First Bank v. Hartford Underwriter

• Court: Court of Appeals for the Sixth Circuit
• Decided: October 10, 2002
• Docket: 00-4542
• Status: Published

Opinion

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judicial authority without resort to the more drastic  :KHWKHU WKH GLVWULFW FRXUW DEXVHG LWV GLVFUHWLRQ LQ sanctions available for contempt of court and mak[ing] GHQ\LQJ)LUVW%DQN¶VPRWLRQIRU5XOHVDQFWLRQV the prevailing party whole for expenses caused by his opponents obstinacy. )LUVW %DQN FRQWHQGV WKDW WKH GLVWULFW FRXUW HUUHG LQ QRW DZDUGLQJ LWV PRWLRQ IRU VDQFWLRQV XQGHU 5XOH  RI WKH Chambers, 501 U.S. at 45-46 (citations omitted). )HGHUDO5XOHVRI&LYLO3URFHGXUHVWDWLQJ Although Chambers states that a district court should ,QWKLVFDVH$SSHOOHHFRXOGKDYHFRPSOLHGZLWKWKHVDIH consider whether the conduct could be sanctioned under the KDUERUSURYLVLRQRI&LYLO5XOHDQGLWVIDLOXUHWRGRVR rules before it relies upon its inherent authority to impose ZDV LWVHOI D 5XOH  YLRODWLRQ DQG WKH 'LVWULFW &RXUW sanctions for bad-faith conduct, Chambers does not explicitly DEXVHGLWVGLVFUHWLRQLQQRWDZDUGLQJ$SSHOODQW5XOH require in every instance that a district court first determine VDQFWLRQV+DG$SSHOOHHFRPSOLHGZLWKWKHVDIHKDUERU whether the conduct could be sanctioned under the rules or FRQGLWLRQ SUHFHGHQW QRQH RI WKH OLWLJDWLRQ ZRXOG KDYH relevant statutes before considering sanctions under its EHHQQHFHVVDU\RUDWOHDVWWKH$SSHOODQWZRXOGKDYHEHHQ inherent authority. As the Court also stated: "the Court’s RQQRWLFHRIWKHSRWHQWLDO5XOHVDQFWLRQ prior cases have indicated that the inherent power of the district court can be invoked even if procedural rules exist $SSHOODQW)LUVW%DQN¶V)LQDO%ULHIDW which sanction the same conduct." Id. at 49. 7KLV LV 5XOHSURYLGHVWKDWWKHFRXUWPD\LPSRVHDQDSSURSULDWH HVSHFLDOO\WUXHDVKHUHDQGLQ&KDPEHUVZKHUHVRPHRIWKH VDQFWLRQVLISOHDGLQJVRUFODLPVDUHSUHVHQWHGIRUDQLPSURSHU SDUWLFXODUFRQGXFWDWLVVXHZDVVDQFWLRQDEOHXQGHU5XOH SXUSRVHDUHQRWZDUUDQWHGE\H[LVWLQJODZRUDQRQIULYRORXV DQG WKURXJK RWKHU 5XOHV ZKLOH RWKHU FRQGXFW ZDV H[WHQVLRQ RI WKH ODZ RU LI WKH DOOHJDWLRQV DQG IDFWXDO ³LQWHUWZLQHG ZLWKLQ FRQGXFW WKDW RQO\ WKH LQKHUHQW SRZHU FRQWHQWLRQV GR QRW KDYH HYLGHQWLDU\ VXSSRUW  5LGGHU  FRXOGDGGUHVV´,GDW )G DW  VWDWLQJ WKDW WKH LPSRVLWLRQ RI VDQFWLRQV IRU We do not interpret Chambers to require the district court, YLRODWLRQVRI5XOHLVGLVFUHWLRQDU\UDWKHUWKDQPDQGDWRU\ in every instance, to exhaust consideration of sanctions under ,Q3RZHOOY6TXLUH6DQGHUV 'HPSVH\)G other relevant rules and/or statutes. This reading of :/WK&LUWKLV&RXUWKHOGWKDWWKHGLVWULFW Chambers is reasonable given its express language that FRXUW GLG QRW DEXVH LWV GLVFUHWLRQ LQ GHFOLQLQJ WR DZDUG QHLWKHU LV D IHGHUDO FRXUW IRUELGGHQ WR VDQFWLRQ EDGIDLWK VDQFWLRQV XQGHU 5XOH   ,Q VR KROGLQJ WKH &RXUW VWDWHG FRQGXFWE\PHDQVRIWKHLQKHUHQWSRZHUVLPSO\EHFDXVHWKDW ³5XOHSURYLGHVWKDWVDQFWLRQVPD\EHLPSRVHGDQGRQO\WR FRQGXFW FRXOG DOVR EH VDQFWLRQHG XQGHU WKH VWDWXWH RU WKH WKHH[WHQWUHTXLUHGWRGHWHUVLPLODUFRQGXFWLQIXWXUH´,GDW 5XOHVWKHFRXUWRUGLQDULO\VKRXOGUHO\RQWKH5XOHVUDWKHU  WKDQ WKH LQKHUHQW SRZHU." 501 U.S. at 50. The Supreme +HUH WKH GLVWULFW FRXUW GHQLHG )LUVW %DQN¶V PRWLRQ IRU Court’s use of the word "ordinarily" suggests that there may VDQFWLRQVKDYLQJGHFLGHGWKDW+DUWIRUG¶VPRWLRQIRUVDQFWLRQV be some exceptional circumstances when a district court’s VKRXOGEHJUDQWHG:HDIILUPWKHGLVWULFWFRXUW¶VGHQLDORI express consideration of other rules and statutes is not )LUVW%DQN¶VPRWLRQIRU5XOHVDQFWLRQVEHFDXVHWKHGLVWULFW required. Our ruling is wholly consistent with the Supreme FRXUWGLGQRWEDVHLWVUXOLQJRQDQHUURQHRXVYLHZRIWKHODZ Court’s language in Chambers. RUDFOHDUO\HUURQHRXVDVVHVVPHQWRIWKHHYLGHQFH  )LUVW%DQNRI0DULHWWDY 1R 1R )LUVW%DQNRI0DULHWWDY  +DUWIRUG8QGHUZULWHUV +DUWIRUG8QGHUZULWHUV

VXSSRUWDILQGLQJRILPSURSHUSXUSRVHZHFRQFOXGHWKDWWKH This Court has affirmed the imposition of sanctions under GLVWULFWFRXUWGLGQRWDEXVHLWVGLVFUHWLRQLQILQGLQJEDGIDLWK the district court’s inherent authority where the district court RQWKHSDUWRI)LUVW%DQN did not expressly consider particular rules of civil procedure. Mann v. Univ. Of Cinn., 114 F.3d 1188, 1997 WL 280188, at & $PRXQWRIWKHDWWRUQH\IHHV *5-6 (6th Cir. May 27, 1997). Under Chambers, other Circuits have held that the mere fact that conduct is held not )LUVW%DQNQH[WFRQWHQGVWKDWWKHGLVWULFWFRXUWDEXVHGLWV to be a violation of any rule or statute authorizing sanctions GLVFUHWLRQLQWKHDPRXQWRIIHHVLWDZDUGHG+DUWIRUGXQGHULWV does not preclude a district court from imposing sanctions LQKHUHQWSRZHUV under its inherent power. See Amsted Industries, Inc. v. Buckeye Steel Castings Co., 23 F.3d 374, 377-79 (Fed. Cir. +HUHWKHGLVWULFWFRXUWKHOGDKHDULQJWRGHWHUPLQHZKHWKHU 1994) (recognizing a federal courts inherent power to VDQFWLRQV ZHUH DSSURSULDWH DQG LI VR WKH DPRXQW RI WKH VDQFWLRQV'XULQJWKHVDQFWLRQVKHDULQJ+DUWIRUGSUHVHQWHG impose sanctions); Gillette Foods Inc. v. Bayernwald- H[SHUWWHVWLPRQ\WKDWDGGUHVVHGWKHUHDVRQDEOHQHVVRIWKHIHHV Fruchteverwertung, 977 F.2d 809, 813-14 (3d Cir. 1992) FKDUJHGE\+DUWIRUG¶VFRXQVHO7KHH[SHUWZLWQHVVWHVWLILHG UHMHFWLQJWKHUXOHWKDWVDQFWLRQVFDQQRWEHLPSRVHGE\WKH WKDWWKHKRXUO\IHHFKDUJHGRIZDVORZDQGWKDWWKH GLVWULFWFRXUWXQGHULWVLQKHUHQWSRZHUVLPSO\EHFDXVHDFODLP ZRUN GRQH DQG IHHV FKDUJHG ZHUH ³ERWK UHDVRQDEOH DQG LV KHOG QRW WR YLRODWH 5XOH  RU DQRWKHU UXOH RU VWDWXWH QHFHVVDU\IRUWKLVW\SHRIFDVH´)XUWKHUWKHH[SHUWZLWQHVV DXWKRUL]LQJ VDQFWLRQV The Seventh Circuit observed that HVWLPDWHGWKDWRI+DUWIRUG¶VFRXQVHO¶VWLPHZDVVSHQW "courts need not consider lesser sanctions, however, in GHIHQGLQJ&RXQW,,EHFDXVH+DUWIRUGKDGDOUHDG\DJUHHGWR SD\)LUVW%DQNIRUWKH&RXQW,FODLPEHIRUH)LUVW%DQNILOHG  WKHDFWLRQ)LUVW%DQNGLGQRWUHEXWWKHWHVWLPRQ\ 7KH GLVVHQW FRQWHQGV WKDW $PVWHG GRHV QRW VXSSRUW WKH PDMRULW\¶V SRVLWLRQ 8QGHU WKH IDFWV WKHUH WKH &RXUW GLG QRW ILQG WKDW DQ DZDUG RI 7KHGLVWULFWFRXUWDFFHSWHGWKHXQUHIXWHGH[SHUWWHVWLPRQ\ H[SHUW ZLWQHVV IHHV ZDV DSSURSULDWH XQGHU WKH &RXUW¶V LQKHUHQW DXWKRULW\

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situations where the misconduct is ‘so egregious, inexcusable, PHULWOHVVFODLP$VWREDGIDLWKLQWKHQDWXUHRIILOLQJVXLW and destructive that no lesser sanction than dismissal could be )LUVW %DQN¶V LPSURSHU SXUSRVH ZDV WR ILOH D ODZVXLW DV D adequate.’" Graham v. Schomaker, 215 F.3d 1329, 2000 WL PHFKDQLVPWRIRUFH+DUWIRUGWRVHWWOH&ODLP,,UDWKHUWKDQ 717093, at *3 (7th Cir. 2000). At one time, the Third Circuit WU\LQJWRSUHYDLORQWKHPHULWVRIWKDWFODLP)XUWKHULPSOLFLW noted that the district court is not require to "exhaust all other LQWKHGLVWULFWFRXUW¶VILQGLQJVRIEDGIDLWKZDVWKHILQGLQJ sanctioning mechanisms prior to resorting to its inherent WKDW)LUVW%DQNKDGWKHLPSURSHUSXUSRVHVRIGHOD\LQILOLQJ power." Landon v. Hunt, 938 F.2d 450, 454 (3rd Cir. 1991). DQGSURVHFXWLQJ LWV FODLPDQGRIKDUDVVPHQWE\IDLOLQJWR GLVFORVH WKH 7RQWL DIILGDYLW XQWLO UHVSRQGLQJ WR +DUWIRUG¶V To be sure, the Third Circuit now citing Chambers has PRWLRQIRUVXPPDU\MXGJPHQWDQGE\HQJDJLQJLQPXOWLSOH reversed a district court for failure to consider the applicable GLVFRYHU\YLRODWLRQV&RQVHTXHQWO\ZHDJUHHZLWKWKHGLVWULFW federal rules of civil procedure and statutes before resorting FRXUWWKDW)LUVW%DQNDFWHGLQEDGIDLWKDQGVXFKEDG IDLWK to its inherent power can be reversible error.  Montrose FOHDUO\HYLQFHG)LUVW%DQN¶VLPSURSHUSXUSRVHLQSXUVXLWRI Medical Group Participating Savings Plan v. Bulger, 243 WKLVOLWLJDWLRQ F.3d 773, 785 (3d Cir. 2001) (noting that we squarely held that before utilizing its inherent power, a district court should %HFDXVH WKH GLVWULFW FRXUW GLG QRW EDVH LWV ILQGLQJ RQ DQ consider whether any Rule - or statute - based sanctions are HUURQHRXVYLHZRIWKHODZRUDFOHDUO\HUURQHRXVDVVHVVPHQW up to the task in holding that the district court erred when it RI WKH HYLGHQFH DQG EHFDXVH WKHUH LV DPSOH HYLGHQFH WR "did not consider whether any such sanctions . . . would have sufficed to deal with any misconduct that occurred in this  case.") (emphasis added) (citing Klein,185 F.3d at 110) 7KH GLVVHQW FRQWHQGV WKDW RXU DQDO\VLV HVVHQWLDOO\ HOLPLQDWHV WKH ("When the Rules or pertinent statutes are ‘up to the task,’ WKLUG UHTXLUHPHQW RI WKH EDGIDLWK H[FHSWLRQ +HUH WKH GLVWULFW FRXUW IRXQG WKDW )LUVW %DQN¶V ILOLQJ DQG SURVHFXWLRQ ZDV LQ WKH QDWXUH RI EDG IDLWK they should be used. When they are not, a trial court may turn ,PSOLFLW LQ WKLV ILQGLQJ LV WKH ILQGLQJ WKDW )LUVW %DQN KDG WKH LPSURSHU to its inherent power, but should exercise that power with SXUSRVHV RI DWWHPSWLQJ WR XVH WKH FRXUW V\VWHP WR WKUHDWHQ +DUWIRUG LQ DQ caution.") (emphasis added and footnotes omitted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¶V FKDUDFWHUL]DWLRQ WKDW ZH LPSURSHUO\ ³LQIHU>@ WKDW D FODLP LV ILOHG ³UHTXLUH GLVWULFW FRXUW WR FRQVLGHU ZKHWKHU WKH VDQFWLRQV FDQ EH DSSOLHG IRU DQ µLPSURSHU SXUSRVH¶ LI WKH FODLP LV µLQYDOLG¶ DQG LW LV SXW IRUWK E\ D SXUVXDQW WR DQ\ DSSOLFDEOH UXOH RU VWDWXWH EHIRUH LQYRNLQJ WKH FRXUW¶V OLWLJDQW ZKR NQRZV WKDW WKH FODLP LV LQYDOLG´ 6HH GLVVHQW DW S  2XU LQKHUHQW SRZHUV´ 6HH 'LVVHQW 2S DW  :KLOH WKH 7KLUG &LUFXLW LQ LQIHUHQFH LV LQ DFFRUG ZLWK WKLV &RXUW¶V UXOLQJ LQ =DFN WKDW >L@I IURP WKH 0RQWURVH UHYHUVHG IRU D GLVWULFW FRXUW¶V IDLOXUH WR FRQVLGHU DSSOLFDEOH IDFWV IRXQG RWKHU IDFWV PD\ EH LQIHUUHG ZKLFK ZLOO VXSSRUW WKH MXGJPHQW UXOHV WKH 7KLUG &LUFXLW¶V KROGLQJ ZDV RQO\ WKDW ³D GLVWULFW FRXUW VKRXOG VXFK LQIHUHQFHV VKDOO EH GHHP WR KDYH EHHQ GUDZQ E\ WKH 'LVWULFW &RXUW FRQVLGHU ZKHWKHU DQ\ 5XOH ± RU VWDWXWHEDVHG VDQFWLRQV DUH XS WR WKH WDVN  )G DW  TXRWLQJ *URYHU +LOO *UDLQ &R  )G DW   )G DW  FLWDWLRQ RPLWWHG 7KH GLIIHUHQFH EHWZHHQ 0RQWURVH DQG &RQWUDU\ WR WKH GLVVHQW¶V DUJXPHQW WKLV FDVH LV IDU IURP D ³W\SLFDO FODVK RXU UXOLQJ LV RQH RI GHJUHH 2XU UXOLQJ JUDQWV IOH[LELOLW\ WR WKH GLVWULFW EHWZHHQ D EDQN DQG DQ LQVXUDQFH FRPSDQ\ RYHU WKH DSSOLFDWLRQ RI D FRXUWV ZLWK WKH ULJKW WR UHYHUVH IRU IDLOXUH WR FRQVLGHU D FOHDUO\ DSSOLFDEOH ILGHOLW\ LQVXUDQFH SROLF\´ 6HH GLVVHQW DW  +HUH )LUVW %DQN KLG WKH EDOO UXOH ZLWKRXW DQ\ MXVWLILFDWLRQ DQG LV FRQVLVWHQW ZLWK &KDPEHUV WKH WKDW  E\ IDLOLQJ WR GLVFORVH YLWDO HYLGHQFH DQG HQJDJHG LQ PXOWLSOH GLVFRYHU\ FRXUW RUGLQDULO\ VKRXOG UHO\ RQ WKH 5XOHV UDWKHU WKDQ WKH LQKHUHQW SRZHU YLRODWLRQV DQG YLRODWLRQV RI FRXUW RUGHUV ,I WKLV LV W\SLFDO OLWLJDWLRQ  86 DW  FRQGXFW LQ VXFK FDVHV ZH VKRXOG GR DOO ZH FDQ WR GLVFRXUDJH LW  )LUVW%DQNRI0DULHWWDY 1R 1R )LUVW%DQNRI0DULHWWDY  +DUWIRUG8QGHUZULWHUV +DUWIRUG8QGHUZULWHUV

LW NQHZ ZDV DQ LQYDOLG FODLP XQGHU WKH WHUPV RI WKH %RQG In our view, Chambers should be read broadly to permit the $JUHHPHQW´ (PSKDVLV DGGHG  %XW KDYLQJ DOUHDG\ district court to resort to its inherent authority to sanction bad- FRQFOXGHGWKDW)LUVW%DQN¶VEDGIDLWK±RULPSURSHUSXUSRVH faith conduct, even if the court has not expressly considered ±ZDVLQWKHQDWXUHRIEULQJLQJWKHDFWLRQWKHGLVWULFWFRXUW whether such conduct could be sanctioned under all VWDWHGWKDWLW³QHHGQRWUHDFK>WKHLVVXHRI)LUVW%DQN¶VDWWHPSW potentially applicable rules or statutes. While a district court WRDFWXDOO\SUHYDLORQWKHPHULWVRI&ODLP,,@WRILQGWKDW)LUVW should ordinarily consider whether "the conduct could also be %DQN¶VVXLWZDVLQEDGIDLWK´ sanctioned under the statute or the Rules," Chambers, 501 U.S. at 50, there is nothing in Chambers that explicitly ,QDGGLWLRQWRHYLGHQFHRI)LUVW%DQN¶VEDGIDLWKLQILOLQJ requires a court to determine whether "the conduct at issue is WKLVDFWLRQWKHUHFRUGUHIOHFWVWKHGLVWULFWFRXUW¶VILQGLQJVWKDW covered by one of the other sanctioning mechanisms." Id. )LUVW %DQN IDLOHG WR FRPSO\ ZLWK VHYHUDO GLVFRYHU\ RUGHUV We are reluctant to impose a wooden requirement where the LVVXHGE\0DJLVWUDWH-XGJH$EHOLQFOXGLQJWKH$XJXVW district court needs the discretion and flexibility to exercise its 3UHWULDO3UHOLPLQDU\2UGHUWKH2FWREHU inherent authority to address various impermissible litigation 2UGHUWKDW)LUVW%DQNUHVSRQGWRDOORXWVWDQGLQJGLVFRYHU\QR ODWHUWKDQ1RYHPEHUDQGWKH2FWREHU 2UGHUWKDWDOOGLVFRYHU\KDGWREHFRPSOHWHGE\0DUFK 6HHVXSUDQ 7KHGLVWULFWFRXUW¶VILQGLQJVRQWKHZLWKKROGLQJRIWKH7RQWL DIILGDYLWGHVSLWHGLVFRYHU\RUGHUVDQG+DUWIRUG¶VGLVFRYHU\ UHTXHVWV DUH FRQVLVWHQW ZLWK WKH &RXUW¶V DIILUPDQFH RI D ILQGLQJ RI EDG IDLWK LQ 0LWDQ ZKHUH WKH SODLQWLII ZLWKKHOG UHTXLUHG GRFXPHQWV RQ WKH LVVXH RI WKH GLVWULFW FRXUW¶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XQWLODIWHUWKH\SUHVHQWHGWKLVLQIRUPDWLRQWR+DUWIRUG  )G   :/  WK &LU  DSSURYLQJ VDQFWLRQV IRU /RRNLQJ DW WKHVH IDFWV DORQH )LUVW %DQN¶V DFWLRQV IXWXUH ILOLQJV E\ SODLQWLII ZKR KDG ILOHG QLQH ODZVXLWV LQ WKH GLVWULFW FRXUW EHVSHDNEDGIDLWK DOO RI ZKLFK ZHUH GLVPLVVHG DV IULYRORXV :UHQQ Y 9DQGHUELOW 8QLYHUVLW\ +RVSLWDO  )G   :/  DW  WK &LU  HQMRLQLQJ IXUWKHU DSSHDOV E\ SUR VH OLWLJDQW VWDWLQJ WKLV FRXUW KDV WKH -$DW7KHGLVWULFWFRXUWIXUWKHUQRWHGWKDW³+DUWIRUG DXWKRULW\ WR HQMRLQ KDUDVVLQJ OLWLJDWLRQ XQGHU LWV LQKHUHQW DXWKRULW\ DQG WKH SURYLGHG )LUVW %DQN ZLWK HYHU\ RSSRUWXQLW\ WR VXSSRUW LWV $OO :ULWV $FW FODLPLQFOXGLQJDOHWWHURXWOLQLQJZKDWVKRXOGEHFRQWDLQHG  LQ WKH SURRI RI ORVV DQG D YLVLW E\ 0U 3RZHUV ZKR $SSO\LQJ WKH DEXVH RI GLVFUHWLRQ VWDQGDUG WKH )LIWK &LUFXLW XSKHOG VSHFLILFDOO\DVNHGIRUVXSSRUWLQJGRFXPHQWDWLRQWRVKRZWKDW WKH GLVWULFW FRXUWs award of sanctions under its inherent power in Carroll 0U%LHKO¶VORDQVZHUHGLVKRQHVW´-$DW v. The Jaques Admiralty Law Firm, P.C., 110 F.3d 290 (5th Cir. 1997). In Carroll, the Fifth Circuit concluded that the district court did not err in 7KXVUDWKHUWKDQSURYLGLQJLQIRUPDWLRQWR+DUWIRUGZKLFK resorting to its inherent power to sanction an attorney for his behavior at a deposition, finding that "the usual rules were not up to the task. 110 FRXOGKDYHHQDEOHGLWWRDVVHVVWKHFRYHUDJHRI&ODLP,,XQGHU F.3d at 293. The Ninth Circuit in Mark Indus., 50 F.3d at 732, also found WKH SROLF\ )LUVW %DQN FKRVH WR KLGH WKH EDOO DQG ILOH WKLV that the district court did not abuse its discretion by sanctioning an DFWLRQZKHQLQIRUPHGWKDW+DUWIRUGEHOLHYHGWKDWWKHFODLP attorney under its inherent power for entering into a stipulated order of ZDV QRW FRYHUHG XQGHU WKH ERQG EHFDXVH RI WKH ODFN RI dismissal without the consent of the client. In that case, the Ninth Circuit HYLGHQFHRIPDQLIHVWLQWHQW concluded that Rule 11 did not authorize sanctions in favor of a party against its own lawyer. Notwithstanding, Mark Indus. held that the trial )LUVW %DQN FRQWHQGV WKDW LWV IDLOXUH WR GLVFORVH %LHKO¶V court has the inherent power, apart from the rules or statutes, to sanction FRPPHQWLVQRWHYLGHQFHRIEDGIDLWK attorneys for their willful abuse of judicial process or bad faith conduct. Id. The Third Circuit also found no abuse of discretion in Fellheimer, 1RW WHOOLQJ WKH LQVXUDQFH FRPSDQ\ DERXW D Eichen & Braverman, P.C., v. Charter Technologies, Inc., 57 F.3d 1215, 1227- 28 (3d Cir. 1995), upholding the imposition of sanctions as the FRQYHUVDWLRQZLWKDWKLHIWKDWPDGHQRGLIIHUHQFHWRWKH proper exercise of the bankruptcy courts discretion under its inherent LQVXUDQFHFRPSDQ\LVQRWEDGIDLWK%DGIDLWKLVGHILQHG power for the bad-faith conduct of the debtors attorneys. DVVLWXDWLRQVZKHUHWKHFODLPVZHUHEURXJKWIRULPSURSHU On the other hand, circuit courts have reversed district courts for SXUSRVHVVXFKDVKDUDVVPHQWRUGHOD\7KH'LVWULFW abusing their discretion by imposing sanctions under their inherent power. &RXUWPDGHQRILQGLQJWKDWWKHFODLPZDVEURXJKWIRUDQ In Gillette Foods, the Third Circuit considered whether the district court LPSURSHUSXUSRVHVXFKDVKDUDVVPHQWRUGHOD\ had the inherent authority to impose sanctions under its inherent power against counsel for Gillette Foods Incorporated for including a tortious 7KHILOLQJRIDODZVXLWDIWHUWKHUHKDVEHHQDGHQLDORI interference claim in the second amended complaint. The district court imposed sanctions after recognizing that counsels conduct was beyond FRYHUDJH LV QRW EDG IDLWK EHFDXVH LW ZDV QRW ILOHG IRU the reach of Rule 11 because he did not personally sign the complaint. In SXUSRVHVRIKDUDVVPHQWRUGHOD\7KHVXLWZDVILOHGWR that case, the Third Circuit held that "Gillette Foodss reasonable claim VHHNUHFRYHU\XQGHUDQLQVXUDQFHERQGWKDWZDVEHOLHYHG for tortious interference could not have been brought in bad faith, finding "it hard to conceive that the tortious interference claim survives Rule 11  )LUVW%DQNRI0DULHWWDY 1R 1R )LUVW%DQNRI0DULHWWDY  +DUWIRUG8QGHUZULWHUV +DUWIRUG8QGHUZULWHUV

 7KH6XSUHPH&RXUWVWDWHGWKDW>D@SULPDU\DVSHFWRIWKDW WR VDWLVI\ WKH LPSURSHU SXUSRVH UHTXLUHPHQW DQG LV GLVFUHWLRQLVWKHDELOLW\WRIDVKLRQDQDSSURSULDWHVDQFWLRQIRU VXSSRUWHGE\WKHHYLGHQFHLQWKHUHFRUG FRQGXFWZKLFKDEXVHVWKHMXGLFLDOSURFHVV&KDPEHUV 86DW$VWKH6XSUHPH&RXUWQRWHGWRLPSRVHWKLV ,QKROGLQJWKDW)LUVW%DQNDFWHGLQEDGIDLWKWKHGLVWULFW UHTXLUHPHQWLQHYHU\LQVWDQFHPD\KDYHWKHHIIHFWRIFDXVLQJ FRXUW IRXQG WKDW )LUVW %DQN KDG NQRZOHGJH RI %LHKO¶V D GHOD\ LQ WKH SURFHHGLQJ WKDW LPSURSHUO\ UHZDUGV WKH FRPPHQWWKDWKHLQWHQWLRQDOO\LQFUHDVHGWKH0DVFUHWHOLQHRI RIIHQGLQJSDUW\,QWHUSUHWLQJWKHSURFHHGLQJVRQWKHPHULWV FUHGLWZKHQLWILOHGLWVRULJLQDOSURRIRIORVVZLWK+DUWIRUGLQ WR FRQGXFW VDQFWLRQV KHDULQJV PD\ VHUYH RQO\ WR UHZDUG D -XO\ RI   'HVSLWH WKLV NQRZOHGJH )LUVW %DQN GLG QRW SDUW\VHHNLQJGHOD\,GDWChambers, 501 U.S. at 56. SURYLGHLQIRUPDWLRQDERXW%LHKO¶VFRPPHQWWR+DUWIRUGLQWKH Moreover, as the Seventh Circuit observed, district courts 3URRIRI/RVVIRUPRULQDQ\RWKHUVXSSRUWLQJGRFXPHQWDWLRQ need the discretion "to craft sanctions because the power to ,QIDFWGHVSLWHWKHERQGDJUHHPHQW¶VUHTXLUHPHQWRID³SURRI sanction is essential for them to manage heavy case loads and RIORVVGXO\VZRUQWRZLWKIXOOSDUWLFXODUV´DQG+DUWIRUG¶V to protect the interests of litigants." Graham, 2000 WL FRQWLQXDOUHTXHVWVIRULQIRUPDWLRQ)LUVW%DQNGLGQRWUHYHDO 717093, at *3 (citing Oliver v. Gramley, 200 F.3d 465, 466 %LHKO¶VDOOHJHGFRPPHQWVXJJHVWLQJDPDQLIHVWLQWHQWWRKDUP (7th Cir. 1999)). WKH EDQN XQWLO -XO\   ZKHQ )LUVW %DQN ILOHG WKH $IILGDYLWRI3DWULFN7RQWLLQRSSRVLWLRQWR+DUWIRUG¶VPRWLRQ As a practical matter, the district court should usually IRUVXPPDU\MXGJPHQW7KHGLVWULFWFRXUWIRXQG inform the parties, as did the district judge here, that the district court is considering using its inherent authority to )LUVW %DQN KDG LQ LWV SRVVHVVLRQ WKH UHTXLVLWH SURRI WR VKRZWKDWLWVVHFRQGFODLPIHOOZLWKLQWKHFRYHUDJHRIWKH %RQG $JUHHPHQW  :LWK WKLV LQIRUPDWLRQ LQ LWV

scrutiny, yet can be sanctioned as a claim brought in bad faith. Id. at 814- 15. The Third Circuit also found in Saldana v. Kmart Corp., 260 F.3d  228, 238 (3d Cir. 2001) that an attorneys use of profanity and her post- 7KH GLVVHQW DUJXHV WKDW WKH GLVWULFW FRXUW GLG QRW PDNH DQ\ ILQGLQJV verdict letter describing an expert witness as a "Nazi" did not justify the WKDW )LUVW %DQN DFWHG ZLWK DQ LPSURSHU SXUSRVH $IWHU LWV VHYHQ SDJHV RI IDFWXDO ILQGLQJV WKH GLVWULFW FRXUW H[SUHVVO\ IRXQG WKDW ³WKHUH LV DQ imposition of sanctions under the district courts inherent authority. In DEXQGDQFH RI HYLGHQFH ZKLFK GHPRQVWUDWHV WKDW )LUVW %DQN DFWHG LQ EDG Saldana, the Third Circuit found that the district court improperly IDLWK QRW RQO\ LQ ILOLQJ WKH FODLP EXW LQ SURVHFXWLQJ LW ,Q RXU UHYLHZ RI imposed sanctions because the conduct was not "egregious" and because D GLVWULFW FRXUW¶V IDFWXDO ILQGLQJV ³WKH DSSHOODWH FRXUW PXVW YLHZ WKH another basis for sanctions existed in the form of a local rule. 260 F.3d at HYLGHQFH LQ WKH OLJKW PRVW IDYRUDEOH WR LWV SURSRQHQW JLYLQJ WKH HYLGHQFH 238. The Seventh Circuit in Corley v. Rosewood Care Center, Inc. of LWV PD[LPXP UHDVRQDEOH SUREDWLYH IRUFH DQG LWV PLQLPXP UHDVRQDEOH Peoria, 142 F.3d 1041, 1958-59 (7th Cir. 1998) similarly vacated the SUHMXGLFLDO YDOXH 3DVFKDO Y )ODJVWDU %DQN )6%  :/  district court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s procedural PDWHULDO HYLGHQFH LQ VXSSRUW RI D FODLP LV DQ LPSURSHU XVH RI WKH FRXUWV requirements. Id. at 1058. The Seventh Circuit in Corley also found that 6HH 0DQVPDQQ Y 7XPDQ  )6XSS   ('3D  ,I the court could not rely upon its inherent power because the attorney was 3ODLQWLII KDG DOOHJHG WKH 7XPDQV KDG LQWHQWLRQDOO\    ZLWKKHOG not given an opportunity to respond to the defendants motion for LQIRUPDWLRQ IURP WKHP WR ILOH D ODZVXLW WKH 7XPDQV NQHZ ZDV QRW sanctions. Id. at 1059. ZDUUDQWHG 3ODLQWLII ZRXOG KDYH VWDWHG D FODLP DJDLQVW WKHP IRU ZURQJIXO XVH RI FLYLO SURFHHGLQJV  )LUVW%DQNRI0DULHWWDY 1R 1R )LUVW%DQNRI0DULHWWDY  +DUWIRUG8QGHUZULWHUV +DUWIRUG8QGHUZULWHUV

7KH HYLGHQFH LQ WKH UHFRUG FOHDUO\ VXSSRUWV WKH GLVWULFW sanction particular conduct. The parties can present to the FRXUW¶VILQGLQJWKDW)LUVW%DQN¶VFRXQVHONQHZRUVKRXOGKDYH district court those rules or statutes that may be more NQRZQWKDW&ODLP,,RILWVFRPSODLQWZDVZLWKRXWPHULWDQG appropriate. The district court can then exercise its "informed ZHDIILUPWKHGLVWULFWFRXUW¶VFRQFOXVLRQRQWKLVLVVXH discretion" in selecting the appropriate authority. "The different grounds for ordering sanctions and shifting ,PSURSHU3XUSRVH5HTXLUHPHQW attorney’s fees are distinct and require a close and careful analysis." In re Ruben, 825 F.2d 977, 983 (6th Cir. 1987). Of $VWRWKHWKLUGHOHPHQWUHTXLUHGWRDZDUGVDQFWLRQVXQGHU course, there may be some instances in which the litigation LWVLQKHUHQWSRZHUVWKHGLVWULFWFRXUWFRQFOXGHGEDVHGRQDQ conduct is so egregious and the court’s inherent authority so H[WHQVLYH UHYLHZ RI WKH HYLGHQFH LQ WKH UHFRUG WKDW )LUVW clearly applicable that a district court can exercise its inherent %DQN¶VVXLWDJDLQVW+DUWIRUGZDV³ODFHGZLWKEDGIDLWK-$ authority without the necessity of a full exposition on the DW7KHGLVWULFWFRXUWH[SOLFLWO\IRXQGWKDW³)LUVW%DQN¶V potentially applicable federal rules and statutes. VXLWDJDLQVW+DUWIRUGLVLQWKHQDWXUHRIEDGIDLWKRIµEULQJLQJ DQDFWLRQRUFDXVLQJDQDFWLRQWREHEURXJKW¶-$DW7KH To be sure, the Court in Chambers cautioned that "inherent GLVWULFW FRXUW SURYLGHG D GHWDLOHG FKURQRORJ\ RI WKH IDFWV powers must be exercised with restraint and discretion. Id. XQGHULWVKHDGLQJ)LUVW%DQN$FWHGLQ%DG)DLWK-$DW at 44. Under Chambers, the appellate court reviews a district $OWKRXJKWKHGLVWULFWFRXUWGLGQRWH[SOLFLWO\ODEHOLWVILQGLQJV court’s resort to its inherent authority for an abuse of LQWKHEDGIDLWKVHFWLRQRILWVRUGHUDVDILQGLQJRI³LPSURSHU discretion and a district court’s failure to use a clearly SXUSRVH´WKHUHFRUGDQG6L[WK&LUFXLWSUHFHGHQWUHIOHFWWKDW applicable and effective sanction rule could constitute an WKLVLVZKDWWKHGLVWULFWFRXUWLQWHQGHG6HHVXSUDQRWH abuse of discretion. Chambers, 501 U.S. at 50. As noted by )RU WKH UHDVRQV WKDW IROORZ ZH FRQFOXGH WKDW WKH GLVWULFW the Third Circuit in Martin v. Brown, 63 F.3d 1252, 1265 (3d FRXUW¶VILQGLQJWKDW)LUVW%DQNDFWHGLQEDGIDLWKLVVXIILFLHQW Cir. 1995), "[g]enerally, a courts inherent power should be reserved for those cases in which the conduct of a party or an attorney is egregious and no other basis for sanctions exists. (citing Gillette Foods v. Bayernwald-Fruchteverwertung, 977 F.2d 809, 813 (3rd Cir. 1992). The exercise of inherent authority is particularly appropriate for impermissible conduct that adversely impacts the entire litigation. In response to the contention in Chambers that the conduct at issue could have been addressed by Rule 11 and "other Rules", the Supreme Court responded: Much of the bad-faith conduct by Chambers, however, was beyond the reach of the Rules; his entire course of conduct throughout the lawsuit evidenced bad faith and an attempt to perpetrate a fraud on the court, and the conduct sanctionable under the Rules was intertwined within conduct that only the inherent power could  )LUVW%DQNRI0DULHWWDY 1R 1R )LUVW%DQNRI0DULHWWDY  +DUWIRUG8QGHUZULWHUV +DUWIRUG8QGHUZULWHUV

address. In circumstances such as these in which all of WKDW WKH ILOLQJ RI D VXLW ZLWK ZKDW WKH LQVXUDQFH FDUULHU a litigant’s conduct is deemed sanctionable, requiring a EHOLHYHVWREHDGHILFLHQWSURRIRIORVVEDUVDVXLW´)LQDOO\ court first to apply Rules and statutes containing )LUVW%DQNUHLWHUDWHVWKDWWKHGLVWULFWFRXUWHUUHGEDVHGRQD sanctioning provisions to discrete occurrences before ZDLYHUDUJXPHQW invoking inherent power to address remaining instances of sanctionable conduct would serve only to foster ,QRXUYLHZ)LUVW%DQN¶VDUJXPHQWVWKDWLWRULWVFRXQVHO extensive and needless satellite litigation, which is VKRXOGQRWKDYHEHHQH[SHFWHGWRNQRZWKDW)LUVW%DQNIDLOHG contrary to the aim of the Rules themselves. WRVDWLVI\WKHFRQGLWLRQSUHFHGHQWDUHXQSHUVXDVLYH*LYHQ 2KLR¶V ORQJVWDQGLQJ UXOH UHTXLULQJ FRPSOLDQFH ZLWK DOO Id. at 50-51, citing Advisory Committee’s Notes on 1983 FRQGLWLRQVSUHFHGHQWLQDQLQVXUDQFHFRQWUDFWD5XOHOHWWHU Amendment to Rule 11, 28 U.S.C. App., pp. 575-576. ZDVXQQHFHVVDU\WRFRQYH\WKHODFNRIPHULWIRU)LUVW%DQN¶V VHFRQGFODLPRQWKH0DVFUHWHORDQ(YHQLI+DUWIRUGGLGQRW Further, as noted in Chambers, there are significant ILOHD5XOHVDIHKDUERUOHWWHUDQGWKHGLVWULFWFRXUWGLGQRW differences between Rule 11 sanctionsDQGLQKHUHQWSRZHU VSHFLI\WKDWWKHSURRIRIORVVZDVGHILFLHQW)LUVW%DQNVKRXOG VDQFWLRQV5XOHDSSOLHVSULPDULO\WRSOHDGLQJDQGSDSHUV KDYH NQRZQ WKDW E\ QRW SURYLGLQJ D SURRI RI ORVV ZLWK %\UQH Y 1H[KDW  )G   WK &LU  SDUWLFXODUV DERXW WKH 0DVFUHWH ORDQ )LUVW %DQN IDLOHG WR $QRWKHUSULQFLSDOGLIIHUHQFHLVWKDWWKHLPSRVLWLRQRI5XOH FRPSO\ZLWKWKHFRQGLWLRQSUHFHGHQWDVUHTXLUHGE\2KLRODZ VDQFWLRQV UHTXLUHV D VKRZLQJ RI "objectively unreasonable +HUH)LUVW%DQNQHYHUVSHFLILHGDQDPRXQWRIFODLPHGORVV conduct," United States v. Koury Perez, 187 F.3d 1, 8 (1st IURPWKH0DVFUHWHORDQRQWKHSURRIRIORVVIRUPDQGQHYHU Cir. 1999). In contrast, the imposition of inherent power VXSSOHPHQWHG WKH IRUP ZLWK IXUWKHU GRFXPHQWDWLRQ DV sanctions requires a finding of bad faith. "A court may SURPLVHGRUDVUHSHDWHGO\UHTXHVWHGE\+DUWIRUG impose sanctions pursuant to its inherent powers only when it finds the action in question was taken in bad faith," )LUVW%DQNZDVZHOODZDUHRIWKHFRQGLWLRQSUHFHGHQWDVLW Lockary v. Kayfetz, 974 F.2d 1166, 1174 (9th Cir. 1992) DSSHDUVLQ6HFWLRQRIWKHILGHOLW\ERQGDJUHHPHQWDQGLV (citing Chambers, 501 U.S. at 50), or conduct that is UHLWHUDWHG LQ +DUWIRUG¶V -XO\   OHWWHU WR )LUVW %DQN "tantamount to bad faith." Roadway Express, Inc. v. Piper, +DUWIRUG LQGLFDWHG LQ D VHFRQG OHWWHU GDWHG 6HSWHPEHU  447 U.S. 752, 767 (1980). Moreover, a Rule 11 monetary WKDW)LUVW%DQNKDVQRWGHPRQVWUDWHGWKDW%LHKODFWHG sanction is limited to "only those expenses directly caused by ZLWKD³PDQLIHVWLQWHQW´WRFDXVHDORVVWR)LUVW%DQN)LUVW the [offending] filer." Cooter & Gell v. Hartmarx Corp., 496 %DQNGLGQRWUHVSRQGWRWKH6HSWHPEHUWKOHWWHUDQGQHYHU U.S. 384, 406-07 (1990). Where, as here, the offending VXSSOHPHQWHG LWV SURRI RI ORVV RU SURYLGHG DGGLWLRQDO party’s conduct extends through the proceedings, Rule 11 GRFXPHQWDWLRQ UHJDUGLQJ &ODLP ,,  ,QVWHDG DV WKH GLVWULFW FRXUW IRXQG )LUVW %DQN ³ZDLWHG DSSUR[LPDWHO\ IRXUWHHQ PRQWKVDIWHUILOLQJVXLWWRVXEPLWDQDIILGDYLWZKLFKSXUSRUWHG  WRVXSSRUWWKHFODLP-$DW&RQVHTXHQWO\WKHGLVWULFW 7KHUH DUH DOVR GLIIHUHQFHV EHWZHHQ 5XOH  VDQFWLRQV DQG LQKHUHQW FRXUWFRQFOXGHGWKDW³>D@WWKHWLPHLWILOHGVXLW)LUVW%DQN DXWKRULW\ VDQFWLRQV 5XOH  GRHV QRW UHTXLUH D VKRZLQJ RI EDG IDLWK 8QLWHG 6WDWHV Y &DOURV  )G   Q  WK &LU  ZDV ZHOO DZDUH RI WKLV FRQGLWLRQ SUHFHGHQW DQG WKHUHIRUH 6LPLODUO\ 5XOH  V DXWKRUL]DWLRQ RI PRQHWDU\ VDQFWLRQV LV DOVR OLPLWHG WR DZDUH RI WKH IDFW WKDW LWV VXLW ZDV ILOHG ZLWKRXW D OHJDO RU H[SHQVHV FDXVHG E\ WKH IDLOXUH WR FRPSO\ ZLWK GLVFRYHU\ RUGHUV IDFWXDOEDVLVDQGWKHUHIRUHZDVZLWKRXWDFRORUDEOHEDVLV,G 5RDGZD\ ([SUHVV ,QF Y 3LSHU  86    5XOH  OLNHZLVH PD\ QRW DGGUHVV WKH VFRSH RI WKH ZURQJIXO FRQGXFW  )LUVW%DQNRI0DULHWWDY 1R 1R )LUVW%DQNRI0DULHWWDY  +DUWIRUG8QGHUZULWHUV +DUWIRUG8QGHUZULWHUV

+HUH WKH GLVWULFW FRXUW GLG QRW DEXVH LWV GLVFUHWLRQ LQ remedies would not address the injury that the district court ILQGLQJWKDWWKHUHZDVQRFRORUDEOHEDVLVIRU&ODLP,,7RWKH sought to remedy that included withholding evidence, the FRQWUDU\ WKH HYLGHQFH LQ WKH UHFRUG VWURQJO\ VXSSRUWV WKH consequences of the withholding, violating discovery orders GLVWULFW FRXUW¶V ILQGLQJ   $GGLWLRQDOO\ ZLWK WKH SRVVLEOH and extending the proceedings. H[FHSWLRQ RI WKH 3DWULFN 7RQWL $IILGDYLW ILOHG ZLWK WKH GLVWULFWFRXUWRQ-XO\)LUVW%DQNGLGQRWSURYLGHDQ\ Chambers leaves to the district courts "informed SURRIWRHVWDEOLVKWKDW%LHKOPDGHWKHORDQZLWKD³PDQLIHVW discretion" whether the applicable statutes or rules are "up to LQWHQW´WRFDXVHWKHLQVXUHGKDUPDUHTXLUHPHQWIRUUHFRYHU\ the task"given the circumstances of the particular conduct. XQGHUWKHERQG See Klein v. Stahl GMBH & Co. Maschinefabrik, 185 F.3d 98, 109-11 (3rd Cir. 1999) (interpreting Chambers to mean )RU WKHVH UHDVRQV WKLV &RXUW DIILUPV WKH GLVWULFW FRXUW¶V "that the Rules are not up to the task when they would not ILQGLQJWKDWWKHUHZDVQRFRORUDEOHEDVLVIRU&ODLP,,RI)LUVW provide a district court with the authority to sanction all of the %DQN¶VFRPSODLQW conduct deserving of sanction"); Mark Indus., Ltd. v. Sea Captain's Choice, Inc., 50 F.3d 730, 732 (9th Cir.1995)  &RXQVHO.QHZRU6KRXOG+DYH.QRZQWKH&ODLPZDV (noting that the inherent power to sanction generally should 0HULWOHVV5HTXLUHPHQW be invoked only if statutes or rules are not "up to the task"); )LUVW%DQNQH[WDUJXHVWKDWWKHGLVWULFWFRXUWHUUHGLQILQGLQJ Gillette Foods, 977 F.2d at 814 n.10 (construing the above- WKDW)LUVW%DQNVKRXOGKDYHNQRZQWKDWWKHUHZDVDIDLOXUHRI quoted paragraph from Chambers to refer to "the ability of a FRQGLWLRQ SUHFHGHQW RQ WKH SURRI RI ORVV LVVXH IRU VHYHUDO court to impose sanctions under its inherent power when UHDVRQV)LUVW3ODLQWLIIFRQWHQGVLWZDVQRWPDGHDZDUHRILWV some of the attorneys conduct could be sanctionable under IDLOXUHRIFRQGLWLRQSUHFHGHQWEHFDXVH+DUWIRUGQHYHUVHQWLW Rule 11 and other rules"). In the absence of a plainly D³5XOHVDIHKDUERUOHWWHUVWDWLQJWKDWWKHFODLPVKRXOGEH applicable rule, we likewise trust in the district court’s GLVPLVVHGEHFDXVHWKHUHZDVQROHJDORUIDFWXDOJURXQGVWR "informed discretion" when the circumstances require the VXSSRUWWKHFODLP´6HFRQGEHFDXVHWKHSULRUGHFLVLRQVRI exercise of its inherent authority. WKHFRXUWZHUHEDVHGXSRQWKHODFNRIHYLGHQFHRIPDQLIHVW LQWHQW³DUHDVRQDEOHDWWRUQH\ZRXOGQRWKDYHNQRZQWKDWWKH In the section of its Opinion entitled "First Bank Acted in SURRI RI ORVV ZDV LQVXIILFLHQW EHFDXVH QHLWKHU WKH 'LVWULFW Bad Faith", JA at 63, WKH GLVWULFW FRXUW PDGH WKH GHWDLOHG &RXUW RU WKH 6L[WK &LUFXLW IRXQG VXPPDU\ MXGJPHQW WR EH ILQGLQJVRIIDFWLQFOXGLQJWKDW)LUVW%DQNZDVDZDUHRI DSSURSULDWH IRU WKH UHDVRQ WKDW WKH SURRI RI ORVV ZDV WKHFRQGLWLRQSUHFHGHQWLQWKHERQGDJUHHPHQWEXWFKRVHWR GHILFLHQW´7KLUG³$SSHOOHHKDVQHYHUFLWHGDFDVHWKDWKROGV LJQRUH LW  )LUVW %DQN KDG QR OHJDO RU IDFWXDO EDVLV IRU EULQJLQJ VXLW DJDLQVW +DUWIRUG  ³)LUVW %DQN KDG LQIRUPDWLRQ LQ LWV SRVVHVVLRQIRU PRUH WKDQ WZR \HDUV WKDW ZRXOGKDYHPDGHWKHVHFRQGFODLPDUJXDEO\DORVVFRYHUHG  E\WKH%RQG$JUHHPHQW´-$DW:LWKWKHLQIRUPDWLRQ $V GLVFXVVHG HDUOLHU ZH DIILUPHG WKH GLVWULFW FRXUW¶V JUDQW RI VXPPDU\ MXGJPHQW WR +DUWIRUG RQ &RXQW ,, EXW KHOG WKDW ³WKH GLVWULFW WKDW)LUVW%DQNKDGFRQFHUQLQJ0U%LHKO¶VLQIRUPDWLRQ³WKH FRXUW HUUHG ZKHQ LW FRQVLGHUHG )LUVW %DQN¶V LQFRQVLVWHQW DQG XQWLPHO\ %DQNZRXOGKDYHNQRZQWKDWOLWLJDWLQJWKLVPDWWHUZDVQRW DIILGDYLW ILOHG LQ UHVSRQVH WR +DUWIRUG¶V PRWLRQ IRU VXPPDU\ MXGJPHQW´ QHFHVVDU\±DWOHDVWXQWLODIWHUWKH\SUHVHQWHGWKLVLQIRUPDWLRQ 7KLV &RXUW DIILUPHG WKH GLVWULFW FRXUW¶V JUDQW RI VXPPDU\ MXGJPHQW RQ &ODLP ,, DIWHU GHWHUPLQLQJ WKDW WKHUH DUH QR JHQXLQH LVVXHV RI IDFW LQ WR +DUWIRUG -$ DW  DQG  7RQWL GLG QRW PHQWLRQ KLV GLVSXWH FRQYHUVDWLRQ ZLWK %LHKO GHVSLWH 7RQWL¶V WZRKRXU  )LUVW%DQNRI0DULHWWDY 1R 1R )LUVW%DQNRI0DULHWWDY  +DUWIRUG8QGHUZULWHUV +DUWIRUG8QGHUZULWHUV

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