United States District Court, M.D. North Carolina
MEMORANDUM OPINION AND ORDER
Catherine C. Eagles, District Judge.
a civil RICO lawsuit arising out of online loans the
plaintiff, James Dillon, received at predatory interest
rates. The Court previously found that three of Mr.
Dillon's lawyers and their law firms multiplied the
proceedings and violated their duty of candor by hiding a
document that was potentially dispositive of a dispute over
whether there was an agreement to arbitrate and by implying
to the Court that the document did not exist. The Court
granted a motion for sanctions filed by a defendant,
Generations Community Federal Credit Union, and held the
matter open for determination of a monetary sanction. The
sanctioned attorneys filed a motion for reconsideration,
which the Court held open as to the issue of law firm
liability and otherwise denied.
reviewed the supplemental briefing and evidence, the Court
will require two attorneys, Steve Six and Darren T. Kaplan,
and their firms, Stueve Siegel Hanson LLP and Darren Kaplan
Law Firm, P.C., to jointly pay $150, 000 to Generations as a
sanction. The Court finds that the third attorney, J. Austin
Moore, will be jointly responsible for $100, 000 of this
sanction. The Court further concludes that the law firms
fully participated in this case and in the violation of the
duty of candor to the Court, and so the Court will deny the
motion for reconsideration.
explained in detail in the Court's previous order
granting the motion for sanctions, Mr. Six, Mr. Moore, Mr.
Kaplan, and their law firms acted unreasonably, in bad faith,
and vexatiously, thereby multiplying the proceedings and
violating their duty of candor to the Court. See
generally Doc. 264, available at Dillon v. BMO
Harris Bank, N.A., No. 13-CV-897, 2016 WL 5679190 (M.D.
N.C. Sept. 30, 2016). They objected to the Court's
consideration of an arbitration agreement proffered by
Generations while hiding, for two years, the existence of an
identical copy in the possession of their client; they misled
the Court about the existence of their client's copy; and
they caused an unnecessary appeal. See Doc. 264 at
62. The Court concluded that sanctions were appropriate under
28 U.S.C. § 1927 and in the Court's inherent
authority. See Id. at 38, 49-50.
Court further determined that Generations' attorney's
fees from a renewed motion to dismiss and the first appeal
were “excess” costs recoverable under § 1927
and were appropriate as a sanction for violating the duty of
candor. Id. at 49-50, 56-59. The Court directed the
sanctioned attorneys and Generations to confer about the
amount of reasonable fees and to provide supplemental
briefing. Id. at 57-58. The Court held open the
issue of whether a monetary sanction in addition to the
attorney's fees would be appropriate. Id. at
sanctioned attorneys and Generations agreed on a reasonable
amount for the attorney's fees and expenses incurred by
Generations in connection with the renewed motion to dismiss
and the first appeal. Doc. 268 at ¶ 1. They disagreed as
to whether Generations should also recover fees and expenses
incurred in prosecuting the motion for sanctions and, if so,
the amount of those fees. Id. at ¶ 2. The
sanctioned attorneys and Generations have now briefed this
issue. Docs. 270, 271, 272.
AMOUNT OF SANCTION
Attorney's Fees and Expenses Associated with the Renewed
Motion to Dismiss and First Appeal
counsel and Generations agree that $70, 147.70 is a
reasonable amount for the attorney's fees and expenses
associated with the renewed motion to dismiss and the first
appeal. Doc. 268 at ¶ 1. The Court has reviewed the
evidence, and it finds that this is a reasonable amount. The
Court will order the sanctioned attorneys to pay $70, 147.70
to Generations for those proceedings.
Attorney's Fees and Expenses Associated with Prosecuting
the Sanctions Motion
late October 2016, Generations had incurred an additional
$118, 417.33 in attorney's fees and expenses while
prosecuting the motion for sanctions. See Doc. 270-1
at ¶ 8; Doc. 270-2 at ¶ 8. Generations asks that
the Court require the sanctioned attorneys to pay this amount
as well. Doc. 270 at 5. The sanctioned attorneys object,
contending that the Court's initial order did not require
the payment of these fees and that the Fourth Circuit
prohibits requiring sanctioned attorneys from paying fees
incurred in litigating a sanctions motion. See Doc.
271 at 2-3. In the alternative, they ask the Court to review
Generations' attorneys' bills in camera.
Id. at 4.
Overview of Relevant Authorities
1927 authorizes recovery of attorney's fees and expenses
“reasonably incurred because of” the vexatious
conduct. 28 U.S.C. § 1927. Generations made a reasonable
decision to file a sanctions motion, given the egregious
conduct of sanctioned counsel in hiding the existence of Mr.
Dillon's copy of the disputed contract. The plain
language of the statute appears to cover fees and costs from
litigating a sanctions motion, and many courts have so held.
Norelus v. Denny's, Inc., 628 F.3d 1270, 1298,
1302 (11th Cir. 2010) (holding that the plain language of
§ 1927 supports including “costs arising from the
sanctions proceedings in the sanctions award, ” and
affirming such an award); Truck Treads, Inc. v. Armstrong
Rubber Co., 868 F.2d 1472, 1474-75 (5th Cir. 1989)
(upholding award under Rule 11 and § 1927 that included
fees “incident to the sanctions motion itself”);
see In re Royal Manor Mgmt., Inc., 525 B.R. 338,
365-66 (B.A.P. 6th Cir. 2015) (affirming sanctions imposed
under § 1927 and the bankruptcy court's inherent
authority and noting that such sanctions awards may include
fees incurred in obtaining the sanctions award),
aff'd, 652 F. App'x 330 (6th Cir. 2016),
cert. denied sub nom. Grossman v. Wehrle, 2017 WL
276189 (U.S. Jan. 23, 2017); In re Tutu Wells
Contamination Litig., 120 F.3d 368, 387-88, 390 (3d Cir.
1997) (upholding sanctions in court's inherent authority,
including attorney's fees incurred in prosecuting
sanctions motion), overruled on other grounds,
Comuso v. Nat'l R.R. Passenger Corp., 267 F.3d
331, 339 (3d Cir. 2001); Amlong & Amlong, P.A. v.
Denny's, Inc., 500 F.3d 1230, 1273- 74 (11th Cir.
2006) (dissent of Hill, J.) (collecting cases for the
proposition that fees incurred in sanctions motions are
Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991), a
case involving inherent authority, the Supreme Court upheld a
sanctions award that included attorney's fees incurred in
filing a sanctions motion. The original award by the district
court included “attorney's fees and expenses paid .
. . for services rendered in connection with the sanctions
portion of this suit, ” NASCO, Inc. v. Calcasieu
Television & Radio, Inc., 124 F.R.D. 120, 143 (W.D.
La. 1989), aff'd, 894 F.2d 696 (5th Cir. 1990),
and the Supreme Court did not indicate any misgivings about
requiring the sanctioned lawyers to pay those fees. See
Chambers, 501 U.S. at 50-51. Indeed, the Court
emphasized that making the prevailing party whole was one of
the purposes of a sanction in the Court's inherent
authority. Id. at 46 (citing Hutto v.
Finney, 437 U.S. 678, 689 n.14 (1978)) (holding that
sanctions serve the “dual purpose” of vindicating
judicial authority and making the prevailing party whole).
case predating Chambers, the Fourth Circuit
expressed a more cautious approach to including
attorney's fees related to the sanctions motion itself.
That case, Blue v. U.S. Dep't of Army, held that
courts ordinarily should not award attorney's fees for
the costs of prosecuting motions for sanctions, even if those
motions are successful. See 914 F.2d 525, 548-49
(4th Cir. 1990). However, Blue does not absolutely
prohibit awarding attorney's fees incurred in prosecuting
sanctions motions, and it upheld such sanctions in part.
Blue, the defendants sought sanctions under Rule 11,
Rule 16, § 1927, and “the bad faith exception to
the American Rule.” Id. at 533. The district
court granted the motion and awarded attorney's fees
incurred as a result of the misconduct, including fees
incurred in prosecuting the sanctions motion. Id. at
532-33, 548. The Fourth Circuit agreed the conduct was
sanctionable and affirmed certain sanctions against the
plaintiffs and their senior lawyer. Id. at 544-45,
546-48. The court set aside sanctions imposed on a junior
associate and made other revisions to the district
court's order. Id. at 545-46, 548-50.
most relevant here, the Fourth Circuit set aside the district
court's award of sanctions against plaintiff's
counsel for the fees the defendants incurred in the sanctions
proceeding itself, but it upheld such sanctions against the
individual plaintiffs. Id. at 549. The court noted
that counsel's sanctionable conduct occurred only in
discovery and at trial, where plaintiff's counsel neither
investigated the facts underlying their clients' claims
nor adequately examined discovery materials. Id. at
548-49. No sanctionable conduct by the attorneys occurred
during sanctions hearings. Id. On the other hand,
the individual plaintiffs “engaged in numerous
instances of untruthfulness during the course of their
testimony at the sanctions hearing, ” and thus
sanctions against them were appropriate. Id. at 549.
In conclusion, the Court stated that while “[l]itigants
should be able to defend themselves from the imposition of
sanctions without incurring additional sanctions, ” a
categorical rule against such sanctions was not appropriate
because it “would . . . license the wholesale abuse of
[sanctions] hearings.” Id. at
Blue, an amendment to Rule 11 explicitly allows for
attorney's fees incurred in filing a successful sanctions
motion. Fed.R.Civ.P. 11 advisory committee's note to 1993
amendment (“[T]he court may award to the person who
prevails on a motion under Rule 11 . . . reasonable expenses,
including attorney's fees, incurred in presenting or
opposing the motion.”). As discussed supra pp.
4-5, other circuits have included the attorney's fees
incurred in filing a § 1927 motion in sanctions awards
and the Supreme Court has implicitly approved such
attorney's fees in an inherent authority case. No party
has identified a post-Blue case where the Fourth
Circuit applied or discussed Blue to decide whether
§ 1927 or the Court's inherent authority authorize a
court to include attorney's fees incurred in prosecuting
a sanctions motion. Nonetheless, the Fourth Circuit has not
overruled or limited Blue's restrained approach
and Blue is consistent with the general principle
that courts should be cautious when imposing sanctions.
See, e.g., Chambers, 501 U.S. at 44;
Roadway Express, Inc. v. Piper, 447 U.S. 752, 764
Amount of Fees ...