The $1.5 Million Sanction: Testing the Inherent Power of Federal Courts to Sanction Parties by Awarding Attorney Fees

Abstract

This article previews the issues and arguments in Chambers v. Nasco, Inc., on the Supreme Court’s 1990-91 appellate docket. The NASCO case raises two central issues. The first issue is whether federal courts have an inherent power to award attorney fees against a party who abuses the court's processes, apart from Federal Rule of Civil Procedure 11 or any other statutory provision allowing an award of attorney fees (see 28 U.S.C. § 1927). The second issue is whether a federal court may make such an attorney fee award in a federal diversity case, when state law does not give such power to a state court judge. A third, subsidiary issue centers on the limitations of such inherent federal court power, and whether the federal district court abused its authority in fully awarding attorney fees against Chambers.

The Supreme Court again this term turns its attention to the problem of awarding attorney fees as a sanction against abusive litigant behavior. The general issue of awarding attorney fees as a sanction persistently raises the hackles of practitioners who view it as a violation of the so-called American rule against fee-shifting as a penalty for losing a lawsuit or abusing court process.

The NASCO case raises two interesting variations of the attorney fee problem. The Supreme Court is being asked whether federal courts have an "inherent power," apart from procedural statutes and rules, to order the payment of attorney fees as a result of abusive litigant behavior. And the Supreme Court is being asked whether an attorney fee sanction may be imposed not for abusive attorney conduct, but for the abusive behavior of the attorney's client. When coupled with this term's decision in Business Guides Inc. v Chromatic Industries, Inc., the Supreme Court will be announcing its expectations concerning the boundaries of permissible litigant behavior in federal court.

The NASCO case presents an interesting intersection of three doctrinally troublesome aspects of American law: the problem of the inherent powers of federal courts; the problem of fee-shifting as a sanction; and the problem of applicable law under the so-called Erie doctrine. At the broadest theoretical level, the NASCO case confronts the Supreme Court with an intricately knotty problem concerning the scope of federal court power to control litigation in the federal judiciary. At the mundane level, NASCO will instruct lawyers and clients about the boundaries of acceptable behavior in the federal courts.

The NASCO case first implicates the doctrine of the inherent powers of federal courts. For reasons not pertinent to the Supreme Court appeal, the lower federal courts concluded that the actions by the parties in this case did not come within the ambit of sanctioning power under either Federal Rule of Civil Procedure 11 or 28 U.S.C. § 1927, another provision supplying a basis for sanctions. The federal court relied instead on a doctrine of inherent power, derived from common law, to impose sanctions.

Finally, if the Supreme Court determines that federal courts do indeed have the inherent power to impose an attorney fee sanction tinder the common-law, bad-faith exception for abusive litigation tactics, it has been called upon to review whether the award in this case was based on proper legal standards and factual findings. This portion of the case raises no novel issues or analysis, and could be dispatched with alacrity under prevailing authority.

Keywords: Rule 11 sanctions, inherent powers of the court, inherent power to sanction, abusive litigation, fee-shifting, Chambers v. Nasco