Bethany Krajelis Jan. 9, 2015, 2:02pm

A federal appeals panel has overturned a judge's decision to not sanction a Hinsdale lawyer for failing to disclose her client's bankruptcy petition, saying federal rule mandates it and her conduct is unlikely to change without it.

In an opinion handed down Monday, the Seventh Circuit Court of Appeals vacated U.S. District Judge Thomas M. Durkin's decision not to sanction attorney Dana L. Kurtz under Rule 26(g)(3), but upheld his refusal to do so under Section 1927.

Judge Frank H. Easterbrook wrote the panel's six-page opinion, which remands the case back to the district court and appears to order Durkin to sanction Kurtz under Rule 26. Judges Diane S. Sykes and David F. Hamilton concurred in the ruling.

The panel explained that while Section 1927 of the U.S. Code gives judges discretion over whether to sanction any attorney who needlessly multiples proceedings, Rule 26(g)(3) of the Federal Rules of Civil Procedure says a judge "shall" impose an appropriate sanction on any attorney who violates discovery disclosure rules.

The issue over sanctions arose in a now-closed case Kurtz brought on behalf of Merced Rojas, who sued the Town of Cicero and its president, Larry Dominick, over claims he was fired because he supported Dominick's political opponent.

Although a jury sided with Rojas and awarded him $650,000 in damages, Easterbrook said "the victory was short-lived" because Judge James F. Holderman went on to grant the defense motion for a new trial, determining Kurtz had engaged in misconduct during trial.

Her misconduct, according to the panel's opinion, included making statements designed to mislead the jury, eliciting hearsay responses she knew would prejudice the defendants and be struck from the record, arguing with the judge in a way that informed the jury about excluded evidence, and undermining the credibility of a defense witness, among others.

Before the second trial took place, the case was reassigned to Durkin, who successfully encouraged the parties to settle. Rojas was given $212,500 in compensation for his discharge and Kurtz got $287,500 in fees under the settlement, which was confidential until attorneys on both sides agreed to disclose it.

The settlement, however, didn’t resolve defense motions seeking sanctions against Kurtz. One motion was brought under Section 1927 and stemmed from her alleged conduct that led to post-verdict motions and the need to prepare for a second trial.

The other motion was brought pursuant to Rule 26(g)(3) and was based on Kurtz's apparent failure to disclose that her client had filed a bankruptcy petition six months after the suit was filed, something defense counsel argued could have affected Rojas' standing as a plaintiff and given them something to raise at trial.

Durkin in 2013 denied both motions seeking sanctions, reasoning that Rojas and Kurtz had lost enough money when the verdict was replaced with a settlement of a lesser amount and that was sanction enough.

Because Section 1927 gives judges discretion, the Seventh Circuit judges this week upheld Durkin's denial of that sanctions request, but they did appear to question it a bit.

“Judge Durkin thought that Kurtz was out of pocket as a result of her misconduct, and this seems likely, though she may not have lost as much as the judge supposed," Easterbrook wrote for the pane. "The right comparison is not between the verdict and the settlement, but between that settlement and what the verdict (and corresponding fees) would have been in the absence of misconduct.”

He added, “If a zealous advocate who stayed within ethical bounds would have produced a verdict of, say, $300,000, then both Rojas and Kurtz lost much less than Judge Durkin supposed. If, indeed, a properly conducted trial would have led to a verdict under $212,500, or to a verdict for the defense, then Kurtz has gained from her misconduct."

But, the panel noted, the fact the defendants were willing to settle implies Rojas had a good chance of recovering a substantial amount if proceedings were conducted properly. Still, the judges said, "[e]vaulating a counterfactual –what verdict Rojas would have received had the trial been conducted properly – is a daunting task and any answer is contestable.”

“Since the district court would have had discretion to find that Judge Holderman's opinion, which impugned Kurtz's reputation, was a sufficient response even if she did not suffer a monetary loss, we think it best to respect the courts conclusion under” Section 1927, Easterbrook wrote.

"Rule 26(g)(3) is a different matter," he stressed, explaining that while Durkin appeared to think the rule governing attorneys' discovery obligations "affords a district court the discretion to let a delict pass without sanctions. It does not."

If lawyers fail to compile, the rule says "the court, on a motion or on its own, must impose an appropriate sanction" and then goes on to say the "sanction may include an order to pay the reasonable expenses, including attorney’s fees, caused by the violation."

"Rule 26(g)(3) gives the judge discretion over nature of the sanction, but not whether to impose one," the panel held, adding that “[i]dentifying the ‘appropriate’ sanction is a task for the district court. It could be money, but it also could be a formal (and public) reprimand or censure. “

Because the alleged discovery violation was unrelated to why Holderman granted a new trial in the case, the panel said Durkin's reasoning for not sanctioning Kurtz under Section 1927 doesn't carry over to the Rule 26 motion.

On remand, the panel said Durkin "should consider Kurtz's disciplinary history, which is substantial." The opinion cites a handful of decisions from Chicago's federal court and the Seventh Circuit in which Kurtz was apparently fined or sanctioned for discovery abuses like failing to file a brief on time and delaying the production of documents.

"Kurt’z unwillingness to conform her conduct to requirements laid down by judicial orders or rules of procedure is unlikely to change unless courts respond firmly," Easterbook wrote.

Kurtz does not have any record of discipline from the Illinois Supreme Court or pending proceedings before the Illinois Attorney Registration and Disciplinary Commission, according to the agency's website.

Before the Seventh Circuit ruling came down, Kurtz filed a motion to supplement the record on appeal with an affidavit intended to rebut a statement made by defense counsel in Rojas' original trial that Holderman had observed she had a reputation among other judges in the Northern District for being unprofessional during trials.

Holderman, according to Kurtz's Dec. 29 filing, said he had heard this from U.S. District Judges Harry D. Leinenweber and Joan B. Gottschall.

After Holderman made these comments on the record, Kurtz said in her filing that uin 2012, she reached out to the ARDC to see if would be proper for her to talk with Leinenweber and Gottschall about the matter.

"I wanted to make sure that if I had done anything improper in their courtrooms that I would correct it in the future," Kurtz explained. "I was not aware of anything that would cause them to make negative comments about my reputation."

She said she got the OK from the ARDC and spoke with Gottschall, who "indicated that she never said anything negative about me, she remembered the trial I had in front of her, and she thought that I was a 'zealous advocate' for my client," according to her affidavit.

Although Leinenweber couldn't meet with her because he was going out of town at that time, Kurtz said she advised his assistant of the situation, which was passed along to him.

Kurtz's affidavit says Leinenweber's assistant sent her an email that said the judge "wanted me to tell you that whomever told you he had called you 'unprofessional' in his courtroom is mistaken" and "was adamant that he did not say anything disparaging about you."

Court records show Durkin denied Kurtz's motion on Wednesday and set a status hearing for Feb. 6.

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