If you are the subject of a court injunction, then you need to take all reasonable steps to ensure compliance with that injunction. Otherwise, you may be at risk of being found in civil contempt.

In the Seventh Circuit, a district court must make a finding of “bad faith, designed to obstruct the judicial process, or a violation of a court order” before sanctions may be imposed for litigation misconduct. Fuery v. City of Chicago, 900 F.3d 450, 463–64 (7th Cir. 2018) (quoting Tucker v. Williams, 682 F.3d 654, 662 (7th Cir. 2012). “Mere clumsy lawyering is not enough.” Id. at 464.

REXA, Inc. v. Chester

In REXA, Inc. v. Chester, No. 20-2953, 2022 WL 2981167, –F.4th — (7th Cir. Jul. 28, 2022), the Seventh Circuit affirmed a summary judgment of no misappropriation of trade secrets, and that the Northern District of Illinois did not abuse its discretion in finding that plaintiff REXA had committed litigation misconduct, but remanded the case with respect to the $2.357 million of attorneys' fees awarded as a sanction for REXA's litigation conduct.

Litigation Misconduct

REXA alleged its documents were produced in discovery “as they were kept in the ordinary course of business.” But the court found “it was exceedingly unlikely that the unusual, suspicious alignment of REXA's files had occurred in the absence of any manipulation by REXA or its attorneys.”

           Like the district court, we are disturbed by the conduct of REXA's counsel in the use of exhibits at Chester's deposition. It is undisputed that REXA created a combined exhibit, which contained both the Bonus Letter and the Appendix B Confidentiality Agreement. The Bonus Letter and Appendix B were given consecutive Bates numbers in the combined document. Even if we were to accept REXA's dubious assertion that the files were kept this way in the ordinary course of business, its creation of the combined exhibit was dishonest.

           REXA acknowledges that it used the combined exhibit to question Chester at his deposition. REXA tried to get Chester to admit that he had received the Appendix B Confidentiality Agreement. These facts are highly suggestive of litigation misconduct. . . . But such sharp tactics— manipulating documents in an attempt to mislead a witness— are improper, and they support a trial court's decision to sanction the responsible party. Once REXA's tactics were discovered, the district court was well within its discretion to decide that litigation misconduct had been committed and to exercise its inherent authority by imposing a penalty.

$2.357 Million in Fees

Turning to the $2.357M in attorneys' fees awarded by the district court, the Seventh Circuit noted that a sanction under a court's inherent authority “may go no further than to redress the wronged party for losses sustained,” and the court “may not impose an additional amount as punishment for the sanctioned party's misbehavior.” Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. at 1186 (internal quotation marks and citations omitted); see also Schlacher v. L. Offs. of Phillip J. Rotche & Assocs., P.C., 574 F.3d 852, 857 (7th Cir. 2009) (“When substantial fees are at stake, the district court must calculate the award with greater precision.”).

Although the court “need not undertake a line-byline inquiry” of Chester and MEA's billing statements, Nichols v. Ill. Dep't of Transp., 4 F.4th 437, 444 (7th Cir. 2021), it should review representative billing entries related to each specific objection made by REXA.

***

Our decision today does not mean that awarding $2.357 million in attorneys' fees—or awarding the full amount requested by the prevailing party when a large sum is at stake— is necessarily an abuse of discretion, regardless of context. Rather, we conclude that more explanation to support the ruling on fees is required here. The court must address what amount of fees are traceable to the litigation misconduct, and it may not impose an additional amount as punishment. Haeger, 137 S. Ct. at 1186.

Given the sizable fee award, the Seventh Circuit stated it was necessary for the district court to address each of REXA's objections, and to examine” the reasonableness of the hours that defense counsel expended—and the dollar amounts claimed—for defending against the lawsuit at each stage of the case.”

The attorneys at Thomas P. Howard, LLC litigate cases nationwide including in Colorado.