Judge issues $150K sanctions motion for lawyer misconduct

A Texas Credit Union will be able to recoup a bigger chunk of the attorneys’ fees it incurred as a result of opposing counsel’s misleading the court about the existence of a crucial document. A North Carolina federal judge ruled that under the law in the 4th Circuit, Generations Federal Credit Union could recover most of the expense of prosecuting its sanctions motion against the responsible attorneys.

The attorneys, Steve Six and Darren Kaplan of Stueve Siegel Hanson in Kansas City, had objected to the district court’s consideration of an arbitration agreement offered by Generations while hiding, for two years, the existence of an identical copy in the possession of their client and misleading the court about the existence of their client’s copy. U.S. District Court Judge Catherine Eagles found that the lawyers acted unreasonably and in bad faith, and caused an unnecessary appeal, and she concluded that sanctions against the attorneys were appropriate.

Generations incurred more than $118,000 in lawyers’ fees while prosecuting its sanctions motions against the attorneys, more than the attorneys were ordered to pay to compensate Generations for the unnecessary proceedings. Generations argued that they should be able to recoup those costs as well.

In a 1990 decision in Blue v. U.S. Dep’t of Army, the 4th U.S. Circuit Court of Appeals ruled that courts “ordinarily should not award attorney’s fees for the costs of prosecuting motions for sanctions, even if those motions are successful.” Eagles noted, however, that Blue does not absolutely prohibit awarding attorney’s fees incurred in prosecuting sanctions motions, and the panel in that case partly upheld such sanctions.

Although Blue is consistent with the general principle that courts should be cautious when imposing sanctions, Eagles held that the extraordinary level of misconduct by Six and Kaplan warranted the unusual remedy of imposing additional sanctions to remunerate Generations for much of the cost of bringing the sanctions motion.

Denying the motion, Eagles said, would likely dissuade litigants from bringing improper conduct to the attention of the courts because, as in this case, the award might end up be smaller than the cost of obtaining it. The problem would be even worse, Eagles said, if the victimized litigants believe, as they had reason to in this case, that the misbehaving lawyers are likely to defend the sanctions motion in an unfair or vexatious manner.

“Equitable considerations also favor an additional financial sanction,” Eagles wrote. “The sanctioned attorneys have made no argument that their behavior was negligent rather than deliberate. Though sanctioned counsel did not dispute the basic fact underlying the sanctions motion—that sanctioned counsel knew [their client] had a copy of the arbitration agreement and did not tell Generations or the Court about it for two years—they have not accepted any real responsibility for their actions and their consequences.”

Eagles imposed a total sanction of $150,000 in attorney’s fees and expenses, the lion’s share of what Generations had requested. Six, Kaplan, and their law firm are responsible for paying this entire amount. A third attorney, Austin Moore, an associate at the firm, was also sanctioned, although his conduct was deemed to be less culpable, and he will only be liable for a part of that amount.

Cal Adams of Womble Carlyle in Winston-Salem served as lead attorney for Generations. Adams could not be reached for comment on the ruling.

The 20-page decision is Dillon v. BMO Harris Bank, N.A. (Lawyers Weekly No. 003-006-17). An opinion digest is available online at nclawyersweekly.com.

Follow David Donovan on Twitter @NCLWDonovan