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1-10 Industry Associates, LLC v. United States

The Federal Circuit reversed and remanded an order of the U.S. Court of Federal Claims imposing sanctions on the sanctioned party-appellant, an attorney who represents the government in a contract dispute between the plaintiff and the U.S. Postal Service, for breach of the duty of candor under Rule 11 of the court's rules. The plaintiff sued the government in the Court of Federal Claims for unpaid electric charges under a real estate lease; the government counterclaimed for unauthorized electric charges, and the plaintiff moved to dismiss the counterclaim as untimely. During the course of a telephonic hearing to address the plaintiff's motion, the trial court became concerned that the sanctioned party-appellant had misled the court about the date in which the government learned the facts on which its counterclaim was based, and it ordered the sanctioned party-appellant to show cause why he had not violated Rule 11. The court held that the trial court erred in failing to include in the show cause order notice of its belief that the sanctioned party-appellant's alleged misconduct in a prior case provided evidence of a pattern of misconduct. The court further held that the trial court erred in its conclusion that the sanctioned party-appellant misrepresented the government's knowledge when it first became aware of the grounds for the counterclaim, finding that the trial court knew the facts that the sanctioned party-appellant allegedly failed to disclose and, therefore, could not have been misled.

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Before BRYSON, Circuit Judge, CLEVENGER, Senior Circuit Judge, and DYK, Circuit Judge.

On March 19, 2007, the United States Court of Federal Claims issued an order imposing sanctions on Michael F. Kiely for breach of the duty of candor under Rule 11 of the court’s rules. Mr. Kiely represents the government in a contract dispute between 1-10 Industry Associates, LLC (“1-10″) and the United States Postal Service. 1-10 sued the government in the Court of Federal Claims for unpaid electric charges under a real estate lease between 1-10 and the Postal Service. The government counterclaimed against 1-10 for unauthorized excess electric charges. 1-10 moved to dismiss the counterclaim as untimely. During the course of a telephonic hearing on 1-10′s motion, the court became concerned that Mr. Kiely had breached his duty of candor to the court by misleading it about the date on which the government learned the facts on which its counterclaim was based. The court expressed its concern in the form of an order directed to Mr. Kiely to show cause why he has not violated Rule 11(b) of the Rules of the United States Court of Federal Claims (“RCFC”) and should not be subject to sanctions. After Mr. Kiely responded to the show cause order, the court issued its March 19 order imposing the sanction of reprimand.

Mr. Kiely appeals from that order. We have jurisdiction over the collateral sanctions order. See Precision Specialty Metals Inc. v. United States, 315 F.3d 1346, 1352-53 (Fed. Cir. 2003). For the reasons set forth below, the order imposing sanctions is reversed, and the case is remanded.

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