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Six v. Generations Federal Credit Union

United States Court of Appeals, Fourth Circuit

May 31, 2018

STEPHEN SIX; DARREN T. KAPLAN; J. AUSTIN MOORE; STUEVE SIEGEL HANSON LLP; DARREN KAPLAN LAW FIRM, P.C., Appellants,
v.
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

          Appeal 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)

         ARGUED:

          Kannon K. Shanmugam, WILLIAMS & CONNOLLY, LLP, Washington, D.C., for Appellants.

          Leslie Sara Hyman, PULMAN, CAPPUCCIO, PULLEN, BENSON & JONES, LLP, San Antonio, Texas, for Appellee.

         ON BRIEF:

          John S. Williams, William T. Marks, WILLIAMS & CONNOLLY, LLP, Washington, D.C., for Appellants.

          Eric 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.

          David C. Frederick, Minsuk Han, Jacob E. Hartman, KELLOGG, HANSEN, TODD, FIGEL & FREDERICK, P.L.L.C., Washington, D.C., for Amici Curiae.

          Before DUNCAN, KEENAN, and THACKER, Circuit Judges.

          DUNCAN, CIRCUIT JUDGE.

         This 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.

         I.

         The 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.

         The 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.

         To 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, 2016).

         A.

         James 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.[1] 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 agreement.

         In 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.

         Attorneys 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.

         B.

         Generations 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.

         Dillon 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.[2]

         There 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.

         Rebutting 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).

         Furthermore, 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.

         At a hearing to consider several pre-trial motions, [3] the district court framed the "main question" for the parties as whether or not Dillon actually challenged the authenticity of ...


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