Citing SCOTUS, Iowa Justices Slash Rule 11 Sanction

By Samson Habte

A recent U.S. Supreme Court decision that warned federal judges to exercise caution when awarding frivolous litigation sanctions is having an impact on state courts as well.

In a Jan. 26 opinion, the Iowa Supreme Court said a $145,427 sanction against a party was “unreasonably excessive” because the sum included “substantial fees that were not caused by the sanctionable filings.”

The decision—which shaved more than 80 percent off the award, cutting it $30,000—marked just the second time that a state supreme court has cited a 2017 U.S. Supreme Court case that instructed judges to apply a direct causation standard when awarding sanctions for litigation misconduct.

That case— Goodyear Tire & Rubber Co. v. Haeger, 197 L. Ed. 2d 585, 2017 BL 125896, 33 Law. Man. Prof. Conduct 199 (2017)—interpreted federal law, but state courts often look to federal decisions for guidance on sanctions.

The Iowa Supreme Court noted that it often looks to federal decisions for guidance when applying state civil procedure rules, which are based on federal rules.

Quoting Haeger, Justice Thomas D. Waterman said: “The court’s fundamental job is to determine whether a given legal fee—say, for taking a deposition or drafting a motion—would or would not have been incurred in the absence of the sanctioned conduct.”

Waterman said the trial judge in this case failed to heed that admonition when he sanctioned Fobian Farms and its owner, Carl Fobian, $145,427 for using a boundary dispute as an “opportunity to get a free restaurant.”

No ‘Exceptional Case’ Exception

Fobian discovered that because of a surveyor’s error an adjacent landowner was building a restaurant one foot over the property line, on land that Fobian owned, the court said.

The restaurant owner and a bank that financed the restaurant sued to quiet title, but Fobian fought them all the way. The trial judge awarded the plaintiffs all of the fees and costs they incurred in the litigation, which stretched out for seven years.

An intermediate appellate panel affirmed. It noted that among other objectionable actions, Fobian “bullied” surveyors who submitted affidavit that corrected the scrivener’s error, threatening them with litigation unless they retracted.

The supreme court said the sanction award was excessive because the “the amount is greater than needed to deter similar misconduct” and because it included fees “incurred before Fobian Farms filed its frivolous pleadings as well as additional fees incurred resolving nonfrivolous claims.”

The Haeger opinion did recognize that in “exceptional cases” a trial court may “shift all of a party’s fees, from either the start or some midpoint of a suit, in one fell swoop.” It cited Chambers v. NASCO Inc. , 501 U.S. 32 (1991), where the high court approved such an award “because literally everything the defendant did—'his entire course of conduct’ throughout, and indeed preceding, the litigation—was ‘part of a sordid scheme’ to defeat a valid claim.”

But the Iowa Supreme Court declined to apply “that ‘exceptional case’ exception” for two reasons.

The first was that the frivolous pleading rule—Iowa’s version of Fed. R. Civ. P. 11—was the sole basis for the award here, while the award in Chambers was based in part on the court’s inherent powers.

“Second, Fobian Farms prevailed on its encroachment claim and, as noted, $30,000 is the minimum needed to deter,” Waterman wrote.

Dissent: Blame Lawyer, Not Client

Justice David Wiggins, in a dissent joined by Justice Brent R. Appel, objected to the fact that the sanction was imposed against the Fobian parties and not their lawyers.

“A lawyer vetted the Fobian parties’ claims,” Wiggins wrote. “A lawyer brought the claims after he vetted them. The majority used the sanction law applicable to attorneys, who received legal training, not the law applicable to clients. I have been unable to find any Iowa cases sanctioning clients without sanctioning their attorney.”

Wiggins said he was concerned that the majority opinion would chill “the rights of citizens from filing actions through their attorneys for fear that their attorneys may have failed to inform them that the actions are improper” under Rule 11.

The dissenters said they would not award any sanctions, or would award only a nominal amount.

Simmons Perrine Moyer Bergman PLC represented the plaintiffs. Gregg A. Geerdes, Iowa City, represented the defendants.

The case is First Am. Bank v. Fobian Farms, Inc. , 2018 BL 28192, Iowa, No. 16-0624, 1/26/18 .

To contact the reporter on this story: Samson Habte in Washington at shabte@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

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