On September 13, 2010, a panel of the Fifth Circuit Court of Appeals, in Positive Software Solutions v. New Century Mortgage Corp. (5th Cir. 2010), vacated a $10,000 sanction imposed on an attorney at Susman Godfrey by Judge Godbey. Judge Godbey imposed the sanction in February 2009, finding that the attorney had acted in bad faith by (i) instructing an expert witness to destroy evidence that was provided for his review, (ii) instructing another to review evidence and produce it if it was favorable, and (iii) failing to correct false testimony in depositions.
The Fifth Circuit reversed, holding that the district court lacked inherent authority to impose the sanction, given that the conduct giving rise to the sanction occurred during an arbitration. The Fifth Circuit made it clear that, even when the district court orders the parties to arbitration, the district court lacks the power to impose sanctions unless the attorney engaged in the relevant conduct (i) before the district court or (ii) in direct defiance of its orders. Otherwise, “the conduct is beyond the reach of the court’s inherent authority to sanction.”
The Fifth Circuit noted that Positive Software could have asked the American Arbitration Association to re-open the proceedings so it could request sanctions from the arbitration, or it could have relied on the grievance process (which it did).
The Fifth Circuit stated that it did not condone the complained-of actions as they are alleged to have occurred, and directed the clerk to send a copy of its opinion to the Office of the General Counsel of the State Bar of Texas. The Court noted that the State Bar declined to act on this matter in response to Positive Software’s request, and expressed no view on whether the State Bar should consider the matter further.
The Susman attorney was represented on appeal by Dallas attorneys Sharon Freytag of Haynes and Boone, LLP and Rod Phelan of Baker Botts LLP. Michael Shore, Alfonso Chan, Theresa Dawson, and Jeffrey Bragalone, all of Shore Chan Bragalone DePumpo LLP, represented Positive Software Solutions.