Swisher Hygiene Franchise Corp v. Troy Clawson ( 2022 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS APR 8 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SWISHER HYGIENE FRANCHISE No. 20-16727
CORPORATION, a North Carolina
Corporation; et al., D.C. No. 2:15-cv-01331-DJH
Plaintiffs-Appellees,
MEMORANDUM*
v.
DAVID BARTON; et al.,
Intervenors-Appellants,
and
TROY CLAWSON, husband; et al.,
Defendants.
Appeal from the United States District Court
for the District of Arizona
Diane J. Humetewa, District Judge, Presiding
Argued and Submitted March 9, 2022
San Francisco, California
Before: S.R. THOMAS, McKEOWN, and GOULD, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
We consider an appeal of the district court’s imposition of sanctions against
two attorneys and their law firm pursuant to its inherent authority after findings of
bad faith and spoliation of evidence.
Swisher Hygiene (“Swisher”) and Accurate Chemical and Services (“ACS”)
are competitors in the commercial hygiene products industry. Troy Clawson was a
former employee of Swisher who left to work for ACS. While employed with
Swisher, Clawson signed a non-solicitation and confidentiality agreement with
Swisher. In 2015, Swisher filed suit against Clawson and ACS alleging that
Clawson had breached his agreement with Swisher by (1) soliciting Swisher
employees to join ACS and (2) misappropriating Swisher’s confidential information.
During pretrial proceedings and discovery, Swisher filed several motions for
sanctions against Clawson and ACS, alleging the defendants had spoliated evidence
and committed a fraud on the court. Swisher also suggested in briefing that the
defendants’ attorneys may have engaged in misconduct and “request[ed] that the
Court schedule a hearing and question the responsible defense counsel regarding
these matters.” The district court held a hearing on Swisher’s motions for sanctions,
at which the attorneys testified.
At the conclusion of the evidentiary hearing, which lasted several days, the
district court granted Swisher’s second motion for sanctions and ordered the entry
of default against ACS and Clawson. Also, the district court announced it would
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sua sponte sanction the attorneys, by ordering the attorneys to self-report to the state
bar after making factual findings about their misconduct.
Thereafter, Swisher moved for monetary sanctions against ACS, Clawson,
and the two attorneys and their law firm, who withdrew from the case. The district
court allowed the attorneys to intervene to contest Swisher’s motion for monetary
sanctions. The district court granted Swisher’s motion for monetary sanctions and
awarded Swisher all its requested attorney’s fees and costs, totaling $527,087.46.
The judgment was entered jointly and severally against ACS, Clawson and the
attorneys. After a sua sponte reduction in the fee award, the district court found that
$153,800 in attorneys’ fees “would not have been incurred but-for Clawson’s and
Defendants’ conduct” and awarded that amount to Swisher, jointly and severally
against ACS, Clawson, and the attorneys. The district court also assessed a further
$153,800 in attorneys’ fees against the attorneys.
The attorneys appeal the district court’s fee award on due process grounds.
They argue that the district court violated principles of due process when it imposed
monetary sanctions against them during their representation of their clients. For the
following reasons, we vacate and remand.
District courts “have inherent authority to discipline lawyers.” Pumphrey v.
K.W. Thompson Tool Co., 62 F.3d 1128, 1131 (9th Cir. 1995). Sanctions on
attorneys under this inherent power are reviewed for abuse of discretion. Hale v.
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U.S. Tr., 509 F.3d 1139, 1146 (9th Cir. 2007). Because the decision to impose
sanctions under its inherent authority is within the sound discretion of the district
court, we will not overturn its decision unless the court committed an error of law or
the court's factual determinations were clearly erroneous. Lasar v. Ford Motor Co.,
399 F.3d 1101, 1109 (9th Cir. 2005) (citing Weissman v. Quail Lodge Inc., 179 F.3d
1194, 1197–98 (9th Cir. 1999). Under this standard, we review de novo issues of
law, including whether the district court provided adequate due process before
imposing sanctions. Thomas, Head & Greisen Employees Trust v. Buster, 95 F.3d
1449, 1458 (9th Cir. 1996).
“[F]or the court to sanction an attorney, procedural due process requires notice
and an opportunity to be heard.” United States v. Tillman, 756 F.3d 1144, 1152
(9th Cir. 2014). “[A]n attorney subject to discipline is entitled to procedural due
process, including notice and an opportunity to be heard.” Weissman v. Quail Lodge,
Inc., 179 F.3d 1194, 1198 (9th Cir. 1999). The attorneys had no notice from the
district court that it was considering sua sponte sanctions against them. Although
the pending motions sought sanctions against Clawson and Accurate, the attorneys
did not know that they were also facing sanctions. Aside from being called as
witnesses, the district court did not afford the attorneys notice that they were at risk
of being sanctioned nor did it give them an opportunity to protect their individual
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interests. We therefore vacate the sanction award against the attorneys and remand
for further proceedings consistent with this decision.
VACATED AND REMANDED.
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