Ethics in Brief

Ethics in Brief is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Can Meritorious Objections Be Sanctionable Conduct?

We often make objections solely to preserve them.  But what if an attorney makes a facially meritorious objection—but does it to cause delay?  Can a court find this to be bad faith?  Award sanctions?  Hold the attorney jointly and severally liable with the client?  For the full amount?

Chief Judge Moskowitz addressed these issues in Valdez v. Kismet Acquisition, LLC.1  In an underlying bankruptcy action, the court ordered a party to transfer real property in Mexico into a trust.  The client, however, did not intend to comply or transfer the property.  His attorney understood; but could not, and did not, reveal that to the bankruptcy court.  Instead, the attorney objected to two of three proposed transfer instruments opposing counsel drafted.  Meanwhile, the attorney advised the client that he could try to obtain an injunction in Mexico to block the transfer.

Deciding a sanctions motion, the bankruptcy court held that, although the objections to the transfer instrument were facially meritorious, because they were intended solely to cause delay while the client obtained the Mexican injunction, they were in bad faith.  The court awarded $700,000 in sanctions jointly and severally against the client and attorney.  The attorney appealed.

Judge Moskowitz upheld the bad faith finding.  Ninth Circuit case law allows attorneys to be sanctioned for “argu[ing] a meritorious claim for the purpose of harassing an opponent,” or for “delaying or disrupting the litigation or hampering enforcement of a court order.”2  Judge Moskowitz acknowledged that the objections were facially valid.  But the attorney made them to conceal the client’s intention for as long as possible while the client and other attorneys worked to undermine the judgment in Mexico.  Therefore they were made in bad faith to cause delay.  Even assuming the attorney “had a duty to raise meritorious arguments,” where those objections are for a bad faith purpose, that conduct is sanctionable.

Judge Moskowitz, however, vacated the portion of the order holding the attorney jointly and severally liable with the client.  Several attorneys, as well as the client, had engaged in the conduct.  The bankruptcy court therefore had to take into account relative fault in assessing sanctions.  In addition, the bankruptcy court failed to consider the attorney’s ability to pay.  Because the amount was so large, this failure warranted vacating the award.

Valdez raises several issues.  Many attorneys object to document requests to “create delay” while negotiating the scope of the document production with opposing counsel.  Could a court extrapolate from Valdez—meritorious objections made to delay—and find such conduct sanctionable?  Probably not.  A careful reading of Valdez suggests that the court imposed sanctions only because the client never intended to sign the transfer instrument.  In the discovery example, the intent is to negotiate a reasonable scope of production—not to block production all together.

More problematic, however, is the court’s direction that a court must weigh relative fault—as between attorney and client—to assess sanctions against the attorney.  Now an attorney must either fall on her sword or to throw her client “under the bus.”  Can she provide the court with details of the client’s instructions that led to the sanctions?  Almost certainly, no.  We are all constrained by Rule of Professional Conduct 3-100 and Business and Professions Code section 6068(e), which mandate that we protect a client’s confidences and secrets “at every peril to himself or herself”—not to mention the duty of loyalty.  Thus, any attorney in such a position is well advised to seek counsel from an expert on professional responsibility before divulging client confidences, even when faced with the prospect of serious sanctions.

– Leah S. Strickland

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis.  Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**  

1474 B.R. 907 (S.D. Cal. 2012)

2Primus Automotive Financial Services, Inc. v. Batarse, 115 F.3d 644, 649 (9th Cir.1997) (internal quotations omitted).