Tesco Corp. v. Nat’l Oilwell Varco, L.P.

Addressing for the first time the effect of a settlement agreement on an appeal from an order criticizing two attorneys’ conduct, the U.S. Court of Appeals for the Federal Circuit concluded that the intervening settlement agreement ended the case or controversy, thereby stripping the court of jurisdiction to redress any harm to the attorneys’ reputation. Tesco Corp. v. Nat’l Oilwell Varco, L.P., Case No. 15-1041 (Fed. Cir., Oct. 30, 2015) (O’Malley, J.) (Newman, J. dissenting).

During trial, Tesco’s counsel made misstatements regarding potential prior art. After additional discovery to confirm that the attorneys’ statements were inaccurate, the district court sanctioned Tesco by dismissing its case with prejudice. According to the district court, the attorneys’ inaccurate representations during trial justified a finding of bad faith, but the district court did not otherwise sanction the attorneys or reprimand. Tesco and its attorneys then appealed the district court’s order. However, while the appeal was pending the parties reached a settlement resolving all outstanding issues. Notwithstanding that settlement, the parties continued to dispute whether the settlement agreement obviated Tesco’s attorneys’ rights to continue to pursue the appeal.

The Federal Circuit determined that to justify the Court’s jurisdiction over an appeal from an order criticizing an attorney’s conduct, there must be a formal sanction or reprimand against the attorney. The Federal Circuit, however, did not decide whether the district court’s order was functionally equivalent to a formal reprimand. Instead, the intervening settlement agreement ended the case or controversy upon which appellate jurisdiction was predicated. Once the parties entered into the settlement agreement, the case was complete. The Court explained that the district court’s order sanctioned Tesco, but not its attorneys, further supported the Federal Circuit’s conclusion that had no injury to redress.

The Federal Circuit also declined to address the district court’s finding of bad faith, reasoning that “Courts of Appeals review judgments, not opinions.” The Court explained that remanding for a full hearing on litigation misconduct would be an unnecessary waste of resources. Although a judicial opinion can harm an attorney’s reputation—which is one of an attorney’s most valuable assets—there was no remaining sanction or punishment on which the Court could use as a vehicle to redress reputational harm.

In a sharp dissent, Judge Newman reasoned that the sanctioned attorneys should have an opportunity to clear their names through an appeal or an additional hearing on litigation misconduct. The district court had refused to receive privileged notes and emails that arguably exculpated the attorneys. In Newman’s view, the incompleteness of the record potentially renders the sanctions against the attorneys unfair and a violation of due process.