4.4 Court’s Inherent Powers Sanctions

• Library: Attorney Fees and Sanctions - Virginia and Federal Courts (Virginia CLE) (2016 Ed.)

4.4 COURT'S INHERENT POWERS SANCTIONS

4.401 In General. Under the "American Rule," parties are responsible for bearing the costs of their own attorney fees. ¹⁴⁹ As such, courts generally will not award attorney fees absent explicit statutory authority. ¹⁵⁰ The one caveat to this rule is the "bad faith exception," which allows courts to assess an attorney fee sanction without statutory authority but only in "narrowly defined circumstances." ¹⁵¹

"The inherent power covers every type of litigation misconduct. Though the scope of the court's inherent power covers more than just rule or statute-based misconduct, the level of misconduct required 'is almost always something more egregious than that required for other types of sanctions.'" ¹⁵²

A. Bad Faith Exception. Courts have inherent power to impose sanctions on a party or member of the bar for bad faith conduct that offends the legal process. ¹⁵³

A court "has the power to invoke its inherent authority to sanction an attorney's conduct 'even if procedural rules exist which sanction the same conduct.'" ¹⁵⁴ If the conduct in question could be adequately sanctioned under the rules, a court should ordinarily use the rule, but "if in the informed discretion of the court, neither the statute nor the Rules are up to the task, the court may safely rely on its inherent power." ¹⁵⁵

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The bad faith exception must be exercised with restraint and discretion and only imposed "against counsel who willfully abuse judicial processes." ¹⁵⁶

"Generally the court must find that the party acted in 'bad faith' before the Court invokes its inherent powers." ¹⁵⁷

"Like attorneys' fees and costs under § 1927, a showing of bad faith is required, though like § 1927 it is unclear whether a subjective or objective bad faith standard applies." ¹⁵⁸ Nevertheless, where a party has failed to meet its burden that it is entitled to attorney fees and costs under § 1927, at least one district court found that "[i]t follows that [it has also] failed to make a showing that this Court's inherent powers are necessary to rectify a litigation abuse. Therefore, the Court declines to order sanctions under its inherent power." ¹⁵⁹

B. Integrity of the Judicial System. The general duty of candor and truth thus takes its shape from the larger object of preserving the integrity of the judicial system. For example, in Tiverton Board of License Commissioners v. Pastore, ¹⁶⁰ counsel failed to apprise the Supreme Court that during the appeal process, one of the respondents, a liquor store challenging the admission of evidence at a Rhode Island liquor license revocation proceeding, had gone out of business, rendering the case moot. Rebuking counsel for failing to comply with a duty of candor, the Supreme Court stated, "[i]t is appropriate to remind counsel that they have a 'continuing duty to inform the Court of any development which may conceivably affect the outcome' of the litigation." ¹⁶¹

The general rule to preserve the integrity of the judicial process was similarly identified in Hazel-Atlas Glass Co. v. Hartford-Empire Co. ¹⁶²

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Due to the very nature of the court as an institution, it must and does have an inherent power to impose order, respect, decorum, silence, and compliance with lawful mandates. This power is organic, without need of a statute or rule for its definition, and it is necessary to the exercise of all other powers. Because the inherent power is not regulated by Congress or the people and is particularly subject to abuse, it must be exercised with the greatest restraint and caution, and then only to the extent neces-sary. ¹⁶³

The decision in Royal Insurance v. Lynnhaven Marine Boatel, Inc. ¹⁶⁴ defines the district court's inherent sanction power in considerable detail. The power, "incidental to all courts" allows district courts to sanction attorneys who inhibit courts' ability "to manage their own affairs." The power allows a court to sanction an attorney's actions taken in bad faith, wantonly, oppressively, or vexatiously. The power "ought to be exercised with great caution," in circumstances such as those involving "the very temple of justice [being] defiled." ¹⁶⁵

"[W]illful disobedience" of a court order has been said to require at least "obstinance or recalcitrance." ¹⁶⁶ "Neglect and carelessness" are insufficient to demonstrate "obstinance and recalcitrance." ¹⁶⁷

Inherent authority "is not a broad reservoir of power, ready at an imperial hand, but a limited source; an implied power squeezed from the need to make the court function." ¹⁶⁸

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4.402 Sanctions Available Under Inherent Powers.

A. In General. In Chambers v. NASCO, ¹⁶⁹ "while admonishing district courts to tread carefully, the Court, at the same time, outlined a rather broad array of implied powers that are available to sanction improper conduct during litigation, ranging from disciplining an attorney to assessing attorney's fees to even vacating judgments." ¹⁷⁰

"Under the inherent power, a court may issue orders, punish for contempt, vacate judgments obtained by fraud, conduct investigations as necessary to exercise the power, bar persons from the courtroom, assess attorney's fees, and dismiss actions." ¹⁷¹

Sanctions may include assessing fees and costs, excluding evidence or defenses, or even dismissal of a party's claims. ¹⁷² "Since orders dismissing actions are the most severe, such orders must be entered with the greatest caution." ¹⁷³

B. Inherent Power to Dismiss Suit. "[W]hen a party deceives a court or abuses the process at a level that is utterly inconsistent with the orderly administration of justice or undermines the integrity of the process, the court has the inherent power to dismiss the action," which can only be overturned if it was an "abuse of discretion." ¹⁷⁴

"Mindful of the strong policy that cases be decided on the merits, and that dismissal without deciding the merits is the most extreme sanction, a court must not only exercise its inherent power to dismiss with restraint, but it may do so only after considering several factors . . . ." ¹⁷⁵

Thus, before exercising the inherent power to dismiss a case, a court must consider the following factors: (1) the

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degree of the wrongdoer's culpability; (2) the extent of the client's blameworthiness if the wrongful conduct is committed by its attorney, recognizing that we seldom dismiss claims against blameless clients; (3) the prejudice to the judicial process and the administration of justice; (4) the prejudice to the victim; (5) the availability of other sanctions to rectify the wrong by punishing culpable persons, compensating harmed persons, and deterring similar conduct in the future, and (6) the public interest. ¹⁷⁶

A district court is not limited to those arguments raised by the parties when exercising its inherent authority to impose sanctions. "While a district court acting under Rule 37(b) of the Federal Rules of Civil Procedure would be constrained by the terms of that Rule, a court acting under its inherent authority may impose sanctions for any 'conduct utterly inconsistent with the orderly administration of justice.'" ¹⁷⁷

The Fourth Circuit recently reaffirmed that "a district court exercising its inherent authority to impose sanctions may do so sua sponte and must consider the whole of the case in choosing the appropriate sanction." ¹⁷⁸ The court made clear that district courts are not bound by the pleadings when exercising their inherent authority to dismiss an action sua sponte; they may look at other litigation misconduct to determine whether exercise of their inherent authority to dismiss an action is warranted. Applying the six Shaffer Equipment Co. ¹⁷⁹ factors, the court upheld Judge Ellis's dismissal of a contract dispute between a government contractor and subcontractor over a project in Iraq as a sanction for the plaintiff's discovery violations. ¹⁸⁰

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C. Sanctionable Fraud on the Court. In Suntrust Mortgage, Inc. v. AIG United Guaranty Corp., ¹⁸¹ the court noted that there did not appear to be any Fourth Circuit definition of fraud on the court, although the Court of Appeals has found that sanctions are appropriately imposed under the inherent power when a party's conduct "involve[d] deceit that, when not disclosed, undermine[d] the integrity of the [judicial] process." ¹⁸² The court therefore adopted the First Circuit's definition of fraud on the court:

"A fraud on the court" occurs where it can be demonstrated, clearly and convincingly, that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier of fact or unfairly hampering the presentation of the opposing party's claim or defense. ¹⁸³

D. Sanctionable Abuse of Judicial Process. Noting that abuse of the judicial process can take many forms, the court in Suntrust Mortgage, Inc. v. AIG United Guaranty Corp. ¹⁸⁴ reviewed various cases noting that spoliation of evidence is an abuse of the judicial process and is sanctionable under a court's inherent powers. ¹⁸⁵

Conducting litigation "in bad faith, vexatiously, wantonly or for oppressive reasons." ¹⁸⁶ "Careless conduct does not equate to wanton con-duct." ¹⁸⁷

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Willful blindness to the truth is indicative of bad faith, and decisions in other jurisdictions have permitted willful blindness as a basis for inherent authority sanctions. ¹⁸⁸

In most cases, the implied authority sanctions are reserved for egregious misconduct that is engaged in knowingly, with the obvious exception being negligent conduct that results in such severe prejudice that a party is rendered unable fairly to prosecute its claim or to present its defense. ¹⁸⁹

E. Sanctionable Third-Party Interference. Under a court's inherent authority, a third party to litigation may be sanctioned. ¹⁹⁰ While several courts have considered the proper scope of the inherent...