In Balerna v. Gilberti, 708 F.3d 319 (1st Cir. 2013), the First Circuit affirmed sanctions under Fed. R. Civ. P. 11 against an attorney based on wholly unsupported allegations made by the attorney during cross-examination of a defendant, another attorney, at trial because of “the heedless and unnecessary damage” inflicted on the defendant’s reputation. This case is a reminder that there is a line between zealous advocacy and improper conduct. While attorneys should, of course, advocate zealously on behalf of their clients, they cannot make baseless accusations, engage in unprofessional conduct and impugn the integrity of others in an attempt to do so.
The civil action at issue involved the estate of Helen Lewis, which held the senior mortgage on a parcel of real property. Harriet Balerna held the junior mortgage. When the mortgagor defaulted, Helen Lewis’s husband and executor, Melvin Lewis, hired Attorney Carmel Gilberti to foreclose on the property. In each of two foreclosure auctions, Ruth Drowne placed the highest bid but could not obtain financing, forfeiting $30,000 in deposits she made. The property was eventually sold to Edward Lewis, Melvin’s son and another executor of Helen Lewis’s estate, who had placed the second highest bid at the second auction. Ruth Drowne then filed suit in Massachusetts state court to set aside the foreclosure sale and for return of the deposits she had forfeited. Attorney Gilberti successfully defended the suit.
After Attorney Gilberti received attorneys’ fees for defending the Drowne suit, the remaining proceeds of the foreclosure sale were equal only to a fraction of Balerna’s junior mortgage. Balerna, represented by Attorney Joseph Coppola, filed suit on Balerna’s behalf against Attorney Gilberti, Melvin Lewis, and Edward Lewis asserting four counts: (1) an accounting for the proceeds of the foreclosure sale; (2) a declaratory judgment regarding the parties’ rights to those proceeds; (3) conversion of the proceeds, including unjustified payment of Attorney Gilberti’s attorney’s fees in the Drowne case; and, (4) breach of fiduciary duty, again including the payment of Attorney Gilberti’s attorney's fees.
After months of discovery, the case proceeded to a bench trial, at which Attorney Coppola questioned Attorney Gilberti extensively on three areas: (1) alleged conversion of the foreclosure proceeds; (2) usury based on Gilberti’s allegedly excessive fees; and, (3) alleged false statements by Gilberti based on discrepancies between the estate’s records and information provided by Gilberti during discovery.
With regard to the conversion claim, the complaint filed by Attorney Coppola on behalf of Balerna accused Attorney Gilberti of wrongfully converting the foreclosure proceeds by using some of them to defend the Drowne suit, in which Attorney Gilberti was sued individually. Drowne, however, had sued Attorney Gilberti only in her capacity as the estate’s attorney. The mortgage agreement clearly allowed the mortgagee to participate in legal proceedings affecting the mortgaged property, which undoubtedly included the Drowne suit. At the beginning of the trial, the District Court warned Attorney Coppola that he risked being sanctioned if he could not substantiate the conversion allegation. Attorney Coppola offered no evidence that the decision to defend the Drowne suit was unjustified. The costs and fees associated with that suit were less than the $30,000 in forfeited deposits that Drowne was attempting to recover. The District Court concluded that Attorney Coppola had accused Attorney Gilberti of serious misconduct without any evidence.
The usury claim was based on the Massachusetts criminal usury statute, which prohibits a lender from taking “directly or indirectly, interest and expenses the aggregate of which exceeds an amount greater than twenty per centum per annum upon the sum loaned.” Based on this statute, Attorney Coppola argued Attorney Gilberti’s fees were excessive because they exceeded twenty percent of the foreclosure proceeds. On the first day of trial, the District Court expressly warned Attorney Coppola that the usury claim was without merit, stating, “I’ll tell you right now, the usury argument is a total nonstarter. I’ll look at it, but I have had it argued to me before. It’s never worked. It’s not going to work this time either.” Nevertheless, Attorney Coppola questioned Attorney Gilberti in a way that insinuated that she had committed criminal usury.
The alleged false statements made by Attorney Gilberti were based on discrepancies between the Lewis estate’s records and information that Attorney Gilberti provided in response to interrogatories. At trial, Attorney Coppola accused Attorney Gilberti of providing false information: “The fact is, we asked for an accounting of those proceeds. We were provided false information. We were provided false information under oath. We were provided false information as to the answers to interrogatories.” Attorney Coppola continued his attack in his questioning of Attorney Gilberti, directly confronting her with accusations of lying and questioning her so aggressively that she broke down on the witness stand.
Based on the actions by Attorney Coppola described above, the District Court admonished him under Fed. R. Civ. P. 11(b) for his conduct. On appeal, the First Circuit stated that Attorney Coppola impugned Attorney Gilberti’s integrity by allowing the baseless conversion claim to go to judgment. It found Attorney Coppola’s allegation that Attorney Gilberti violated the criminal usury statute was frivolous. The Court noted that if Attorney Coppola’s interpretation of the usury statute were correct, any attorney charging a one-third contingency fee in a foreclosure matter would be guilty of criminal usury. Moreover, there was no question that the payments to Attorney Gilberti were legitimate expenses of litigation that benefitted the Lewis estate. Finally, the Court concluded that Attorney Coppola turned what seemed to be innocent misunderstandings into claims of perjury during his intense cross examination concerning minor discrepancies between the Lewis estate’s records and information that Attorney Gilberti provided in response to interrogatories. Thus, the First Circuit upheld the admonishment.