The Big Three: The 9th Circuit Joins The 6th Circuit and 7th Circuit in Holding That Sanctions For Bad-Faith Litigation Tactics Can Only Be Awarded Against Individual Lawyers and Not Law Firms

by Haight Brown & Bonesteel LLP

In Law v. Wells Fargo Bank, N.A. (2015 S.O.S. 13–56099 – filed August 27, 2015), the Ninth Circuit joined the shortlist of Circuit Courts to hold that sanctions for bad-faith litigation tactics under 28 U.S.C. section 1927 can only be sought against individual attorneys and not law firms. Section 1927 authorizes sanctions against “[a]ny attorney or other person admitted to conduct cases in any court of the United States … who so multiplies the proceedings in any case unreasonably and vexatiously….”

On behalf of the client, an attorney with Kaass Law filed a complaint against ten different defendants, including Wells Fargo Bank, which moved to dismiss under F.R.C.P. Rule 12(b)(6). Rather than responding to the motion to dismiss, plaintiff filed a motion to amend the initial complaint; Wells Fargo Bank filed a notice of non-opposition.

The District Court granted Wells Fargo Bank’s motion to dismiss, and denied plaintiff’s motion to amend. Wells Fargo Bank moved under 28 U.S.C. section 1927 to recover attorneys’ fees and costs from Kaass Law and the named plaintiff. Wells Fargo Bank argued that Kaass Law failed to meet and confer prior to filing the motion to amend, which included a proposed amended complaint that failed to rectify any of the defects raised in Wells Fargo Bank’s motion to dismiss. The District Court granted the motion and imposed sanctions on Kaass Law, but not the named plaintiff. Kaass Law appealed and argued that sanctions under section 1927 can only be awarded against an individual attorney and not a law firm.

The Ninth Circuit agreed and vacated the order imposing sanctions on Kaass Law. The court joined the Sixth and Seventh Circuits by adopting the reasoning of the United States Supreme Court in Pavelic & Le Flore v. Marvel Entertainment Group, 493 U.S. 120 (1989). In Pavelic, the Supreme Court considered whether F.R.C.P. Rule 11 authorized sanctions against a law firm. Prior to its amendment in 1993, Rule 11 only permitted sanctions against “the person who signed” the offending document. The Supreme Court held that “the person who signed” meant the individual signer, but not his or her partnership. (Id. at 126-127.)

The Ninth Circuit applied this rationale and held that “any attorney or other person admitted to conduct cases” means only individual attorneys and not law firms. The court observed that Rule 11 now expressly authorizes sanctions against “any attorney, law firm, or party,” but section 1927 does not. As such, the court added that the doctrine of expressio unius—the expression of one is the exclusion of the other—further supports that section 1927 was designed to exclude sanctions against law firms. The court noted that if Congress intended to authorize federal courts to impose sanctions against law firms, it “would have included an express authorization to do so in the statute.”

In reaching this decision, the court disagreed with the Second, Third, and Eleventh Circuits, all of which awarded sanctions against law firms under section 1927. The court noted that the Second Circuit based its reasoning on the inherent power of the court, the Third Circuit ignored the limiting language of section 1927, and the Eleventh Circuit conflated section 1927 with F.R.C.P. Rule 11, which was specifically amended to ensure that law firms could be sanctioned.

Although the law is settled for the Ninth Circuit, Law is only the latest chapter in a thirty-year debate among the circuit courts. As in Pavelic, it is likely that the United States Supreme Court will ultimately hear the issue and resolve the split, which may prompt Congress to overhaul section 1927.

In California, there is a slight variation on the Ninth Circuit’s limitation on sanctions for bad-faith litigation tactics. C.C.P. section 128.5 does not allow sanctions against a law firm, but expressly authorizes sanctions against both the party and attorney for “bad-faith actions or tactics that are frivolous or solely intended to cause unnecessary delay.” In addition, C.C.P. section 128.7(c), which largely mirrors the current F.R.C.P. Rule 11, expressly authorizes sanctions against law firms for similar tactics. Specifically, C.C.P. section 128.7(c) requires the signing attorney to certify that each pleading is (1) not presented primarily for an improper purpose such as to harass or cause unnecessary delay or needless expense, (2) the claims/defenses/contentions are warranted under existing law, or by a nonfrivolous argument for a change in the law, (3) the allegations have evidentiary support or are likely to gain evidentiary support through investigation, and (4) the denials of factual contentions are warranted by the evidence or based on a lack of information or belief.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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