We thought it would be appropriate to discuss how the Seventh Circuit has interpreted and applied Title 28 Section 1927 of the United States Code. Section 1927 states:
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies to proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.
28 U.S.C. § 1927 (1980). The purpose of Section 1927 is to “deter frivolous litigation and abusive practices by attorneys, and to ensure that those who create unnecessary costs also bear them.” Kapco Mfg. Co., v. C & O Enterprises, 886 F.2d 1485, 1491 (7th Cir. 1989). However, the Seventh Circuit is unsettled on whether sanctions under Section 1927 should be thought of as punitive or compensatory.
The court in Knorr Brake Corp. v. Harbil, Inc. stated that Section 1927 is “[clearly] punitive.” 738 F.2d 223, 226 (7th Cir. 1984) (citing Badillo v. Central Steel & Wire Co., 717 F.2d 1160, 1166 (7th Cir. 1983)). In Knorr, the court considered several types of conduct in determining whether the district court abused its discretion in issuing sanctions against the allegedly offending attorney. First, the court determined that the District Court wrongly concluded that the attorney falsely asserted that he could add additional parties to his claim without leave of court. Id. at 228. On the contrary, the attorney expressly acknowledged that he could not do so. Id. Therefore, the court concluded that this alleged conduct should not be considered in assessing a potential sanction. Id. Next, the court determined that the attorney failed to comply with court orders to address a particular issue in his memorandum in support of his motion, and then again in his reply memorandum. Id. at 229. The court concluded that this failure should be considered in assessing sanctions against the attorney. Id. Lastly, the court considered whether the attorney failed to comply with the District Court’s instructions to set out a prima facie case. Id. It found that although the attorney did not give the court exactly what it wanted, “informing the court of its theory . . . was sufficient compliance with the court’s rather broad order” to make “at least some threshold showing” about the issue at hand. Id. Therefore, the court concluded that the attorney’s performance was not “so far below what the District Court had ordered . . . that the court could impose sanctions” for that conduct. Id. Thus, the Seventh Circuit remanded the case to the District Court for a new determination of whether the attorney would be penalized for his conduct. Id. at 230.
Unlike the punitive characterization of Section 1927 set out in Knorr, the court in In re TCI Ltd. characterized Section 1927 as a restatement of the American Rule, that each party bears its own costs of litigation. 769 F.2d 441, 445 (1985). The court found that “[t]he statute simply permits a court to transfer any award of fees from a client to the offending lawyer” when the “lawyer’s reckless indifference to the law” imposes substantial costs on its opponent. Id. at 445. In invoking Section 1927, courts must only ensure that each party bears its own fees and costs, including those fees and costs which are forced onto another. Id. at 446. The Seventh Circuit in TCI Ltd. affirmed the District Court’s sanctions award, and increased the sanction for the further delay caused by the appeal. Id. at 449. The court reasoned that the District Court did not abuse its discretion in sanctioning the offending attorney for re-filing a baseless claim a second and third time after essentially the exact same claim had been rejected. Id. However, unlike in Knorr, in TCI Ltd., the underlying reason for awarding sanctions was to compensate the injured party for spending time defending against the baseless claims, not to punish the offending attorney. See generally id.
Joining this compensatory interpretation, the court in Tillman v. New Line Cinema stated that sanctions under Section 1927 are “meant to compensate the party that has been injured by a lawyer’s bad-faith conduct and to compel the lawyer to bear the costs of his own lack of care.” 374 Fed. Appx. 664, 666-667 (7th Cir. 2010). Similarly, the court in Shales v. General Chauffers characterized Section 1927 as an intentional tort and expressly stated that “the award under 1927 is compensatory, not punitive.” 557 F.3d 746, 749 (7th Cir. 2009). Applying this interpretation, the court found that the amount of sanctions an offending lawyer will be required to pay is not affected by that lawyer’s ability to pay those sanctions. Id. In Shales, the offending lawyer was sanctioned without consideration of his personal finances for filing baseless claims. Id. at 747-748. The court reasoned that sanctions under Section 1927 should be based on the “victim’s loss,” not on the offending party’s resources. Id. at 749-750 (providing a detailed discussion of the benefits of determining sanctions based on the injury, not on the offender’s wealth). This position goes against thinking of sanctions under Section 1927 as punitive, in that, arguably, an offending party’s resources can been taken into account when determining punitive damages. See Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 19-24 (1991) (finding that the “financial position” of the defendant can be taken into account when determining punitive damages).
Comment: Notwithstanding the compensatory rationale of some Seventh Circuit opinions, we believe Section 1927 sanctions are punitive. Although one effect of Section 1927 is the compensation of a party for being forced to litigate unreasonable and vexatious claims, sanctions are clearly issued to “penalize attorneys who engage in dilatory conduct.” Knorr, 738 F.2d at 226 (Citing House Conf. Rep. No 1234, 96th Cong., 2d Sess. 8). Hence, the court has consistently indicated that some degree of culpability is required. Id.
Regardless of whether sanctions under Section 1927 should be thought of as punitive or compensatory, the Seventh Circuit has addressed the issue of sanctions under Section 1927 a handful of times in addition to the cases discussed above. The court in Overnight Transp. Co. v. Chicago Indus. Tire. Co. set out the two key elements in determining whether an attorney will be sanctioned under Section 1927: (1) whether that attorney multiplied the proceedings; and (2) whether he or she did so in a vexatious and unreasonable fashion. 697 F.2d 789, 794 (7th Cir. 1983). Regarding the first element, the court found that filing an appeal and an action in federal court after the state court dismissed the claim did not constitute a multiplication of proceedings. Id. at 794-795. The court reasoned that the plaintiff’s original claim had never been litigated under the federal act it was brought under in federal court; therefore the federal claim was not a multiplication of proceedings. Id. at 794.
An example of an actual multiplication of proceedings can be found in Tillman, 374 Fed. Appx. 664 (7th Cir. 2010). In Tillman, Tillman himself initially filed a pro se complaint against the defendant alleging that the defendant stole his screenplay for the purpose of producing a feature film. Id. at 665. Subsequently, the offending attorney appeared on behalf of Tillman and filed a 63-page complaint asserting multiple claims which were “obviously doomed to fail.” Id. The offending attorney then pursued the obviously frivolous claims for two years despite being warned that he would be subject to sanctions proceedings if he continued to proceed with those claims. Id. The Seventh Circuit affirmed the District Court’s sanctions award reasoning that the defendants were entitled to compensation for the fees and costs expended in defending against the offending attorney’s frivolous claims. Id. at 667.
The Seventh Circuit’s interpretation of the second element of Section 1927 begins with Kiefel v. Las Vegas Hacienda, Inc., 404 F.2d 1163 (7th Cir. 1968). In Kiefel, the court set out a subjective standard stating that costs should only be assessed on attorneys pursuant to Section 1927 in “instances of serious and studied disregard for the orderly process of justice.” 404 F.2d at 1167. In Kiefel, the court concluded that the offending attorney “ma[de] misstatements of fact and law to the juries and the courts, us[ed] harassing and obstructionist tactics in pre-trial discovery, inject[ed] inflammatory statements into argument which were calculated to prejudice the juries, and conduct[ed] improper cross examination on matters not in evidence or on issues to which the court had already sustained objection.” Id. at 1169. The court found that because this intentional misconduct caused unnecessary additional proceedings, the offending attorney would be held liable for attorney’s fees and other costs. 404 F.2d 1171.
However, Dal Pozzo v. Basic Machinery Co., Inc. provides a more recent development in applying the subjective standard. 463 F.3d 609, 614 (7th Cir. 2006). The court found that showing the offending attorney had subjective bad faith or malice is only necessary when that attorney’s conduct had an “objectively colorable basis.” Dal Pozzo v. Basic Machinery Co., Inc., 463 F.3d 609, 614 (7th Cir. 2006). For example, the court in TCI Ltd. explained that when an attorney pursues an otherwise legitimate claim for the sole reason that it will impose costs on the opposing party, that attorney could be subject to sanctions even though he or she presented a legitimate claim. Id. at 445.
Furthermore, since Kiefel, the court has expanded the scope of sanctionable conduct to include an objective component. The court in Pacific Dunlop Holdings, Inc. v. Barosh found that filing claims which lack a plausible legal or factual basis may also cause the offending attorney to be subject to sanctions. 22 F.3d 113, 119-120 (7th Cir. 1994). “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,” and the intent required under the subjective standard is inferred. Walter v. Fiorenzo, 840 F.2d 427, 433-434 (7th Cir. 1988). For example, in Dal Pozzo, the offending attorney repeatedly blocked the completion of a settlement agreement which he had nothing to do with, but was handled by his co-counsel, and then failed to appear at a hearing set to give him an opportunity to explain his conduct. 463 F.3d at 611-612. The court found this conduct to “unquestionably satisf[y] the standard for objective bad faith.” Id. at 614.
Another example of objective bad faith can be found in Hess v. Red Elle Mach. Tool Corp., 367 Fed. Appx. 687 (7th Cir. 2010). In Hess, the offending attorney repeatedly brought previously rejected claims against the defendant which merely advanced new theories of law, but were barred by res judicata. Id. at 690. Moreover, the offending attorney continued to litigate claims which were no longer viable. Id. at 691. The court concluded this conduct constituted an unreasonable and vexatious multiplication of proceedings. Id. at 690-691.
Additionally, the court is not strictly bound to the parties’ motions, and may impose sanctions sua sponte. Jolly Group, Ltd. v. Medline Industries, Inc., 435 F.3d 717, 720 (7th Cir. 2006). However, when doing so, the court must provide the attorney being sanctioned notice explaining the specific conduct for which he or she is being sanctioned, and provide that attorney with an opportunity to defend his or her actions. Id. In Johnson v. Cherry, the Seventh Circuit vacated the District Court’s sanctions award reasoning that the court failed to give the offending attorney substantial notice of its intent to sanction her, and failed to give her an opportunity to defend her conduct. 422 F.3d 540, 549-553 (7th Cir. 2005).
Regarding calculation of sanctions, the legislative history of the 1980 amendment to Section 1927 states that when an attorney causes the other parties to incur expenses and fees they would not have otherwise incurred, that attorney should be held personally liable for those expenditures. Pacific Dunlop, 22 F.3d at 120. However, sanctions may only be awarded for misconduct during the course of litigation. Bender v. Freed, 436 F.3d 747, 751 (7th Cir. 2006). Section 1927 provides the court with the ability to sanction attorneys who abuse the judicial process, “not those who engage in improper conduct in the run-up to litigation.” Id. For example, in Bender, the court found that the attorney would not be sanctioned for his failure to notify his opponent of a prelitigation insurance settlement before litigation was commenced because the conduct was not committed during “the pursuit of a case in court.” Id.
The court is charged with using its own discretion in determining an appropriate sanction. HK Systems, Inc. v. Eaton Corp., 353 Fed. Appx. 44, 45 (7th Cir. 2009). Furthermore, the court is not required to award sanctions even when an attorney’s conduct is found to the unreasonable and vexatious because Section 1927 is permissive, not mandatory. Id. When the court does decide to sanction an attorney, “the amount of the sanction must be a carefully measured response to the sanctioned conduct and the district court must specify the reasons for the sanction and the manner of computation.” Kapco, 886 F.2d at 1496. For example, in Kapco, the District Court struck fee requests which did not pertain to the sanctioned conduct and which were duplicative. 886 F.2d at 1496.
In sum, it takes a great deal of effort for a lawyer to receive Section 1927 sanctions. The types of actions that can draw scrutiny under Section 1928 are:
(1) Repeatedly filing baseless claims;
(2) Repeatedly making frivolous arguments;
(3) Needlessly delaying litigation procedures or court proceedings:
(4) Recklessly disregarding case law, statutes, rules, or court orders, and/or;
(5) Continuing a course of conduct after repeated warnings by the court.
Furthermore, a general prohibition against mean spirited behavior underlies each case in which Section 1927 sanctions were awarded.
Edward X. Clinton, Jr. and Pat Bushell
fedcivilprocedure 