Court Opinion

ID: 2831645
Source: CourtListenerOpinion
Date Created: 2015-08-27 18:01:05.324649+00
Date Added: 2024-06-11T13:40:26.004478
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

KAASS LAW,                              No. 13-56099
                         Appellant,
                                           D.C. No.
                v.                      2:12-cv-08356-
                                           RGK-JC
WELLS FARGO BANK, N.A., a
National Association,
                        Appellee.         OPINION

     Appeal from the United States District Court
        for the Central District of California
     R. Gary Klausner, District Judge, Presiding

                Argued and Submitted
         April 6, 2015—Pasadena, California

                Filed August 27, 2015

 Before: Andrew J. Kleinfeld, M. Margaret McKeown,
       and Milan D. Smith, Jr., Circuit Judges.

        Opinion by Judge Milan D. Smith, Jr.
2             KAASS LAW V. WELLS FARGO BANK

                           SUMMARY*

                            Sanctions

    Reversing the district court’s decision to grant Well
Fargo’s motion for sanctions against Kaass Law pursuant to
28 U.S.C. § 1927, and vacating the order imposing sanctions,
the panel held that § 1927 does not permit the imposition of
sanctions against a law firm.

                            COUNSEL

Vahag Matevosian (argued), Armen Kiramijyan, Kaass Law,
Glendale, California, for Appellant.

Kerry W. Franich (argued), Severson & Werson, Irvine,
California; Jan T. Chilton, Severson & Werson, San
Francisco, California, for Appellee.

                             OPINION

M. SMITH, Circuit Judge:

    In this appeal, Appellant Kaass Law challenges the
district court’s decision to grant Appellee Wells Fargo’s
motion for sanctions against it pursuant to 28 U.S.C. § 1927.
We hold that 28 U.S.C. § 1927 does not permit the imposition

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
            KAASS LAW V. WELLS FARGO BANK                    3

of sanctions against a law firm, and we reverse the decision
of the district court, and vacate its order imposing sanctions.

  FACTUAL AND PROCEDURAL BACKGROUND

I. The Complaint and Motion to Dismiss

    On September 27, 2012, Armen Kiramijyan, an attorney
with Kaass Law, filed a complaint on behalf of Plaintiff
Izabell Manukyan against 10 different defendants, including
Wells Fargo Bank. The complaint made various allegations
relating to certain adverse information the defendants had
reported to credit agencies, who then reflected the adverse
information on Plaintiff’s credit report. On October 29, 2012,
Wells Fargo moved to dismiss Plaintiff’s complaint pursuant
to Federal Rule of Civil Procedure 12(b)(6). Instead of
responding to Wells Fargo’s motion to dismiss, or any of the
motions to dismiss filed by the other defendants, on October
30, 2012, Mr. Kiramijyan filed a motion to amend the initial
complaint, and attached a proposed first amended complaint.
On November 11, 2012, Wells Fargo filed a notice of
non-opposition to its motion to dismiss Plaintiff’s complaint.

    On December 11, 2012, the district court granted Wells
Fargo’s motion to dismiss, and denied Plaintiff’s motion to
amend. The district court held that “Plaintiff’s Complaint, as
a whole, is procedurally deficient because it does not
differentiate between Defendants and makes no mention of
any specific acts made against an individual Defendant.
Thus, on its face, the Complaint fails to comply with Rule 8
and fails to put Defendants on notice of their supposedly
improper conduct.” The district court also held that
Plaintiff’s proposed amended complaint “does not rectify the
4           KAASS LAW V. WELLS FARGO BANK

Complaint’s failure to comply with Rule 8, rendering
amendment futile.”

II. Prior Proceedings in the Action for Sanctions

    On March 21, 2013, the district court’s judgment
dismissing Wells Fargo from the action was filed. Thereafter,
Wells Fargo filed a motion to recover $11,236.50 in
attorneys’ fees and costs from Kaass Law and the named
Plaintiff, pursuant to 28 U.S.C. § 1927. Wells Fargo
contended that Kaass Law’s “litigation conduct undoubtedly
‘multipl[ied] the proceedings in any case unreasonably and
vexatiously’ thereby constituting bad faith.” Specifically,
Wells Fargo argued that Kaass Law had acted in bad faith by:
1) filing a complaint and amended complaint that failed to
differentiate Wells Fargo from the other defendants, and
failed to provide factual allegations identifying the inaccurate
information; 2) failing to communicate its intent to file a
motion for leave to amend, and then filing a motion for leave
to amend the day after Wells Fargo filed a motion to dismiss;
3) failing to oppose Wells Fargo’s motion to dismiss; 4) and
engaging in a pattern and practice of filing similar “canned”
and “boilerplate” complaints, in the same manner as Kaass
Law’s “predecessor,” attorney Arshak Bartoumian, had done.

     The district court granted the motion in part, and denied
it in part. While the district court declined to award fees
against the Plaintiff, it ruled that “Kaass Law acted in bad
faith by knowingly raising frivolous arguments against Wells
Fargo and other defendants,” and granted the motion against
Kaass Law. The district court noted that “Wells Fargo
provides sufficient evidence that Kaass Law acted in bad
faith,” including “its failure to plead specific allegations or
differentiate between defendants in the Complaint; its failure
            KAASS LAW V. WELLS FARGO BANK                    5

to oppose defendants’ motions to dismiss; and its failure to
meet and confer or communicate with opposing counsel.”
Additionally, the district court concluded that in attempting
to file a first amended complaint, Kaass Law had “failed to
correct the glaring pleading and legal errors identified by
defendants, thereby recklessly and knowingly multiplying the
proceedings in this action.”

    The district court reduced the hours claimed by Wells
Fargo’s attorneys, Scott J. Hyman and David Berkeley, from
14.4 hours to 10 hours for Mr. Hyman, and from 22.5 hours
to 18 hours for Mr. Berkeley, but then awarded Wells Fargo
a total of $8,480 in attorneys’ fees.

   This timely appeal followed.

   STANDARD OF REVIEW AND JURISDICTION

    We have jurisdiction over this appeal pursuant to
28 U.S.C. § 1291. “We review all aspects of an award of
§ 1927 sanctions for an abuse of discretion.” GRiD Sys. Corp.
v. John Fluke Mfg. Co., 41 F.3d 1318, 1319 (9th Cir. 1994)
(per curiam); United States v. Associated Convalescent
Enters., Inc., 766 F.2d 1342, 1345 (9th Cir. 1985). The
construction or interpretation of 28 U.S.C. § 1927 is a
question of law, and is reviewed de novo. See Miranda v.
Anchondo, 684 F.3d 844, 849 (9th Cir. 2011).

                       DISCUSSION

     Kaass Law makes two principal arguments on appeal. It
first contends that the district court abused its discretion by
imposing sanctions pursuant to 28 U.S.C. § 1927 because
sanctions under that statute can only be made against an
6            KAASS LAW V. WELLS FARGO BANK

individual attorney, and not against a law firm. This argument
was raised for the first time on appeal. Second, Kaass Law
argues that 28 U.S.C. § 1927 only permits an award of
sanctions for conduct that multiplies the proceedings, not for
the filing of initial pleadings or the ordinary costs of
litigation. Kaass Law contends that its second argument
undermines the district court’s finding of bad faith.

    We agree with Kaass Law’s first argument, and therefore
do not reach the second one. We hold that the district court
abused its discretion when it imposed sanctions against a law
firm pursuant to 28 U.S.C. § 1927.

I. Argument Raised for the First Time on Appeal

     Initially, we must determine whether we can consider
Kaass Law’s argument concerning the permissibility of
awarding sanctions against a law firm pursuant to 28 U.S.C.
§ 1927 because the issue was raised by Kaass Law for the
first time on appeal.

    “Ordinarily, an appellate court will not hear an issue
raised for the first time on appeal.” Cornhusker Cas. Ins. Co.
v. Kachman, 553 F.3d 1187, 1191 (9th Cir. 2008) (internal
quotation omitted). “There are, however, four exceptions to
this rule, where: (1) there are exceptional circumstances why
the issue was not raised in the trial court; (2) new issues have
become relevant while the appeal was pending because of [a]
change in the law; (3) the issue presented is purely one of law
and the opposing party will suffer no prejudice as a result of
the failure to raise the issue in the trial court; or (4) plain error
has occurred and injustice might otherwise result.” United
States v. Echavarria-Escobar, 270 F.3d 1265, 1267–68 (9th
Cir. 2001).
            KAASS LAW V. WELLS FARGO BANK                     7

    Kaass Law contends that because it “is not an attorney,
nor is it a person admitted to conduct cases in courts, the
district court erred in imposing sanctions against it pursuant
to Section 1927.” Because this argument falls under the third
exception noted in Echavarria-Escobar, we can consider it on
appeal, and we need not consider the other exceptions.
Whether a law firm may be sanctioned under 28 U.S.C.
§ 1927 is “purely” an issue of law. Moreover, Wells Fargo
will not suffer prejudice if we address it for the first time on
appeal. There is nothing in the record to suggest that Wells
Fargo would “have presented new evidence or made new
arguments” if the issue had been raised below. United States
v. Rubalcaba, 811 F.2d 491, 493 (9th Cir. 1987).

II. Sanctions Pursuant to 28 U.S.C. § 1927

    The statutory language of 28 U.S.C. § 1927 authorizes
sanctions against “[a]ny attorney or other person admitted to
conduct cases in any court of the United States or any
Territory.” While we have held that 28 U.S.C. § 1927 does
not permit the awarding of sanctions against an individual
employed by attorneys or against a client, we have not
previously addressed whether a law firm may be considered
an “attorney or other person admitted to conduct cases.”
Based on our review of the plain language of the statute, and
our consideration of the persuasive reasoning of some of our
sister circuits, infra, we hold that 28 U.S.C. § 1927 does not
permit the award of sanctions against a law firm.

    In Federal Trade Commission v. Alaska Land Leasing,
Inc., we overturned sanctions awarded by a district court
pursuant to 28 U.S.C. § 1927 against a financial consultant
employed by attorneys representing two of the parties to the
suit. 799 F.2d 507, 508–10 (9th Cir. 1986). In vacating the
8            KAASS LAW V. WELLS FARGO BANK

sanctions, we held that “[s]ection 1927 does not authorize
recovery from a party or an employee, but ‘only from an
attorney or otherwise admitted representative of a party.’” Id.
at 510 (quoting 1507 Corp. v. Henderson, 447 F.2d 540, 542
(7th Cir. 1971) (emphasis in original)). In Sneller v. City of
Bainbridge Island, we also overturned an award of sanctions
pursuant to § 1927 because “[t]he sanction here was imposed
jointly on counsel and the client, but § 1927 authorizes
sanctions only upon counsel.” 606 F.3d 636, 640 (9th Cir.
2010).

     In Claiborne v. Wisdom, the Seventh Circuit considered
“whether a law firm is subject to sanctions under § 1927,”
and held that “[i]ndividual lawyers, not firms, are admitted to
practice before both the state courts and the federal courts. . . .
It is too much of a stretch to say that a law firm could also be
characterized as such a person.” 414 F.3d 715, 722–23 (7th
Cir. 2005). The Seventh Circuit further reasoned:

        Our conclusion has the virtue of being
        consistent with the rationale the Supreme
        Court used in Pavelic & Le Flore v. Marvel
        Entertainment Group, 493 U.S. 120, 110 S.Ct.
        456, 107 L.Ed 2d 438 (1989), when it
        considered the question whether sanctions
        were possible against a law firm under an
        earlier version of FED. R. CIV. P. 11. (The
        rule was amended as of December 1, 1993, to
        ensure that law firms could be subject to
        sanctions under its authority.) In Pavelic & Le
        Flore, however, the Court had to construe
        language that permitted sanctions only against
        “the person who signed” the offending
        document. . . . The Supreme Court [found]
              KAASS LAW V. WELLS FARGO BANK                     9

        that in context the phrase “the person who
        signed” could only mean the individual
        signer, not his partnership, either in addition
        to him or in the alternative. The language of
        § 1927 raises exactly the same problem as the
        earlier version of Rule 11.

Id. at 723.

    We find this reasoning persuasive. Indeed, as the Seventh
Circuit observes, Federal Rule of Civil Procedure 11 now
explicitly allows sanctions “on any attorney, law firm, or
party that violated the rule or is responsible for the violation,”
(emphasis added) whereas 28 U.S.C. § 1927 does not. Such
a rationale is further supported by the principle of statutory
construction, “expressio unius,” and we hold that the
“specificity and precision” of § 1927, allowing for sanctions
only against “attorneys” or “other person admitted to conduct
cases” was designed to exclude sanctions against a law firm.
See Longview Fibre Co. v. Rasmussen, 980 F.2d 1307,
1312–13 (9th Cir. 1992).

    The Sixth Circuit also found that “[e]ven if [a] firm[ ] can
admittedly be personified in a literary sense through briefs,
there is no reason to consider a law firm a ‘person’ under
[§ 1927],” and confirmed that “28 U.S.C. § 1927 does not
authorize the imposition of sanctions on law firms.” BDT
Prods., Inc v. Lexmark Int’l, Inc., 602 F.3d 742, 750–51 (6th
Cir. 2011).

    We are not persuaded by the reasoning of those of our
sister circuits that have upheld sanctions against law firms
pursuant to 28 U.S.C. § 1927, to the extent that they express
or imply a contrary view. The Eleventh Circuit seemingly
10          KAASS LAW V. WELLS FARGO BANK

conflated the sanctioning powers in two different rules when
it upheld sanctions against lead counsel and his law firm
pursuant “to the bad-faith exception, 28 U.S.C. § 1927, and
Federal Rule of Civil Procedure 11.” Avirgan v. Hull,
932 F.2d 1572, 1582 (11th Cir. 1991). The Third Circuit
sanctioned a law firm pursuant to 28 U.S.C. § 1927 before
Fed. R. Civ. P. 11 was amended to explicitly include law
firms, and did not address the limiting statutory language of
28 U.S.C. § 1927. Baker Indus., Inc. v. Cerberus Ltd.,
764 F.2d 204, 209 (3d. Cir. 1985).

    The Second Circuit permitted a district court to impose
sanctions against a law firm, but seemed to buttress its
reasoning on the inherent powers of the district court, not on
the express language of 28 U.S.C. § 1927:

       We disagree with [the law firm]’s assertion
       that the District Court was without authority
       under 28 U.S.C. § 1927 to award sanctions
       against the “firm as a whole” for the “actions
       of various lawyers.” As an initial matter, the
       District Court imposed sanctions pursuant to
       both its inherent powers and § 1927. There is
       no serious dispute that a court may sanction a
       law firm pursuant to its inherent power. We
       see no reason that a different rule should
       apply to § 1927 sanctions, and, in any event,
       we have previously upheld the award of
       § 1927 sanctions against a law firm. . . . In
       sum, nothing in the language of 28 U.S.C.
       § 1927, in our case law regarding that statute
       or a district court’s inherent powers, or in
       counsel’s actions in this case leads us to think
       that the District Court was without authority
            KAASS LAW V. WELLS FARGO BANK                    11

       to impose sanctions on [the law firm] as a
       whole.

Enmon v. Prospect Capital Corp., 675 F.3d 138, 147–48 (2d
Cir. 2012).

    We believe the Second Circuit misconstrues the language
of 28 U.S.C. § 1927, which limits sanctions to attorneys and
other persons admitted to conduct cases, and does not
expressly provide the district court authority to sanction a law
firm. The Second Circuit’s conclusory statements that
“nothing in the language” of the statute forecloses the
imposition of sanctions against a law firm and that “sister
circuits” have reached the same result is particularly
unpersuasive because the court apparently ignored the
plaintiffs’ citations to Pavelic, Claiborne, and BDT Products.
See Brief for Appellant at 49, Enmon, No. 10-2811-cv (2d
Cir. Nov. 12, 2010), 2010 WL 4715535. We believe that if
Congress had intended to permit federal courts to impose
sanctions against law firms pursuant to 28 U.S.C. § 1927, it
would have included an express authorization to do so in the
statute.

    Wells Fargo urges us to affirm because “the district
court’s sanctions award against Kaass is supported under” its
“inherent authority.” But Wells Fargo did not request that the
district court impose sanctions under its inherent authority,
and the court only cited 28 U.S.C. § 1927 in its order
imposing sanctions. “We have previously held that ‘the
conduct in question must in fact be sanctionable under the
authority relied upon.’” GRiD Sys. Corp., 41 F.3d at 1320
(quoting Matter of Yagman, 796 F.2d 1165, 1183 (9th Cir.
1986)) (emphasis in original). “The court here relied on
§ 1927; as §1927 cannot support the sanctions, the sanctions
12          KAASS LAW V. WELLS FARGO BANK

cannot stand.” Id.; see also Alaska Land Leasing, Inc.,
799 F.2d at 510 (“Since the district court based its imposition
of sanctions exclusively on its authority under § 1927, we
have no basis to review the propriety of sanctions under
alternative theories.”). In light of our conclusion that 28
U.S.C. § 1927 does not support the imposition of sanctions
against Kaass Law, we need not address its argument that its
conduct did not merit sanctions under any authority.

   The district court abused its discretion by sanctioning
Kaass Law, a law firm, pursuant to 28 U.S.C. § 1927.

                      CONCLUSION

    We reverse the decision of the district court, and vacate
the order imposing sanctions against Appellant Kaass Law.
Each party shall bear its own costs on appeal.

     REVERSED.