Fee Awards Under 28 U.S.C. Section 1927: Seventh Circuit Holds That Attorney’s Wealth Or Ability To Pay Is An Irrelevant Consideration

Federal Court of Appeals Prefers Bright-line Rule; Also Reaffirms that Ability to Pay Is a Relevant Factor in Assessing Rule 11 Sanctions.

     Although we usually stick to California cases, we discuss a colorfully written decision by the Seventh Circuit on wealth/ability to pay as a factor to be considered when assessing attorney’s fees as sanctions under 28 U.S.C. section 1927 or Fed. R. Civ. P. 11.

     The decision is Shales v. General Chauffeurs et al. Local Union No. 330 (Banks), Case No. 07-3342 (7^th Cir. Feb. 27, 2009), authored by Chief Judge Easterbrook on behalf of a 3-0 panel.

Richard Westall (English painter, 1765-1836).  Sword of   Damocles.

     In Shales, plaintiff’s attorney was hit with an $80,000 (out of requested $200,000) assessment of attorney’s fees under both section 1927 and Rule 11 for vexatiously multiplying proceedings and filing/prosecuting an unfounded complaint. Attorney asked the district judge to reduce the award, representing that his only assets were $2,000 in cash, his watch, his clothing, and his wedding band (with no malpractice insurance). Attorney appealed the award.

     The Seventh Circuit affirmed.

     Judge Easterbrook did not disagree that ability to pay is a factor that should be taken into account under Rule 11, given that it is not a pure fee-shifting statute but one of deterrence. (See Johnson v. A.W. Chesterton Co., 18 F.3d 1362, 1366 (7^th Cir. 1994).)

     However, the Seventh Circuit came to a different result on the necessity of considering wealth/ability to pay factors under section 1927. Because section 1927 is compensatory in nature and a real fee-shifting law, it is more akin to an intentional tort where damages are awarded for the victim’s loss rather than the wrongdoer’s resources. The federal court of appeals agreed with Hamilton v. Boise Cascade Express, 519 F.3d 1197, 1206 (10^th Cir. 2008), which held that a lawyer’s ability to pay does not the affect the appropriate award for a section 1927 violation.

     BLOG UNDERVIEW—Judge Easterbrook preferred a bright-line rule in this area, rather than leaving it to discretion. Here is one of his colorful observations in Shales: “District judges differ substantially in how they use discretion. Rights measured by the chancellor’s foot are not ‘rights’ of any kind, and such a stochastic process is not the administration of justice. We need rules that apply in an even-handed fashion.”

(Stochastic: a random process.)

     Judge Easterbrook also upheld his reputation as a caustic writer:

"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. No court would say, in a medical-malpractice action, that a doctor whose low standards and poor skills caused a severe injury should be excused because he does not have very many patients. No more is a bad lawyer excused because he has few clients."

     One can detect the odor of burning attorney all the way from California.

      BLOG BONUS COVERAGE—So how does the Ninth Circuit weigh in on these issues? We could not find any discussion of the ability to pay issue under section 1927 by the Ninth Circuit. (For the most recent district court discussion on the issue, see Roth v. Green, 2008 WL 3845422 at *3 (D. Colo. Aug. 14, 2008), which agreed with Hamilton.) However, with respect to Rule 11, the Ninth Circuit agrees that ability to pay is a relevant factor for consideration. (See Matter of Yagman, 796 F.2d 1165, 1185 (9^th Cir. 1986), cert. denied, 484 U.S. 963 (1987); for a good review of circuit positions on the Rule 11 issue, see Baker v. Alderman, 158 F.3d 516 (11^th Cir. 1998).)