Friday, August 11, 2017
Panel Upsets Sanctions Award Against Lawyer, Clients
Says Bankruptcy Judge Lacked the Inherent Power to Order Payment of Attorney Fees Incurred by Defendants Based on Six-Week Delay in Dismissing Ill-Starred Action
By a MetNews Staff Writer
The United States Bankruptcy Panel of the Ninth Circuit has ruled that a judge lacked the inherent power to impose monetary sanctions on plaintiffs and their counsel for delaying by six weeks in dismissing an action after papers were shown to them establishing the legitimacy of a foreclosure they were contesting.
The plaintiffs—Rubye Taylor (who had declared bankruptcy in 2014) and her son, Andre Freeman—brought their action in 2015 to set aside a foreclosure on a residence in Los Angeles in which they claimed an interest following the death of Lawrence Taylor, to whom Rubye Taylor was a longtime companion. They alleged that a reverse mortgage was fraudulent—but the defendants on July 1, 2015, provided proof to their attorney, David Kritzer, that it wasn’t.
The defendants—James B. Nutter & Company, James B. Nutter and the Federal National Mortgage Association—on Aug. 14, 2015, brought a motion seeking a dismissal of the case and sanctions. On Sept. 1, the plaintiffs dismissed their action.
Kritzer and Matthew D. Resnik (name partner in Simon Resnik Hayes, LLP, who took responsibility for Kritzer’s actions) explained in declarations that on Aug. 31, their clients decided “they no longer had the stomach and resources to finance this proceeding” and in light of impending eviction “needed to dedicate their funds to moving expenses and locating a new residence.”
Bankruptcy Judge Neil W. Bason held further hearings. In October of 2016, invoking inherent powers, he imposed sanctions in the amount of about $153,000.
Of that amount, about $78,000 was awarded against the plaintiffs and Resnik for defense attorney fees incurred July 28, 2015, by which time they should have realized the action was doomed, and May 3, 2016, when the judge produced proposed findings of fact and conclusions of law. Roughly another $75,000 was awarded solely against Resnik, for fees defense fees incurred between May 3, 2016 and his final ruling in October of that year, based on Bason’s rejection of arguments mounted against the award of sanctions.
In a memorandum opinion filed Tuesday, the appeals panel reversed, saying that the six-week delay in dismissing does not justify the sanction order. The memorandum declares:
“We hold that an isolated incident of delay in taking action should not lead to inherent power sanctions, particularly when there is no statute, Rule, Civil Rule, Local Rule, ethical rule or court order requiring more expeditious action. Absent an affirmative duty to act quicker, the expectations on future litigants would be too unclear to reasonably enforce— when they can afford to bide their time before acting and when they are obliged to act immediately. The imposition, here, of inherent power sanctions was inconsistent with the principle…that inherent power sanctions only should be imposed with caution and restraint.”
The memorandum says that “the second instance of alleged litigation misconduct—Resnik’s entire sanctions defense—did not justify inherent power sanctions.” It explains:
“This aspect of the bankruptcy court’s sanctions ruling was based almost entirely on the bankruptcy court’s assessment of the efficacy and quality of the arguments the plaintiffs raised in their sanctions defense. As a matter of law, this was an insufficient ground (by itself) to impose inherent power sanctions.”
The case is In re Taylor, CC-16-1376-KuLTa.
M. Jonathan Hayes of Simon Resnik Hayes LLP argued for the plaintiffs and Resnik, while Whitney Heafner of Alston & Bird LLP represented the defendants.
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