An attorney’s professed inability to pay a sanction for vexatious litigation under 28 U.S.C. 1927 is no defense.

Likening a sec. 1927 violation to an intentional tort, Judge Frank H. Easterbrook wrote for the Seventh Circuit, “Instead of hitting [the defendant] with a fist or an insult, [the attorney] hit him with a lawsuit. … [D]amages depend on injury, once the judge concludes that the litigation was tortious.”

The Feb. 27 opinion distinguished sanctions under sec. 1927 from those imposed pursuant to Fed.R.Civ.P. 11, for which inability to pay can be considered by the court.

The case was instituted after a contested union election, with the losers suing the winners under a variety of theories, including racketeering. All claims were ultimately resolved in favor of the defendants.

During the course of the litigation, counsel for defendants had sent correspondence to the plaintiffs’ counsel, James Gordon Banks, demanding that various claims be dismissed from the suit. However, Banks never responded to the requests.

Once the case was over, the defendants sought sanctions under Rule 11 and sec. 1927, and the district court awarded $80,000, which it found to represent reasonable attorney fees.

Banks asked the judge to reduce the award, claiming his assets were limited to $2,000 in cash, a watch, his clothing, and his wedding ring. However, his home, cars, and savings are all in his wife’s name. The court refused to reduce the award, and Banks appealed.

The court acknowledged that, when sanctions are imposed under Rule 11, a court may take the sanctioned party’s resources into account in setting the amount.

However, in contrast to Rule 11, sec. 1927 is a fee-shifting statute. Furthermore, it requires a finding of bad faith, likening it to an intentional tort.

Accordingly, Easterbrook wrote, “there is no principle in tort law that damages depend on a tortfeasor’s assets. Quite the contrary. Damages depend on the victim’s loss, not the wrongdoer’s resources.”

Just as a lack of resources is no defense when a physician commits malpractice, the court concluded that it is no defense when an attorney is sanctioned for bad faith.

Banks also claimed inexperience as a defense, but the court rejected this argument on the same basis.

Noting that a doctor’s inexperience does not entitle him to a discount on malpractice judgments, the court said, “Banks’s observation that he was only four years out of law school when he took this case does not give him a license to injure others by making unsupported assertions and clinging to them long after their falsity has been revealed.”

The court acknowledged that, in previous cases, such as Fox Valley Construction Workers v. Pride of the Fox Masonry & Expert Restorations, 140 F.3d 661, 667 (7th Cir. 1998), it has assumed that a district court may consider a lawyer’s wealth when imposing sanctions.

However, in those cases, the court did not distinguish between sec. 1927 and Rule 11 sanctions, because the parties did not. Accordingly, the court limited the applicability of those opinions to Rule 11 sanctions.

Finally, the court also relied on policy grounds for not reducing the amount of the sanction.

The court noted that Banks could declare bankruptcy, and have the debt written down in bankruptcy court.

Were he to do so, however, the bankruptcy court would have the opportunity to consider whether he engaged in fraudulent conveyances to hide his assets. “Why replicate a bankruptcy proceeding just to decide on an award of sanctions?” the court asked.

The court also found that the goal of deterrence is furthered by not reducing sanctions.

Easterbrook concluded, “If Banks really is a bad lawyer (as he depicts himself), and is poor because people are not willing to pay much, or at all, for his services, then he should turn from the practice of law to some other endeavor where he will do less harm.”

Analysis

The case demonstrates the importance of seeking sanctions under not just Rule 11, but sec. 1927, where appropriate.

As the court noted, the losing party’s ability to pay is a relevant consideration when sanctions are imposed under Rule 11.

In Johnson v. A.W. Chesterton Co., 18 F.3d 1362 (7th Cir.1994), the Seventh Circuit explained, “One can easily envisage a situation in which a sanction of $50,000 would devastate a sole practitioner but would be only petty cash of minimal deterrent effect with respect to a giant law firm.” Johnson, 18 F.3d at 1366.

However, it is not clear why there should be any distinction between sanctions under Rule 11 and sec. 1927.

In the case at bar, the court emphasized deterrence as a reason for not reducing the sanction. But deterrence is the “central purpose” for sanctions under Rule 11, as well. Johnson, at 1365.

Second, the court in the case at bar repeatedly likens vexatious litigation under sec. 1927 to medical malpractice, and notes that inability to pay is no defense to malpractice.

All of the court’s reasoning would be equally applicable to sanctions imposed under Rule 11, as well as sec. 1927.

Furthermore, a violation under Rule 11 requires “objective bad faith,” a higher standard than for medical malpractice liability.

In any event, whether the distinction is logical or not, attorneys seeking sanctions need to be aware of it, and include a request for sanctions under sec. 1927.

Even if you don’t ultimately collect, because the opposing attorney genuinely can’t pay, at least you can avoid expending more of your time on a frivolous case, at an unnecessary hearing on ability to pay.