Seth Katsuya Endo, "The Propriety of Considering an Attorney's Ability to Pay Under Section 1927"

Article. (I disagree with the author and am in the "don't consider it" camp.) Abstract:

Until 1980, sanctions imposed pursuant to § 1927 were limited to excess costs and expenses, which rarely involved significant sums. And, as a result, these sanctions were seldom the subject of litigation. Since 1980, when Congress amended the section by authorizing the inclusion of attorney’s fees as part of the sanction, much greater use has been made of § 1927. And now, a split has arisen amongst the federal appellate courts as to whether a district court may consider an attorney’s financial status when issuing monetary sanctions under this section.

In 2009, the Seventh Circuit held that district courts may not consider the sanctioned attorney’s ability to pay. The Seventh Circuit stands alone in its affirmative prohibition of consideration of an attorney’s financial status by the district court in its calculation of § 1927 sanctions. Four other federal appellate courts have held that district courts may, but are not always required, to consider an attorney’s ability to pay when determining an appropriate award under § 1927. Most recently, in Haynes v. City & County of San Francisco, 688 F.3d 984 (9th Cir. 2012), the Ninth Circuit held that district courts may consider the financial status of the sanctioned attorney and explicitly rejected the Seventh Circuit’s reasoning to the contrary, drawing attention to the split.

The circuit split creates substantial inconsistencies across the five circuits discussed above and uncertainty in jurisdictions where the courts have not yet determined the extent of the penalties that a district court may impose on an attorney pursuant to § 1927. And, as one commentator noted, “[w]hile costs will never grab the headlines in the way that affirmative action, same-sex marriage, and other cases in the Supreme Court’s current inbox will, they have gotten the Court’s attention as a day-to-day part of litigation that affects many people.” Accordingly, it is reasonable to project that, if appealed, the Supreme Court might grant certiorari in Haynes or a similar case.

I analyze these five federal appellate cases, concluding that the First Circuit’s rule, which requires district courts to consider an attorney’s ability to pay when imposing sanctions for deterrence purposes, appears to be the most sensible way to accommodate the section’s plain language, dual purposes of deterrence and compensation, and the potential policy ramifications because it acknowledges the wide discretion given to the district courts by the statute but also places procedural safeguards that make explicit the district courts’ bases for their awards. I further conclude that district courts should consider coupling the imposition of monetary sanctions with referrals to state bar associations. This would better ensure that incompetent lawyers are counseled out without using the blunt instrument of judge-imposed monetary sanctions to drive these lawyers into bankruptcy.

UPDATE: In light of Jim Fischer's comment, I thought I'd add some thoughts about why I prefer the Seventh Circuit's approach even though it's the minority position. I read section 1927 as looking to the "satisf[action]" of the party that is forced to endure higher costs and legal fees because of the opponent's vexatious conduct. Of course the court can impose contempt and other sanctions to protect the court itself, but this statute seems remedial to me. The Ninth Circuit's decision in Haynes suggests that the imposition of sanctions above the lawyer's ability to pay serves neither deterrance nor compensation. I'm not sure I agree. Why wouldn't a lawyer -- and why shouldn't a lawyer -- think about the costs he or she is imposing on the opponent at each step? If the costs are being imposed by vexatious litigation, the thought of a big sanction under section 1927 will have a big deterrance effect, right? As for compensation, judgments can be extended for ten years (or a second ten years). Who's to say that there will never be compensation? 

The Ninth Circuit's formulation -- that the trial judge can but doesn't have to consider the lawyer's ability to pay -- seems awful open-ended to me. Unless I'm missing something, two identically situated judges could come out 180 degrees different regarding any particular motion and neither would run afoul of the Ninth Circuit's rule.

Finally, just as a matter of fairness, do we want a rule where a lawyer can inflict financial damage through vexatious claims and motions and then argue that his/her poverty results in the opponent permanently paying for much of that damage? As I say, I can see that I'm in the minority on this one and if the purpose of section 1927 isn't compensatory then I'm probably just wrong.

Comments

[Jim Fischer]

John.
We consider a party's ability to comply when civil contempt (coercive) is requested and do similarly when punitive damages are being considered. Why do you believe a different approach is warranted when an attorney is sanctioned? Sanctions, it seems to me should sting, but not kill. If one accepts that premise, taking into account the attorney's ability to pay is natural. Should sanctions do more than sting?