In Anchondo v. Dunn, (10th Cir, NM, unpublished), the lawyer (Dunn), who represented the defendant ACA in a class action under the Fair Debt Collection Practices Act, was ordered to pay the plaintiffs’ damages and fees as a sanction for failing to disclose the existence of a professional liability policy which could have covered the claim.  The insurer denied the claim as untimely. 

More specifically, the district court found that Mr. Dunn and Mr. Backal (Mr. Backal was ACA’s president, his bankruptcy precluded any finding against him) knew ACA had a professional liability policy sufficient to cover the amounts owed to plaintiff; that the pair acted in bad faith in failing to disclose (indeed, denying) the existence of this coverage despite appropriate requests during the discovery process; that the pair acted in bad faith in failing to file a timely claim on the policy; and that Mr. Dunn’s special relationship with ACA and his participation in the scheme made it appropriate to hold him jointly liable with Mr. Backal.

The district court cited a number of facts supporting its decision including its disbelief of Mr. Dunn’s and Mr. Backal’s explanations for their conduct. The court relied on the fact that ACA had professional liability coverage for suits arising from its wrongful acts; that Mr. Dunn and Mr. Backal knew this; and that during discovery Mr. Dunn failed to turn over documents reflecting insurance applicable to the suit; and that the pair allowed the period for filing a timely claim to lapse. All these facts, quite apart from and in addition to the court’s disbelief of Mr. Dunn’s and Mr. Backal’s testimony, contributed to its inference of bad faith.

The sanctions were affirmed and the matter remanded to determine attorneys fees on appeal.