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Two Methods to Achieve Sanctions in Federal Court: Rule 11 & 28 USCA § 1927

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Courts are notoriously hesitant to award sanctions on counsel, so it is worthwhile to pay close attention when they do.  Further, it is important to note that the discretion of the Court can lead to a wide range of results.  Two recent cases out of the Western District of New York awarded sanctions against attorneys under two different laws: Federal Rule of Civil Procedure 11 (Signing Pleadings, Motions, and Other Papers; Representations to the Court; Sanctions) (“Rule 11”) and 28 U.S.C.A. § 1927 (counsel’s liability for excessive costs), with notably different results.

Rule 11 Sanctions

The recent decision of Omni Elevator Corp. v. Int’l Union of Elevator Constructors & its Loc. 27 Affiliate, 2022 WL 780272 (W.D.N.Y. 2022) involved Rule 11 sanctions imposed on the Plaintiffs’ counsel and his law firm following the Defendants’ motion for summary judgment wherein the underlying complaint was dismissed.  This federal action began in the New York Supreme Court, Monroe County.  There, the Plaintiffs brought an action seeking to enjoin the enforcement of two Pennsylvania money judgments for ERISA violations and one judgment for breach of contract.  Plaintiffs claimed, inter alia, that they were entitled to equitable indemnification as the business manager of the Union’s local affiliate purportedly “engineered” the judgments because he had a personal vendetta against the individual Plaintiff.

Defendants removed the action to the Western District of New York and brought motions to dismiss, which the Court converted into summary judgment motions.  The Court noted that the Plaintiffs did not meaningfully oppose the motions but instead requested mediation.  The Court dismissed the complaint.  Following this, Defendants moved for sanctions.  Plaintiff opposed, describing the Defendants’ motion as itself “sanctionable” and requesting attorney’s fees.

The Omni Court set forth that Rule 11 provides that when an attorney or pro se party presents to the court a writing by signing, submitting, or advocating for it, the attorney or party certifies:

(1) the writing is not for any improper purpose (e.g. harassment; delay, increasing costs of the litigation);

(2) the legal contentions are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law;

(3) the factual contentions have evidentiary support or will have evidentiary support following discovery/investigation; and

(4) denials of factual contentions are based on knowledge or on reasonable belief or a lack of information.

Omni Elevator Corp., 2022 WL 780272, at *2 (citing F.R.C.P. 11(b)(1)-(3)).

The Omni Court then delved deeper into the requirements and nuances of Rule 11.  Courts may (but are not required to) impose sanctions for violations of these requirements on their own or on a party’s motion.  Id.  Sanctions can take the form of non-monetary directives, penalties paid to the Court, or an order directing payment to the opposing party for fees and expenses stemming from the violation.  Id.  These penalties can be imposed on attorneys or the parties themselves where the said party is responsible for the violation.  Id.  For attorneys, “absent exceptional circumstances,” their firm is jointly liable.  Id.

The Omni Court then set forth the various safeguards against sanctions.  First, the violative conduct must be specifically stated in the motion for sanctions.  Id. at *3.  Second, the offending party must be allowed to withdraw the offending document before sanctions are filed.  Id.  While the second is generally a strict procedural requirement, perfect compliance is not required where there is no indication that the offending party would correct things.  Id.  Third, the claims set forth by the attorney must be objectively unreasonable.  Id.

The Omni Court, after citing precedent that it could impose sanctions for papers filed in State Court, notes that the Defendants had sent a detailed letter to Plaintiffs “detailing the myriad defects and inaccuracies in his legal arguments and factual contentions and explaining the insurmountable procedural and substantive hurdles faced by the Complaint” and stating an intent to pursue sanctions if the complaint was not withdrawn.  Id. at *4.  While the Defendants thereafter amended the complaint, there was no meaningful difference.  Defendants then sent Plaintiffs a draft copy of their Rule 11 motion and again demanded the withdrawal of the complaint.  Id.  A month later, the complaint having not been withdrawn, the motion was filed.  Id.  The Omni Court found these actions by Defendant to have satisfied the safe harbor provisions.  Id.  

Indeed, the Defendants in Omni set forth a blueprint for the prudent practitioner to follow, not only as to procedure but in putting in the work of the forthcoming motion up front in the initial deficiency letter.  The Omni Court in its substantive analysis followed along with the deficiency letter originally sent by Defendants and confirmed the various legal positions in it, including statute of limitations defenses, preemption defenses, and limitations of defenses available.  The Court listed Plaintiff’s counsel’s responses, and then noted that Defendant’s reply “debunked” these responses and considered Plaintiff’s counsel’s belief that his case would overturn prevailing law as “untethered to reality.”  Id. at *5, 6.  Indeed, the letters between counsel in effect served as the motion.

While factual assertions are by definition more contentious, in Omni the facts as shown by the Plaintiffs precluded the conspiracy theory set forth by the Plaintiffs.  The Court did not believe, and more importantly, pointed out that Plaintiffs’ attorney could not have reasonably believed, that out of malice the business manager of the Union’s local affiliate “engineered” the judgments as part of a campaign to destroy the Plaintiffs’ business.  Indeed, the deficiency letter showed that the manager was not a representative, trustee or fiduciary of the parties which actually secured the judgments, and had no part in “causing” them.  Id. at *8.  Further, all but two of the allegations of misconduct of the manager occurred after the judgment were obtained.  Id.  In light of the legal arguments, the unreasonableness of the story set forth by Plaintiffs, especially considering that their response to the underlying motion set forth no real counter-facts, the Court found Plaintiffs bull-headed march forward to be sanctionable under Rule 11(b)(3) as lacking evidentiary support.

However, the Omni Court declined to find sanctions under Rule 11(b)(1) that the action was filed for an improper purpose.  It was unclear to the Omni Court if Plaintiffs themselves had “actual knowledge” that their claims were frivolous, and as to counsel, such a sanction would require persistence in the face of multiple adverse rulings or an ulterior motive.  Id. at 9.  The Omni Court also noted that the filing of the complaint did not suspend the enforceability of the judgments, and the attempt to delay enforcement was done openly and not as part of some scheme.  Id. at 10.

From a practical point of view though, it is hard not to argue that Plaintiffs got what they were seeking – delaying Defendants from enforcing their judgments and forcing them to expend money.  At the end of the day, while Plaintiffs submitted over $33,000 is fees, the Omni Court awarded Plaintiffs only $5,000 in sanctions against Plaintiffs’ counsel and his firm as sufficient for deterrent purposes, and offered citations that Rule 11 is not meant as a fee-shifting mechanism.  Id.  It is hard to imagine that Defendants walked away from this case satisfied.

28 USCA § 1927 Counsel Fees Against Counsel

Jackling v. Brighthouse Life Ins. Co., 2022 WL 831497 (W.D.N.Y. Mar. 21, 2022), also decided in the Western District of New York, likewise involved sanctions based on delaying tactics.  Here, Defendant argued in its unopposed motion for sanctions that it was forced to conduct unnecessary motion practice because Plaintiff’s counsel included and later failed to remove unnecessary defendants from this action.  Jackling, 2022 WL 831497, at *1.  As in Omni, the Defendant in Jackling presented multiple opportunities to the Plaintiff to dismiss the additional wrongfully named defendants, including correspondence and evidence.  Plaintiff did not comply, and Defendant brought and won its motion to dismiss the other defendants.  Plaintiff’s only defense was a “concern” as to whether Plaintiff “should rely upon the word of the Defendants who have only provided self-serving documents claiming that these defendants are no longer responsible for the claims of the Plaintiff.”  Id. at *2.  Interestingly though, instead of Rule 11 Sanctions, the Jackling Defendant asked for costs against the attorney pursuant to 28 U.S.C.A. § 1927 (it should be noted that this statute does not apply to parties, but practitioners).

The Jackling Court, citing precedent, found that “when analyzing a motion pursuant to [28 U.S.C.A. § 1927], the Court must find that (1) the challenged claim was without a colorable basis and (2) the claim was brought in bad faith, i.e., motivated by improper purposes such as harassment and delay.  Although inferences of bad faith are disfavored, a finding of bad faith can be inferred when the actions taken are so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose.”  Id. at *2 (internal quotations and citations omitted).  The Jackling Court noted that both 28 U.S.C.A. § 1927 and Rule 11 require that attorneys must ensure that claims have legal and factual support.  Id.

The Jackling Court found that Plaintiff lacked factual support beyond a vague claim of apprehension at trusting Defendant’s word, but, unlike in Omni, inferred bad faith from his failure to make even a “cursory examination of the Defendant’s documents, or an independent inquiry.”  Id. at *3.

At this point the critical difference between Rule 11 and 28 U.S.C.A. § 1927 becomes apparent, as 28 U.S.C.A. § 1927 allows for the court to assess reasonable attorney’s fees and costs.  The Jackling Court, then “trimming the fat” from Defendant’s request of $5,600, awarded Defendant $3,927 from Plaintiff’s counsel.  Id. at *3-5.  This is a much greater recovery for the Defendant, as the focus of 28 U.S.C.A. § 1927 is restitution, and not deterrence.

As sanctions is a matter of discretion and somewhat subjective, it is difficult to tell whether the more straightforward and procedural nature of the offence in Jackling influenced the greater percentage recovery.  However, after a review of these two cases, it is clear that the most important takeaway are the different remedies under the different statutes for similar offences.  Therefore, when asking for sanctions, for greatest recovery, a wise counsellor should ask the Court for relief, if possible, under both Rule 11 and 28 U.S.C.A. § 1927.





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