Stone v. Greenberg Traurig, LLP, USDC, Arizona, March 21, 2011
Facts: Plaintiff's counsel allegedly filed briefs with the Court and misstated certains facts and conclusions of law. Apparently, Plaintiff's counsel also made misrepresentations at oral argument. Although the Court warned Plaintiff that further misrepresentations could result in sanctions, the misrepresentations apparently continued.
Further, the Court noted that Plaintiff improperly attempted to voluntarily dismiss its case after Defendants had already made a substantial commitment of time and money.
Plaintiff maintained that all of the objectionable conduct "lies at the feet of [its attorney], and that it was "affirmatively misled by [it's attorney]."
Issue: Did the Court have the inherent power to sanction Plaintiff or its counsel for their continuous misrepresentations?
The Court explained:
Federal courts have the inherent power to assess attorney's fees against counsel in response to abusive litigation practices...A district court may impose sanctions if it specifically finds bad faith or conduct tantamount to bad faith...Sanctions are available for a variety of types of willful actions, including recklessness when combined with an additional factor such as frivolousness, harassment, or an improper purpose.
[A]ttorney fees and sanctions are by nature collateral to the merits [of a case] and therefore properly within a district court's jurisdiction even after a dismissal under Rule 41(a).
Specifically with regard to Plaintiff, the Court noted that it was a sophisticated business that had previously been involved in litigation. Significantly, the Court further noted:
In addition, Summit employs in-house counsel. Yet despite this level of business and legal sophistication, Summit argues, incredibly, that it relied entirely upon Mr. Goodman's representations regarding the good faith basis for the allegations in the pleadings and therefore should be held blameless. Summit, however, cannot shift the blame for what it admits is "objectionable conduct" entirely onto counsel. The Court finds that Summit had an obligation to make at least a cursory inquiry into Mr. Goodman's representations in the pleadings and its failure to do so does not excuse it but rather suggests bad faith. Further, at oral argument, Summit stood by and allowed its counsel to make blatant misrepresentations of both the facts and the law.
Consequently, the Court assessed attorney's fees against Plaintiff and its counsel.
Lesson: Attorneys and their clients may be subject to the Court's inherent power of sanctions for repeated, blatant misrepresentations and other conduct tantamount to bad faith.