Prenda and Paul Duffy Required to Pay Punitive Damages

There have been many stories concerning Prenda and Paul Duffy (now deceased). Prenda began as a law firm that would sue defendants who, it claimed, downloaded pornographic movies without paying for them. Eventually, Prenda, Duffy, and his colleagues stirred up a Hornet’s nest of bad publicity and strong opposition. Defendants claimed that Prenda was a scam.

Prenda and Duffy were sanctioned by several federal district courts for false pleadings and efforts to mislead judges. Prenda appealed and lost all the appeals. This particular case, Duffy v. Godfread, 13 cv 01569  was handled by Judge Darrah of the Northern District of Illinois. The original complaint was filed by Duffy and Prenda and was for defamation. The factual allegations made by Prenda quickly unraveled and the defendants moved for sanctions. Judge Darrah ordered sanctions.

Judge Darrah’s sanction orders were affirmed by the Seventh Circuit. On remand Judge Darrah entered judgment in favor of the Defendants and ordered Duffy and Prenda to pay (a) sanctions of $11,758.20; (b) actual damages of $162,448.74 and (c) punitive damages of $500,000.

Edward X. Clinton, Jr.

Defendant’s Change of Lawyers Insufficient Basis to Avoid Rule 37 Sanctions

The defendant, Infinite Classic, failed to attend a deposition or participate in discovery. The plaintiff moved for Rule 37 sanctions. The Defendant argued that it changed lawyers so it should not be sanctioned. The court found that the change in lawyers was no excuse.

The Infinite Defendants object to the Magistrate Judge’s award of $5,000 for their failure to appear at depositions and $5,000 for their failure to timely participate in written discovery (Dkt. # 99 ¶¶ 21-24), arguing that the award is not supported by evidence, and that the failure to attend the depositions or timely respond to discovery was excusable. (Id. ¶¶ 24, 26-36.) Specifically, the Infinite Defendants argue that they retained new counsel on July 10, 2015, and that “[s]even days from the date August 14, 2015 Order [sic] entered for the production of additional documents responding to the discovery was not sufficient time for [new counsel] to meet [deadlines] while catching up with this complicated action reviewing previous pleadings, grasping factual backgrounds and engaging factual/legal [sic] analysis.” (Id. ¶ 30.)

This excuse is insufficient. Counsel for the Infinite Defendants had been counsel of record for nearly a month when the Motion to Compel was filed; counsel received notice of the Motion, yet entirely failed to request an extension of time or otherwise respond to the Motion to Compel, and also failed to respond to the Motion to Enforce the Court’s Order. (Dkts. ## 65 & 66, receipts of service.) Further, Counsel did not object to the Court’s Orders compelling the Infinite Defendants to participate in written discovery or to comply with previous orders. (Dkts. ## 67, 68.) Likewise, counsel did not object to the notices of deposition. This utter failure to respond, viewed alongside the Infinite Defendants’ historical failure to timely respond or otherwise abide by previous orders of this Court, amounts to willful disregard of the Court’s authority and the judicial process in general. The Magistrate Judge correctly found that imposition of attorney’s fees, “one of the least severe sanctions,” under the Court’s Rule 37(b) sanctioning authority, was appropriate for the discovery-related failures documented here. Cooper Tire, 685 F.3d at 488.

The excuse appears to be particularly weak in federal court where all orders are served by email and published on the federal PACER. Anyone can find out the status of a case given ten or fifteen minutes of time. If the lawyers could not get the defendant to comply with discovery, they should have filed a motion for an extension as soon as possible.

Edward X. Clinton, Jr.

Source: JANE ENVY, LLC v. INFINITE CLASSIC INC., Dist. Court, WD Texas 2016 – Google Scholar

District Court Sanctions Attorney For Frivolous Pleadings In Credit Reporting Case

This is a case in which a lawyer was sanctioned on the basis of Rule 11 and Section 1927 for pursuing baseless litigation against Trans Union, a credit reporting company. The gist of the case was the credit reporting bureaus violated the Fair Credit Reporting Act by providing a copy of plaintiff’s credit report to a debt collection law firm without a permissible purpose. Most of the defendants settled the allegations but Trans Union fought, eventually obtaining summary judgment.

The lawyer in this case erred by pursuing claims against the wrong defendant (Trans Union was not a proper defendant) and pursuing claims that were not factually supported long after he received warnings from Trans Union’s attorneys.

Plaintiff appealed to the Sixth Circuit, but it also affirmed the grant of summary judgment against Plaintiff. Trans Union moved to reopen the case to obtain costs and sanctions.

The court explained that the Rule 11 sanctions were proper because the plaintiff’s counsel continued pursuing baseless claims long after it was apparent that the claims lacked merit.

Miller’s original complaint alleged that Trans Union provided Wites & Kapetan with a copy of Miller’s credit report through an undetermined third party. The only support Miller provided for this allegation was the letter Wites & Kapetan sent to her in 2011. The letter contains a footnote that explicitly states that Wites & Kapetan do not have her credit report. (Doc. 1-1.) This singular letter served as the basis of Miller’s complaint. No further investigation seems to have taken place and no other evidence was presented to support the claims against Trans Union. Miller, without any substantive evidence to support the allegation, elected to believe Trans Union had disclosed her credit report in violation of FCRA. Miller and her counsel have thus failed to demonstrate that her claim would likely have evidentiary support after further discovery.

Miller ultimately dropped her original claim against Trans Union, and filed an amended complaint alleging a new claim against Trans Union based on a report that she ordered six months after she brought this lawsuit. Miller’s new claim alleged that Trans Union violated the FCRA by failing to disclose promotional inquiries on a consumer disclosure. (Doc. 41.) Miller’s claim was again factually unsupported. The service agreement that Miller entered into (Doc. 106-4) and the URLs on the report that she received (Doc. 41-1) both show the report was produced by TUI. Thus, Miller either failed to recognize or deliberately ignored the fact that Trans Union and TUI are separate legal entities. Miller then failed to recognize that what she had requested was not a consumer disclosure covered by § 1681g of the FCRA. These are significant investigatory failures on the part of Miller’s counsel.

Miller also filed three motions against Trans Union that were found to lack any evidentiary support or Plaintiff was found to lack the grounds to object. Plaintiff’s Motion For Sanctions Against Trans Union For Spoliation of Evidence (Doc. 74) and Plaintiff’s Motion To Show Cause Why Trans Union Should Not be Held in Contempt (Doc. 86) were found to lack evidentiary support and were summarily denied. Plaintiff’s Motion to Strike the Deposition of Michelle Simms (Doc. 95) was denied because the Court ordered Simms to testify about TUI documents and procedures at Plaintiff’s request; Plaintiff, therefore, had no grounds to strike the same testimony. (Doc. 101.)

Additionally, Miller and her counsel were put on notice by Trans Union that there was no factual basis for the claims made against the company. Trans Union contacted Miller’s counsel in June 2013 (Doc. 106-1), February 2014 (Doc. 106-3), and August 2014 (Doc. 106-4) and informed them that the claims in the complaint and the amended complaint were meritless. While the Court would not expect plaintiff’s counsel to blindly accept a defendant’s assessment of plaintiff’s case, the Court would expect such repeated assertions to prompt an investigation into the facts underlying plaintiff’s claims. Miller deserves some credit for ultimately dropping her original claim against Trans Union, but she then replaced it with a claim equally without merit. Miller never agreed to dismiss that claim against Trans Union nor sought leave to add TUI as a defendant—even though Trans Union notified her counsel that TUI was the proper defendant.

The primary goal of Rule 11 sanctions is to deter baseless accusations that lack factual support. Yet there is also a duty on the party seeking sanctions to mitigate their damages and avoid unnecessary filings. Trans Union arguably met this obligation by sending Miller three separate letters detailing the distinct lack of factual support for their claim and warning of Rule 11 sanctions. On the other hand, Trans Union moved for reconsideration of the Court’s order granting Miller leave to amend, but did not move to dismiss the Amended Complaint. (Doc. 46.) In the order denying the motion for reconsideration, the Court stated that “Trans Union remains free to file a motion to dismiss the Amended Complaint should it believe such a motion is appropriate.” (Doc. 58.) All considered, the Court finds that Trans Union pursued a resolution of this case in a reasonable manner. It would be inaccurate to suggest that Trans Union sat on its hands and accrued defense costs while it built a case for Rule 11 sanctions; it tried to reason with Miller’s counsel, but to no avail.

The court also found that the attorney violated Section 1927 by needlessly multiplying the proceedings.Source:

Comment: the case is a reminder that, in federal court, a letter from opposing counsel that a claim is baseless, must be taken seriously.

Source: Miller v. EXPERIAN INFORMATION SOLUTIONS INC., Dist. Court, SD Ohio 2016 – Google Scholar

Edward X. Clinton, Jr.

District Court Declines to Sanction Pro Se Litigants Who Filed a Case Barred by Res Judicata

The plaintiffs are pro se litigants who sued FNMA in federal court in an effort to challenge a prior state court decision which foreclosed on their mortgage. Because the federal case was barred by res judicata (a doctrine prohibiting a party from litigating the same issue a second time after losing a prior case), FNMA filed a motion for Rule 11 Sanctions. The district court denied the sanctions motion because FNMA did not use the 21-day safe harbor provision in Rule 11, which would have given the plaintiffs 21 days to withdraw their case. The court did order that the plaintiffs were barred from filing any future pleadings without leave of court. The court reasoned as follows:

The same Rule “also provides procedural requirements that must be followed before sanctions can be imposed.” Shamoun v. Federal Nat. Mortg. Ass’n, 2013 WL 2237906, *9 (E.D.Mich. May 21, 2013). Among the requirements is a two-step process under 11(c)(2) of the rule, “known as the `safe harbor’ provision” which requires the party intending to make a motion for sanctions “to `first, serve the Rule 11 motion on the opposing party for a designated period (at least twenty-one days); and then file the motion with the court.'” Shamoun at *9 (citing Ridder v. City of Southfield, 109 F.3d 288, 293-94 (6th Cir.1997)). “This two-step procedure allows the opposing party twenty-one days to withdraw the challenged paper, claim, allegation, etc., and thus avoid Rule 11 sanctions.” Id. (citing Ridder at 294).

Defendants have not applied the two-step safe harbor procedure under subdivision (c)(1)(A) but instead, request that the Court issue a show cause order under its own authority. Defendants’ Brief at 17. A Court may impose sanctions sua sponte“after notice and a reasonable opportunity to respond.” Rule 11(c)(1)(3).

The Court declines to impose sanctions. First, Defendants have not applied the twostep safe harbor procedure or made the request for sanctions in a separate motion which are both required by subsection (c)(2). Defendants’ request for the Court to impose sanctions “sua sponte” under (c)(3) amounts to an end run around the safe harbor requirements of (c)(2) for parties seeking sanctions. Further, given that Plaintiffs are proceeding pro se and in forma pauperis, the sanction of costs and fees is inappropriate. See Hiles (declining to impose sanctions but enjoining the plaintiff from filing any additional motions without leave of Court).

Comment: this decision is a merciful application of the law.

Source: LNU v. Federal National Mortgage Association, Dist. Court, ED Michigan 2016 – Google Scholar

Minnesota Suspends Paul Hansmeier From the Practice of Law

On September 12, 2016, the Minnesota Supreme Court issued an order indefinitely suspending Paul Hansmeier from the practice of law. Hansmeier has “no right to petition for reinstatement for 4 years from the effective date of his suspension.”

The Minnesota Supreme Court can be complimented for its pithy (2 and a half pages) rendition of the major ethical violations of Hansmeier. The description is quoted in full below:

Hansmeier committed misconduct in the first matter by bringing a lawsuit for the sole purpose of conducting discovery to find the identity of others against whom claims could be made, making misrepresentations to the tribunal. filing articles of termination for a corporation that contained false statements, failing to comply with discovery requests, failing to pay attorney fees assessed against him, and transferring funds out of his law firm in order to avoid paying sanctions. In a second matter, Hansmeier committed misconduct by participating in the initiation of a lawsuit without a basis in law and fact, making false and misleading statements to the court, failing to pay attorney fees assessed against him by the court. and submitting to the court a financial statement that was false, misleading, and deceptive. In a third matter, Hansmeier committed misconduct by bringing a frivolous action for an improper purpose. And in a fourth matter. Hansmeier committed misconduct by testifying falsely during a deposition, bringing a frivolous claim, and perpetrating a fraud upon the court. See Minn. R. Prof. Conduct 3.1, 3.3(a)(l), 3.4(c), 3.4(d), 4.1, 8.4(c),and 8.4( d); Ill. R. Prof. Conduct 3.1, 3.3(a), 3 .4( c ), 4.1, 8.4( c ), and 8.4( d); and Cal. R. Prof. Conduct 3-200 and 5-200. 1.

Law Firm’s Request For Rule 11 Sanctions Against Pro Se Litigant Goes Nowhere

The plaintiff filed a pro se employment discrimination complaint against Reed Smith and other defendants (apparently employees or partners of Reed Smith). The defendants moved to dismiss the complaint under Rule 12(b)(6). The court granted the motion in part and dismissed some claims. However, it held that other claims were well pleaded and raised an issue for trial.

The court denied the Defendants’ Motion for Rule 11 sanctions on the ground that the pleading was not frivolous. Moreover, the court clearly believed that the motion for sanctions was a reach given that it was filed shortly after the complaint was filed. The court reasoned that the EEOC’s decision to reject the discrimination claim was not binding on the court and did not support an award of sanctions. Further, the court noted that pro se litigants are held to a relaxed standard of pleading.

The key paragraph of the opinion is quoted here:

59. Although pro se litigants are not immune from such sanctions, see Unanue Casal v. Unanue Casal, 132 F.R.D. 146, 151 (D.N.J. 1989), aff’d, 898 F.2d 839 (3d Cir. 1990), this Court has noted that the standard for sanctions is “relaxed considerably when the offending party is unrepresented by counsel.” Talley v. City of Atlantic City, No. 04-1146, 2007 WL 2021792, at *4 (D.N.J. July 10, 2007) (Simandle, J.). This is because pleadings by pro se plaintiffs must first be read “with greater latitude and liberality,” and a pro se plaintiff “cannot reasonably be held to the same standards of knowledge of legal process as an attorney.” Id.; see also Bacon v. Am. Fed. of State, Cnty., and Mun. Empls. Council, No. 13, 795 F.2d 33, 35 (7th Cir. 1986) (“A layman cannot be expected to realize as quickly as a lawyer would that a legal position has no possible merit, and it would be as cruel as it would be pointless to hold laymen who cannot afford a lawyer . . . to a standard of care that they cannot attain even with their best efforts.”). Sanctions will be appropriate against a pro se plaintiff when she persists in a hopeless cause after her claims have repeatedly been rejected by court, because then, it should have been clear to her as a reasonable (though not law-trained) person that her cause was indeed hopeless. Talley, 2007 WL 2021792, at *4.

In sum, this motion for sanctions was filed too soon to be granted. It may have been used as a tool to encourage the pro se litigant to drop the claim. If so, that idea did not work.

Source: ROSS-TIGGETT v. REED SMITH LLP, Dist. Court, D. New Jersey 2016 – Google Scholar

District Court Denies Rule 11 Motion As Untimely Where The Case Had Been Dismissed

Under Rule 11, the party seeking sanctions must serve the motion on the opposing party and give that party 21 days to withdraw the offending pleading. Here, the defendants apparently served the sanctions motion, but they failed to file it before the plaintiffs’ complaint was already dismissed by the district court. The district court refused to hear the motion. The court explained its ruling in this passage:

Courts have uniformly denied Rule 11 motions where, as here, a motion was not filed until after the case was dismissed. See Roth v. Green, 466 F.3d 1179, 1193 (10th Cir. 2006) (motions for Rule 11 sanctions filed after district court dismissed complaint should have been denied; citing cases from four other circuits); VanDanacker, 109 F.Supp.2d at 1054.

The courts have reasoned that to grant Rule 11 sanctions based on a motion filed post-dismissal would defeat the purpose of the safe harbor provision. The advisory committee notes to Rule 11 provide strong support for this conclusion:

Ordinarily the motion should be served promptly after the inappropriate paper is filed, and, if delayed too long, may be viewed as untimely. . . . Given the “safe harbor” provisions . . . [in Rule 11(c)(2)], a party cannot delay serving its Rule 11 motion until conclusion of the case (or judicial rejection of the offending contention).Fed. R. Civ. P. 11, Advisory Committee Notes (1993 Amendments). A leading federal practice treatise explains the rationale for this rule: “if the court disposes of the offending contention within the 21-day safe-harbor period after service, it becomes impossible under the provision of Rule 11(c)(2) to file the motion or otherwise present it to the court.” 2 James Wm. Moore et al., Moore’s Federal Practice § 11.22[1][c] (3d ed. 2014); see also 5A Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure § 1337.2, at 727 (3d ed. 2004) (“[S]ervice of a sanctions motion after the district court has dismissed the claim or entered judgment prevents giving effect to the safe harbor provision or the policies and procedural protections it provides, and it will be rejected.”).

Because defendants’ motion for Rule 11 sanctions was not filed until after the Court dismissed plaintiff’s complaint with prejudice, the motion is untimely and must be denied because it defeats the purpose of the safe harbor provision ofRule 11.[3]

It makes perfect sense that the court did not want to waste further time on a case it had already dismissed. To do so, would be a waste of judicial resources.

Edward X. Clinton, Jr.

Source: Noonan v. CACH, LLC, Dist. Court, ED Missouri 2016 – Google Scholar