Legal Ethics Corner

Ethics Corner 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.

9th Circuit: Ability to Pay Sanctions Matters

In July, the Ninth Circuit Court of Appeals held that a district court may take an attorney’s ability to pay sanctions into consideration when determining the amount of sanctions. In Hayes v. City and County of San Francisco 2012 WL 2989092 (9th Cir. 2012), the district court awarded sanctions against plaintiff’s counsel in the amount of $362,545. In response to defendants’ motion for sanctions, Plaintiff’s counsel had previously submitted a declaration stating that he could not possibly pay the sanctions sought “because he had earned less than $20,000 in each of the last three years.” Following an earlier Seventh Circuit decision, the district judge found that the attorney’s ability to pay was not persuasive, as sanctions awarded under 28 U.S.C. §1927 were a form of tort damages that did not depend on the tortfeasor’s ability to pay. (Shales v. General Chauffeurs 557 F.3d 746 (7th Circ. 2009).

The Ninth Circuit reversed and remanded, holding that the permissive language of §1927 – the statute says attorneys “may” be sanctioned by the court – gave the district court “substantial leeway… when imposing sanctions.” Building on earlier Ninth Circuit case law giving district courts “much discretion in determining whether and how much sanctions are appropriate” (Trulix v. Barton 766 F.2d 1342, 1347-1348 [9th Cir. 1995]), the court held that the district court had the right to consider the attorney’s ability to pay when determining the appropriate amount of sanctions to award. Accordingly, it remanded the case to the district court to allow the district court to take the attorney’s ability to pay into consideration.

Notably, the Ninth Circuit did not find that the district court must take the attorney’s ability to pay into consideration, just that it may consider that information along with whatever else the district court deems material to the request for sanctions. Thus, even if the attorney cannot pay the sanctions awarded, it does not mean that the district court is prevented from issuing an award in excess of the attorney’s ability to pay. And in the Hayes case, it is very possible that the district court may do exactly that, as the district court’s original opinion cited to the Seventh Circuit’s acknowledgment that if the attorney “cannot meet all of his financial obligations, he may have them written down in bankruptcy.” Hayes, supra, 2012 WL 2989092 at *1, citing Shales, 557 F.3d at 749.

-- Jack Leer

**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.**