Opinion ID: 3010427
Heading Depth: 4
Heading Rank: 1

Heading: Can Sanctions be Based on the Costs of

Text: Sanctioning Proceedings? Goldman Antonetti argues that the district court impermissibly awarded sanctions based on the costs and expenses arising from the sanctions proceedings themselves. In the firm's submission, such an award 36 constitutes improper fee shifting. We disagree. It is beyond dispute that attorney's fees are, in certain circumstances, properly awarded as a sanction. We are unaware of precedent in this circuit that categorically excludes from such an award attorney's fees arising from the sanctions proceedings themselves (though, as we discuss below, there is precedent in other circuits that bears on this issue).22 Nor do we believe such a categorical exclusion is wise. The time, effort, and resources expended in bringing sanctionable conduct to light would have been unnecessary had the sanctionable conduct never occurred. These costs are as much a harm to a party in the litigation as is the delay in the litigation or the substantive prejudice caused by the conduct. If we exclude from a possible award the costs of sanctions proceedings, we would undermine the compensatory goal of a sanctions award. Further, if a party is aware ex ante that the costs he incurs in exposing sanctionable conduct will never be recouped, that party may decide to forgo a sanctions proceeding altogether. In doing so, however, that party might allow otherwise sanctionable conduct to go unaddressed. In such cases, the deterrent goal of a sanction award has been lost; parties who know that the likelihood of facing a sanction proceeding are low may engage in sanctionable conduct more often. Therefore, we believe a district court, in the exercise of its discretion, may award attorney's fees arising from sanctions proceedings. We are aware of precedent in other circuits that has disallowed such awards in the Rule 11 context. See, e.g., Zimmerman v. Bishop Estate, 25 F.3d 784, 790 (9th Cir. _________________________________________________________________ 22. In Chambers, in which the Supreme Court affirmed in all respects the award of sanctions in the case, see Chambers, 501 U.S. at 55-58, the district court employed its inherent powers to award sanctions based in part on the costs associated with the sanctions proceedings themselves. See NASCO, Inc. v. Calcasieu Television & Radio, Inc., 124 F.R.D. 120, 143 (W.D. La. 1989), aff'd, 894 F.2d 696 (5th Cir. 1990), aff'd sub nom., Chambers v. NASCO, Inc., 501 U.S. 32 (1991). Although the Supreme Court did not directly address the precise issue we address here, and there is no indication that the parties raised it, the Court at least implicitly approved of a sanction award based on the costs associated with the sanctions proceedings themselves. 37 1994); Pan-Pacific and Low Ball Cable Television Co. v. Pacific Union Co., 987 F.2d 594, 597 (9th Cir. 1993); Lockary v. Kayfetz, 974 F.2d 1166, 1177-78 (9th Cir. 1992); Brubaker v. City of Richmond, 943 F.2d 1363, 1387 (4th Cir. 1991); Blue v. United States Dept. of the Army, 914 F.2d 525, 548-49 (4th Cir. 1990).23 However, better reasoned precedent in still other circuits supports our view that the costs associated with the sanctions proceedings themselves can be recoverable. See, e.g., Kirk Capital Corp. v. Bailey, 16 F.3d 1485, 1491 (8th Cir. 1994); Silva v. Witschen, 19 F.3d 725, 733 n.15 (1st Cir. 1994); Brandt v. Schal Assocs., Inc., 960 F.2d 640, 649-51 (7th Cir. 1992); In re Stauffer Seeds, Inc., 817 F.2d 47, 50 (8th Cir. 1987) (Rule 37). In addition, in 1993, Rule 11 was amended to add language that would allow sanctions for the costs associated with presenting or opposing a motion for Rule 11 sanctions. See Joseph, supra, § 16(B)(17), at 278. The _________________________________________________________________ 23. A number of these cases take guidance from Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990), in which the Supreme Court held that Rule 11 does not allow the recovery of the costs associated with defending a sanction award on appeal. See id. at 406-09. We believe that reliance on Cooter & Gell to hold that Rule 11 does not allow recovery of the costs associated with the sanctions proceedings themselves is misplaced. The Court in Cooter & Gell was moved by a number of context-based factors. First, the Court noted that Rule 11 does not apply to appeals, and that applying Rule 11 to appeals would upset the scheme, contained in the Federal Rules of Appellate Procedure, for sanctioning frivolous appeals. See id. at 406, 408. Allowing a Rule 11 award based on the sanctions proceedings themselves, would not, however, implicate the Rules of Appellate Procedure at all because such proceedings inhere in the district court. Further, borrowing from the proximate cause theories of tort law, the Court noted that costs on appeal were a result of the sanction itself and the appeal, not a result of the improper filing. See id. at 406-07. The costs of the sanctions proceedings, however, are more properly characterized as the result of the improper filing. Finally, the Court feared that allowing recovery of the costs of appeal would discourage sanctioned parties from pursuing meritorious appeals. See id. at 407. Allowing recovery of the costs associated with the sanctions proceedings has no effect on the pursuit of meritorious appeals and, as we note in the text, allowing such recovery might encourage parties to bring sanctionable conduct to light. 38 language in Rule 11 now states that the court may award to the party prevailing on the motion the reasonable expenses and attorney's fees incurred in presenting or opposing the motion. Fed. R. Civ. P. 11(c)(1)(A). That amendment seems to have effectively overruled cases that held that it is an abuse of discretion to award sanctions based on the costs of sanctions proceedings.24