STEPHEN SIX; DARREN T. KAPLAN; J. AUSTIN MOORE; STUEVE SIEGEL HANSON LLP; DARREN KAPLAN LAW FIRM, P.C., Appellants,
GENERATIONS FEDERAL CREDIT UNION, Defendant-Appellee, and JAMES DILLON, Plaintiff, and BMO HARRIS BANK, N.A.; FOUR OAKS BANK & TRUST COMPANY; BAY CITIES BANK, Defendants. LAW PROFESSORS, Amicus Supporting Appellants.
Argued: March 20, 2018
from the United States District Court for the Middle District
of North Carolina, at Greensboro. Catherine C. Eagles,
District Judge. (1:13-cv-00897-CCE-LPA)
K. Shanmugam, WILLIAMS & CONNOLLY, LLP, Washington, D.C.,
Sara Hyman, PULMAN, CAPPUCCIO, PULLEN, BENSON & JONES,
LLP, San Antonio, Texas, for Appellee.
S. Williams, William T. Marks, WILLIAMS & CONNOLLY, LLP,
Washington, D.C., for Appellants.
A. Pullen, PULMAN, CAPPUCCIO, PULLEN, BENSON & JONES,
LLP, San Antonio, Texas; Reid C. Adams, Jr., Jonathan R.
Reich, WOMBLE CARLYLE SANDRIDGE & RICE, LLP,
Winston-Salem, North Carolina, for Appellee.
C. Frederick, Minsuk Han, Jacob E. Hartman, KELLOGG, HANSEN,
TODD, FIGEL & FREDERICK, P.L.L.C., Washington, D.C., for
DUNCAN, KEENAN, and THACKER, Circuit Judges.
DUNCAN, CIRCUIT JUDGE.
appeal arises out of the district court's order
sanctioning three attorneys and their law firms under both
its inherent authority and 28 U.S.C. § 1927. Finding no
abuse of discretion, we affirm.
district court based its decision to award sanctions on a
comprehensive evaluation of the attorneys' conduct. That
conduct was, in many respects, egregious, and it continued
throughout the various stages of litigation and appeal. As
will be explained in detail below, the sanctioned attorneys
challenged the authenticity of a loan agreement for two years
before revealing that they possessed an identical copy,
obtained from their client, before filing the complaint.
Appellant attorneys contend that we seek to create a new
affirmative duty to disclose documents before the opening of
discovery. To the contrary, we simply conclude that the
district court did not abuse its discretion in determining
that the sanctioned attorneys' behavior below, which was
designed to and in fact did mislead the district court and
this court and thereby extended the proceedings, should not
be countenanced. This case presents at least one clear,
affirmative misrepresentation: one attorney asserted under
oath that, after two years of litigation over the
authenticity of the loan agreement, the plaintiff's
attorneys had never challenged authenticity. The remainder of
the sanctioned conduct forms a mosaic of half-truths,
inconsistencies, mischaracterizations, exaggerations,
omissions, evasions, and failures to correct known
misimpressions created by their own conduct that, in their
totality, evince lack of candor to the court and disrespect
for the judicial process. The district court relied, to its
detriment, on these distortions.
provide full context for the district court's sanctions
order, we set forth the factual and procedural background of
this case in detail. We first describe the underlying
litigation that gave rise to the sanctioned conduct. Next, we
highlight the sanctioned attorneys' many
misrepresentations, obfuscations, and omissions that the
district court determined manifested bad faith. We focus
particularly on their statements and omissions that led the
court to believe that counsel did not have a copy of the
disputed loan agreement and the trial strategies that, in
light of these statements and omissions, reinforced the
court's misapprehension of relevant facts. Finally, we
describe the sanctions proceedings and the sanctioned
attorneys' continued misstatements, inconsistencies, and
exaggerations that the district court finally concluded
"strain[ed] credulity and indicate[d] a continued
willingness to say whatever is necessary to win in the
moment." See Dillon v. BMO Harris Bank, N.A.,
No. 1:13-CV-897, 2016 WL 5679190, at *17 (M.D. N.C. Sept. 30,
Dillon borrowed money from online lenders in 2012 and 2013 at
interest rates that he alleged were usurious. Of relevance
here, one such loan was a $2, 525 payday loan from Western
Sky, an online lender. To take out the loan, Dillon clicked
through an online loan agreement ("the Western Sky loan
agreement"). "Pursuant to Plaintiff's agreement
with Western Sky, " Dillon's loan incurred a finance
charge of $11, 332.12 on the principal, to be paid over
forty-six months. J.A. 68 (Dillon Compl.). This charge
represented an annual interest rate of approximately 139%.
Neither Dillon nor the lender signed a hard copy of the loan
October 2013, Dillon filed a putative class action on behalf
of a class and subclass of borrowers against several
non-lender banks whose only roles were processing
loan-related transactions through the Automatic Clearing
House network. Dillon sought to impose liability on these
non-lender banks, who were not parties to the loan
agreements, for providing aid to online lenders in violation
of the Racketeer Influenced and Corrupt Organizations Act as
well as several state laws. Generations Community Federal
Credit Union ("Generations") processed debit
transactions from Dillon's bank account under the Western
Sky loan agreement. Dillon alleged that Generations
"derived a benefit through the receipt of fees"
from the allegedly usurious loans by processing these debit
transactions. J.A. 69.
Stephen Six, J. Austin Moore, and Darren T. Kaplan, among
others, represented Dillon in his suit. Six and Moore are a
partner and associate attorney, respectively, at the Steuve
Siegel Hanson LLP law firm. Kaplan is the principal
shareholder of Darren Kaplan Law Firm, P.C.
promptly moved to dismiss Dillon's complaint, arguing
that the Western Sky loan agreement's arbitration,
forum-selection, and choice-of-law clauses each justified
dismissal. Generations attached a copy of the Western Sky
loan agreement as an exhibit to its motion.
opposed Generations's motion to dismiss on grounds that
can most charitably be described as ambiguous. Of relevance
to the dispute that would follow, Dillon challenged
Generations's reliance on the Western Sky loan agreement
because it originated online and "does not bear
Plaintiff's signature (or any signature) and Defendant
fails to offer any explanation as to how it came into
possession of the Loan Agreement or whether it is
authentic." J.A. 153 (emphasis added). At some
times and for some purposes, Dillon's counsel would
characterize this challenge as one to the
authenticity of the document--a substantive
challenge that the document was not in fact what it purported
to be. At other times and for other purposes, Dillon and his
attorneys would characterize this challenge as one to the
authentication of the document--a challenge to
Generations's failure to follow proper procedures under
Rule 901 of the Federal Rules of Evidence.
is indeed language to suggest that Dillon's attorneys
intended the objection to be a challenge to the
authentication of the document. The section of the brief
containing this objection is titled "Generations'[s]
Exhibit 'A' Is Inadmissible Hearsay." J.A. 153.
The next sentences go on to argue that Generations had failed
to provide a declaration under Rules 803(6) or 902(11) of the
Federal Rules of Evidence and concluded that the Western Sky
loan agreement was therefore "inadmissible hearsay"
that "may not be considered in support of
Generations'[s] motion" to dismiss. J.A. 153.
the possibility that Dillon was challenging authentication,
however, is the fact that such a challenge would have been
untenable at the motion-to-dismiss stage. It is well
established that a court may "consider documents . . .
attached to the motion to dismiss, so long as they are
integral to the complaint and authentic." Sec'y
of State for Defence v. Trimble Navigation Ltd., 484
F.3d 700, 705 (4th Cir. 2007). "At the motion to dismiss
stage, documents attached to a motion to dismiss need not be
accompanied by a formal declaration authenticating
them." Solum v. Certainteed Corp., 147
F.Supp.3d 404, 409-10 (E.D. N.C. 2015).
of the two possible challenges to the court's
consideration of the loan agreements at the motion-to-dismiss
phase, Dillon could not plausibly dispute that the documents
were intrinsic to the complaint. Dillon's complaint
quoted terms and rates from the Western Sky loan agreement
and noted that the allegedly usurious loan was made
"[p]ursuant to Plaintiff's agreement with Western
Sky." J.A. 68; see supra at 5 n.1. This left
authenticity as the only available challenge. However,
because some of Dillon's claims relied on the terms of
the loan agreements, Generations questioned whether Dillon
actually sought "to dispute the authenticity" of
the Western Sky loan agreement. J.A. 180. Generations's
confusion, which the district court shared, was entirely of
Dillon's own making.
hearing to consider several pre-trial motions,  the district
court framed the "main question" for the parties as
whether or not Dillon actually challenged the authenticity of