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June 30, 2016 Practice Points

The Far Reach of the Courts' "Inherent Power" to Sanction Misconduct

By Mackenzie C. Schott

The U.S. Court of Appeals for the Fifth Circuit recently affirmed a district court's decision to sanction attorneys for ethical violations surrounding the Deepwater Horizon oil-spill settlement program. In re Deepwater Horizon, No. 15-30265, 2016 U.S. App. LEXIS 10069 (5th Cir. La. June 2, 2016). This decision expands the reach of the courts' "inherent power" to sanction attorneys for their behavior outside of the trial, now reaching attorney behavior related to a settlement program directly supervised by the court.

In Deepwater Horizon, the Fifth Circuit further defined the reach of a court's sanctioning power in analyzing whether the district court could issue sanctions for ethical misconduct that occurred within the scope of the Court Supervised Settlement Program (CSSP), a settlement program approved by the court and implemented in response to the Deepwater Horizon oil spill. The district court sanctioned two attorneys representing clients filing claims with the CSSP and one CSSP staff attorney for improper referral fees and conflicts of interest. The Fifth Circuit found that the district court's inherent power included the authority to sanction in response to the ethical violations because the court "retained continuing and exclusive jurisdiction" over the CSSP.

The Supreme Court has broadly defined "inherent power," stating that it consists of "certain implied powers [necessarily given to the] Courts of justice from the nature of their institution . . . which cannot be dispensed with in a Court, because they are necessary to the exercise of all others." Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991) (citations omitted). Three recent cases, ending with Deepwater Horizon, provide guidance for determining the reach of this broadly defined inherent power. In F.D.I.C. v. Maxxam, Inc., the district court in Texas sanctioned an attorney for misconduct that occurred in an administrative proceeding in Washington, D.C., a proceeding that was not overseen by the district court. 532 F.3d 566, 591 (5th Cir. 2008). Upon review, the Fifth Circuit held that the court's inherent power to sanction did not extend to the administrative hearing but rather only extended to situations in which "a party engages in bad-faith conduct [that directly defies] the sanctioning court." Id. at 591 (internal quotation marks omitted). Later, in Positive Software Solutions, Inc. v. New Century Mortgage Corporation, the Fifth Circuit, relying on its Maxxam decision, held that misconduct during arbitration was beyond the reach of the district court's inherent power, stating that the misconduct "was neither before the district court nor in direct defiance of its order." 619 F.3d 458, 461 (5th Cir. 2010).

Now, Deepwater Horizon serves as the Fifth Circuit's most recent, and possibly most expansive, rule addressing a court's inherent power. The court found that the inherent power to sanction extends to situations in which "misconduct [threatens] the integrity of a court function under the [court's] direct supervision [or] misconduct during the [court's] investigation of the matter." Deepwater Horizon at 9. This decision suggests that a court's sanctioning power could be broader than originally believed, authorizing a court to sanction attorneys when their misconduct is only connected to the court through a settlement program.

Whether the Deepwater Horizon decision will further expand the inherent power of the courts to sanction attorney misconduct or serve as the limit on that power remains to be seen. But, there is no question that attorneys must now be mindful of their conduct outside the narrow confines of litigation.

— Mackenzie C. Schott, Summer Associate, Stone Pigman Walther Wittmann L.L.C., New Orleans, LA

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