In a stunning reversal of fortune, a Tenth Circuit panel has overturned a $1.5 million sanction against Schlichter Bogard & Denton LLP and Schneider Wallace Cottrell Konecky LLP. The decision comes after a lower court’s ruling that the law firms had recklessly pursued their client’s claims, despite knowing their lack of merit.
The District Court’s Alleged Missteps
The three-judge panel, in a published opinion, unequivocally stated that the trial court’s findings were erroneous. They concluded that the district court erred by believing that the law firms continued to pursue their claims despite realizing they lacked merit. Moreover, the panel found fault with the district court for inaccurately representing the views of one of the expert witnesses and relying on nonbinding precedents to discredit the plaintiffs’ damage theories.
“In sum, the district court abused its discretion by sanctioning Plaintiffs’ counsel,” the panel wrote. “The record does not support a finding that Plaintiffs’ counsel advanced their damages theories in reckless indifference to the law … [t]o maintain sanctions under such circumstances would chill legitimate, meritorious advocacy for shareholders’ rights.”
