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Circuit Vacates Attorney Sanctions, Suggests New Path to Penalties

By Robyn Hagan Cain | Last updated on

John Olsen talked his way out of a $25,000 attorney sanction in the Tenth Circuit Court of Appeals this week, but he shouldn't make plans to spend those Benjamins quite yet.

The appellate court observed that the case, "started out ordinarily enough" with the plaintiff, Melissa Mellott, suing her former employer, MSN Communications, for discrimination, but it quickly morphed from ordinary litigation to extraordinary misconduct "of breathtaking proportions."

In a thorough order, the district court chronicled how the plaintiff falsified documents, lied about compensation she received from other companies after leaving the defendant's employment (and used another person's Social Security Number in connection with such work), and created a multi-layered, detailed fantasy to explain her failures to appear in court as ordered. Olsen backed Mellott up, "even in the face of mounting and flagrant inconsistencies."

MSN Communications moved to dismiss the case. The dismissal motion included a request for sanctions against the plaintiff and Olsen under 28 U.S.C. § 1927, the court's inherent power, and Federal Rules of Civil Procedure 11, 26, and 37. The district court ultimately found that the plaintiff and Olsen had engaged in sanctionable conduct; it ordered the Mellott to pay $25,000 to the court as a sanction under the court's inherent power, and it ordered Olsen and his firm to pay $25,000 to the court as a sanction under Rule 11.

Olsen appealed, and the Tenth Circuit Court of Appeals reversed the Rule 11 sanction on procedural grounds.

The safe-harbor provision of Rule 11(c)(2) requires a party to serve a copy of its Rule 11 motion on the other party and to give that party an opportunity -- generally 21 days -- to withdraw or correct the challenged document before filing the sanctions motion with the court. Here, the defendant did not comply with the safe-harbor provision.

Since the Tenth Circuit Court ruled previously in Roth v. Green that it is an abuse of discretion to grant Rule 11 sanctions if the defendant did not comply with the safe-harbor provision, the court vacated the $25,000 attorney sanction and remanded the matter for further opportunities for sanctions. (Hint: The court suggested an inherent power sanction.)

Think twice before employing similarly-shady tactics in a lawsuit. Even if you argue your way out of an initial round of attorney sanctions, the Tenth Circuit might help the district court find a new way to punish you.

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