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Girardi Case Spotlights Judges’ Monetary Sanction Authority

Feb. 15, 2022, 9:04 PM

Lawyers who worked for or with Girardi Keese LLP to represent family members of individuals killed in the 2018 crash of Lion Air flight 610 could be on the hook for the more than $2 million in settlement money that Thomas Girardi allegedly stole from their former clients.

The question is whether the court possesses the inherent authority to order an attorney to pay a former client monetary damages as a sanction for misconduct, and if so, under what circumstances.

Fortunately, it hasn’t come up that much, so it’s a novel question.

Former local co-counsel in the matters, Edelson PC, says the court has the authority—so long as certain factual predicates are met. But former Girardi Keese lawyers David Lira and Keith Griffin argue that the court’s sanctioning authority is more limited than that.

Read More: Former Girardi Colleagues Say Court Lacks Power to Sanction Them

At the close of an evidentiary hearing over the missing funds in December 2021, Judge Thomas M. Durkin—who has presided over the multidistrict litigation in the U.S. District Court for the Northern District of Illinois—asked the lawyers to brief him on the scope of the court’s inherent authority.

Specifically, he said he wanted to know if the court has the authority to order any or all of them to compensate the plaintiffs, not because of any direct violation of court orders, but because by failing to inform the court that Girardi wasn’t paying the plaintiffs, they “caused the plaintiffs to lose that money.”

Durkin also asked for a detailed summary of the clients’ accounts, which he has since received under seal, presumably so he can figure out how much of the clients’ settlement money would have been available, had any of the lawyers notified the court at an earlier date.

Put another way, it appears Durkin is considering assessing damages equal to the amount of money that may have been recovered in the months prior, before Girardi misappropriated it.

Monetary Sanctions

It’s clear that a court may only exercise its sanction authority upon a finding of bad faith. This has been true since the Supreme Court’s 1991 decision in Chambers v. Nasco. Negligence, naivete, or stupidity aren’t enough.

As the Seventh Circuit put it in Fuery v. City of Chicago, decided in 2017, bad faith isn’t a case of “clumsy lawyering.” Generally, clients that are the victims of stupid lawyering must sue for malpractice.

It’s also clear that sanctions must be “calibrated” to the harm caused by the bad faith conduct, under the high court’s 2017 decision in Goodyear Tire & Rubber v. Haeger.

Addressing the monetary sanction of opposing parties’ fees, the court there held that the sanctioned attorney could only be held responsible for the portion of fees that the moving party wouldn’t have paid “but for” the misconduct.

There’s precedent for awarding fees and costs, but no court has used its inherent authority to order a lawyer to pay monetary damages to his or her own client.

According to Lira, if the court decides it possesses such authority, it will “effectively create a new remedy for an attorney’s alleged wrongdoing against his client,” which is decided entirely through summary proceedings.

Griffin takes the same position, arguing that a sanction order requiring him to compensate his former clients would be akin to a finding or judgment that he committed legal malpractice. For that kind of finding, a lawyer would ordinarily be entitled to a trial to adjudicate his rights.

Proof

Edelson, insofar as it concludes that compensatory damages are within the scope of the court’s authority, suggests that a sanction this severe could trigger a higher standard of proof.

A preponderance of the evidence standard may be good enough for an ordinary civil case, where each party is exposed to the same relative risk—that is, the risk of winning or losing. But it might not be good enough where the sanctioned party stands to lose more than the cost of an adverse determination on the merits, Edelson argues.

Here, where “the sanctioned party would forfeit far more than it might have lost had it lost the Lion Air case on the merits,” Edelson says that a clear and convincing showing might be required.

The idea seems to be that the lawyers, in facing liability to their clients for the settlement itself, stand to lose more than just their contingency fee, something they didn’t bargain for when agreed to the representation.

Edelson also says that an additional evidentiary hearing might be necessary to satisfy notice requirements. Edelson says that it wasn’t on notice that the court was considering exercising its inherent sanction authority when its attorneys testified.

Edelson says it understood that the December hearing was supposed to about its contempt motion against Griffin and Lira. The firm says it didn’t realize that the court was considering exercising its inherent sanction authority as to it.

Although Edelson ultimately sounded the alarm by initiating the contempt proceedings against Girardi Keese in late 2020, Durkin told the firm during the December 2021 evidentiary hearing that it could be in the mix too, for failing to alert the court earlier.

This feature appeared in this week’s Bloomberg Law—Litigation newsletter. Bloomberg Law subscribers may sign up here.

To contact the reporter on this story: Holly Barker in Washington at hbarker@bloombergindustry.com

To contact the editors responsible for this story: Nicholas Datlowe at ndatlowe@bloomberglaw.com; Rob Tricchinelli at rtricchinelli@bloomberglaw.com

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