A federal appeals court panel in Denver voted 2-1 to overturn $1.5 million in sanctions ordered by a U.S. District Court judge against two law firms representing plaintiffs in a complex ERISA case.
"We conclude the district court abused its discretion and therefore reverse the district courts order imposing sanctions," the 10th U.S. Circuit Court of Appeals panel wrote on Oct. 31 regarding the law firms, Schlichter Bogard LLP and Schneider Wallace Cottrell Konecky LLP.
The firms were ordered in August 2022 to pay the amount because the district court judge said they "recklessly proceeded to trial in violation of their duty to objectively analyze their case."
The law firms represented plaintiffs in several sponsors' retirement plans against Empower, formerly Great-West Funds Inc., saying allegedly excessive record-keeping fees and investment fees violated ERISA. The lawsuit, Obelo et al. vs. Empower Capital Management et al., combined three similar lawsuits. The sponsors were not defendants.
In August 2022, Senior U.S. District Judge Christine M. Arguello ordered the firms to pay $750,000 each. She initially imposed sanctions in September 2020, one month after ruling in a bench trial in favor of Empower Capital Management and Empower Insurance Co. of America.
The former is an investment advisory firm; the latter is the parent of Empower Capital Management and also provides administrative and record-keeping services for the Empower funds, according to court documents.
The judge criticized the sole expert witness offered by plaintiffs' attorneys during the trial. "In addition to the general inadequacy of his testimony, his specific theories regarding plaintiffs' alleged damages are legally flawed," she wrote.
However, in the majority opinion of the appellate court, judges criticized Arguelo's analysis of the lawyers' behavior.
"Upholding the sanctions in this matter would chill legitimate, zealous advocacy in an area where plaintiffs already face a high barrier to success on the private right of action provided by Congress," they wrote."The pretrial record in this matter gave plaintiffs' counsel no reason to anticipate their claims were so meritless as to risk sanctions by proceeding to trial."
At trial, the appeals court judges wrote, the plaintiffs' attorneys acted properly "by continuing to advance their claims when their legal theories were not foreclosed by binding precedent in this jurisdiction (and) when the court determined plaintiffs had sufficient evidence to proceed to trial." They added that "nothing in the record supports the district court's finding that plaintiffs' counsel misrepresented (their expert witness') theories or testimony."
Appeals Court Judge Timothy Tymkovich dissented. "Sanctions were wholly justified in this case based on counsels' abusive conduct in unreasonably prolonging baseless litigation," he wrote. "Judge Arguello presided over a seven-year odyssey involving complex but ultimately groundless multimillion-dollar claims against Empower and correctly concluded sanctions were justified. I see no abuse of discretion."
