Hither And Yon

The United States Court of Appeals for the Fourth Circuit affirmed sanctions imposed by the Maryland federal district court in breach of contract litigation between law firms

Napoli Law contests the sanctions award that the District Court of Maryland imposed in light of the Napoli firm’s abuse of process in two lawsuits filed in the State of New York. The New York lawsuits claimed that the ongoing action against Napoli in Maryland was frivolous and sought an order for its dismissal. We think this misconduct of the law firm was in direct defiance of the Maryland district court’s adjudicative function, and that the court was within its discretion in imposing the sanctions award.

Facts

Napoli Law is a national firm with extensive experience in class action and mass tort litigation. Keyes Law is a local firm based in Maryland that represents clients with asbestos exposure claims. Between 2011 and 2014, Keyes faced a large influx of asbestos cases and referred over 2,000 of them to Napoli. Napoli agreed to handle the litigation for these cases and share part of the contingency fees with Keyes. Initially, Napoli paid Keyes its portion of the fees, but over time the payments dwindled and eventually stopped. After repeatedly demanding payment to no avail, Keyes was forced to seek relief in federal court.

On October 9, 2017, Keyes filed a breach of contract suit in the District of Maryland, along with related claims. The district court denied Napoli’s motion to dismiss on August 14, 2018. Dissatisfied with this, Napoli filed two nearly identical suits in New York state court a few months later, asserting that the federal action was a “malicious and deliberate” abuse of process. J.A. 301. The complaints asked the New York court to “order that Defendants discontinue their lawsuit against Plaintiff” in the District of Maryland. Id. at 302.

Around the same time, Napoli also began obstructing the district court proceedings from within. On April 18, 2019, the court admonished Napoli for defying its discovery orders and threatened sanctions for continued noncompliance. Napoli still refused to comply. As a result, the district court imposed sanctions on Napoli and awarded Keyes $316,873 in attorney’s fees and costs.

A jury returned a verdict for Keyes in the Maryland case on December 19, 2019. Keyes was awarded $861,062 in damages. We affirmed both the discovery sanctions and the judgment on the merits with a minor adjustment to the post-judgment interest rate.

Basis for sanctions

After the first appeal, the district court imposed additional sanctions on Napoli for filing the New York lawsuits and engaging in other bad faith misconduct. The court found it “obvious” that Napoli filed the New York suits to “disrupt the litigation” in Maryland.1 J.A. 455. It emphasized that the complaints sought “to have a state court enjoin an action in federal court,” a request that even a “first-year constitutional law student” would know to be improper. Id. The full list of Napoli’s sanctioned misconduct is long and troubling. It included repeated defiance of court orders, frivolous motions, and last minute document dumps, to name just a few examples. The district court found by “clear and convincing evidence” that all this was “intentional misconduct” designed to “harass” Keyes and “waste the time and resources” of the court. Id. at 486. It therefore awarded Keyes an additional $1,050,872 in attorney’s fees and costs.

Authority to sanction

If Napoli finds fault with the district court’s rulings, it can take an appeal. Its recourse lies with the Fourth Circuit, not the state courts of New York. Napoli asks that we embrace the proposition that a single lawsuit may routinely spawn two others. But no. Napoli’s New York lawsuits were in direct defiance of the district court’s authority. Both suits came just months after the Maryland district court denied Napoli’s motion to dismiss. Both suits asserted that the Maryland district court proceedings were “frivolous and malicious,” a claim that not only fell squarely within the scope of the ongoing Maryland litigation but one that had been repeatedly rejected by the district court. J.A. 299. Raising it again in state court demonstrated a plain disregard for the district court’s jurisdiction. Making matters worse, the prayer for relief in both suits requested “an order that Defendants discontinue their lawsuit against Plaintiff” in the district court. Id. at 302. All this was far more than an “obvious linkage.” In every practical sense Napoli asked a state court in New York to overrule a federal district court in Maryland. It is hard to imagine a more flagrant challenge to the district court’s authority or a more obvious spur to litigation hither and yon.

Amount of award

Napoli also argues that the sanctions are invalid because the district court failed to apply the factors used for calculating a fee award to a prevailing party. See, e.g., 42 U.S.C. § 1988. We conclude that these factors do not apply to fee awards for costs incurred due to misconduct. The relevant inquiry is whether there is a sufficient causal link between the sanctioned misconduct and the fees awarded. The district court dutifully applied this standard. We therefore affirm the sanctions award in its entirety.

The oral argument is linked here. (Mike Frisch)