In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

Nos. 04-1191 & 04-1302
TONI K. CLAIBORNE,
                                             Plaintiff-Appellant,
                                v.

ROY WISDOM, GEORGE MITCHELL MOTT,
DRAKE TERRACE APARTMENTS, and
PURITAN HOME FUNDING, L.P.,
                              Defendants-Appellees,

LEE, COSSELL, KUEHN & LOVE, L.L.P.,
                                          Intervenor-Appellant,

ELAINE P. BOYD,
                                                        Appellant.
                         ____________
       Appeals from the United States District Court for the
        Southern District of Indiana, Indianapolis Division.
        No. IP 01-1234-C-Y/F—Richard L. Young, Judge.
                         ____________
   ARGUED SEPTEMBER 14, 2004—DECIDED JULY 7, 2005
                   ____________



 Before EASTERBROOK, MANION, and WOOD, Circuit
Judges.
   WOOD, Circuit Judge. In the words of the district court
judge, “This case has a long and tortured history.” At root,
it was once a suit based on federal and state laws guaran-
2                                   Nos. 04-1191 & 04-1302

teeing various rights to fair housing. At this point, however,
all that is before us is the district court’s order requiring
the plaintiff, her individual lawyer, and the law firm that
represented her to pay the defendants’ attorneys’ fees and
costs. We conclude that the district court acted lawfully and
within its discretion when it entered this order against
the plaintiff herself, Toni K. Claiborne, and against the
plaintiff’s lawyer, Elaine P. Boyd, but that the court should
not have taken this action directly against the law firm of
Lee, Cossell, Kuehn & Love, L.L.P. (formerly Lee, Burns,
Cossell & Kuehn, L.L.P.). We therefore affirm in part and
reverse in part.


                              I
  On August 8, 2001, Claiborne filed an action in the
Marion County (Indiana) Circuit Court against several
defendants, raising claims under both the federal Fair
Housing Act Amendments of 1988 (FHA), 42 U.S.C. §§ 3601
et seq., and the Indiana Fair Housing Act, Ind. Code §§ 22-
9.5-1-1 et seq. Each defendant, she asserted, bore some
responsibility for alleged sexual harassment she had
suffered as a tenant of the Drake Terrace Apartments at
the hands of the apartment manager, Roy Wisdom, and for
her subsequent eviction when she rejected Wisdom’s
advances. In addition to naming Wisdom and Drake Terrace
as defendants, she also named George Mitchell Mott, the
property manager of the apartment complex, and Puritan
Home Funding, L.P., the company that owned the complex
and that employed Wisdom. In the complaint, Claiborne not
only alleged that she had been sexually harassed, but she
also claimed that other women had suffered from similar
treatment and had also been forced to vacate their apart-
ments. The complaint represented that Claiborne and her
lawyer, Boyd, had interviewed corroborating witnesses prior
to filing suit. Finally, she alleged that Wisdom had engaged
Nos. 04-1191 & 04-1302                                     3

in the same sort of conduct at other apartment complexes
before Puritan hired him, and that Puritan and perhaps the
other defendants were thus negligent in hiring him.
  Relying on the fact that Claiborne’s claim rested on the
FHA in part, the defendants removed the case to the
district court. On March 20, 2002, after some of the wit-
nesses had been deposed, Claiborne moved to dismiss the
action voluntarily. Her stated reason for the motion was
that “[t]o the complete surprise and shock of Plaintiff and
her counsel, the witnesses denied making the above-ref-
erenced statements and they accused Plaintiff and her
counsel of fabricating the claims.” In response to the mo-
tion, the court entered a formal “Judgment in a Civil Case”
that recited that “IT IS ORDERED AND ADJUDGED,
pursuant to the order of the Court, that the complaint and
all claims therein, including Plaintiff’s claims under the
Federal and Indiana Fair Housing Acts, are dismissed with
prejudice.”
  In the same order, the court invited the defendants to file
a motion for costs and sanctions, including attorneys’ fees,
within 14 days of the date of the judgment. They accepted
the invitation, filing the appropriate motion on May 8, 2002.
Claiborne filed her response on May 24, 2002, within the
time permitted. Apparently unsatisfied with that filing,
however, she sought permission five days later to file a
corrected response, which included new arguments and
affidavits. On July 22, the court denied her motion. At that
point, matters moved slowly. On December 20, 2002, the
court held a hearing on the defendants’ motion. On Febru-
ary 11, 2003, the court found Claiborne and Boyd liable for
attorneys’ fees and costs, although it imposed only $1 in
liability against Claiborne and the remainder, amounting
to $107,845.77, against Boyd. Later, in an order entered on
July 2, 2003, the court held that the Lee law firm was
jointly and severally liable with Boyd for the $107,845.77
due to the defendants. Finally, on December 17, 2003, the
4                                    Nos. 04-1191 & 04-1302

court held an evidentiary hearing on the firm’s motion to
set aside the July 2 order with regard to the firm and
denied the motion in an order entered on January 8, 2004.
Claiborne, Boyd, and the Lee firm have appealed.


                              II
  The theories on which the district court relied in its de-
cision to impose sanctions on these three parties varied. In
the interest of clarity, we consider each defendant’s liability
separately, despite a certain amount of legal and factual
overlap. We begin with Claiborne, the original plaintiff, and
then consider Boyd’s and the Lee firm’s arguments.


                              A
  Although Claiborne has only $1 at stake, this is nonethe-
less a concrete enough burden from the decision to permit
her to pursue this appeal. (The court’s order indicates that
the defendants requested that Claiborne’s sanction be
limited to $1 at oral argument, apparently because of her
inability to pay any more; the order does not indicate any-
thing about her relative responsibility for the problems with
the case.) The court relied on the legal authority provided
by the FHA itself, 42 U.S.C. § 3613(c)(2), for its order. That
statute reads as follows:
      In a civil action under subsection (a) of this section, a
    court, in its discretion, may allow the prevailing party,
    other than the United States, a reasonable attorney’s
    fee and costs.
The statute does not specify the persons or entities against
whom such an order may be imposed, but Claiborne is not
arguing that a party to the case (as opposed to her lawyer)
is somehow excluded. Instead, she argues both that the
defendants were not “prevailing parties” for purposes of this
Nos. 04-1191 & 04-1302                                       5

statute, because their victory came about because of her
voluntary dismissal, and that the statute does not permit
an award against a losing plaintiff under the circumstances
of her case.
  Prevailing Party. The Supreme Court has held that the
fee-shifting provisions of the FHA found in § 3613(c)(2) are
available only to a party that has secured a judgment on
the merits or a court-ordered consent decree. See
Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep’t of
Health & Human Res., 

, 603-04 (2001). This
judgment must result in a “material alteration of the legal
relationship of the parties.” 

(citing Tex. State
Teachers Ass’n v. Garland Indep. Sch. Dist., 

,
792-93 (1989)). A voluntary change in conduct, taken out-
side of the litigation, lacks the necessary judicial imprima-
tur. 

  In arguing that a voluntary dismissal fails the
Buckhannon test, Claiborne is looking at the wrong end of
the telescope. The critical fact is not what prompted the
district court to act; it is instead what the district court
decided to do. Here, the language of the district court’s judg-
ment makes it clear that a decision on the merits has been
rendered: Claiborne’s claims were dismissed with prejudice.
This order effects a material alteration of her legal relation-
ship with the other parties, because it terminates any
claims she may have had against them arising out of this
set of operative facts. If she were to try to bring the same
claim in the future, the defendants would be entitled to rely
on a claim preclusion or res judicata defense. The two cases
on which Claiborne relies, Hewitt v. Helms, 

(1987), and Hanrahan v. Hampton, 

(1980), are
not to the contrary. Hewitt holds only that an interlocutory
ruling that reverses a dismissal for failure to state a claim
“is not the stuff of which legal victories are made.” 

There is nothing interlocutory about the district court’s
judgment here, which, we should note, Claiborne is not
6                                   Nos. 04-1191 & 04-1302

contesting on appeal; it is a final judgment in the defen-
dants’ favor. Hanrahan also points out that the reversal of
a directed verdict for a defendant does not make a plaintiff
a prevailing party, for the obvious reason that the defen-
dant may ultimately win after further proceedings. 

  Standard for § 3613(c)(2) Award. Claiborne also argues
that the district court erred when it characterized her case
as so frivolous that it warranted an award of fees against a
plaintiff. The district court relied on Hensley v. Eckerhart,

(1983), which addressed the standard for fee
awards under 42 U.S.C. § 1988, and LeBlanc-Sternberg
v. Fletcher, 

(2d Cir. 1998), which applied the
Hensley approach to § 3613(c)(2). In Hensley, the
Supreme Court said that “[a] prevailing party defendant
may recover an attorney’s fee only where the suit was vexa-
tious, frivolous, or brought to harass or embarrass the

n.2. Claiborne accepts this as
the correct legal standard for § 3613(c)(2). See also Bryant
Woods Inn, Inc. v. Howard County, 

(4th Cir.
1997) and Foster v. Barilow, 

(6th Cir. 1993). She
argues only that her “seven-month old case was not frivo-
lous, ungrounded, or fraudulent.”
  The district court, however, found otherwise, and (as
Claiborne correctly concedes) our review is for abuse of dis-
cretion. The court found that the record before it demon-
strated that the suit lacked the required factual or legal
basis at the time it was filed. We note, in this connection,
that at the time of filing in the state court, the governing
legal standard came from Ind. Trial P. Rule 11, which (like
FED. R. CIV. P. 11) requires every pleading or motion filed
by a represented party to be signed by the attorney, and
which states that “[t]he signature of an attorney constitutes
a certificate by him that he has read the pleadings; that to
the best of his knowledge, information, and belief, there is
good ground to support it; and that it is not interposed for
Nos. 04-1191 & 04-1302                                      7

delay.” Although the case was later removed to federal court
and thus was later governed by the federal procedural
rules, we see nothing in the Indiana rules that would have
affected the district court’s decision, nor has Claiborne
suggested that there is any material difference for this
purpose between the state and federal standards.
  In finding Claiborne’s suit to be baseless, the court
explained its conclusion as follows:
    [T]he punitive damages claim against Mott, the Drake
    Apartments and Puritan Home was without a factual
    basis as Plaintiff admitted that these Defendants did
    not intend to harm her in any fashion. Moreover, none
    of the witnesses Plaintiff called to testify on her behalf
    corroborated her claim that she was sexually harassed
    by Wisdom, that other witnesses were sexually ha-
    rassed by Wisdom, or that Defendants intimidated wit-
    nesses. Finally, Plaintiff’s Indiana Fair Housing Act
    claim was time-barred.
Our own review of the record shows that there was ample
support for the court’s first two findings—certainly enough
to survive abuse-of-discretion review. With respect to the
timeliness of the Indiana Fair Housing Act claim, the same
underlying factual problems doom the case. The district
court thought that the claim was time-barred under the
Indiana law’s one-year statute of limitations. From this
vantage point, timeliness is more difficult for us to assess.
Claiborne claims that she actually vacated the apartment
on September 6, 2000, and that she filed a timely claim on
August 8, 2001; defendants state that she was evicted on
August 7, 2000, and thus that the claim was filed a day
late. They also argue that the limitations period for the
state claim runs from the date of the notice of eviction,
which was July 31, 2000, not from the date of her actual de-
parture. Even if the suit were timely, however, it suffered
from precisely the same flaws as the federal claim, and thus
8                                   Nos. 04-1191 & 04-1302

could not save Claiborne from liability for attorneys’ fees.
(We assume, generously to Claiborne, that a frivolous
federal claim to which a non-frivolous state claim was
supplemental would not qualify for prevailing defendants’
fees under § 3613(c)(2), though that is not at all clear, and
we make no such holding.)
  Additional Arguments. Claiborne also argues that the
district court erred when it imposed certain restrictions on
the hearing it held on the defendants’ motion for attorneys’
fees, costs, and sanctions, and that the court abused its dis-
cretion when it refused to permit Claiborne to file the tardy
amended response to the defendants’ motion. These kinds
of decisions, however, are properly seen as case manage-
ment matters that fall within the district court’s discretion,
and we see no abuse of discretion here. We therefore affirm
the order of sanctions against Claiborne.


                             B
  We now turn to the much more substantial sanction im-
posed against attorney Boyd—all but $1 of the defendants’
proven fees, or $107,845.77. For this part of its order, the
court relied on 28 U.S.C. § 1927, which reads as follows:
      Any attorney or other person admitted to conduct
    cases in any court of the United States or any Territory
    thereof who so multiplies the proceedings in any case
    unreasonably and vexatiously may be required by the
    court to satisfy personally the excess costs, expenses,
    and attorneys’ fees reasonably incurred because of such
    conduct.
Although the court did not refer to FED. R. CIV. P. 11 or to
Ind. Trial P. Rule 11, it is worth noting that both the
federal rule and the Indiana rule empower the court to im-
pose appropriate sanctions against the attorney, and those
sanctions may include appropriate attorneys’ fees incurred
Nos. 04-1191 & 04-1302                                      9

as a direct result of the violation. FED. R. CIV. P. 11(c);
Srivastava v. Indianapolis Hebrew Congregation, Inc., 

(Ind. Ct. App. 2002).
  Boyd argues that her conduct in the litigation fell far
short of that required to impose sanctions under § 1927.
Only subjective bad faith will suffice, in her view, and she
asserts that this record cannot support such a finding.
  The question of how to interpret § 1927 is one of law, and
so we apply de novo review to this part of the case. In
Kotsilieris v. Chalmers, 

(7th Cir. 1992), we
explained that “the bad faith standard [of § 1927] has an
objective component, and extremely negligent conduct, like
reckless and indifferent conduct, satisfies this standard.”

The opinion continued with more concrete
examples: the “cases in which this court has upheld section
1927 sanctions have involved situations in which counsel
acted recklessly, counsel raised baseless claims despite
notice of the frivolous nature of these claims, or counsel
otherwise showed indifference to statutes, rules, or court
orders.” 

In earlier decisions as well, the key
point was the objective unreasonableness of the attorney’s
actions, not the absence of bad faith or evil intent. See
Walter v. Fiorenzo, 

, 433 (7th Cir. 1988) (citing
Knorr Brake Corp. v. Harbil, Inc., 

, 227 (7th
Cir. 1984)). The absence of subjective bad faith is therefore
not enough to avoid a sanction under § 1927, if the attor-
ney’s actions otherwise meet the standard of objective
unreasonableness we have described.
  The only remaining question is whether the district court
abused its discretion in finding that Boyd’s actions here
were objectively unreasonable. Here is what the court had
to say about her conduct:
    To put it mildly, Ms. Boyd did not exhibit the diligence,
    professionalism, or competency that one would expect
    from an officer of the court. She failed to answer discov-
10                                    Nos. 04-1191 & 04-1302

     ery requests propounded by Defendants, and failed to
     disclose the full names and addresses of the witnesses
     she expected to call for trial. . . . Had Ms. Boyd done her
     job in an objectively reasonable manner, she would
     have realized that her client did not have a case months
     before March 20, 2002 [the date of the motion for
     voluntary dismissal].
That much alone might not be enough to support an award
of the full amount of the defendants’ attorneys’ fees under
§ 1927, because the statute speaks of the “excess” costs and
fees that were incurred because of the lawyer’s conduct, and
this excerpt merely indicates that Boyd should have
realized that the case had problems at some undefined time
before March 20, 2002. But that is not all that the court
wrote. In the sanctions order docketed on February 11,
2003, it made the following findings:
  • Boyd pursued a number of claims without any factual
    basis (¶ 12);
  • Three of the four major claims that Boyd presented
    proved to be “entirely without a factual basis” (¶ 13);
  • Boyd engaged in evasive and dilatory tactics, such as
    filing an incomplete disclosure of witnesses, failing to
    file a response to defendants’ interrogatories and
    production requests, and failing to respond to
    defendants’ motion for summary judgment (¶ 14); and
  • Boyd “never made a reasonable inquiry before pre-
    senting serious allegations to this court.” (¶ 15)
Taken together, these findings go to the heart of the case.
Boyd’s only response is that the defendants shared some (or
much) of the blame for the way that the case proceeded.
First, that argument does not explain why such an ill-
founded case started in the first place. Second, our own
review of the record does not convince us that the district
Nos. 04-1191 & 04-1302                                     11

court abused its discretion in weighing the relative re-
sponsibility for plaintiffs and defendants in the way that it
did.
  We conclude, therefore, that the court applied the correct
legal standard under § 1927 and that it did not abuse its
discretion when it imposed the full amount of the defen-
dants’ attorneys’ fees on Boyd (save the $1 that Claiborne
was to pay). Given this outcome, we need not reach the
question whether Rule 11, or a combination of Indiana’s
Rule 11 and the federal rule, would independently support
the sanction.


                             C
  Last, we turn to the court’s order making Boyd’s law firm,
Lee, Cossell, Kuehn & Love, L.L.P., jointly and severally
liable for the sanctions imposed on Boyd. Initially, the court
decided that § 1927 imposes only individual liability, and
thus that the Lee firm could not be liable in any derivative
or respondeat superior capacity. Order of Feb. 11, 2003. The
defendants moved to reconsider that ruling, however, and
in a later order docketed on July 2, 2003, the court reversed
itself and found, largely on the basis of a number of district
court decisions, that § 1927 indeed does permit sanctions
against law firms. The defendants argue on appeal that the
latter decision was correct, both because the language of
§ 1927 permits sanctions against “[a]ny attorney or other
person admitted to conduct cases,” and because, once again,
most district courts addressing this issue have held or
assumed that sanctions may be imposed against a law firm.
They also argue that the firm has waived this issue, but we
are satisfied that it said enough in the December 20, 2002,
hearing to preserve the point for appeal.
  This court has never had occasion squarely to address this
question. This is once again a question of law, which we
review de novo. Our sister circuits have come to differing
12                                   Nos. 04-1191 & 04-1302

conclusions without focusing on the precise legal question
at stake. In Arvigan v. Hull, 

, 1582 (11th Cir.
1991), the court declared that “a court may assess at-
torney’s fees against litigants, counsel, and law firms who
willfully abuse judicial process by conduct tantamount to
bad faith,” but it offered no reason for including law firms
in that list. Indeed, the case that the court cited in support
of this proposition, Roadway Express Inc. v. Piper, 

(1980), had nothing to say about law firm liability
under § 1927. Two other circuits have imposed sanctions on
law firms but also without any discussion of this question.
LaPrade v. Kidder Peabody & Co., 

(D.C. 1998);
Baker Indus., Inc. v. Cerberus Ltd., 

(3d Cir.
1985). In contrast, the Fourth Circuit has expressed doubt
that a law firm may be sanctioned under § 1927. It did not
definitively resolve the question, however, because it
reversed an award of attorneys’ fees on the ground that the
district court’s order did not specify any sanctionable
conduct on the part of the firm’s attorneys. Blue v. U.S.
Dep’t of the Army, 

, 549 (4th Cir. 1990). In our
view, these decisions are inconclusive. We therefore con-
sider for ourselves whether a law firm is subject to sanc-
tions under § 1927.
  The statute itself refers to “[a]ny attorney or other person
admitted to conduct cases in any court of the United
States.” No one argues that the Lee firm as a whole is
actually “admitted to conduct cases” before any court.
Individual lawyers, not firms, are admitted to practice be-
fore both the state courts and the federal courts. See, e.g.,
Ind. Rules of Court 3.1 (governing the admission of attor-
neys); FED. R. APP. P. 46(a) (same); S.D. Ind. Local R. 83.5(b)
(same). The fact that § 1927 refers to “other person[s]”
admitted to conduct cases is of no help to the defendants.
This language reflects the fact that in limited circumstances
non-attorneys may appear in judicial proceedings, such as
in patent proceedings or where law students receive special
Nos. 04-1191 & 04-1302                                     13

permission to conduct cases before they are admitted to the
bar. See 37 C.F.R. § 10.14 (allowing certain non-attorneys
to practice before the United States Patent and Trademark
Office); Ind. Rules of Court 2.1 (allowing supervised law
students to act as attorneys); N.D. Ind. Local R. 83.9
(same). It is too much of a stretch to say that a law firm
could also be characterized as a such a person.
  Our conclusion has the virtue of being consistent with the
rationale the Supreme Court used in Pavelic & LeFlore v.
Marvel Entertainment Group, 

(1989), when it
considered the question whether sanctions were possi-
ble against a law firm under an earlier version of
FED. R. CIV. P. 11. (The rule was amended as of December 1,
1993, to ensure that law firms could be subject to sanctions
under its authority.) In Pavelic & LeFlore, however, the
Court had to construe language that permitted sanctions
only against “the person who signed” the offending docu-

. The district court, affirmed by the
court of appeals, had found that this language permitted it
to impose sanctions not only against the lawyer who signed
the papers, but also against his law firm. The Supreme
Court reversed, finding that in context the phrase “the
person who signed” could only mean the individual signer,
not his partnership, either in addition to him or in the
alternative. The language of § 1927 raises exactly the same
problem as the earlier version of Rule 11. Even if Pavelic &
LeFlore does not strictly dictate the outcome here, it points
strongly in the direction we have taken.
  This does not mean that courts are powerless to impose
sanctions on law firms that bear some responsibility for an
individual attorney’s conduct. First, it still may be possible
as a matter of Indiana common law to hold the firm vicar-
iously liable for the injuries inflicted by the individual
attorney’s conduct. Indiana, like most states, imposes vicar-
ious liability on employers for the acts of employees taken
within the scope of their employment. See, e.g., Stropes by
14                                   Nos. 04-1191 & 04-1302

Taylor v. Heritage House Childrens Center of Shelbyville,
Inc., 

, 247 (Ind. 1990). The only question we
have been considering is the firm’s direct liability for the
sanctions; we have no comment here on any possible
vicarious liability if Boyd fails to satisfy the judgment.
Second, Rule 11 now expressly permits sanctions against
“the attorneys, law firms, or parties” that have violated the
rule. On top of all that, the court retains inherent power to
impose sanctions when the situation is grave enough to call
for them and the misconduct has somehow slipped between
the cracks of the statutes and rules covering the usual
situations. Chambers v. NASCO, Inc., 

(1991).
Interestingly, the defendants’ brief appears to eschew
reliance on Rule 11 as an alternate ground for supporting
the district court’s order; it argues instead that “§ 1927 and
Rule 11 were enacted for different purposes.” It appears
also that the district court did not direct the parties to brief
the question of Rule 11 sanctions, and thus that the Lee
firm never had an opportunity to defend itself against that
theory of liability. Finally, the defendants never mention
the court’s inherent power.
  In some ways, this is a troubling outcome. It appears from
the record that there was a close connection between Boyd’s
actions and those of her firm. Beyond the common fact that
every paper filed in the case bore the firm’s name as well as
hers, it seems that the firm was on notice of the fact that
her litigation practice was questionable. In a previous case
before the same district court, another judge had specifi-
cally directed Nathaniel Lee, the firm’s senior partner, to
supervise Boyd in all employment cases pending before the
Southern District of Indiana because of her substandard
performance in those cases. Granted, Claiborne was not
bringing an employment discrimination case, but the earlier
order should have been a general alert to the responsible
partners in the firm to ensure that Boyd’s conduct met all
relevant professional standards.
Nos. 04-1191 & 04-1302                                     15

  We regard the matter as sufficiently serious that in two
separate orders issued today, we direct Elaine P. Boyd and
Nathaniel Lee to show cause why we should not discipline
them. We recommend that the district court do likewise. We
also instruct the Clerk of this Court to send a copy of this
opinion to the Indiana Supreme Court Disciplinary Com-
mission for whatever actions that body thinks appropriate.
We conclude here only that § 1927 does not provide a legal
basis for an order of fees against an entity like a law firm
that is not itself “admitted to practice” before the tribunal.


                             III
  For these reasons, we AFFIRM the order of sanctions
imposed against plaintiff Claiborne and attorney Boyd; we
REVERSE the order of sanctions against the law firm of Lee,
Cossell, Kuehn & Love, L.L.P. Costs of appeal are to be
taxed against Claiborne and Boyd, jointly and severally.
SEE FED. R. APP. P. 39(a).

A true Copy:
       Teste:
                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit




                    USCA-02-C-0072—7-7-05