1800 W. Lake Street, LLC v. American Chartered Bank, 1:14-cv-00420

Background

1800 W. Lake Street, LLC borrowed from American Chartered Bank secured by a mortgage on Chicago real estate and later entered multiple forbearance agreements.
Under one agreement plaintiff placed a deed in escrow and granted the bank the right to record the deed in lieu of foreclosure if plaintiff defaulted.
Plaintiff defaulted; the bank and an affiliate recorded the deed, and plaintiff filed bankruptcy and then sued under 11 U.S.C. § 548 to avoid the transfer as fraudulent.
American Chartered moved for summary judgment, submitting an affidavit from loan officer Bryn Perna that falsely stated any excess sale proceeds would be returned to plaintiff—contrary to the written agreement.
The court denied summary judgment, noted the false affidavit, and at bench trial Perna again testified falsely but then recanted when the court questioned her; the court ultimately found for American Chartered on the merits.
The court issued a show-cause order addressing potential sanctions for counsel (Rule 11 and 28 U.S.C. § 1927) based on the false affidavit and elicited trial testimony.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether counsel violated Fed. R. Civ. P. 11 by submitting Perna's affidavit with a false factual assertion	Counsel submitted affidavit falsely stating excess proceeds would go to plaintiff, violating Rule 11 certification	Submission was inadvertent and not deliberate or reckless; the error was minor and remedied	Court concluded counsel may have breached Rule 11's objective negligence standard but declined to impose Rule 11 sanctions (inappropriate and unnecessary)
Whether counsel violated 28 U.S.C. § 1927 by eliciting false testimony at trial after the court had flagged the issue	Elicitation of the same false point continued despite court's prior warning, constituting unreasonable, vexatious litigation conduct	Counsel argued the testimony was inadvertent and did not cause additional litigation expense or prejudice	Court held counsel's conduct in eliciting demonstrably false testimony after being warned was reckless and sanctionable under § 1927
Appropriate sanctions/remedy under § 1927 given the conduct	Plaintiff sought sanctions to deter and compensate for misconduct	Defendants noted plaintiff incurred no additional fees or costs from the specific testimony and no costs motion was filed	Court declined to impose monetary sanctions because plaintiff incurred no recoverable expenses and instead issued a public reprimand as sufficient deterrence
Whether plaintiff's substantive fraudulent-transfer claim affected sanction analysis	Plaintiff argued the false affidavit/testimony undermined the litigation and warranted sanctions	Defendants maintained the false statement was a narrow factual error unrelated to the merits decision for defendant	Court treated the misstatements as separate misconduct issues; outcome on merits did not justify imposing monetary sanctions for the misstatements

Key Cases Cited

Hays v. Sony Corp. of Am., 847 F.2d 412 (7th Cir. 1988) (Rule 11 uses an objective negligence standard for attorneys' factual certifications)
Dal Pozzo v. Basic Machinery Co., 463 F.3d 609 (7th Cir. 2006) (attorney conduct that a reasonably careful attorney would know is unsound can be sanctionable under § 1927)
Kapco Mfg. Co. v. C&O Enters., Inc., 886 F.2d 1485 (7th Cir. 1988) (§ 1927 sanctions apply where counsel pursues objectively unreasonable litigation tactics)