No New Duty

The United States Court of Appeals for the Fourth Circuit affirmed the imposition of sanctions against three attorneys and their firms

The district court based its decision to award sanctions on a comprehensive evaluation of the attorneys’ conduct. That conduct was, in many respects, egregious, and it continued throughout the various stages of litigation and appeal. As will be explained in detail below, the sanctioned attorneys challenged the authenticity of a loan agreement for two years before revealing that they possessed an identical copy, obtained from their client, before filing the complaint.

The Appellant attorneys contend that we seek to create a new affirmative duty to disclose documents before the opening of discovery. To the contrary, we simply conclude that the district court did not abuse its discretion in determining that the sanctioned attorneys’ behavior below, which was designed to and in fact did mislead the district court and this court and thereby extended the proceedings, should not be countenanced. This case presents at least one clear, affirmative misrepresentation: one attorney asserted under oath that, after two years of litigation over the authenticity of the loan agreement, the plaintiff’s attorneys had never challenged authenticity. The remainder of the sanctioned conduct forms a mosaic of half-truths, inconsistencies, mischaracterizations, exaggerations, omissions, evasions, and failures to correct known misimpressions created by their own conduct that, in their totality, evince lack of candor to the court and disrespect for the judicial process. The district court relied, to its detriment, on these distortions.

To provide full context for the district court’s sanctions order, we set forth the factual and procedural background of this case in detail. We first describe the underlying litigation that gave rise to the sanctioned conduct. Next, we highlight the sanctioned attorneys’ many misrepresentations, obfuscations, and omissions that the district court determined manifested bad faith. We focus particularly on their statements and omissions that led the court to believe that counsel did not have a copy of the disputed loan agreement and the trial strategies that, in light of these statements and omissions, reinforced the court’s misapprehension of relevant facts. Finally, we describe the sanctions proceedings and the sanctioned attorneys’ continued misstatements, inconsistencies, and exaggerations that the district court finally concluded “strain[ed] credulity and indicate[d] a continued willingness to say whatever is necessary to win in the moment.”

The client borrowed money from online lenders and claimed he was charged usurious rates.

Attorneys Stephen Six, J. Austin Moore, and Darren T. Kaplan, among others, represented Dillon in his suit. Six and Moore are a partner and associate attorney, respectively, at the Steuve Siegel Hanson LLP law firm. Kaplan is the principal shareholder of Darren Kaplan Law Firm, P.C.

The underlying litigation was settled.

The district court’s sanctions

In total, the court held Six, Kaplan, and their law firms jointly liable for $150,000 in attorney’s fees. The court held Moore jointly liable for only $100,000 of that amount because it  reasoned that as an associate attorney Moore performed a lesser role in the bad-faith conduct.

The basis for sanctions

The sanctioned attorneys argue that neither the rules of ethics nor the Federal Rules of Civil Procedure imposed an affirmative duty to disclose the Dillon copy of the Western Sky loan agreement before discovery commenced. Appellants’ Br. at 39–44. These arguments miss the point. Counsel are not being sanctioned for their failure to disclose the Dillon copy of the Western Sky loan agreement. Rather, counsel are being sanctioned for raising objections in bad faith–simultaneously questioning (and encouraging the district court to question) the authenticity of a loan agreement without disclosing that the Plaintiff provided them a copy of that loan agreement before the complaint was filed.

Mr. Six is a former Kansas Attorney General. The Wichita Eagle reported on his failed nomination to the Tenth Circuit. (Mike Frisch)