By Joan C. Rogers
A trial court lacked inherent authority to sanction a law firm for supposedly giving improper legal advice to its client before the case was even filed, the Wisconsin Court of Appeals, First District, held Oct. 10 (State ex rel. Godfrey & Kahn SC v. Milwaukee County Circuit Court, Wis. Ct. App. 1st Dist., No. 2011AP921-W, 10/10/12).
A court's intrinsic power may not be invoked to sanction prelitigation conduct, at least where the alleged misbehavior does not impair its ability to function, Judge Kitty M. Brennan stated.
Midwest Air Group Inc. notified one of its executives, Christopher Stone, that the company's board of directors was considering whether to fire him in light of allegations that he had sexually harassed female employees.
Godfrey & Kahn represented Midwest in the dispute. Leading up to the board meeting, the firm provided Stone's lawyer with the final report from the internal investigation of Stone's alleged misconduct, which set out a dozen sexual harassment accusations. The firm refused to turn over the underlying notes and documents from the internal probe, however.
When the board terminated Stone, he sued. A jury ultimately found that Midwest breached its duty of good faith and fair dealing by not turning over the underlying investigative notes and documents prior to the board meeting.
Almost a month after the verdict, the trial court sua sponte found that Godfrey & Kahn created Midwest's breach of good faith by the firm's “outrageous” legal advice to Midwest prior to the board meeting. That advice led to “Kafkaesque” procedures in which Stone had to respond to accusations at the board meeting without contacting the complainants and without seeing the documentation of his supposed misconduct, the trial court found. Invoking its inherent authority, the trial court ordered Godfrey & Kahn to pay all of Stone's legal bills and costs.
Before the trial court put its oral ruling in writing, Godfrey & Kahn filed a petition challenging the sanctions and asking the court of appeals to block the trial court from entering judgment against it. The court of appeals concluded that the trial court exceeded its inherent authority by granting the disputed sanctions.
Citing several Wisconsin court decisions, Brennan acknowledged that trial courts have inherent authority to sanction parties or their attorneys for misconduct during litigation by ordering payment of the opposing party's attorneys' fees and costs.
However, the court said, “The parties have not cited to any case, and our research has not revealed one, which suggests that the trial court has the inherent authority to sanction Godfrey & Kahn for conduct which occurred before the court's jurisdiction was invoked.”
Brennan described Wisconsin jurisprudence as setting out a well-established test for the inherent authority to sanction: whether such power is necessary to the functioning of the court. This inherent authority is generally exercised in three areas, she said:
• to deal with acts that impair the powers or efficacy of the judicial system;
• to regulate the bench and bar; and
• to ensure the efficient and effective functioning of the courts and to administer justice fairly.
Stone claimed that the sanctions imposed on Godfrey & Kahn were grounded on the firm's allegedly improper attempt to question him at trial about his decision not to address each of the sexual harassment allegations at the board meeting.
But the record clearly showed, Brennan said, that Godfrey & Kahn was sanctioned not for its behavior during trial but rather for its alleged prelitigation advice, which was given before the trial court's jurisdiction was invoked and did not impede the court's ability to function or fairly administer justice.
The trial court did not issue the sanctions during the trial, and the transcript of the bench ruling showed that it based the sanctions exclusively on what it believed to be the firm's legal advice prior to the board meeting, Brennan said.
Because the trial court lacked the inherent power to sanction Godfrey & Kahn for its supposed prelitigation conduct, it acted outside its powers and without authority, the court concluded. “Whether it is ever possible for pre-litigation conduct to justify the exercise of inherent power is an issue we do not reach because it is not necessary to our decision,” it added.
The court found that the circumstances before it warranted the extraordinary remedy of a “supervisory writ of prohibition” barring the trial court from entering a written judgment against Godfrey & Kahn for the sanctions.
If the judgment were entered, the court reasoned, Midwest and its counsel would be irreparably harmed because the resulting conflict of interest would force the firm to withdraw and would require Midwest to obtain new counsel unfamiliar with a case that had been ongoing for years.
Thomas L. Shriner Jr. and Eric G. Pearson of Foley & Lardner, Milwaukee, represented Godfrey & Kahn. Midwest's lawyers were Daniel J. Finerty of Lindner & Marsack, Milwaukee, and Michael D. Huitink and Maria L. Kreiter of Godfrey & Kahn, Milwaukee.
Stephen E. Kravit and Aaron Aizenberg of Kravit, Hovel & Krawczyk, Milwaukee, represented Stone. The trial court was represented by Kevin C. Potter, Gregory M. Weber, and David C. Rice of the Wisconsin Department of Justice, Madison, Wis.
Full text at http://op.bna.com/mopc.nsf/r?Open=kswn-8zbnyt.
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