On August 27, 2015, in Kaass Law v. Wells Fargo Bank, N.A., the US Court of Appeals for the Ninth Circuit held as a matter of first impression that sanctions for misconduct under 28 U.S.C. § 1927 only may be awarded against individual attorneys and not law firms (No. 13-56099, (9th Cir. Aug. 27, 2015)).

An attorney with the firm Kaass Law filed a complaint against ten defendants on behalf of an individual plaintiff, alleging that the defendants reported inaccurate information to credit agencies, negatively impacting the plaintiff's credit report. Defendant Wells Fargo moved to dismiss the complaint. Kaass Law's attorney did not respond to Wells Fargo's motion, but instead filed a motion to amend the initial complaint. Wells Fargo then filed a notice of non-opposition to its motion to dismiss.

The district court dismissed Wells Fargo from the action. Wells Fargo then filed a motion to recover attorneys' fees and costs from Kaass Law under 28 U.S.C. § 1927. Wells Fargo argued that Kaass Law multiplied the proceedings unreasonably and vexatiously, constituting bad faith. The court ultimately agreed and awarded attorneys' fees. Kaass Law appealed.

The Ninth Circuit reversed and vacated the order imposing santions against Kaass Law. As a matter of first impression, the court held that 28 U.S.C. § 1927 does not permit the award of sanctions against a law firm. The statutory language permits sanctions against any "attorney or other person admitted to conduct cases in any court." Joining the US Courts of Appeals for the Sixth and Seventh Circuits, the court reasoned that lawyers, not law firms, are permitted to practice law, and therefore only attorneys are sanctionable under 28 U.S.C. § 1927.

The court further held that if Congress had intended 28 U.S.C. § 1927 to permit sanctions against law firms, it would have explicitly stated so in the statute. For example, the language of FRCP 11 explicitly allows sanctions "on any attorney, law firm, or party that violated the rule or is responsible for the violation." The text of 28 U.S.C. § 1927 contains no such language.

Practitioners should note that the Ninth Circuit's decision in Kaass Law deepens a circuit split on whether firms may be sanctioned under 28 U.S.C. § 1927. The Second Circuit has permitted sanctions against law firms under a theory of "inherent authority." The Third Circuit likewise has permitted sanctions against firms under section 1927, but has not ruled on the matter since the revision of FRCP 11 to explicitly include law firms. In addition, the Eleventh Circuit has permitted sanctions under the bad-faith exception, 28 U.S.C. § 1927, and FRCP 11. (See Kaass Law, at *4 (collecting cases).)