Sanctions in the Michigan Elections Case and in Bankruptcy Court (Pt. 3)

This is part 3 of our discussion of sanctions in the Michigan elections case and in Bankruptcy Court. This installment examines 28 U.S.C. §1927.

Introduction to Section 1927

A second basis for sanctions is found in 28 U.S.C. §1927, which provides that:

Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.

Section 1927 is different than Rule 11 in several important respects. First, it only applies to attorneys or any “other person admitted to conduct cases.” Next, the conduct covered is limited to vexatiously and unreasonably multiplying proceedings, although this may be accomplished by submitting frivolous pleadings. Additionally, there is no safe harbor letter required. Lastly, the remedy is limited to satisfying excess costs and fees incurred.

Judge Parker described the standard under Section 1927 in this way:

Section 1927 provides that any attorney “who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess of costs, expenses, and attorneys” fees reasonably incurred because of such conduct. The purpose of a sanctions award under this provision is to deter dilatory litigation practices and to punish aggressive tactics that far exceed zealous advocacy.

Section 1927 imposes an objective standard of conduct on attorneys, and courts need not make a finding of subjective bad faith before assessing monetary sanctions. A court need only determine that an attorney reasonably should know that a claim pursued is frivolous. Simple inadvertence or negligence, however, will not support sanctions under § 1927. Ultimately, “[t]here must be some conduct on the part of the subject attorney that trial judges, applying collective wisdom of their experience on the bench, could agree falls short of the obligations owed by a member of the bar to the court . . . .

Opinion, pp. 20-21 (cleaned up).

Section 1927 in the Elections Case

In Michigan, Gov. Gretchen Whitmer and Secretary of State Jocelyn Benson filed a motion for sanctions under section 1927 (as well as under the court’s inherent authority which will be discussed separately).  The main ground considered by the court was that the plaintiffs refused to dismiss their suit as being moot for months after the electoral votes had been cast. This was significant because they had stated that expedited relief was necessary in order to prevent the suit from becoming moot. According to the plaintiffs, December 14, 2020 was the magic date after which the court could no longer grant relief. On December 22, 2020, Gov. Whitmer and Secretary Benson filed a motion to dismiss. The case was finally dismissed on January 14, 2021. At first blush, allowing a suit to linger on the docket for one month after it should have died does not seem that egregious. However, the reason given for allowing the action to pend bothered the court.

The reason stated was somewhat magical. Notwithstanding the fact that no court had recognized them to be valid electors, three of President Trump’s proposed electors took the position that they were the truly appointed electors. According to Judge Parker:

In other words, Plaintiffs’ attorneys maintain that this lawsuit was no longer moot after December 14 because three Plaintiffs subjectively believed that they had become electors. The attorneys cite no authority supporting the notion that an individual’s “personal opinion” that he or she is an elector is sufficient to support the legal position that the individual is in fact an elector. Of course, such a belief is contrary to how electors are appointed in Michigan. In any event, Plaintiffs’ attorneys fail to provide a rational explanation for why this event breathed life into this action. Moreover, prior to the July 12 hearing, Plaintiffs never told anyone about this newly-formed subjective belief. They did not tell this Court that the case would no longer be moot after December 8, despite telling this Court the exact opposite when filing this lawsuit on November 25. And they did not tell the Supreme Court that the case would no longer be moot after December 14, despite telling that Court the exact opposite on December 11. The fact that it was never shared suggests that counsel’s argument as to why the case had to be pursued after December 14 is contrived.

Opinion, pp. 48-49.

While the delay was not particularly lengthy, it unnecessarily caused the parties and the court to expend resources. As Judge Payne pointed out:

Here, Plaintiffs conceded that their claims were moot after December 14. Yet, in the month that followed, Plaintiffs refused to voluntarily dismiss their claims, forcing Defendants to file their motions to dismiss and the Court to decide Plaintiffs’ motion for additional time to respond to the motions to dismiss, which Plaintiffs ultimately did not do. In the end, Plaintiffs’ attorneys prolonged the inevitable and “caused both [the State Defendants and Intervenor-Defendants] and the [C]ourt to waste resources” in the meantime.

Opinion, pp. 50-51.

Section 1927 in Bankruptcy Court

Grossman v. Wehrle (In re Royal Manor Management, Inc.), 652 Fed. Appx. 330 (6^th Cir. 2016) is a good example of how 28 U.S.C. §1927 applies in the bankruptcy context. In that case, an insider submitted a proof of claim for over $2 million. However, the agreement supporting the claim was redacted. The creditors’ committee objected to the claim and it was denied when no timely response was filed. At this point, attorney Grossman entered the picture. He had a 40% contingency fee interest in the claim. However, it turned out that the redacted portion of the agreement showed that the transaction was a loan between insiders and did not affect any of the debtors in bankruptcy. From November 2008 to January 2013, attorney Grossman filed dozens of pleadings seeking to advance the bogus claim or gum up the works of the bankruptcy proceeding. Many of the pleadings he filed were attempts to prevent a hearing from taking place on sanctions against him, including a request to recuse the judge. One of the last pleadings he filed was an objection to the trustee’s motion to compromise with his former client on the basis that the compromise would prejudice him.   The bankruptcy court ultimately sanctioned attorney Grossman $207,004 under section 1927.

The Sixth Circuit Court of Appeals affirmed the sanction award. It stated that "Section 1927 sanctions are warranted when an attorney objectively 'falls short of the obligations owed by a member of the bar to the court and which, as a result, causes additional expense to the opposing party.'" 652 Fed. Appx. 330 at *16. For whatever reason, the attorney viewed his prime directive as to fight on and on and on. In wartime, it is irresponsible for generals to send their troops to die after the war has been lost. Similarly, in court, it is unprofessional to continue to throw pleadings into the mix long after it is objectively clear that the case is over.

How the Cases are Different and How They Are Similar

In the Michigan elections case, the proceedings were multiplied for a period of just one month. In the Grossman case, the litigation went on for four years. Thus, there was a substantial difference in how long the proceedings were multiplied. However, in both cases. failure to acknowledge that the case should not proceed resulted in expense to the other parties. It did not matter whether that cost was incurred over a relatively brief period of time or years.

However, it is important to remember that the statute uses the terms “vexatiously” and “unreasonably” to describe the conduct which unnecessarily prolongs cases and results in sanctions. Most reorganization proceedings fail. The job of a debtor’s attorney is to give the client the possibility of a breakthrough. There is a big difference between refusing to give up at the first sign of trouble and continuing to recycle rejected arguments time and time again.

Tomorrow I discuss the court’s inherent authority to sanction.