Federal Judges Apply Sanctions for Improper Motion Practice

By Lazar Emanuel

[Originally published in NYPRR December 2001]

In two decisions, federal judges in the Southern District have imposed sanctions on New York lawyers under 28 U.S.C. §1927. Both cases dealt with motion practice that the judges found to be unprofessional and improper. In both cases, the judges elected not to apply Rule 11 of the Federal Rules of Civil Procedure, in part because the other side was either unable, or had neglected, to give counsel 21 days’ notice to withdraw the offending motion. Rule 11 enables a judge to impose sanctions for improper pleadings upon motion of the opposing party, but only after counsel has failed to withdraw or correct the original motion after the required twenty-one day notice.

28 U.S.C. §1927 provides as follows:

Any attorney or other person admitted to conduct cases in any court of the United States or any territory thereof 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.

In Chatham Partners, Inc. v. Fidelity and Deposit Co. of Maryland, attorney Albert Ferrer III served his adversary on Dec. 23, 1999 with an order to show cause returnable on Dec. 28. The motion sought to compel the defendant to pay $4,522,008.46 on a surety bond it had issued to secure a judgment in the NYS Supreme Court. The judgment was in the amount of $320,149.29. In another proceeding in Ohio, another attorney for the same client had previously acknowledged that the surety bond guaranteed only the smaller amount.

On the return day of the motion, Judge John S. Martin Jr. expressed his displeasure with attorney Ferrer in no uncertain terms:

This is to me perhaps the most outrageous case I have had in a long time. One, it is filed without precedent for an order to show cause. It is to me sleazy tactics. It is where there is a bond filed for a specific amount, lawyers for your client represented to a court in Ohio what the amount was secured to be and you come in here and make a claim on an expedited basis where there is no basis for expedition and make what I think is a fraudulent claim.

In his opinion, Judge Martin expanded upon his criticism of attorney Ferrer’s tactics: (1) there was no basis for claiming an amount larger than the principal of the surety bond; (2) there was no basis for an injunction when the client was seeking only money damages; (3) there was no basis for seeking relief on an expedited basis.

Judge Martin was reluctant to impose sanctions under 28 U.S.C. §1927. “…given the policy considerations that gave rise to Rule 11’s safe harbor provision, it seems inappropriate to use 28 U.S.C. §1927 to do what the court cannot do under Rule 11.”

However, the judge noted, when a party moves by order to show cause returnable in a few days, there is no opportunity for the opposition to give the required 21-day withdrawal notice under Rule 11. Under these circumstances, 28 U.S.C. §1927 is an appropriate vehicle for imposing sanctions.

Judge Martin ordered attorney Ferrer to pay $9,017 as a sanction for violating the statute. The sanction represented reimbursement of attorneys’ fees incurred by the other side in responding to plaintiff’s order to show cause.

Lawyer Sanctioned for Meritless Motion

In Patsy’s Brand, Inc. v. I.O.B. Realty, Inc., the court applied 28 U.S.C. §1927 even though the offending motion was not brought by order to show cause. The court was unable to use Rule 11 because the opposing side had not complied with the Rule by giving counsel 21 days’ notice to withdraw the offending motion.

The Court said:

“‘[A] An award under §1927 is proper when an attorney’s actions are so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose…’” [United States v. International Bd. of Teamsters, 948 F.2d 1328 (2d. Cir. 1991), quoting Oliveri v. Thompson, 803 F.2d 1265 (2d Cir. 1986).]

The Patsy case involved a suit for trademark claims under the Lanham Act. The court found that the defendant had acted in bad faith by raising fabricated issues and false assertions about dates on which it had allegedly created and sold a sauce competitive to the plaintiff’s sauce. The actions of the defendant were sufficient to justify an award to the plaintiff of all its attorneys’ fees and costs. The award was further justified by the submission of perjured testimony and false documents by one of defendant’s principals.

In the course of the litigation, defendant’s attorney, Andrew Spinnell, “had the chutzpah” (quoting the court) to move to recover attorneys’ fees and costs from the plaintiffs. After finding the motion without merit (…“the fault with respect to these motions lies not so much with the I.O.B. defendants as with their counsel.”), the court said:

This is the type of unprofessional conduct that the Court should publicly condemn and sanction…(Sanctions are appropriate “when it appears that a pleading has been interposed for any improper purpose, or where, after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is well grounded in fact and [sic] is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law.” [Eastway Const. Corp. v. City of New York, 762 F.2d 243 (2d Cir. 1985).]

The court imposed sanctions against attorney Spinnell under 28 U.S.C. §1927. “The court is persuaded that Mr. Spinnell…brought a sanctions motion against opposing counsel that he knew to be without merit in order to prove to his client how tough he could be. …he continued to litigate the motion for sanctions after it became apparent that there was no good basis for it…”

Because the plaintiff’s attorneys’ fees and costs had already been reimbursed to it by the defendant, the court required attorney Spinnell to pay $5,000 to the registry of the court as “a sanction for his improper conduct.”

Lazar Emanuel is the Publisher of NYPRR.

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Lazar Emanuel Sanctions