Swisher Hygiene Franchise Corp v. Troy Clawson

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 8, 2022
• Docket: 20-16727
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 8 2022 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

SWISHER HYGIENE FRANCHISE No. 20-16727 CORPORATION, a North Carolina Corporation; et al., D.C. No. 2:15-cv-01331-DJH

Plaintiffs-Appellees, MEMORANDUM* v.

DAVID BARTON; et al.,

Intervenors-Appellants,

and

TROY CLAWSON, husband; et al.,

Defendants.

Appeal from the United States District Court for the District of Arizona Diane J. Humetewa, District Judge, Presiding

Argued and Submitted March 9, 2022 San Francisco, California

Before: S.R. THOMAS, McKEOWN, and GOULD, Circuit Judges.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. We consider an appeal of the district court’s imposition of sanctions against

two attorneys and their law firm pursuant to its inherent authority after findings of

bad faith and spoliation of evidence.

Swisher Hygiene (“Swisher”) and Accurate Chemical and Services (“ACS”)

are competitors in the commercial hygiene products industry. Troy Clawson was a

former employee of Swisher who left to work for ACS. While employed with

Swisher, Clawson signed a non-solicitation and confidentiality agreement with

Swisher. In 2015, Swisher filed suit against Clawson and ACS alleging that

Clawson had breached his agreement with Swisher by (1) soliciting Swisher

employees to join ACS and (2) misappropriating Swisher’s confidential information.

During pretrial proceedings and discovery, Swisher filed several motions for

sanctions against Clawson and ACS, alleging the defendants had spoliated evidence

and committed a fraud on the court. Swisher also suggested in briefing that the

defendants’ attorneys may have engaged in misconduct and “request[ed] that the

Court schedule a hearing and question the responsible defense counsel regarding

these matters.” The district court held a hearing on Swisher’s motions for sanctions,

at which the attorneys testified.

At the conclusion of the evidentiary hearing, which lasted several days, the

district court granted Swisher’s second motion for sanctions and ordered the entry

of default against ACS and Clawson. Also, the district court announced it would

2 sua sponte sanction the attorneys, by ordering the attorneys to self-report to the state

bar after making factual findings about their misconduct.

Thereafter, Swisher moved for monetary sanctions against ACS, Clawson,

and the two attorneys and their law firm, who withdrew from the case. The district

court allowed the attorneys to intervene to contest Swisher’s motion for monetary

sanctions. The district court granted Swisher’s motion for monetary sanctions and

awarded Swisher all its requested attorney’s fees and costs, totaling $527,087.46.

The judgment was entered jointly and severally against ACS, Clawson and the

attorneys. After a sua sponte reduction in the fee award, the district court found that

$153,800 in attorneys’ fees “would not have been incurred but-for Clawson’s and

Defendants’ conduct” and awarded that amount to Swisher, jointly and severally

against ACS, Clawson, and the attorneys. The district court also assessed a further

$153,800 in attorneys’ fees against the attorneys.

The attorneys appeal the district court’s fee award on due process grounds.

They argue that the district court violated principles of due process when it imposed

monetary sanctions against them during their representation of their clients. For the

following reasons, we vacate and remand.

District courts “have inherent authority to discipline lawyers.” Pumphrey v.

K.W. Thompson Tool Co., 62 F.3d 1128, 1131 (9th Cir. 1995). Sanctions on

attorneys under this inherent power are reviewed for abuse of discretion. Hale v.

3 U.S. Tr., 509 F.3d 1139, 1146 (9th Cir. 2007). Because the decision to impose

sanctions under its inherent authority is within the sound discretion of the district

court, we will not overturn its decision unless the court committed an error of law or

the court's factual determinations were clearly erroneous. Lasar v. Ford Motor Co.,

399 F.3d 1101, 1109 (9th Cir. 2005) (citing Weissman v. Quail Lodge Inc., 179 F.3d

1194, 1197–98 (9th Cir. 1999). Under this standard, we review de novo issues of

law, including whether the district court provided adequate due process before

imposing sanctions. Thomas, Head & Greisen Employees Trust v. Buster, 95 F.3d

1449, 1458 (9th Cir. 1996).

“[F]or the court to sanction an attorney, procedural due process requires notice

and an opportunity to be heard.” United States v. Tillman, 756 F.3d 1144, 1152

(9th Cir. 2014). “[A]n attorney subject to discipline is entitled to procedural due

process, including notice and an opportunity to be heard.” Weissman v. Quail Lodge,

Inc., 179 F.3d 1194, 1198 (9th Cir. 1999). The attorneys had no notice from the

district court that it was considering sua sponte sanctions against them. Although

the pending motions sought sanctions against Clawson and Accurate, the attorneys

did not know that they were also facing sanctions. Aside from being called as

witnesses, the district court did not afford the attorneys notice that they were at risk

of being sanctioned nor did it give them an opportunity to protect their individual

4 interests. We therefore vacate the sanction award against the attorneys and remand

for further proceedings consistent with this decision.

VACATED AND REMANDED.