## Facts

- Cleveland Hair Clinic, Inc. (CHC) operated hair-transplant clinics, including a highly profitable location in Rosemont, Illinois, and had a long-standing contract with Dr. Carlos J. Puig.
- In May 1996, Puig terminated the relationship and departed with most of CHC’s other transplant physicians.
- CHC filed a diversity action in federal court alleging breach of contract and breach of fiduciary duties by Puig.
- Puig, represented by attorney Michael L. Tinaglia and his firm, sought emergency federal relief to obtain control of patients’ medical records; the district court denied a temporary restraining order and set a preliminary-injunction hearing.
- Anticipating an unfavorable federal outcome, Tinaglia and Puig arranged a parallel state-court action to obtain access to the same records, using Puig’s associate Rodney Haenschen as the plaintiff (not then a federal party) and naming a CHC manager as the sole defendant.
- Tinaglia’s office drafted the state-court complaint and arranged for a friend, Joseph Curcio, to appear as the attorney of record, concealing Tinaglia’s involvement.
- After CHC moved in federal court to add Haenschen and to enjoin the state action, Tinaglia had Haenschen sign blank sheets so a revised complaint could be assembled and quickly filed in state court during the federal hearing.
- At the federal hearing, the district judge questioned Tinaglia about Haenschen; Tinaglia denied representing or speaking with Haenschen that day and did not disclose the state-court filing underway.
- CHC moved for sanctions; after a six-day evidentiary hearing, the district court found sanctionable conduct and imposed joint-and-several monetary sanctions, including fees and costs CHC incurred pursuing sanctions.

## Issues

1. Whether the district court properly used its inherent authority to sanction Tinaglia and his firm for bad-faith conduct, including concealment of the state-court end-run and misleading statements to the court.
2. Whether Tinaglia’s conduct warranted sanctions under 28 U.S.C. § 1927 for unreasonably and vexatiously multiplying proceedings.
3. Whether the scope and amount of fee-and-cost sanctions, including joint-and-several liability, fell within the district court’s discretion.

## Decision

- The Seventh Circuit affirmed the sanctions order against Tinaglia and his law firm.
- The court held the district court acted within its discretion in finding bad faith supporting inherent-power sanctions.
- The court held the conduct also satisfied § 1927 because it caused unnecessary and costly litigation activity.
- The court upheld the compensatory fee-and-cost award tied to the sanctions proceedings and the joint-and-several allocation.

## Legal Principles

- Federal courts may impose attorney-fee sanctions under their inherent powers when a lawyer acts in bad faith, including by misleading the court or attempting to evade its control through covert related litigation.
- Under 28 U.S.C. § 1927, an attorney may be held liable for excess costs, expenses, and attorneys’ fees when the attorney unreasonably and vexatiously multiplies proceedings.
- Forum or tactical choices are not, by themselves, sanctionable; the failure to be candid with the court about material related proceedings and counsel’s role in them can constitute bad faith.
- Sanctions determinations, especially those resting on credibility findings after an evidentiary hearing, are reviewed for abuse of discretion and are affirmed when supported by the record.

## Conclusion

The Seventh Circuit upheld monetary sanctions against counsel and his firm where counsel secretly orchestrated a state-court action to obtain relief sought in the federal case and then gave misleading responses to the federal judge, conduct that supported inherent-power sanctions and liability under § 1927 for multiplying proceedings.


Cleveland Hair Clinic, Inc. v. Puig, 200 F.3d 1063 (7th Cir. 2000)