Seventh Circuit sanctions lawyer for violating stay order and then defending his violation on appeal

Duff v. Cent. Sleep Diagnostics, LLC, No. 13-3827 (7th Cir. Sept. 10, 2015).

A federal district court put an insolvent company into receivership and stayed all civil proceedings against that company and its promoter. Ultimately, the receiver was able to pay creditors only a small fraction of their claims. 

The insolvent company owed an attorney money for his services, but never paid. He filed a claim with the receiver, but he also obtained a lien on the proceeds of an unrelated lawsuit that the insolvent company’s promoter had filed in Illinois state court. The attorney obtained this lien after the federal district court had entered its stay order, but never told the receiver or the federal court about the lien. 

Later, the attorney objected to the receiver’s proposed plan to distribute assets to creditors, arguing that the lien entitled him to be paid first, and in full. The district court rejected this argument.

The Seventh Circuit now affirms—in fact, more than affirms. It sanctions the attorney, who, it says, blatantly violated the stay order, and then frivolously defended his violation on appeal.