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

District Court Awards Google and YouTube Sanctions For Frivolous Allegations

This is apparently an antitrust case against Google and YouTube, a subsidiary of Google. The plaintiff also included other allegations against the two defendants that the court deemed to be frivolous. Plaintiff alleged that the defendants conspire to “game” the view counts of certain videos posted on YouTube. There were also certain allegations that the defendants wrongfully remove “independent” music videos.

The court concluded that, although portions of the complaint stated a claim, these particular allegations violated Rule 11 and awarded sanctions. The court explained:

Defendants take issue with paragraphs 19(a), 22-24, 30, 38, 44, 91, 92, 103, 109 and 110 of Plaintiffs’ 3AC. Together, these paragraphs alleged that Defendants and their named executives agreed to permit certain record labels to game the view count without enforcement. First, Defendants argue that Plaintiffs have no evidentiary basis for this theory. Plaintiffs respond that significant circumstantial evidence supported their theory. For example, the 3AC described very high view counts for certain videos, and noted that Defendants would have benefitted from such a conspiracy because they shared in advertising revenue. The Court concludes that it was baseless to allege that Defendants conspired to game view counts—the circumstantial evidence does not provide a basis for such an allegation. These allegations violate Rule 11.

Second, Defendants argue that, contrary to Plaintiffs’ allegations, YouTube has taken action against the alleged conspirator record labels. See 3AC ¶ 22 (alleging that “G-Y and the G-Y Executives refrain from 4H TOS enforcement action against the Major Labels and the other Conspiring Entities”). Publicly-available information demonstrates that Plaintiffs’ counsel could not have undertaken an objectively reasonable inquiry before presenting this allegation. For example, Defendants submit an online news article entitled: “YouTube cancels billions of music industry video views after finding that they were fake or `dead,'” discussing a video by Rihanna, a Universal artist. Haas Dec. Ex. 5. Huffington Post published a similar story the following day. Id. Ex. 6. Paragraph 22 violates Rule 11.

Third, Defendants argue that Plaintiffs have insufficient factual support for their allegations regarding Google and YouTube executives’ actions. Plaintiffs make two arguments in response. They argue that David Drummond’s inaction following Plaintiffs’ counsel’s May 12, 2014 letter to him outlining the sequence of events giving rise to their legal claims could be construed as evidence of his and others’ prior awareness of the conspiracy. See Docket No. 101-9. The lack of response to this letter does not serve as a basis for Plaintiffs’ specific claims about Defendants’ executives’ participation in and knowledge of a view count gaming conspiracy. Next, Plaintiffs argue that, if there were a conspiracy, it must have been at the direction of senior management. However, as explained above, there was no basis to allege the view count gaming conspiracy. For these reasons, the allegations pertaining to the actions and knowledge of particular Google and YouTube executives violate Rule 11.

The court also discussed other examples of false allegations in the complaint. The court then awarded the defendants their costs and legal fees in bringing the motion for sanctions. Obviously, when battling a powerful defendant such as Google, which has access to excellent lawyers and has first class discovery technology tools available to it, a lawyer must be exceedingly careful to make sure that allegations are well-grounded in fact before they are pleaded. These plaintiffs lawyers apparently failed to do that and were sanctioned as a result.

Source: SONG FI, INC. v. GOOGLE, INC., Dist. Court, ND California 2016 – Google Scholar

District Court Holds That Rule 37 Does Not Allow Sanctions In The Absence of A Court Order

The underlying dispute concerned an inspection of Chevron’s premises in Nigeria. Plaintiffs’ experts were initially denied access, but Chevron claimed that it cleared up the problem almost immediately and obtained access for the experts.

In any event, the sanctions motion was denied because the defendant did not violate or refuse to comply with a specific court order. The court explained:

Plaintiff seeks sanctions under Federal Rule of Civil Procedure 37, which governs “failure to comply with a court order.” Defendant contends that Rule 37 does not apply because the December 2015 trip was not scheduled pursuant to a specific court order. The Court agrees. In Unigard Sec. Ins. Co. v. Lakewood Engineering & Mfg. Corp., 982 F.2d 363 (9th Cir. 1992), the Ninth Circuit held that a district court could not sanction a party under Rule 37 for the party’s destruction of evidence prior to filing suit. The court explained,

This court has foreclosed the application of Rule 37 sanctions in cases such as this where a party’s alleged discovery-related misconduct is not encompassed by the language of the rule. The definition of “order” in Rule 37(b) has been read broadly. See, e.g., Henry v. Sneiders, 490 F.2d 315, 318 (9th Cir.), cert. denied, 419 U.S. 832, 95 S.Ct. 55, 42 L.Ed.2d 57 (1974) (Rule 37 sanctions may be imposed on a party for disobedience to a court’s request in oral proceedings, so long as those proceedings give the party unequivocal notice that a court has asked that certain documents be produced.). But Rule 37(b)(2)’s requirement that there be some form of court order that has been disobeyed has not been read out of existence; Rule 37(b)(2) has never been read to authorize sanctions for more general discovery abuse.Id. at 368.

Here, plaintiff acknowledges that there is no court order that Chevron has disobeyed. Instead, plaintiff asserts that Chevron’s United States counsel either negligently or intentionally failed to coordinate with Chevron’s Nigerian representatives to ensure that plaintiff’s experts would be able to access the explosion site. Under Unigard, Rule 37 sanctions are unavailable for this conduct.

Source: GBARABE v. CHEVRON CORPORATION, Dist. Court, ND California 2016 – Google Scholar

Prompt Remedial Action Avoids Rule 11 Sanctions

Here, plaintiff tendered a Rule 11 safe harbor notice, giving the defendant 21 days to remedy the alleged violation. The defendant did its research and amended the complaint promptly, avoiding sanctions. The court explains:

“Plaintiff’s motions additionally seek Rule 11 sanctions against the attorneys representing ORNTIC and BONY on the grounds that their submissions have been fraudulent and/or frivolous because they misrepresented the existence of BONY and ORDMS and because the attorneys have no legal services agreements with BONYMCorp or ORNTIC. BONY’s counsel maintains that BONY is the proper defendant in this case and argues that Plaintiff has failed to prove otherwise. In support, BONY notes that the Clerk of the Court has declined to grant default against BONY on two occasions. See ECF 64, 123. Having reviewed the record, the Court agrees with BONY’s counsel that Plaintiff has failed to establish that BONY is the improper party. See BONY’s RJN Exh. C (SOT listing BONY as the assignee of Plaintiff’s DOT). Accordingly, the Court DENIES Plaintiff’s motion for sanctions against BONY’s counsel.

As for ORNTIC, its counsel explains that, after receiving Plaintiff’s Safe Harbor Notice for her Rule 11 motion, counsel contacted ORDMS who then researched the issue and concluded that ORNTIC is in fact the proper party defendant in this case. Upon learning this, counsel immediately filed a Notice of Errata to advise the Court of the error and filed a “corrective” Motion to Dismiss the SAC. ORNTIC’s counsel argues that this remedied any offensive pleading within the time allotted in Plaintiff’s Safe Harbor Notice and the Court agrees. Accordingly, Plaintiff’s motion for sanctions against ORNTIC’s counsel is DENIED.”

Source: Cox v. OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, Dist. Court, ND California 2016 – Google Scholar

Ninth Circuit Affirms Substantial Prenda Sanctions

Somehow I missed this unpublished opinion from June 2016 in which the 9th Circuit affirmed substantial sanctions against the three Prenda attorneys, John Steele, Paul Hansmeier and Paul Duffy. (Duffy passed away in 2015). The District Court found that the three attorneys engaged in vexatious litigation and awarded sanctions based on the inherent authority of the court. The sanctions were affirmed in an unpublished opinion.

The main argument on appeal is that the Prenda lawyers did not receive sufficient notice that the district court would sanction them. The Ninth Circuit disagreed, explaining:

Appellants were also afforded an opportunity to be heard at both the first and second hearings and were allowed to submit responsive briefs. Finally, the district court made a finding of bad faith. Judge Wright found, inter alia, that the Prenda Principals “demonstrated their willingness to deceive not just this [c]ourt, but other courts where they have appeared,” and “borrow[ed] the authority of the [c]ourt to pressure settlement.”Because the Prenda Principals received the due process protections to which they were entitled—notice, the opportunity to be heard, and a finding of bad faith—the district court did not abuse its discretion in awarding $40,659.86 in compensatory attorney’s fees and costs.

The District Court ordered that the fees on appeal be doubled, with a portion used to compensate the defendant in the lawsuit and a portion to go to the Court. The District Court also required the Prenda lawyers to post an additional bond on appeal to cover the other side’s costs on appeal. The Ninth Circuit affirmed all the sanctions and the increased appeal bond. It explained:

The district court did not abuse its discretion in ordering the Prenda Principals to post additional bond to cover Doe’s attorney’s fees on appeal. The district court had ample reason to do so. The Prenda Principals have engaged in abusive litigation, fraud on courts across the country, and willful violation of court orders. They have lied to other courts about their ability to pay sanctions. See Lightspeed Media, 761 F.3d at 71. They also failed to pay their own attorney’s fees in this case. Considering the Prenda Principals’ tactics throughout this case, it was not an abuse of discretion to increase the bond amount to cover the projected cost of attorney’s fees on appeal.

In sum, the Prenda lawyers have the distinction of having sanctions awards against them affirmed by the Seventh Circuit and Ninth Circuit within the span of 30 days. Given the abusive conduct that the Prenda lawyers engaged in, I can understand the sanctions award. The federal courts concluded that the Prenda lawyers were using the power of the court to extort money from individual defendants. The federal courts also concluded that the Prenda Lawyers misrepresented facts to the courts. Given the findings, it is hard to believe that we will ever see another set of cases as egregious as these.

Source: INGENUITY 13 LLC v. Doe, Court of Appeals, 9th Circuit 2016 – Google Scholar

7th Circuit Continues To Beat Up Prenda Lawyers Steele and Hansmeier

In 2014, the Seventh Circuit affirmed section 1927 sanctions against John Steele, Paul Hansmeier and Paul Duffy, three lawyers who made up Prenda Law. Prenda was, at one time, involved in the enforcement of copyright claims against those who allegedly downloaded pornographic materials from the internet without paying for them.

In 2013, the Prenda lawyers were sanctioned by the district court in the amount of $261,025.11. They appealed and the sanctions were affirmed by the Seventh Circuit. 761 F.3d 699. The district court then held more proceedings as the defendant attempted to collect the sanctions award.

Paul Duffy, considered the leader of the group, passed away in 2015.

His colleagues did not pay the sanctions award. Rather they claimed they lacked sufficient funds to pay the sanctions award. Discovery later showed that the Hansmeier and Steele transferred funds out of their own names to entities that they controlled. The District Court then held Hansmeier and Steele in contempt and they again appealed.

The court discusses the statements by Steele and Hansmeier as to their ability to pay and how the discovery process caused the District Court to impose contempt sanctions:

At the hearing on February 13, 2014, the Attorneys insisted that they could not pay the sanctions. The district court ordered them to produce financial statements prepared by certified public accountants; they did so, submitting the statements in camera. On February 19, the district court denied Steele’s January 30 motion to quash Smith’s subpoenas. On March 3, JPMorgan again requested a court-stamped copy of the motion to quash. Duffy sent it, but failed to disclose that the motion had been denied.

On March 20, 2014, Smith filed a renewed motion for contempt based on the Attorneys’ financial statements, their representations to the court, and discovery interference with regard to JPMorgan. The district court held all three attorneys in contempt on March 24, 2014, and ordered them to pay the defendants $26,102.58, an amount equal to ten percent of the original sanctions award. That day, Smith issued eight new third-party subpoenas to the Attorneys’ financial institutions.

On April 4, 2014, the district court stayed the contempt order pending the Attorneys’ appeal. On April 11, Steele told Smith’s counsel that he had informed the subpoenaed third parties that “the action ha[d] been stayed and the subpoenas must be withdrawn.” This was untrue: the stay order did not apply to the subpoenas. That fact, however, did not stop Steele on April 16 from faxing a copy of the stay order to Sabadell United Bank and stating that the matter was stayed. Two days later, Smith moved for sanctions against Duffy and Steele for obstructing discovery.

On April 21, 2014, Hansmeier moved to quash Smith’s March 24 subpoenas. The Attorneys’ third-party financial institutions continued to withhold production. On July 31, 2014, we decided Lightspeed I, upholding the sanctions and contempt orders against Hansmeier, Duffy, and Steele.

On October 20, 2014, the district court denied Hansmeier’s April 21 motion to quash. On November 12, 2014, the court held a hearing on Smith’s motions for renewed contempt and discovery sanctions. It denied them on November 18. In the interim, Smith received Sabadell’s response to his March 2014 subpoena. It revealed that over the course of January and February 2014—just before and after the show-cause hearing at which he had claimed to be insolvent—Steele had withdrawn $355,627.83 from a Sabadell account he shared with his wife. Smith filed a motion for reconsideration on December 15, 2014, pointing to this new evidence justifying sanctions.

In February 2015, Smith received TCF Bank’s documents, which included evidence that Hansmeier had control over an entity named Monyet LLC, and records of transfers related to Monyet’s Scottrade account. The records showed that Hansmeier had transferred $316,250.00 out of the Monyet account between the time when fees were itemized and the showcause hearing. This amount was far more than the sanctions owed under the district court’s order—the same sanctions that Hansmeier had claimed he could not pay.

On June 5, 2015, the district court granted Smith’s motion for reconsideration, awarding Smith (1) reasonable discovery costs and (2) contempt sanctions of $65,263.00. It ordered the contempt sanctions paid by July 15, 2015. On July 2, Smith itemized $94,343.51 in discovery costs. The court ordered that the latter costs be apportioned equally between Steele and Duffy. The Attorneys filed their notice of appeal from the discovery sanctions on July 6; they filed their notice of appeal of the contempt sanction on August 6.

There have been several significant developments since Hansmeier and Steele filed their notices of appeal. On July 13, 2015, Hansmeier filed for bankruptcy in Minnesota. The district court had ordered Steele and Duffy to pay discovery costs before August 10, 2015. On the appointed day, Steele wired $47,171.75 (his half of discovery sanction) and $65,000.00 (all but $263 of the contempt sanction) to the district court. Duffy’s portion never arrived; he died that very day. On December 3, 2015, Hansmeier’s bankruptcy was converted to Chapter 7.

Hansmeier’s appeal was dismissed because his bankruptcy trustee did not authorize it.

Steele’s appeal dealt with two issues. First, the Seventh Circuit affirmed the sanction for discovery costs incurred by the Defendant. The Court affirmed the finding that Steele’s conduct was “vexatious” and “obstructive.”

As to the second issue, the contempt sanction, Steele successfully appealed. He argued that the sanction was criminal rather than civil and that he was entitled to the additional due process safeguards for criminal contempt.The Seventh Circuit agreed that the sanction was punitive rather than compensatory because it was not tied to any cost incurred by the Defendant. The case was remanded to the District Court to conduct further hearings on the contempt sanction issue.

Edward X. Clinton, Jr.

Source: LIGHTSPEED MEDIA CORPORATION v. Smith, Court of Appeals, 7th Circuit 2016 – Google Scholar

Effort to Sanction United States Under Rule 30(b)(6) Fails

Rule 30(b)(6) allows a party to serve a deposition notice on an organization and the organization must tender a witness who can answer questions. The party serving the notice sets forth the issues it will cover in the deposition and the responding party is required to identify and produce a witness who has knowledge of said matters.

In this case, the United States tendered a Rule 30(b)(6) witness, but the plaintiff claimed that the witness was a “Know Nothing Witness” who did not provide useful information. The court rejected that argument and denied the sanctions motion and explained:

Plaintiff alleges that Mr. Whitaker was not prepared for his RCFC 30(b)(6) deposition. When asked to explain how he had prepared for the RCFC 30(b)(6) deposition, Mr. Whitaker stated that he had seen the list of plaintiff’s RCFC 30(b)(6) deposition topics only the day before his deposition, and that, in order to familiarize himself with the topics, he looked at each one of the admissions and the spreadsheets produced by defendant in discovery. Mr. Whitaker also testified that he had not thoroughly reviewed the contract between Securiforce and DLA Energy before his deposition.

Plaintiff points to different statements made by Mr. Whitaker during his RCFC 30(b)(6) deposition to demonstrate that the “government’s designated witness, Mr. Whitaker, had no firsthand knowledge concerning the specified topics and had undertaken no investigation as to what was `reasonably known to the organization.'” Specifically, Mr. Whitaker testified that he had no personal knowledge as to whether fuel was delivered to any of Securiforce’s sites between September 7, 2011 and October 24, 2011, and that his knowledge regarding specific fuel deliveries was based on the information contained in the spreadsheets that were produced to plaintiff in July 2013. When asked about the process for ordering and delivering fuel in Iraq, however, Mr. Whitaker articulated a developed understanding of this process and its nuances, including how the process could be different based on the source of the fuel. Furthermore, Mr. Whitaker was able to testify to the information contained in defendant’s response to interrogatory 16, including the data systems used to compile the spreadsheets.

The transcript of Mr. Whitaker’s deposition demonstrates that he offered a thorough knowledge of the spreadsheets prepared by DLA and previously turned over to plaintiff. The spreadsheets purportedly captured the fuel deliveries to the Securiforce Department of State sites in Iraq during the relevant time period according to defendant’s information when the spreadsheets were prepared. Mr. Whitaker stated that he was familiar with the various databases listed on the spreadsheets, including “DLA Energy’s fuels enterprise server, DLA Energy’s defense fuel, automated management system, and DLA Energy’s automated voucher examination and dispersing system” and was able to explain the systems to plaintiff’s counsel when asked. The dialogue contained in the deposition transcript indicates that Mr. Whitaker could speak intelligently about the information contained in the spreadsheets. Mr. Whitaker answered many questions posed by plaintiff’s counsel about specific, detailed information contained in the spreadsheets based on his ability to decipher the spreadsheets. Specifically, Mr. Whitaker could read the codes used in the spreadsheets to identify countries of origin, invoice numbers, billing codes, delivery sites, delivery dates, funding codes, stock numbers, fuel quantities, and fuel grades. Mr. Whitaker’s knowledgeable deposition testimony about the spreadsheets and fuel deliveries in Iraq indicates that he was prepared to discuss a broad range of the topics plaintiff included in the RCFC 30(b)(6) deposition notice based on the information contained in DLA Energy’s records.

It is clear from Mr. Whitaker’s deposition testimony that, although he could not provide specific details for all of plaintiff’s counsel’s questions, he testified about information reasonably known by the government, based on DLA Energy’s records, and was responsive to a significant portion of plaintiff’s identified RCFC 30(b)(6) topics. Because Mr. Whitaker testified knowledgably about the DLA-prepared spreadsheets, and the information contained therein, his deposition testimony as a RCFC 30(b)(6) witness was not such that he was, as alleged by plaintiff, a “No-show” witness. Moreover, it would be hard to argue that only one witness could have testified to DLA Energy headquarters’ records and whether onsite deliveries in the conflict theater of Iraq actually occurred, as well as to possible fuel deliveries by the Army. The government offered to provide additional RCFC 30(b)(6) witnesses, and identified possible further witnesses, but plaintiff declined to depose any additional witnesses who could speak to the onsite fuel deliveries in Iraq. Instead, plaintiff chose to file its motion for sanctions and seek monetary compensation.

The case is interesting because it shows what work must be done by the party producing the Rule 30(b)(6) witness to make sure the witness knows what he is talking about. Source: SECURIFORCE INTERNATIONAL AMERICA, LLC v. US, Court of Federal Claims 2016 – Google Scholar