$1.5 Million in Sanctions Wiped Away by 10th Circuit in Denver
The 10th Circuit Court of Appeals has overturned a judge's seven-figure sanction of two law firms, after the judge abruptly changed her mind about the legitimacy of their case.
U.S. District Court Senior Judge Christine M. Arguello initially praised the attorneys for doing a "fabulous job" and allowed the case to proceed to trial. However, after a seven-day trial, she concluded the lawyers had "recklessly" continued with a "fatally flawed" case and imposed a $1.5 million sanction.
The decision came as a shock to the attorneys, who had multiple opportunities to reject the case or exclude their key expert witness but were met with no red flags from Arguello.
A three-judge panel of the 10th Circuit was equally puzzled by Arguello's sudden change in stance, with Judge Carolyn B. McHugh and Judge Nancy L. Moritz stating that the only change or inconsistency was in Arguello's own views.
The plaintiffs' attorneys appealed the sanction, arguing that Arguello had given them no indication that their claims were meritless. The panel's majority agreed, stating that Arguello's previous rulings in the case had indicated the legitimacy of the plaintiffs' claims and the qualifications of their expert witness.
The dissenting opinion, however, believed that Arguello had the right to conclude that the case lacked merit and that the lawyers should have known better. Judge Timothy M. Tymkovich argued that the lawyers had an independent duty to continually evaluate their claims to avoid prolonging a meritless case.
The case involved multiple shareholders of investment company Great-West Capital Management, known now as Empower, suing over allegedly excessive fees being charged for financial services. Arguello initially denied Empower's motion for summary judgment, deeming the testimony of the plaintiffs' expert "sufficiently reliable." She also denied their motion for judgment during the trial, only to find in favor of the defendant in her final decision.
Outside organizations also weighed in on the appeal, with the U.S. Chamber of Commerce arguing that the threat of sanctions is important to deter frivolous lawsuits. However, other groups warned that upholding Arguello's penalties would largely benefit corporate defendants and discourage consumer protection lawsuits.
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In the end, the 10th Circuit panel agreed that Arguello's sudden conclusion about the merit of the case was not supported by the evidence and testimony presented.
They overturned the sanction and called for a new trial.