Appellate Court Nixes Sua Sponte Rule 11 Sanctions

• Pages: 7-7
• Date: 01 July 2022
• Author: Andrew K. Robertson
• Subject Matter: Civil Law

Several attorneys nar rowly

escaped sanctions arising

from their failu re to fol-

low court order s. After the

district cour t entered Rule

11 sanctions o n its own motion, a fed-

eral appellate court reversed because

none of the condu ct at issue was tied

to a court f‌iling an d did not rise to

the level of bad faith . ABA Litigation

Section lead ers advise that it is best

to comply with court o rders absent a

compelling reason.

In Tejero v. Portfolio Rec overy

Associates, L LP, the plainti’s attor-

neys drafted a let ter to a debt collec-

tion agency on b ehalf of their client,

which stated, “ I refuse to pay this

debt” and “the amount you are report-

ing is not accurate.” T he agency con-

tinued repor ting the debt to credit

bureaus withou t noting the dispute.

The plainti all eged that violated the

Fair Debt Collec tion Practices Act

(FDCPA) and parallel state law and

sued the debt coll ector.

The district court ordered the par-

ties to exchange settlement oers.

The defendant oered more than the

FDCPA’s maximum statutory damages,

plainti’s reasonable attorney fees and

costs, and debt forgiveness. The plain-

ti did not make an oer.

Both parties moved for summary

judgment. The district court denied

both motions, identifying a triable

issue on whether the letter “actually

disputed the debt.” That prompted

the parties to settle, but they left to

the court the question of attorney fees

and costs under 15 U.S.C. §1692k(a)(3)—

the FDCPA’s fee-shifting provision that

awards fees to either defendants who

successfully defend a bad-faith action

or plaintis who bring a “successful”

action to enforce FDCPA liability. The

defendant also sought sanctions under

28 U.S.C. §1927, which imposes fees

and costs on attorneys who “vexa-

tiously” increase litigation.

The district court held the plainti’s

Appellate Court Nixes Sua Sponte

Rule 11 Sanctions

attorneys acted in bad faith by (1) fail-

ing to comply with the order requiring

a settlement oer; (2) continuing to liti-

gate after receiving an oer that would

have made their client whole; and

(3) drafting the letter ambiguously so

that the dispute would not be recog-

nized, to “force settlements from debt

collectors by abusing the FDCPA.” It

then awarded the defendant its attor-

ney fees and costs under section

1692k(a)(3)—and under Rule 11, though

the defendant only sought sanctions

under section 1927. The court denied

the plainti his fees and costs.

The U.S. Court of Appeals for the

Fifth Circuit reversed for abuse of dis-

cretion. It noted that had the plainti

not waived the argument, the district

court’s issuance of Rule 11 sanctions

sua sponte would have been grounds

for reversal because “[t]here must

f‌irst be a Rule 11 motion, or an order to

show cause under Rule 11(c)(3).”

Reaching the merits, the Fifth Circuit

held that Rule 11 “does not extend to

‘abusive tactics in litigation in respects

other than the signing of papers.’” It

also observed that courts cannot force

parties to make settlement oers, and

because settlement decisions relate to

litigation tactics rather than a pleading,

Rule 11 did not apply.

The appellate court further rea-

soned that the denial of summary

judgment undermined any argument

that the action was f‌iled in bad faith

or for an improper purpose. That the

plainti lost on the Texas claim did

not matter because “he had a non-

frivolous basis to bring it.” Nor did

the plainti’s decision to move for

summary judgment justify sanctions

because the settlement oer may not

have made him whole under the Texas

claim, the court explained. Finally, the

appellate court concluded that Rule

11 could apply to the debt dispute let-

ter because it was attached to the

complaint, but that, too, was proper

because the statement “the amount

By Andrew K. Rober tson, Litigation N ews Contributing Editor

you are reporting is not correct”

clearly conveyed a dispute.

The appellate court then remanded

the matter for the district court to

decide a matter of f‌irst impression

within the Fifth Circuit: whether a pri-

vate settlement permits an award of

attorney fees under the FDCPA’s fee-

shifting provision. The district court

held that it does not, and the Fifth

Circuit armed.

Litigation Section leaders agree

that sanctions were not warranted

under either section 1927 or Rule 11.

“It does not appear to be unethi-

cal to continue to litigate issues

that were not necessarily clear cut,”

opines P. Jack Brady, Kansas City, MO,

cochair of the Section’s Trial Evidence

Committee. “Each individual lawsuit

provides oversight on the debt collec-

tion companies,” Brady adds.

“Where I have seen section 1927

applied, the conduct of the lawyer

was much more egregious,” oers

John M. Barkett, Miami, FL, cochair of

the Section’s Ethics & Professionalism

Committee. “Section 1927 is designed

for the lawyer who is a jerk every day

of the lawsuit, engaging in conduct

that is duplicitous, doing everything to

make life miserable for the judge and

the other side,” explains Barkett.

However, the plainti’s coun-

sel could have avoided the trial

court’s imposition of sanctions in

the f‌irst place, state Section leaders.

“Attorneys are always better o in the

long run staying in the court’s good

graces,” oers Robert E. Poundstone

IV, Montgomery, AL, cochair of the

Section’s Ethics & Professionalism

Committee. “While the court may not

have been able to compel it, the sanc-

tioned attorney would have been bet-

ter o making a settlement demand

absent some compelling reason not to

do so,” he surmises.

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