US District Court, Northern District of Illinois East Division decision (July 7, 2014).

This case involves a dispute between the owners of lots located within a townhouse subdivision in Illinois. The plaintiffs in the case contended that the defendants improperly took control of the homeowners association and violated the terms of the association’s governing documents.

Despite initially filing a state court action, the plaintiffs filed a second case in federal court in which claims were alleged against the defendants based on violations of RICO laws, which are concerned with eradicating organized long-term, habitual criminal activity. Having concluded that the plaintiff’s case did not satisfy the requirements of a RICO action, the federal court case was dismissed and then the prevailing defendants moved for sanctions against the plaintiffs and their legal counsel.

Noting that the case appeared to have been filed by the plaintiff in retaliation for the defendants defending themselves in the original state court action and/or to gain leverage and drive up legal fees for a small group of homeowners, the court concluded that the federal RICO action was filed in bad faith and for an improper purpose. Accordingly, the Court determined that the plaintiff’s counsel persisted in advocating a claim that had no legal basis and appropriate sanctions were warranted under Rule 11. The Court further stated that the responsibility for the appropriate sanctions had to be allocated between the attorney and the client according to their relative responsibility for the Rule 11 violation. The Court concluded that the plaintiff was not responsible for the decision relative to the filing of the case, or the Rule 11 violations, so it should not be liable for the Rule 11 violations. Thus, the Court ordered that the sanctions were only warranted against the plaintiff’s attorneys that actively participated in the pursuit of the case. Even thought the prevailing party had only sought the imposition of sanctions against one attorney, the Court ordered the imposition of the sanctions against both attorneys who were involved in representing the plaintiff pursuant to the Court’s inherent power to impose sanctions for conduct involving bad faith.

In determining the amount of sanctions to award the Court considered various factors and ultimately decided to impose sanctions in the amount of $83,280.41 which covered some, but not all, of the attorney fees and costs that were incurred by the defendants. The Court concluded that that amount was sufficient to “deter repetition of the conduct or comparable conduct by others similarly situated.”

See case decision: Dremco_Inc._v._Diver_(N.D._Ill._2014)1