The saga of a shipwreck treasure trove continues in Williamson, et al. v. Recovery Limited Partnership, et al., “yet another skirmish in the legal battle over the treasure from the S.S. Central America,” a shipwreck discovered over 130 years after it sank in September 1857. (Earlier litigation has previously been a topic of this blog, and can be found here.) In this appeal, the Sixth Circuit reviewed the imposition of sanctions against Richard Robol, the defendants’ attorney, for hampering the enforcement of a court order in bad faith. After the district court issued the contempt order in 2006, the defendants turned over to plaintiff Dispatch Printing Company an inventory of the gold that they sold to the California Gold Marketing Group from February 15 to September 1, 2000. The defendants failed to turn over any prior inventories. Counsel maintained throughout this litigation that the defendants “produced the one and only inventory that the company had.” However, in 2013, a receiver hired by Dispatch discovered another hidden treasure – this time in the form of thirty-six file cabinets full of treasure inventories – in the basement of a duplex that counsel owned and partially leased to the defendants. After this discovery, Dispatch filed a motion requesting the court to exercise its inherent powers to sanction counsel for bad-faith conduct during the litigation.
The Sixth Circuit began its analysis with addressing the applicable law involved in a court’s inherent powers to sanction bad-faith conduct. The Court found the precedent that the district court used inapplicable. First, the three-prong Big Yank test was inapplicable because that test “contemplates a situation in which a plaintiff has filed a frivolous lawsuit.” Second, the fraud-on-the-court doctrine was inapplicable because that test “deals with courts’ inherent power to vacate their judgments.” To resolve the confusion, the Court clarified the appropriate legal test: “[W]hether Robol hampered the enforcement of a court order in bad faith.” After finding that counsel did hamper the enforcement of a court order, the Court turned to the bad-faith inquiry and examined “whether Robol knew that the defendants possessed the undisclosed inventories or was willfully blind to their existence when he made his misrepresentations to the court.” Dispatch’s evidence included a letter, admiralty litigation in Virginia, and testimony from the employee who created and maintained the inventories and the financial advisor for the receiver, all of which convinced the Court that counsel intentionally misled the district court in order to hamper the court order.
The Court then turned to the calculation of sanctions, finding that the $224,580 awarded to Dispatch was not a windfall because the sanctions are not meant to be solely restitutive. Precedent establishes “that courts have broad discretion under their inherent powers to fashion punitive sanctions.” This case is the latest in a series of cases by the Circuit assessing the applicability of inherent authority sanctions, and the Court seemed to appreciate some lack of precision in its prior cases. This opinion thus seeks to clarify the test and provide guidance when litigating such a sensitive issue.