Thursday, August 30, 2012

Circuit Split Watch: When Sanctioned Attorneys Can't Pay

This article first appeared in the August 29, 2012, issue of the National Law Journal’s Supreme Court Insider.

Federal appellate courts are split over whether money sanctions issued against an attorney can be reduced when he cannot afford to pay. The question has also split conservative and liberal thought leaders, in unexpected ways. The Supreme Court, which recently decided another costs case, could be asked to resolve the split.

Under 28 U.S.C. § 1927, an attorney “who so multiplies the 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.”

Chief Judge Frank Easterbrook of the U.S. Court of Appeals for the 7th Circuit, a respected conservative jurist, has at least two suggestions for errant attorneys who cannot afford to pay: Take it up with the bankruptcy court and possibly find a new career.

In 2009, Easterbrook, writing for a unanimous three-judge panel in Shales v. General Chauffeurs Local Union No. 330, explained that a § 1927 violation “is a form of intentional tort….Damages depend on the victim’s loss, not the wrongdoer’s resources.” If the attorney cannot pay the sanction, he could seek relief in bankruptcy. Further, if the attorney “is poor because people are not willing to pay much, or at all, for his services, then he should turn from the practice of law to some other endeavor where he will do less harm.”

Last month, 9th Circuit Judge Stephen Reinhardt, who has been called a “liberal lion,” rejected the 7th Circuit’s conclusion in Haynes v. City & County of San Francisco. The statute says that the court “may” require an attorney to pay costs, not “must” or “shall”—a clear signal to Reinhardt and the other two panel members that the lower court has discretion to order and adjust costs. He noted that the 2nd Circuit also adopted this “plain meaning” in Oliveri v. Thompson, a 1986 case.

Ordering “sanctions in an amount many times greater than the attorney will ever be able to pay” can be “a futile gesture that does little” to make victims whole, Reinhardt reasoned.

Ironically, the Reinhardt and Easterbrook approaches could be seen as an ideological swap, with the liberal Reinhardt playing the role of textualist and the conservative Easterbrook looking for context outside the words.

While costs will never grab the headlines in the way that affirmative action, same-sex marriage, and other cases in the Supreme Court’s current inbox will, they have gotten the Court’s attention as a day-to-day part of litigation that affects many people.

In May, the Supreme Court decided a costs case involving a different statute. Taniguchi v. Kan Pacific Saipan, Ltd. clarified that costs awarded for interpreters include only oral translation expenses. Like the pending attorney-costs split, Taniguchi also involved a split between the 7th and 9th Circuits—resolved in the 7th Circuit’s favor. (This column previously highlighted Taniguchi.)

Before the attorney-costs issue can reach the Supreme Court, though, there may be a rehearing en banc.

The sanctioned attorney has indicated that he intends to seek rehearing. Although he won on the possible reduction of costs (to be determined on remand by the district court), the 9th Circuit opinion also said that he “engaged in a wide variety of incompetent and unprofessional actions.” The circuit issued a separate unpublished memorandum opinion to that effect.

The 9th Circuit has set an October deadline for his petition.