United States v. Prevezon Holdings

United States District Court for the Southern District of New York · Evidence

Evidence§ 1927inherent authorityattorneys' feesbad faithcolorable claimdisqualificationformer client conflict

Facts

Hermitage had previously retained BakerHostetler in 2008 to investigate the Russian Treasury Fraud, gather evidence, and support possible law-enforcement action, but later terminated the firm. Years later, after the Government sued Prevezon, BakerHostetler appeared for Prevezon, and Hermitage repeatedly sought to disqualify the firm based on its prior representation. The district court denied Hermitage's first and second disqualification motions, but the Second Circuit later granted mandamus and directed disqualification. Hermitage then sought more than a million dollars in fees, arguing BakerHostetler acted in bad faith by refusing to withdraw from a conflicted representation.

Issue

Whether BakerHostetler and Moscow should be sanctioned under 28 U.S.C. § 1927 or the court's inherent authority for opposing disqualification and continuing to represent Prevezon. Specifically, did their position lack any colorable legal or factual basis and was it pursued in bad faith?

Rule

Sanctions under § 1927 or the court's inherent power require clear evidence that (1) the offending party's claims were entirely without color, meaning they lacked any legal or factual basis, and (2) the claims were brought in bad faith, meaning for improper purposes such as harassment or delay. A claim is colorable if it has some legal and factual support when viewed in light of the reasonable beliefs of the person advancing it.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In a trade-secrets suit in Chicago, Larkspur Analytics moves to disqualify Orion Street Legal from representing North Harbor Systems because Orion once advised Larkspur during a short internal review. The district judge denies disqualification twice, but the Seventh Circuit later orders Orion removed, describing the issue as unsettled because Larkspur was only a non-party witness in the underlying suit.

Larkspur then seeks attorneys' fees as sanctions against Orion under § 1927 and the court's inherent power. Which is the strongest reason the motion should be denied?

Explanation. Sanctions under both § 1927 and inherent authority require clear evidence of two things: the challenged position was entirely without color and it was pursued in bad faith. The fact that the lawyer lost, or was later reversed and disqualified, is not enough. A novel or unsettled issue and prior success in the district court strongly support the conclusion that the argument was colorable.