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Dillon v. BMO Harris Bank, N.A.

United States District Court, M.D. North Carolina

February 10, 2017

JAMES DILLON, Plaintiff,
BMO HARRIS BANK, N.A., et al., Defendants.


          Catherine C. Eagles, District Judge.

         This is 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.

         Having 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.

         I. BACKGROUND

         As 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.

         The 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 58-59.

         The 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.


         A. Attorney's Fees and Expenses Associated with the Renewed Motion to Dismiss and First Appeal

         Sanctioned 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.

         B. Attorney's Fees and Expenses Associated with Prosecuting the Sanctions Motion

         As of 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.

         1. Overview of Relevant Authorities

         Section 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 recoverable).

         In 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).

         In a 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. Id.

         In 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.

         As is 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 548-49.[1]

         After 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.[2] 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 (1980).

         2. Amount of Fees ...

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