 Litigation. The Agnews had submitted this transcript with their brief opposing ULC's motion to dismiss, but the redactions had misled the court on the posture of that case. The district court found that sanctions were justified because the redactions appeared to be intentionally misleading, resulted in confusion in the district court's order, and prolonged the proceedings. The Agnews now appeal.1

1   While this appeal was pending, the Agnews' bankruptcy petition was dismissed. Nonetheless, we exercise our discretion to retain jurisdiction over this adversary proceeding. See In re Morris, 950 F.2d 1531, 1534 (11th Cir. 1992).

***

D.

The Agnews also object to the sanctions imposed by the district court. Courts may assess attorneys' fees as a sanction on a party who "multiplies the proceedings in any case unreasonably and vexatiously."4 28 U.S.C. § 1927. We review a district court's imposition of sanctions for abuse of discretion and its factual findings underlying those sanctions for clear error. Newport News Holdings Corp. v. Virtual City Vision, Inc., 650 F.3d 423, 443 (4th Cir. 2011).

4   While the district court did not cite the authority under which it was imposing sanctions, its reasoning mirrors the requirements of § 1927. The Agnews have waived any argument against the sanctions based on the failure to cite § 1927.

The district court here imposed sanctions because the Agnews filed a heavily redacted transcript of a prior state court proceeding. The Agnews included only three pages of the transcript and erased anything on those three [*11]  pages that did not help their underlying argument. The redactions resulted in misleading the court about the context of the proceeding, and the district court found that "the submissions made by [the Agnews] appear to constitute intentional misrepresentation or attempted deception." J.A. 1278 n.4. Moreover, the district court found that these representations "prolonged this litigation." Id. The district court ordered ULC to prepare a judgment with sanctions reflecting ULC's cost of briefing the summary judgment motions. After considering the Agnews' response to the proposed judgment, the district court imposed $5,000 in sanctions to cover a portion of ULC's costs.

The Agnews claim that they did not act in bad faith because they believed that their underlying legal argument was meritorious. This claim may be true, but it misinterprets the sanctions. The district court did not sanction the Agnews for raising a frivolous argument; it sanctioned them for submitting a transcript with unreasonably heavy redactions. The Agnews' passing claim that these redactions were done "in good faith and for the sake of brevity," App. Br. at 45, is not sufficient to explain such heavy redactions or to [*12]  undermine the district court's finding that the transcript was misleading and was submitted in bad faith. Likewise, the Agnews do not present us with evidence to overcome the district court's finding that the confusion caused by the heavily redacted transcript prolonged the proceedings and resulted in additional work for ULC's attorneys. Thus, we do not believe that the district court abused its discretion in imposing the limited sanctions that it did.

 

E.

Finally, the Agnews appeal the district court's denial of their motion for leave to file an untimely brief in opposition to ULC's motion for summary judgment. We review the district court's decision here for abuse of discretion. Thompson v. E.I. DuPont de Nemours & Co., 76 F.3d 530, 534 (4th Cir. 1996).

A district court may extend a deadline for good cause if the party can show that the delay was "because of excusable neglect." Fed. R. Civ. P. 6(b)(1)(B). "'Excusable neglect' is not easily demonstrated, nor was it intended to be." Thompson, 76 F.3d at 534. In determining if a party's neglect is excusable, courts consider "the danger of prejudice to the [opposing party], the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant [*13]  acted in good faith." Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993).

The Agnews filed their brief in opposition to ULC's motion for summary judgment twelve days late. The Agnews' counsel claimed that this delay was because he "mistakenly calendared the wrong date." Appellants' Br. at 60. After a thorough examination of the case law, the district court held that the second and third Pioneer factors--the length of the delay and the reason for the delay--weighed heavily against granting an extension.

The district court's reasoning is persuasive. Despite multiple opportunities to do so, the Agnews have failed to provide any explanation for their mistake other than the fact that it was a mistake. But as this court has noted, "run-of-the-mill inattentiveness by counsel" is not excusable neglect. Thompson, 76 F.3d at 535. Moreover, twelve days is a long delay. Thus, we hold that the district court did not abuse its discretion in denying the Agnews' motion for leave to file their untimely brief.

III.

This appeal arises out of an agreement entered into nearly seventeen years ago and follows almost a decade of litigation in state and federal courts. At this stage, the plaintiffs' claims are simply meritless. The judgment of the district court is

AFFIRMED.

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