Wong v. Luu

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SJC-11789
GARY WONG vs. GEORGE V.H. LUU & others1
(and seven consolidated cases2).3
Suffolk. March 3, 2015. - July 15, 2015.
Present: Gants, C.J., Spina, Cordy, Botsford, & Duffly, JJ.
Practice, Civil, Attorney's fees. Attorney at Law, Conduct
prejudicial to administration of justice.
Civil action commenced in the Superior Court Department on
August 17, 2009.
1
Super 88 Allston, LLC; Hong Kong Supermarket, Inc.; Hong
Kong Supermarket Holding Corp.; Hong Kong Supermarkets of Mass.,
LLC; Hong Kong Supermarkets of Allston, LLC; Jeffrey Wu, also
known as Myint J. Kyaw; and Lucky Star Elmhurst, LLC.
2
Wincent International, Inc. vs. George V.H. Luu & others;
Tin World, Inc. vs. Super 88, LLC, & others; Hop Lee Trading
Co., Inc., & others vs. Wincent International, Inc., & others;
Cheng Liu & others vs. Winvest LLC & others; Cheng Lee Co., Inc.
vs. Super 88 Allston LLC & others; Gary Wong vs. Haymarket
Capital, LLC, & others; Chang & Son Enterprises, Inc., & others
vs. Super 88 Super Market II, Inc., & others.
3
The appellant, Attorney Richard Goren, was allowed to
intervene in these cases solely for the purpose of appealing the
award of sanctions against him that is at issue in this appeal.
2
A motion for sanctions, filed on March 29, 2011, was heard
by D. Lloyd Macdonald, J.
The Supreme Judicial Court granted an application for
direct appellate review.
Michael P. Angelini for Richard Goren.
Cynthia Mark (Anne R. Sills with her) for Yu Cheng Liu &
another.
Gregory P. Turner, for Hop Lee Trading Co., Inc., & others,
was present but did not argue.
Vy Truong, for Tin World, Inc., was present but did not
argue.
Debra Squires-Lee & Jessica Gray Kelly, for Boston Bar
Association, amicus curiae, submitted a brief.
GANTS, C.J. The issue presented in this case is the scope
of a judge's authority under the inherent powers of the court to
order an attorney for a party to pay the other parties'
attorney's fees as a sanction for the attorney's misconduct
where that sanction is not authorized by any statute or court
rule, and where the attorney has not violated a court order or
rule of procedure. We conclude that a judge may exercise the
court's inherent power to sanction an attorney with an
assessment of attorney's fees only if the attorney has engaged
in misconduct that threatens the fair administration of justice
and the sanction is necessary to preserve the judge's authority
to administer justice. Because we conclude that the judge
abused his discretion in exercising the court's inherent powers
to sanction the attorney under the circumstances in this case,
and that the attorney's alleged misconduct was more
3
appropriately addressed by a referral to the Board of Bar
Overseers (board), we reverse the judge's order imposing
sanctions.4
Background. Attorney Richard Goren was the attorney for
Cheng Lee Co., Inc. (Cheng Lee), one of the plaintiffs in a
complex litigation in the Superior Court arising out of the
attempted sale of three supermarkets in the Boston area (the
Super 88 stores). Eight cases, later consolidated, were brought
by three groups of plaintiffs: the "trade creditors" (vendors
of the Super 88 stores, including Cheng Lee, the "Hop Lee"
plaintiffs, and the "Tin World" plaintiffs); the "workers"
(former employees of the Super 88 stores asserting class action
wage claims); and the "asset purchasers" (aggrieved attempted
purchasers of the Super 88 stores). The cases were brought
against three groups of defendants: the "Super 88 defendants"
(corporate entities and principals of the Super 88 stores); the
"Hong Kong Supermarket defendants" (the prospective purchasers
of the Super 88 stores); and the "lenders" (financial
institutions that lent money to the Super 88 defendants).
On December 10, 2010, counsel for all parties in the
litigation appeared in court for a conference pursuant to Mass.
R. Civ. P. 16, as amended, 466 Mass. 1401 (2013), and for an
4
We acknowledge the amicus brief submitted by the Boston
Bar Association.
4
omnibus motions hearing. With the judge's permission, counsel
used the occasion instead to engage in substantive settlement
discussions. They reported to the court that a potential
settlement framework had been reached, and they requested that
the conference be continued so that they could further develop
the framework. The judge allowed the continuance and encouraged
counsel's efforts. The conference was continued a second time
on the representation by counsel that substantial progress was
being made towards settlement. The judge scheduled March 18,
2011, as the date on which counsel would report the terms of a
final settlement to the court or proceed with the conference and
hearing.
Prior to March 18, the parties had reached a final
settlement agreement, which they had intended to sign and file
with the court. Under the terms of the settlement agreement,
the lenders agreed to release their claims to a security
interest in the Super 88 store located in the Dorchester section
of Boston in exchange for a release of the claims of all
plaintiffs in the consolidated cases. From the proceeds of the
sale of the Dorchester store to one of the asset purchasers in
settlement of its claims, Cheng Lee was to receive $650,000; the
Hop Lee plaintiffs were to receive $264,000; the Tin World
plaintiffs were to receive $313,395; and the workers were to
receive $950,000, but $500,000 would not be paid for six months.
5
This would leave a balance of approximately $7 million for the
lenders from the sale of the other two Super 88 stores.
On March 18, however, counsel appeared in court and
announced that there had been a "breakdown in the settlement
discussions" because, days earlier, they had learned of a
solicitation letter that Goren had sent out the week before to
106 unsecured creditors of the Super 88 defendants that had been
identified on a 2009 bankruptcy schedule.5 Most of the
recipients were nonparty creditors, but four of the Hop Lee
plaintiffs also received the letter, as did one nonparty
creditor who was represented by the attorney for Tin World.6 In
the letter, which was printed on the stationery of Goren's law
firm at the time, Bodoff & Associates, P.C. (Bodoff), Goren
explained that he "represent[ed] an unsecured trade creditor of
Super 88 and [was] about to conclude an agreement whereby [his]
client will recover 100 cents on the dollar in a settlement with
various parties." The letter went on to request that the
recipient complete an enclosed form if the recipient were
"interested in seeking to recover [its] unpaid Super 88 invoices
on a contingent fee basis." The letter further explained, "If
5
The Super 88 defendants had filed for bankruptcy in 2009,
but the bankruptcy petitions were dismissed.
6
Goren later stated that the letter was sent to the Hop Lee
plaintiffs through "error and inadvertence."
6
there is sufficient interest generated by unpaid creditors, we
will bring a lawsuit against certain parties on the creditors'
collective behalf . . . ."7 The letter both began and concluded
with a request that the recipient treat the inquiry as
confidential.8
The Tin World and Hop Lee plaintiffs and the Super 88
defendants moved for sanctions against Goren on the grounds that
he had violated the rules of professional conduct9 and had
interfered with the "effective administration of justice."10 At
7
The letter further stated that "[t]he contingency would be
for 50% plus a proportionate share of costs and no settlement
for less than 90% of aggregate face value could be made without
the approval of a majority in interest of the claimants and the
party financing the litigation."
8
In a subsequently filed affidavit, Goren stated that "[a]
number of creditors responded" to this inquiry, and that he
informed them that he was "not advising, nor agreeing then to
represent" them, but "was gathering information for [a] third
party who was considering financing the prosecution of their
claims and that upon resolution of [his] current representation
[of Cheng Lee], [he] would be in touch with them."
9
The "Tin World" plaintiffs and "Hop Lee" plaintiffs
specifically claimed that Goren had contacted parties
represented by counsel (including the four Hop Lee plaintiffs
who received the solicitation letter) in violation of Mass. R.
Prof. C. 4.2, as amended, 437 Mass. 1303 (2002), and that he had
solicited clients with interests adverse to his client, Cheng
Lee Company Co., Inc. (Cheng Lee), in violation of Mass. R.
Prof. C. 1.7, as amended, 430 Mass. 1301 (1999). The Super 88
defendants also claimed that Goren had "engag[ed] in bad faith
negotiations over the course of three months with all counsel in
these consolidated actions" in violation of the preamble to the
rules of professional conduct.
10
The moving parties requested that sanctions also be
imposed on Bodoff & Associates, P.C. (Bodoff), and the Super 88
7
the sanctions hearing on April 8, the various counsel explained
why Goren's solicitation letter had derailed the settlement
process. They noted that the total amount of the claims
exceeded the aggregate sale prices of the three supermarkets,
and that everyone understood that it was in the interest of
their clients that "outsiders to the consolidated actions not be
invited in on what was a finite pot of money." As a number of
the parties had agreed to compromise their claims in various
ways for the sake of reaching a settlement, the prospect of
additional claims caused them to renege, because they had only
agreed to compromise their claims on the assumption that they
"were wrapping up all of the litigation," and because "a
potential involuntary bankruptcy" could have been triggered if
other "potential creditors [were] alerted to the false
assumption that there's a pot of money out there that's just
waiting to be tapped."11 The parties had never entered into a
confidentiality agreement, and there was no confidentiality
provision in the proposed settlement agreement, but counsel
explained that "there was no real need for a [c]onfidentiality
defendants requested that sanctions also be imposed on Goren's
client, Cheng Lee.
11
Counsel also contended that Goren's statement that his
client had received "100 cents on the dollar" contributed to the
derailment of the settlement because it caused the Tin World
plaintiffs -- who had only received "69 cents on a dollar" -- to
insist on receiving more money.
8
[a]greement because it was in all of [their] own clients'
interest to keep this as quiet as possible."12
Goren replied that sanctions were unwarranted because he
had not violated any ethical rule or court order or committed a
breach of any agreement with the other parties, and because
jurisdiction for sanctioning attorneys for ethical violations
lies with the board. He also denied that he had had any
intention to "torpedo" the settlement.
The judge ordered Goren to "reimburse all parties in the
consolidated cases their necessary and reasonable attorney[']s
fees and expenses incurred from December 10, 2010 through April
8, 2011 in connection with the effort to settle the litigation
and respond to the solicitation by Attorney Goren."13 The judge
quoted the following passage from Beit v. Probate & Family Court
Dep't, 385 Mass. 854, 859-860 (1982):
12
Counsel also noted that although "confidentiality was
discussed," the negotiations involved a class action suit and
"confidentiality would actually be difficult in this
circumstance."
13
Originally, the judge also ordered that Cheng Lee be
jointly and severally liable for the parties' attorney's
fees.However, the judge later vacated that part of the order
after he was persuaded, based in part on an affidavit from
Goren, "that Cheng Lee intended that the settlement go through
as negotiated by the parties and that Cheng Lee did nothing to
encourage Goren's solicitation." The judge stated that "[o]n
the expanded record, it would be unjust for Cheng Lee to be
sanctioned for conduct that directly harmed Cheng Lee's own
interests." The judge did not order sanctions against Bodoff.
9
"Judges have the inherent power to do whatever may be done
under the general principles of jurisprudence to insure
[the integrity of the judicial process]. . . . Simply
stated, implicit in the constitutional grant of judicial
power is authority necessary to the exercise of . . .
[that] power. . . . [E]very judge must exercise his
inherent powers as necessary to secure the full and
effective administration of justice. . . . Exercising this
power, a judge may impose reasonable court costs on an
attorney who . . . delays the adjudication of legitimate
claims and defenses, unnecessarily increases clients'
litigation expenses, and squanders limited judicial
resources. A judge cannot condone behavior that causes
precious time to be wasted away while the court, parties,
court personnel, and witnesses [otherwise diligently
conduct themselves]" (quotations, citations, and footnotes
omitted).
The judge noted that, "[i]n a technical sense," he did not have
jurisdiction to rule on compliance with the rules of
professional conduct, but he concluded that the content of the
rules "may inform the [c]ourt's assessment of whether Goren
acted unreasonably such as to have impeded 'the full and
effective administration of justice' and 'delay[ed] the
adjudication of legitimate claims and defenses . . . and
squander[ed] limited judicial resources.'" The judge found that
"[u]nquestionably, Goren did so."
The judge stated that he had "placed on hold [his] earlier
effort to move the consolidated cases to prompt trial on
counsel's representation in December, joined by Goren, that they
had agreed on a settlement framework but that time was needed to
finalize it." He did so in reliance "on the good faith of all
counsel, as officers of the [c]ourt, in representing to the
10
[c]ourt that they were engaged diligently in the global
settlement effort." He found that "but for one participant,"
impliedly Goren, "they were in fact so engaged."
He found that the settlement negotiations had been
"conducted in confidence because of the parties' awareness that
if additional claimants appeared, the finite settlement fund
would be further diluted and (if a critical mass of new claims
were filed) a bankruptcy petition could be triggered that would
have left all the plaintiffs without a practical remedy." He
also found that, in these circumstances, "the very act of
solicitation and its communication of the prospect of a recovery
by third parties breached the assumption of confidentiality,
which was central to the prospect of achieving settlement."
The judge found that Goren "appeared to have . . .
violat[ed]" Mass. R. Prof. C. 4.2, as amended, 437 Mass. 1303(2002), by soliciting five creditors that Goren knew or should
have known were already represented by counsel for the trade
creditors.14 He further found that Goren "was subject to"
paragraph 2 of the preamble to the rules of professional conduct
14
Rule 4.2 of the Massachusetts Rules of Professional
Conduct, as amended, 437 Mass. 1303 (2002), provides: "In
representing a client, a lawyer shall not communicate about the
subject of the representation with a person the lawyer knows to
be represented by another lawyer in the matter, unless the
lawyer has the consent of the other lawyer or is authorized by
law to do so."
11
and that his "conduct was fundamentally dishonest toward his co-
counsel and a breach of the core professional duty of good faith
and fair dealing with other counsel."15 The judge also found
that Goren's conduct "was a fundamental breach of his duty of
candor to the [c]ourt," in violation of Mass. R. Prof. C. 3.3,
426 Mass. 1383 (1998), but he did not specify how Goren had
committed a breach of this duty, or which subsection of rule
3.3 (a) Goren had violated.16,17
The judge further concluded that "[t]he [c]ourt has been
materially prejudiced" by Goren's conduct, writing:
"The impact of Goren's conduct on the administration of
justice, the [c]ourt's most immediate concern, has been
stark. The progression of the consolidated cases to a fair
and prompt disposition has been obstructed. Three months
15
Paragraph 2 of the Preamble to the Massachusetts Rules of
Professional Conduct, 426 Mass. 1303 (1998), provides, in
relevant part: "As a representative of clients, a lawyer
performs various functions. . . . As negotiator, a lawyer seeks
a result advantageous to the client but consistent with
requirements of honest dealing with others."
16
Rule 3.3 (a) of the Massachusetts Rules of Professional
Conduct, 426 Mass. 1383 (1998), which was the rule in effect on
the date of the judge's order, provided that a "lawyer shall not
knowingly . . . (1) make a false statement of material fact or
law to a tribunal; (2) fail to disclose a material fact to a
tribunal when disclosure is necessary to avoid assisting a
criminal or fraudulent act by the client . . . ; (3) fail to
disclose to the tribunal legal authority in the controlling
jurisdiction known to the lawyer to be directly adverse to the
position of the client and not disclosed by opposing counsel; or
(4) offer evidence that the lawyer knows to be false . . . ."
17
The judge made no findings regarding the allegation by
the moving parties that Goren had violated Mass. R. Prof. C.
1.7.
12
of diligent and expensive lawyers' time has been wasted.
And the assumption on which the [c]ourt relied in staying
the cases has been shown to have been based on a false
premise."
In addition to allowing in part the motions for sanctions and
ordering sanctions against Goren, the judge referred a copy of
his order to the board for its review.
Pursuant to the judge's order, counsel involved in the
settlement negotiations filed affidavits detailing their
attorney's fees. After a nonevidentiary hearing addressing
those filings, the judge ordered Goren to pay sanctions totaling
$239,928.40 to counsel for the parties engaged in settlement
negotiations (other than Cheng Lee). The judge observed:
"The magnitude of the total award gives the [c]ourt
temporary pause. However, on reflection, it is a fair,
reasonable and just sanction under the unusual, if not
unique, circumstances of this case. Attorney Goren's
callous indifference to the consequences of his unethical
solicitation directly caused the predictable financial
injury which the sanctions are designed to compensate.
Further, not reflected in the sanctions is the impact on
the [c]ourt (the resources of which are currently strained
to the limit). If such impact were in fact monetized, the
total sanctions would be substantially enlarged."
Goren appealed, and we granted direct appellate review.18
18
The sanctions award against Goren is the only issue on
appeal. The parties ultimately entered into a court-indorsed
settlement agreement on June 11, 2014, which resolved all claims
in these consolidated cases apart from the sanctions at issue in
this appeal and a separate award of attorney's fees not
involving Goren.
13
Discussion. Massachusetts generally follows the "American
rule" and denies recovery of attorney's fees unless such fee-
shifting is authorized by contract, statute, or court rule. See
Police Comm'r of Boston v. Gows, 429 Mass. 14, 17 (1999) (Gows);
Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 95 (1997). In
some circumstances, a judge in a civil case is expressly
authorized by statute or rule to sanction an attorney for
misconduct by requiring the attorney to pay opposing counsel's
fees. A judge may award an adverse party reasonable attorney's
fees and other costs upon a finding that "all or substantially
all of the claims, defenses, setoffs or counterclaims . . . made
by any party who was represented by counsel . . . were wholly
insubstantial, frivolous and not advanced in good faith." G. L.
c. 231, § 6F. See Mass. R. Civ. P. 11 (a), as amended, 456
Mass. 1401 (2010) (attorney may be subjected to "appropriate
disciplinary action" for wilful violation of rule requiring that
attorney not sign pleading unless "to the best of his knowledge,
information, and belief there is a good ground to support it;
and that it is not interposed for delay"). A judge is also
granted abundant authority pursuant to Mass. R. Civ. P. 37 to
impose sanctions, including attorney's fees, where an attorney
violates a rule of discovery or an order regarding discovery.
See Mass. R. Civ. P. 37 (b), as amended, 423 Mass. 1406 (1996).
Furthermore, even though not expressly authorized by the rules
14
governing contempt, we have recognized -- notwithstanding the
American rule -- that "[w]here a party's conduct in a litigation
constitutes contempt of court, . . . a court has discretion to
award attorney's fees against the contumacious party." Gows,
supra.19
In this case, the judge assessed attorney's fees against
Goren without the authority of any statute or rule, without
finding Goren in contempt of court, and in the absence of any
contractual arrangement among the parties authorizing the
assessment of attorney's fees. The judge in his decision
imposing sanctions on Goren quoted the legal standard we
declared in Beit, noting that a judge, through the exercise of
the court's inherent powers, may sanction an attorney by the
award of attorney's fees "as necessary to secure the full and
effective administration of justice." Beit, 385 Mass. at 859,
quoting O'Coins, Inc. v. Treasurer of the County of Worcester,
362 Mass. 507, 514 (1972). But the legal issue in Beit was
simply whether a judge, through the exercise of inherent powers,
19
See Mass. R. Civ. P. 65.3, as appearing in 386 Mass. 1244(1982) (authorizing civil contempt proceedings for violations of
"orders or judgments entered pursuant to these rules, for the
violation of which civil contempt is an appropriate remedy").
See also Demoulas v. Demoulas Super Mkts., Inc., 424 Mass. 501,
571 (1997), S.C., 428 Mass. 543 (1998), and S.C., 432 Mass. 43(2000) ("As matter of law, the awarding of attorney's fees and
costs is an appropriate element of a successful civil contempt
proceeding"); Matter of Vincent, 408 Mass. 527, 530 (1990) ("It
is well settled that a court has the inherent power to impose
sanctions for contempt of its orders").
15
could sanction an attorney for failing to appear at trial. That
was effectively a violation of a court order, because when a
judge sets a date for trial, and no continuance is sought or
allowed, the judge is implicitly ordering counsel in the case to
appear on that date for trial, and the counsel's failure to
appear, without excuse, is plainly grounds for sanction. See
Beit, supra at 859-860 ("authority to make the court's lawful
orders effective" includes authority to sanction attorney for
failure to appear). Goren did not violate any court order; nor
did he engage in any misconduct in the court room. Therefore,
this case tests the limits of a judge's inherent powers to
sanction in a way that Beit did not, and requires us to revisit
the scope of the court's inherent powers.
We have held that a judge has the inherent power to assess
attorney's fees against a party or attorney for out-of-court
misconduct that was not in violation of any court order, but
only in "rare and egregious cases." Gows, 429 Mass. at 17, 19
(judge awarded attorney's fees against party who delayed
compliance with lawful court order and forced prevailing party
to resort to litigation to obtain compliance). The crux of the
issue here is whether this is such a "rare and egregious" case.
Under Federal law, a judge may exercise the inherent powers
of the court to assess attorney's fees against an attorney as a
sanction for misconduct where the attorney has "willful[ly]
16
disobe[yed]" a court order or where the attorney has "acted in
bad faith, vexatiously, wantonly, or for oppressive reasons."
Chambers v. NASCO, Inc., 501 U.S. 32, 45-46 (1991), quoting
Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240,
258-259 (1975). See Gows, 429 Mass. at 18, quoting Newman v.
Piggie Park Enters., Inc., 390 U.S. 400, 402 n.4 (1968) (noting
that under Federal law, "[c]onduct has been held to justify an
award of attorney's fees where a party has acted 'in bad
faith'"). In Chambers, the bad faith conduct that warranted the
assessment of attorney's fees -- which included but went beyond
violations of court orders and other misconduct that could be
sanctioned under Federal statutes and rules -- was egregious.
See Chambers, supra at 35-42, 58 (affirming award of almost $1
million in attorney's fees against litigant who tried "first, to
deprive [the Federal District Court] of jurisdiction [by acts of
fraud on the court] and, second, to devise a plan of
obstruction, delay, harassment, and expense sufficient to reduce
[opposing party] to a condition of exhausted compliance").
However, there appears to be no Federal rule defining what
constitutes "bad faith" for the purpose of justifying a court's
award of attorney's fees based on the court's inherent
powers. See id. at 63 (Kennedy, J., dissenting) (only
limitation on court's exercise of inherent power to impose
sanctions "appears to be a finding at some point of 'bad faith,'
17
a standard the Court fails to define"). We recognize that "bad
faith" alone is too vague a standard to establish the scope of a
judge's inherent power to assess attorney's fees against an
attorney who is not in violation of a court order, statute, or
rule of procedure.
A judge's inherent powers -- including the inherent power
to assess attorney's fees for misconduct -- must be broad enough
to enable a judge to ensure the fair administration of justice.
See Avery v. Steele, 414 Mass. 450, 457 (1993), quoting New
England Novelty Co. v. Sandberg, 315 Mass. 739, 746 (1944)
("'[C]ourt[s] of superior jurisdiction [have] the inherent power
. . . to punish those who obstruct or degrade the administration
of justice' . . . [and] have wide discretion to determine when a
party or attorney before them has acted in a manner warranting
the imposition of sanctions"); Beit, 385 Mass. at 859. But the
exercise of these powers to assess attorney's fees must be
limited to those cases where the imposition of such sanctions is
necessary to preserve the court's authority to accomplish
justice. See Chambers, 501 U.S. at 64 (Kennedy, J., dissenting)
("Like all applications of inherent power, the authority to
sanction bad-faith litigation practices can be exercised only
when necessary to preserve the authority of the court");
O'Coins, Inc., 362 Mass. at 510, quoting Opinion of the
Justices, 279 Mass. 607, 609 (1932) ("[I]mplicit in the
18
constitutional grant of judicial power is 'authority necessary
to the exercise of . . . [that] power [emphasis supplied]'").
The inherent powers of the court are limited by this rule of
necessity, consistent with the principle that "[b]ecause
inherent powers are shielded from direct democratic controls,
they must be exercised with restraint and discretion." Roadway
Express, Inc. v. Piper, 447 U.S. 752, 764 (1980). See Chambers,
supra at 44 ("Because of their very potency, inherent powers
must be exercised with restraint and discretion").20 In accord
with this principle, a court should exercise restraint and
discretion both in determining whether the rule of necessity
permits the imposition of sanctions under a court's inherent
powers and, where it does, in determining whether to impose a
sanction in a particular case and the severity of the sanction.
The inherent powers necessary to preserve the court's
authority to accomplish justice include the power to sanction an
attorney for failing to comply with an order of the court and
for undue delay in compliance. See Sommer v. Maharaj, 451 Mass.
20Where a court's power to impose the sanction of
attorney's fees is concerned, there is an additional
consideration warranting restraint, namely, the risk that the
court's inherent powers might be interpreted so liberally as to
create an exception to the American Rule so broad that it might
in practice devour the rule. See Chambers v. NASCO, Inc., 501
U.S. 32, 45 (1991), quoting Roadway Express, Inc. v. Piper, 447
U.S. 752, 765 (1980) (court has inherent power to depart from
American rule only in "narrowly defined circumstances").
19
615, 620-622 (2008), cert. denied, 556 U.S. 1235 (2009)
("extreme delay in payment of the judgment" warranted forfeiture
of party's right to be heard); Gows, 429 Mass. at 17-19; Beit,
385 Mass. at 859-860; Commonwealth v. Rogers, 46 Mass. App. Ct.
109, 112 (1999) (upholding nominal assessment of fees against
attorney for violation of court order where violation was not
disruptive enough to warrant summary contempt punishment). See
also Chambers, 501 U.S. at 45-46, quoting Alyeska Pipeline Serv.
Co., 421 U.S. at 258, and Hutto v. Finney, 437 U.S. 678, 689
n.14 (1978) (fee shifting allowed for "willful disobedience of a
court order" and where party "shows bad faith by . . . hampering
enforcement of a court order"). The court's inherent powers
also include the power to sanction an attorney for making
knowingly false misrepresentations to the court, intentionally
misleading the court, or knowingly concealing information that
an attorney has a duty to provide to the court. See Chambers,
supra at 46, quoting Universal Oil Prods. Co. v. Root Refining
Co., 328 U.S. 575, 580 (1946) ("[I]f a court finds 'that fraud
has been practiced upon it . . . ,' it may assess attorney's
fees against the responsible party"); Munshani v. Signal Lake
Venture Fund II, LP, 60 Mass. App. Ct. 714, 714-715, 718-722
(2004) (dismissal of party's case pursuant to court's inherent
powers was warranted after party committed fraud on court by
"manufacturing evidence, swearing to its authenticity, and
20
continuing to insist on its authenticity for more than seven
months while an expert investigated the matter"). They also
include the power to sanction an attorney for engaging in
conduct in the court room that interferes with a judge's ability
to manage the court room fairly, efficiently, and respectfully.
See Chambers, supra, quoting Hutto, supra (fee shifting allowed
where party "shows bad faith by delaying or disrupting the
litigation"); Clark v. Clark, 47 Mass. App. Ct. 737, 743-744
(1999) (award of attorney sanctions was not improper where
attorney engaged in "bombastic" behavior during trial, and
walked out of court room during cross-examination of her client
without permission after having been warned by court that such
conduct could result in criminal contempt proceedings being
instituted against her). They also include the power to
sanction an attorney for other types of misconduct, but only
where the exercise of that inherent power is necessary to
punish, deter, or remedy misconduct that threatens a judge's
ability to ensure the fair administration of justice. See
Avelino-Wright v. Wright, 51 Mass. App. Ct. 1, 3, 5-6 (2001)
(upholding attorney's fee sanction for attorney who "abused the
court process" by, inter alia, "challenging the integrity of the
judges and appointed experts"; "becoming so enmeshed with her
client that she [had] lost her professionalism in advocating for
a client"; "not attempting to exercise proper control and
21
guidance of her client"; and "violating the court imposed
restraining order against her").
The judge in this case essentially found that Goren, by
sending the solicitation letter, committed a breach of the
"assumption of confidentiality" that was "central to the
prospect of achieving settlement," and thereby thwarted a
settlement that was on the verge of being executed, which wasted
three months of attorneys' time that had been invested in
negotiating the settlement, and "materially prejudiced" the
court by delaying the judge's effort to move the consolidated
cases towards trial. Further, although the judge recognized
that he had no jurisdiction "[i]n a technical sense" to decide
whether Goren had violated the rules of professional conduct, he
nonetheless essentially found that Goren had violated these
rules, and the judge relied on these violations to demonstrate
that Goren had acted unreasonably to impede "the full and
effective administration of justice." We review the judge's
imposition of sanctions under the court's inherent powers for
abuse of discretion. See Chambers, 501 U.S. at 55. "[A]
judge's discretionary decision constitutes an abuse of
discretion where we conclude the judge made 'a clear error of
judgment in weighing' the factors relevant to the decision,
. . . such that the decision falls outside the range of
22
reasonable alternatives" (citation omitted). L.L. v.
Commonwealth, 470 Mass. 169, 185 n.27 (2014).
We know of no other case, nor has one been cited by the
parties or amicus, where a judge sanctioned an attorney pursuant
to the inherent powers of the court for conduct that resulted in
a breakdown of settlement negotiations where there was no breach
of a settlement agreement or confidentiality agreement, and no
violation of an order of the court or rule of procedure.21 The
fair administration of justice does not require the settlement
of a case; although the parties are free to settle their case,
their entitlement under law is to a trial, not to a settlement
in lieu of a trial. See Bower v. Bournay-Bower, 469 Mass. 690,
701 (2014) ("art. 11 [of the Massachusetts Declaration of
Rights] safeguards an individual's right to seek recourse under
the law"); Graizzaro v. Graizzaro, 36 Mass. App. Ct. 911, 912
(1994) ("A court may appropriately urge settlement on the
21
In Strand v. Hubbard, 31 Mass. App. Ct. 914, 914-915
(1991), where the Appeals Court approved an award of attorney's
fees against a party who "provoked a needless round of
litigation by torpedoing the settlement to which she had
previously agreed," the Appeals Court was acting pursuant to its
statutory authority under G. L. c. 215, § 45, which applies only
in probate proceedings and which permits a court to award costs
and expenses "as justice and equity may require." The holding
in that case applies only to probate proceedings. See Matter of
the Estate of King, 455 Mass. 796, 802-805 & n.13 (2010) ("§ 45
is a special departure from the American rule . . . but one
[that is] limited to matters relating to wills, estates, and
trusts").
23
parties but may not refuse them access to a judicial forum to
resolve their justiciable disputes"). See also Goss Graphics
Sys., Inc. v. DEV Indus., Inc., 267 F.3d 624, 627-628 (7th Cir.
2001) ("If parties want to duke it out, that's their
privilege"). It might be regrettable that money and time were
wasted in negotiations that ultimately failed to bear fruit, but
that risk is inherent in every negotiation. Because of the risk
that judges may misuse the inherent powers to pressure a party
to settle a case by threatening the party with sanctions, and
also because of the risk that judges will be drawn into
collateral disputes regarding what occurred during settlement
negotiations by parties seeking sanctions, we must scrutinize
with special care any exercise of the inherent powers in the
context of settlement negotiations. Cf. Graizzaro, supra ("[A]
judge must show restraint in urging settlement on the parties,"
and "[w]hile a judge in a civil case doubtless may play a role
in settlement discussions . . . , he must be conscious to avoid
use of his power to coerce settlements from recalcitrant
parties" [citation omitted]).
A settlement agreement, especially in a case as complex as
this, no doubt would spare the court the time and resources that
would otherwise be devoted to trying the case. But an
attorney's conduct during settlement negotiations that results
in the failure of those negotiations is not subject to sanctions
24
under the judge's inherent powers where the judge is not
participating in those negotiations, because the failure of
settlement negotiations does not threaten a judge's ability to
ensure the fair administration of justice.22 Where a settlement
agreement is entered into as a result of fraud or duress, the
aggrieved party may challenge the lawfulness of the agreement
and may potentially be awarded attorney's fees as an equitable
remedy, along with the voiding of the agreement. Cf. Warner
Ins. Co. v. Commissioner of Ins., 406 Mass. 354, 360 n.7 (1990)
("settlement agreement is a private contract . . . governed by
general contract law"). But where, as here, no agreement is
reached, a judge's inherent powers do not authorize the judge to
determine who was responsible for the breakdown of negotiations,
and order the attorney responsible to pay the attorney's fees
incurred by the other parties in the thwarted negotiations.
22
We do not mean to suggest that a court does not have a
legitimate interest in the progress of settlement negotiations.
Cf. Mass. R. Civ. P. 16, as amended, 466 Mass. 1401 (2013)
(identifying "possibility of settlement" as subject that "a
court may in its discretion direct the attorneys for the parties
. . . to appear before it" to consider at pretrial conference).
Other jurisdictions have accordingly held that a court has the
inherent power to order parties to attend settlement
negotiations, and to sanction parties for failing to comply with
such orders. See In re Novak, 932 F.2d 1397, 1406-1407 (11th
Cir. 1991); G. Heileman Brewing Co. v. Joseph Oat Corp., 871
F.2d 648, 656-657 (7th Cir. 1989). But we note that no such
order was issued in this case.
25
The judge here determined that Goren committed a breach of
the "assumption of confidentiality" that was necessary to the
entry of a settlement agreement, but where no confidentiality
agreement was entered into and where confidentiality was not
required by an order of the court, the inherent powers of the
court are not properly exercised to sanction the breach of such
an assumption.23 The judge suggested that the breach of the
"assumption of confidentiality" violated the obligation of an
attorney to deal honestly with others, but the inherent powers
of the court do not extend to claims that an attorney during
settlement negotiations did not act honestly.24
The judge also found that Goren violated Mass. R. Prof. C.
4.2 by sending his solicitation letter to a few prospective
23
Contrast Baella-Silva v. Hulsey, 454 F.3d 5, 7, 11-13
(1st Cir. 2006) (affirming sanction imposed by Federal District
Court against party who committed breach of confidentiality
clause of settlement agreement incorporated into court's
judgment); Toon v. Wackenhut Corrections Corp., 250 F.3d 950,
952, 954 (5th Cir. 2001) (affirming sanction against party who
committed breach of confidentiality provision of settlement
agreement by filing unsealed motion to enforce settlement
agreement).
24
The judge focused on the provision in Mass. R. Prof. C.
Preamble, par. 2, which provides, "As negotiator, a lawyer seeks
a result advantageous to the client but consistent with
requirements of honest dealing with others," and implicitly
found that Goren violated that part of the preamble that calls
for "honest dealing with others." But the preamble to the rules
of professional conduct provides only "general orientation"; it
is not itself a rule. Mass. R. Prof. C. Scope [9], 426 Mass.
1308 (1998).
26
clients who were already represented by counsel in settlement
negotiations. The judge recognized that "[i]n a technical
sense" the adjudication of an alleged violation of an ethical
rule rests solely with the board and this court, and that a
judge does not have jurisdiction to rule on issues of
compliance.25 But he nonetheless determined that a finding of an
ethical violation may bear on the issue whether Goren impaired
the administration of justice. In the circumstances of this
case, we disagree. Sending a solicitation letter to a
represented client in these circumstances -- even assuming it
was in violation of rule 4.2 -- is not conduct that may be
sanctioned through the inherent powers of the court; such
sanctions were not necessary to ensure the fair administration
of justice where the judge also referred the matter to the board
for its consideration, and where disciplinary proceedings
instituted by the board and reviewed by this court would be able
to protect the interests embodied in rule 4.2.
The judge's finding that Goren committed "a fundamental
breach of his duty of candor to the [c]ourt," in violation of
rule 3.3, calls for separate analysis, because this rule
prohibits an attorney from making a knowing false statement to a
25
See S.J.C. Rule 4:01, § 1, as amended, 430 Mass. 1319(2000) ("exclusive disciplinary jurisdiction" over lawyers
practicing in the Commonwealth lies with Supreme Judicial Court
and Board of Bar Overseers).
27
court, and it is plain that the inherent powers of the court
include the authority to sanction an attorney for such
misconduct, regardless of the adjudication of any complaint
before the board for violation of this rule. See Rockdale Mgt.
Co. v. Shawmut Bank, N.A., 418 Mass. 596, 598 (1994) ("When a
fraud on the court is shown through clear and convincing
evidence to have been committed in an ongoing case, the trial
judge has the inherent power to take action in response to the
fraudulent conduct," and "has broad discretion to fashion a
judicial response warranted by the fraudulent conduct");
Munshani, 60 Mass. App. Ct. at 718-722. See also Chambers, 510
U.S. at 46, quoting Universal Oil Prods. Co., 328 U.S. at 580
("if a court finds 'that fraud has been practiced upon it, or
that the very temple of justice has been defiled,' it may assess
attorney's fees against the responsible party"). The judge did
not specify what he found to constitute this breach of Goren's
duty of candor but we need not remand for such a finding,
because the only finding that might support the exercise of the
judge's inherent powers to sanction -- a finding that, when the
attorneys represented to the judge that they were exploring
settlement of the case, Goren knowingly misled the judge because
Goren knew at the time that he intended to sabotage any possible
settlement by sending out the solicitation letter -- is not
supported by the information presented to the court. Although
28
there was ample information to support a finding that Goren
should have recognized that his sending of the solicitation
letter put at risk the settlement agreement that he claimed in
the letter he was "about to conclude" for his client, there is
no information to suggest that Goren sought settlement
discussions to procure delay in the litigation, knowing that he
would sabotage any possible settlement.
We understand the judge's frustration that a settlement of
a complex case was thwarted by Goren's desire to solicit other
clients at a time when he should have known that doing so risked
the settlement that had so nearly been achieved. We understand
as well the parties' frustration that so much of their
attorneys' time (and therefore their money) was squandered by
the ultimate failure of negotiations triggered by Goren's
solicitation. But the inherent powers of a judge to sanction an
attorney are not so broad as to right all wrongs. They are
limited to what is necessary to "vindicat[e] judicial
authority." Chambers, 501 U.S. at 46, quoting Hutto, 437 U.S.
at 689 n.14. See Byrne v. Nezhat, 261 F.3d 1075, 1133 n.116
(11th Cir. 2001) ("Unlike the tort law, [sanctions imposed under
court's inherent powers] are aimed directly at redressing the
harm suffered by the judicial system"); Mark Indus., Ltd. v. Sea
Captain's Choice, Inc., 50 F.3d 730, 733 (9th Cir. 1995)
("Return of all fees and costs [was] too severe a sanction"
29
because "[t]he proper use of sanctions that are within the
court's inherent power is to protect the court so it may
adequately dispense justice," whereas "[h]ere . . . the court
chose to impose what amounted to a summary malpractice
penalty").26 Because the alleged wrongs committed by Goren did
not threaten the judge's ability to ensure the fair
administration of justice, we conclude that the judge exceeded
the inherent powers of a court by his assessment of attorney's
fees and therefore abused his discretion in doing so.27
26
Sanctions imposed under the court's inherent powers may
also serve the purpose of "mak[ing] [a] party whole for expenses
caused by his opponent's obstinacy." Chambers, 501 U.S. at 46,
quoting Hutto v. Finney, 437 U.S. 678, 689 n.14 (1978). See
Avelino-Wright v. Wright, 51 Mass. App. Ct. 1, 5 (2001) ("Unlike
the use of the criminal contempt power, the purpose of sanctions
is designed not only to punish but also to compensate the
aggrieved litigant for the actual loss incurred by the
misconduct of the offending party"). But it does not follow
that sanctions can always be justified whenever a party is
injured by an opposing party's or an attorney's misconduct. The
limiting principle of necessity means that the inherent powers
of a judge may only be exercised where necessary to preserve the
court's authority to administer justice.
27
Because we conclude that the sanctions order must be
reversed where the fair administration of justice was not
threatened by Goren's conduct, we do not reach the issue whether
Goren's conduct was in bad faith, or whether a finding of bad
faith is required to assess attorney's fees under the judge's
inherent powers where no court order or rule of procedure has
been disobeyed. Nor do we consider Goren's argument that he was
entitled to an evidentiary hearing before sanctions could be
imposed.
30
Conclusion. For the reasons stated, we reverse the judge's
order and subsequent amended order as they pertain to the
imposition of sanctions on Goren.28
So ordered.
28
Our reversal of the judge's order does not affect the
judge's referral of the matter to the Board of Bar Overseers for
its consideration.