Patient’s Truth in Lending Claim Against Surgeon Was Frivolous – Rule 11 Sanctions Awarded

The plaintiff entered into an agreement with the defendant for one of its doctors to repair a torn ACL in his knee. The agreement provided that the plaintiff would pay installment payments until the balance due was satisfied.

After the surgery, the plaintiff filed a Truth in Lending claim against the Defendant surgery practice. The Court found several bases under which Rule 11 sanctions were appropriate. First, the court noted that the plaintiff alleged that he paid some of the installment payments from his bank account. This allegation was false. The court notes:

As discussed in more detail below, Plaintiff’s counsel had no grounds to make these allegations, when simple investigation would have revealed that Defendant never received any further payment from Plaintiff because Plaintiff did not have sufficient funds in his bank account. Nonetheless, Plaintiff’s counsel brought Plaintiff’s claims not only on behalf of Plaintiff, but also alleged that Plaintiff could serve as an adequate representative of “a class of similarly-situated individuals” who suffered supposed injuries because “Defendant used these very same tactics on tens of other consumers . . . .” (Id. ¶¶ 5, 44).

The court held telephone conference with the lawyers and the plaintiff’s lawyer made further admissions detrimental to the case. The court found these admissions revealed that the case had no merit and that plaintiff’s counsel had not done any investigation to determine whether TILA applied.

Again the court explains:

These statements by Plaintiff’s counsel: (1) contradicted the factual allegations that Plaintiff had made further payments; (2) confirmed the allegation in paragraph 22 of the Complaint, cited above, that Plaintiff did not provide “written authorization” for any further payment; and (3) supports the Court’s conclusion that there was no “written agreement,” and that the arrangement between Plaintiff and Defendant was not an “extension of credit,” as required by law.

The statements by Plaintiff’s counsel above indicated that counsel may have secured Plaintiff’s financial records of his financial transactions with the Defendant, as had been ordered on October 28, 2016. Nonetheless, as further discussed below, later events showed that Plaintiff’s counsel had not done this.

On December 22, 2016, the Court dismissed the Complaint with prejudice[5] and sua sponte instituted Rule 11 proceedings to determine whether sanctions should be imposed against Plaintiff and/or his counsel. (ECF 23). In its Order, the Court stated its conclusion that “Plaintiff’s counsel filed this lawsuit without any regard to the requirements of the statute or the implementing regulations . . . [T]he lack of a finance charge or written agreement precludes any claims under TILA, as a matter of law.” 2016 WL 7411527.

Even at the time of the sanctions hearing, plaintiff’s counsel had not obtained the financial records necessary to prove up the claim.

The court found that plaintiff’s counsel had not done any investigation of the claim and concluded:

The Court finds that Plaintiff’s counsel violated Rule 11. There was no reasonable or suitable investigation by Plaintiff’s counsel as required under the standards of Rule 11. Under statutory language, regulations, and precedential opinions of the Third Circuit and other courts, there was no reasonable or legal basis to allege a “written agreement” or “extension of credit” under TILA and Regulation Z, individually or as a class action, particularly if a reasonable investigation had been conducted. Several complaint allegations were false, because of the failure to investigate.

Comment: this is a classic sanctions case in which the plaintiff’s attorney failed to conduct any investigation to determine if the claims had merit.

Source: WOLFINGTON v. RECONSTRUCTIVE ORTHOPAEDIC ASSOCIATES II, PC, Dist. Court, ED Pennsylvania 2017 – Google Scholar

Federal Attack on Foreclosure Judgment Merits Rule 11 Sanctions 

A district judge in the Northern District of Illinois has awarded sanctions to several banks who were sued in a federal case arising out of a state court foreclosure judgment. Plaintiff lost the state case and the state court entered a judgment of foreclosure in favor of banks who held mortgage liens on the property.

Because the state court issued a final judgment adverse to plaintiffs, plaintiffs’ counsel violated Rule 11 by filing a federal action to stop the foreclosure. Plaintiffs should have known their legal position was frivolous because federal courts in such cases, abstain from proceeding under the Rooker-Feldman doctrine. Plaintiffs’ counsel was sanctioned in the amount of $20,000.

Source: MOMO ENTERPRISES, LLC v. BANCO POPULAR OF NORTH AMERICA, Dist. Court, ND Illinois 2017 – Google Scholar

District Court Awards Sanctions To Prisoner

A prisoner who sued the Illinois Department of Corrections has obtained an award of Rule 37 sanctions. The district court held that the Department of Corrections failed to produce relevant documents and then violated a court order to produce those same documents. The court found that there was no bad faith by the Department of Corrections. Instead, it was a simple case of negligence. The court entered an order granting the motion, requiring production of the documents and requiring the Department to present the Warden for a second deposition. Additionally, appointed counsel had leave to submit a fee petition.

Source: Cozad v. Illinois Department of Corrections, Dist. Court, CD Illinois 2017 – Google Scholar

Nonparty Cannot File Rule 11 Motion

This seems rather obvious. The explanation:

Tokayer asserts that sanctions pursuant to Fed.R.Civ.P. 11 should be imposed on the Nimkoff Parties and their attorneys for filing several “baseless” motions against Tokayer and for filing a lawsuit against Tokayer that has been dismissed (Tokayer Motion at 4).

As an initial matter, Tokayer, as a non-party, lacks standing to seek Rule 11 sanctions in this action. See New York News, Inc. v. Kheel, 972 F.2d 482, 486 (2d Cir. 1992) (non-party attorney did not have right to intervene in action for purpose of seeking Rule 11 sanctions).

The third party, Tokayer, also failed to comply with the safe harbor. Source: NIMKOFF ROSENFELD & SCHECHTER, LLP v. RKO PROPERTIES, LTD., Dist. Court, SD New York 2017 – Google Scholar

District Court Remands Attorney’s Attempt to Move Discipline Case To Federal District Court

This case deals with the somewhat tricky rules of federal jurisdiction in the unusual context of a lawyer disciplinary proceeding. Lawyer discipline cases are creatures of state law. In Maryland, the case is heard by a trial court. Either party (the lawyer or the administrator) can then appeal to the Maryland Court of Appeals, which has final say on all attorney discipline issues.

Here, the lawyer attempted to remove the lawyer discipline case to federal court. The district court remanded the case to Maryland. The lawyer then made a second attempt at removal, this time arguing a different basis for federal jurisdiction. The district court again remanded the disciplinary case to the Maryland courts.

The court summarizes the procedural history of the case in this way:

This Court has previously granted a Motion to Remand in this case. Attorney Grievance Commission of Maryland v. Rheinstein, Civ. No. MJG-16-1591, ECF No. 30 (Mar. 17, 2017) (“First Remand Order”). Defendant alleges that the existence of new facts warrant the filing of a successive Notice of Removal.

The underlying cause of action remains the same. On February 17, 2016 the Attorney Grievance Commission of Maryland (“AGC”) filed, in the Maryland Court of Appeals, a Petition for Disciplinary of Remedial Actions against Jason Edward Rheinstein (“Rheinstein”). On February 19, 2016, the Court of Appeals of Maryland transmitted the Petition to the Circuit Court for Anne Arundel County to hold a judicial hearing pursuant to Maryland Rule 16-757.

On May 23, 2016, Rheinstein filed his first Notice of Removal, contending that this Court can exercise subject matter jurisdiction over the case under 28 U.S.C. § 1441 (federal question jurisdiction) and 28 U.S.C. § 1442 (federal officer jurisdiction). Civ. No. MJG-16-1591, ECF No. 1. AGC filed a Motion to Remand, which this court granted on March 17, 2017. In its First Remand Order, this Court found no federal jurisdiction based on a federal question, no jurisdiction based on federal officer standing, and that federal abstention principles favored a remand. Following the Order, trial was set in the Circuit Court for Anne Arundel County for September 5, 2017.

On Friday, September 1, 2017, Rheinstein filed a second Notice of Removal in this Court, contending that AGC’s recent interrogatory responses and deposition testimony gave rise to new and different grounds for removal. Notice of Removal ¶ 4, ECF No. 1. The state court proceeding was stayed on September 5, 2017, the next business day.

Analysis: The district court found that the removal petition was defective because the lawyer did not articulate a valid basis for federal subject matter jurisdiction. Simply because the lawyer may have committed some of the alleged violations in federal court cases did not confer federal subject matter jurisdiction on the district court. Further, there is a strong federal policy to avoid becoming involved in State disciplinary matters.  Ethics Comm. v. Garden State Bar Ass’n, 457 U.S. 423, 431 (1982). See also  Telco Commc’ns, Inc. v. Carbaugh, 885 F.2d 1225, 1228 (4th Cir. 1989). The opinion, in my view, correctly remanded the disciplinary case to the Maryland courts.

Edward X. Clinton, Jr.

Source: Attorney Grievance Commission of Maryland v. RHEINSTEIN, Dist. Court, D. Maryland 2017 – Google Scholar

Court Denies Poorly Argued Sanctions Motion

The case was filed in the New Jersey state courts and was removed to federal court. The district court granted a motion to remand the case back to the New Jersey courts. Even after remand, the Defendants sought sanctions for the assertion of what they believed were frivolous claims. The Defendant did not identify any particular pleadings that were filed in federal court that were frivolous. Therefore, it denied the motion.

The explanation: “Defendant does not point to a particular federal filing that forms the basis of its claims for sanctions. Instead, it refers to Plaintiffs’ state court filings, see Def. Sanctions Br. at 7 (referring to Plaintiffs’ arguments opposing Defendant’s motion to dismiss in state court), as well as representations made during discovery, see 8 (referring to statements from Plaintiffs’ depositions). Defendant also highlights Plaintiffs'”refusal to withdraw these claims.” See id. at 8. However, the complained of conduct is not sufficient to demonstrate that Plaintiffs affirmatively advocated their positions in federal court. Since any doubt is resolved in favor of Plaintiffs, and since Defendant did not point to an affirmative pleading or other filing in federal court on which sanctions should be based, the Court will not impose sanctions on Plaintiffs. Therefore, Defendant’s motion for sanctions is denied.”

If you are seeking sanctions, be as precise as possible as to what conduct was sanctionable. Otherwise your motion may meet the same fate that this one did.

Source: MAKWANA v. MEDCO HEALTH SERVICES, INC., Dist. Court, D. New Jersey 2017 – Google Scholar

Sanctions Denied Where Party Conducted A Pre-Filing Investigation

This was a Fair Debt Collection Practices Act case in which the Plaintiff sued three defendants. Ultimately, the defendants all obtained summary judgment.

One defendant filed a motion for Rule 11 sanctions. She argued that she had sold her interest in the company defendant and was not a proper defendant. She claimed that once the plaintiff was informed of that fact, he had a duty to drop her from the case.

The district court did not agree. First, it concluded that the party, Tauriac, did not meet the requirements of the Rule 11 safe harbor in that she failed to give 21 days notice before seeking sanctions. Second, the District Court concluded that the plaintiff had done a sufficient pre-filing investigation to warrant the inclusion of Tauriac in the complaint. The plaintiff had obtained documentation that appeared to contradict Tauriac’s claims. The court denied the sanctions motion.

The opinion is thoughtful and thorough and discusses all the factors to determine if sanctions were appropriate.

Source: Seamans v. HOFFMAN, SWARTZ AND ASSOCIATES, INC., Dist. Court, ND Illinois 2017 – Google Scholar