This lawsuit relates to a suspicious death in Michigan – the death of Joan Matouk Romain. Did she commit suicide or was she murdered? There are two versions of the events.

Ms. Romain’s estate sued a number of individuals who were allegedly involved in her wrongful death, including Timothy Matouk. Matouk moved for sanctions on the ground that his cell phone records and work records show that he was elsewhere when Ms. Romain disappeared. He argued that the plaintiffs had sufficient information that should have led them to remove him from the case because he had no involvement in the wrongful death.

The District Court denied the motion because a witness in the lawsuit has testified that he saw Matouk near the crime scene. Therefore, sanctions under Rule 11 and Section 1927 were denied. The court found an issue of fact and explained it in this fashion:

Matouk and two other individuals may have testified that Matouk was working on a multi-jurisdiction task force in Warren the evening Romain disappeared. Nevertheless, Matouk has not pointed this Court to specific testimony representing that he was elsewhere when Hawk claims to have seen him in Grosse Pointe Farms or accounting for his whereabouts at any specific time. In any event, whether to believe Hawk versus another individual who may testify that Matouk was elsewhere raises a credibly question for a jury. It is not a question for this Court to resolve here and the fact that a question exists suggests that there is no basis for sanctions.

Source: ESTATE OF ROMAIN v. City of Grosse Pointe Farms, Dist. Court, ED Michigan 2017 – Google Scholar

Plaintiff brought a discrimination case against his employer after he failed a drug test and was terminated. Plaintiff brought claims under 42 USC 1981 and the New Jersey Law Against Discrimination. Defendant obtained summary judgment and then sought legal fees pursuant to 42 USC 1988 and 28 USC 1927. The court denied the fee-shifting request, even though plaintiff’s case was “thin.” The court complained that the defendant did not seek sanctions before summary judgment was granted:

Even though defendant complained to plaintiff’s counsel and to the magistrate judge about its perceived shortcomings of plaintiff’s case and counsel’s involvement, it does not appear that defendant filed any formal motions for sanctions before the magistrate judge or this Court. Federal Civil Procedure Rules 11 and 37 exist to rectify all of defendant’s concerns — at the time the concerning actions are occurring — that defendant has raised in its after-the-fact motion.

The Court acknowledges that plaintiff’s case was thin, and that plaintiff’s counsel would not have disserved his client if he advised plaintiff to voluntarily relinquish his claims prior to summary judgment.^[3] The Court also acknowledges the time and expense suffered by defendant as a result of plaintiff’s ultimately unmeritorious claims against it. But the Court cannot find that the circumstances of plaintiff’s claims and counsel’s actions rise to the level that warrants the imposition of sanctions against plaintiff or his counsel.

Source: Acevedo v. FLUOR ENTERPRISES, INC., Dist. Court, D. New Jersey 2016 – Google Scholar

This is a case in which a lawyer was sanctioned on the basis of Rule 11 and Section 1927 for pursuing baseless litigation against Trans Union, a credit reporting company. The gist of the case was the credit reporting bureaus violated the Fair Credit Reporting Act by providing a copy of plaintiff’s credit report to a debt collection law firm without a permissible purpose. Most of the defendants settled the allegations but Trans Union fought, eventually obtaining summary judgment.

The lawyer in this case erred by pursuing claims against the wrong defendant (Trans Union was not a proper defendant) and pursuing claims that were not factually supported long after he received warnings from Trans Union’s attorneys.

Plaintiff appealed to the Sixth Circuit, but it also affirmed the grant of summary judgment against Plaintiff. Trans Union moved to reopen the case to obtain costs and sanctions.

The court explained that the Rule 11 sanctions were proper because the plaintiff’s counsel continued pursuing baseless claims long after it was apparent that the claims lacked merit.

Miller’s original complaint alleged that Trans Union provided Wites & Kapetan with a copy of Miller’s credit report through an undetermined third party. The only support Miller provided for this allegation was the letter Wites & Kapetan sent to her in 2011. The letter contains a footnote that explicitly states that Wites & Kapetan do not have her credit report. (Doc. 1-1.) This singular letter served as the basis of Miller’s complaint. No further investigation seems to have taken place and no other evidence was presented to support the claims against Trans Union. Miller, without any substantive evidence to support the allegation, elected to believe Trans Union had disclosed her credit report in violation of FCRA. Miller and her counsel have thus failed to demonstrate that her claim would likely have evidentiary support after further discovery.

Miller ultimately dropped her original claim against Trans Union, and filed an amended complaint alleging a new claim against Trans Union based on a report that she ordered six months after she brought this lawsuit. Miller’s new claim alleged that Trans Union violated the FCRA by failing to disclose promotional inquiries on a consumer disclosure. (Doc. 41.) Miller’s claim was again factually unsupported. The service agreement that Miller entered into (Doc. 106-4) and the URLs on the report that she received (Doc. 41-1) both show the report was produced by TUI. Thus, Miller either failed to recognize or deliberately ignored the fact that Trans Union and TUI are separate legal entities. Miller then failed to recognize that what she had requested was not a consumer disclosure covered by § 1681g of the FCRA. These are significant investigatory failures on the part of Miller’s counsel.

Miller also filed three motions against Trans Union that were found to lack any evidentiary support or Plaintiff was found to lack the grounds to object. Plaintiff’s Motion For Sanctions Against Trans Union For Spoliation of Evidence (Doc. 74) and Plaintiff’s Motion To Show Cause Why Trans Union Should Not be Held in Contempt (Doc. 86) were found to lack evidentiary support and were summarily denied. Plaintiff’s Motion to Strike the Deposition of Michelle Simms (Doc. 95) was denied because the Court ordered Simms to testify about TUI documents and procedures at Plaintiff’s request; Plaintiff, therefore, had no grounds to strike the same testimony. (Doc. 101.)

Additionally, Miller and her counsel were put on notice by Trans Union that there was no factual basis for the claims made against the company. Trans Union contacted Miller’s counsel in June 2013 (Doc. 106-1), February 2014 (Doc. 106-3), and August 2014 (Doc. 106-4) and informed them that the claims in the complaint and the amended complaint were meritless. While the Court would not expect plaintiff’s counsel to blindly accept a defendant’s assessment of plaintiff’s case, the Court would expect such repeated assertions to prompt an investigation into the facts underlying plaintiff’s claims. Miller deserves some credit for ultimately dropping her original claim against Trans Union, but she then replaced it with a claim equally without merit. Miller never agreed to dismiss that claim against Trans Union nor sought leave to add TUI as a defendant—even though Trans Union notified her counsel that TUI was the proper defendant.

The primary goal of Rule 11 sanctions is to deter baseless accusations that lack factual support. Yet there is also a duty on the party seeking sanctions to mitigate their damages and avoid unnecessary filings. Trans Union arguably met this obligation by sending Miller three separate letters detailing the distinct lack of factual support for their claim and warning of Rule 11 sanctions. On the other hand, Trans Union moved for reconsideration of the Court’s order granting Miller leave to amend, but did not move to dismiss the Amended Complaint. (Doc. 46.) In the order denying the motion for reconsideration, the Court stated that “Trans Union remains free to file a motion to dismiss the Amended Complaint should it believe such a motion is appropriate.” (Doc. 58.) All considered, the Court finds that Trans Union pursued a resolution of this case in a reasonable manner. It would be inaccurate to suggest that Trans Union sat on its hands and accrued defense costs while it built a case for Rule 11 sanctions; it tried to reason with Miller’s counsel, but to no avail.

The court also found that the attorney violated Section 1927 by needlessly multiplying the proceedings.Source:

Comment: the case is a reminder that, in federal court, a letter from opposing counsel that a claim is baseless, must be taken seriously.

Source: Miller v. EXPERIAN INFORMATION SOLUTIONS INC., Dist. Court, SD Ohio 2016 – Google Scholar

Edward X. Clinton, Jr.

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

www.clintonlaw.net

In the 2010 Seventh Circuit case Carr v. Tillery, 591 F.3d 909 (7th Cir. 2010) defendant attorneys filed a motion for sanctions against the plaintiff alleging the plaintiff was harassing them with repetitive litigation and borderline frivolous suits. The Seventh Circuit reversed the District Court’s dismissal of the motion and awarded the defendants sanctions.

Carr arose from various disputes between former law partners over the division of legal fees from cases their law firm handled before it disbanded. The plaintiff filed eight other suits in state courts against the defendants and at least four liens regarding cases handled by the firm before disbanding. The disputes were supposedly resolved and dismissed by a “Memorandum of Understanding” between the plaintiff and the defendants. However, in 2004, before the suits were dismissed pursuant to the Memorandum, the plaintiff amended a previous counterclaim alleging he had been fraudulently induced to sign the Memorandum. In 2006, the Illinois Circuit Court court rejected the amended counterclaim and dismissed all the pending suits with prejudice. The Illinois Appellate Court affirmed the Circuit Court’s decision.

The complaint before the federal court in the present case repeated the charges in the 2004 counterclaim. As a result, the Seventh Circuit affirmed the District Court’s dismissal of the current charges based on Illinois’s “one refilling” rule and the theory of “claim splitting.” Furthermore, although the current complaint characterized the alleged wrongful acts under the RICO Act, the Seventh Circuit affirmed the dismissal deciding the complaint was barred by res judicata and did not actually arise under the RICO Act because it was a basic breach of contract claim.

Section 1927 of the Judicial Code authorizes the court to grant “excess costs, expenses, and attorney’s fees” resulting from unreasonable and vexatious litigation.

However, this section has been held to be inapplicable to “misconduct that occurs before the case appears on the federal docket.” Nonetheless, the court noted that it “has inherent power, which is to say common law power, to punish by an award of reasonable attorney’s fees or other monetary sanction, or to prevent for the future by an injunction, misconduct by lawyers appearing before it.” Therefore, although much of the alleged misconduct occurred before the suit reached the federal court’s docket, the court decided the defendants would not be left remediless.

The court reasoned that, although the suit could not necessarily be characterized as utterly frivolous, the plaintiff’s actions indicate he had a motive to harass. It pointed out that the plaintiff had a “vitriolic tone” in his complaint, failed discuss important cases in the course of litigation, made a false statement in his opening brief, improperly raised new issues in his reply brief, and failed to even attempt to rebut the defendant’s motion for sanctions. Furthermore, the court reasoned that the plaintiff’s attempt to re-characterize a simple breach of contract claim as a claim under the RICO Act “was an abuse of the patience of the courts.”

The court concluded that “the plaintiff [was] out of control and his lawyers [were] neglecting their duties as officers of the state and federal courts by failing to rein him in,” and directed the lower court to assess a proper monetary sanction. The court also noted that the lower court should consider enjoining the plaintiff from filing any more claims against the defendants outside of potential future claims related to the money he is entitled to under the Memorandum.

Edward X. Clinton, Jr.

www.clintonlaw.net