A federal appeals court has vacated $24,400 in sanctions against two law firms because a district judge ordered the sanctions without a finding of bad faith and gave the firms no chance to respond.
Southern District Judge Deborah Batts (See Profile) in 2011 had ordered Vermont's Langrock Sperry & Wool and Virginia's Lankford & Reed to pay attorney fees and costs to Cleary Gottlieb Steen & Hamilton because the firms were four days late in filing paperwork on motions to dismiss in the case.
The U.S. Court of Appeals for the Second Circuit, however, held that Batts abused her discretion by "imposing a sanction of attorneys' fees without explicitly finding that Langrock acted in bad faith, and by sanctioning Langrock without affording the attorneys prior notice and an opportunity to be heard."
Judges Robert Katzmann (See Profile), Barrington Parker (See Profile) and Richard Wesley (See Profile) heard oral argument in Langrock Sperry & Wool v. Citigroup, 11-5085 on Dec. 11. The panel issued a bench ruling the following day vacating the sanctions and ordering the return of the funds. The judges explained their reasoning in a written unsigned opinion issued Dec. 26.
The 25-lawyer Langrock Sperry & Wool and the three-lawyer firm of Lankford & Reed represented Robert Wilson III on his claim that Citigroup and the Cayman Islands-based investment firm Opportunity Equity Partners Ltd. denied him tens of millions of dollars in compensation for the work he claimed to have performed managing some $1.5 billion in investments in Brazilian companies.
Citigroup, through Cleary, moved to dismiss the complaint on June 24, 2011.
Wilson's lawyers then contacted Cleary attorneys and obtained their assent to an extension of the July 11, 2011, deadline for filing opposition papers to the motion to dismiss.
On July 7, Langrock filed electronically a stipulation and order signed by counsel for both parties that purported to extend the deadline to July 28 and give Cleary an extension on its own deadline for reply papers.
However, because local rules bar filing stipulations on the district's electronic filing system, the clerk's office rejected the stipulation. Langrock followed the next day by emailing the document to the court but its request was denied by the district judge.
On July 11, Lankford & Reed's Terrence Reed faxed a letter to the judge explaining the reasons the lawyers needed the extensionincluding that he was preparing for trial in another Southern District matter.