No Inherent Sanction Authority When Settlement Breaks Down

A decision from the Massachusetts Supreme Judicial Court

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 appropriately addressed by a referral to the Board of Bar Overseers (board), we reverse the judge's order imposing sanctions.

The case involved a supermarket sale. The alleged misconduct was an attorney's solicitation letter to potential clients while a settlement was being negotiated. It was alleged that the settlement broke down due to the solicitation.

The court

The judge in this case essentially found that [attorney] 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 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. 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...

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...

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.

(Mike Frisch)