Month: May 2012

District Court Sanctions Party That Destroyed Computer Server During Litigation

PETER KIEWIT SONS', INC. v. WALL STREET EQUITY GROUP, INC., Dist. Court, D. Nebraska 2012 – Google Scholar.

This is a case of egregious destruction of evidence by a party to litigation. The court writes:

“West’s false affidavits and false deposition testimony, particularly combined with the false affidavits submitted by Rios and Blum (see filing nos. 121-3, ¶¶ 4-5; 121-4, ¶¶ 4-5), West’s conduct of throwing a computer server in a dumpster while motions for discovery of electronic information were pending, and his removal of computer hard drives and servers from Bertke’s possession immediately after the court ruled that Bertke could be subpoenaed to produce these drives, provide ample evidence that Defendants intentionally submitted false evidence and testimony in bad faith, committed fraud on this court, and intentionally destroyed evidence with a desire to suppress the truth in this case.[27] Such conduct warrants the imposition of an adverse jury instruction. See Stevenson, 354 F.3d at 750 (finding the power to give an adverse jury instruction is support by Fed. R. Civ. P. 37 or the “court’s inherent power”). Specifically, the defendants’s discovery abuse warrants instructing the jury that it may assume that the contents of the discarded server would have been adverse, or detrimental, to Defendants’ case.”


The court chose an old-fashioned discovery sanction – the adverse inference, which allows the jury to conclude that the contents of the server would have been detrimental to defendant’s case.

Edward X. Clinton, Jr.

Filing The Same Case Twice Nets Lawyer Section 1927 Sanctions

Lewis v. Smith, Court of Appeals, 3rd Circuit 2012 – Google Scholar.

The Third Circuit affirmed a grant of sanctions pursuant to 28 U.S.C. Section 1927 for the filing of a lawsuit in bad faith.

The lawyer, Don Bailey, filed a civil rights case on behalf of his client against the defendants. That case was dismissed by the district court, after plaintiff had been given opportunities to amend the complaint.

Instead of filing an appeal, the lawyer refiled the same case in the district court. The district court concluded that the filing of a duplicative lawsuit “multiplied the proceedings” and awarded sanctions to defendants.

Mr. Bailey’s appeal fared no better. The court’s opinion concludes as follows:

“We note that Bailey’s filings in this case spin broad conspiracy theories and make unfounded allegations of fraud and judicial misconduct stretching back to the filing of Lewis I and beyond. Such spurious allegations only serve to emphasize the impropriety of this action. The sanctions imposed by the District Court are appropriate. We will affirm.”

This is not a published opinion.

Comment: Had the lawyer appealed the dismissal of the first case, he would have lost his appeal, but he would not have been sanctioned. This is a failure by the lawyer to comprehend basic elements of the Federal Rules of Civil Procedure.

Bailey did raise an interesting appellate issue: can a Section 1927 sanctions motion be filed after judgment? Here the court said “Yes” as long as the motion is filed within a “reasonable time.” This issue deserves further consideration. The “reasonable time” standard seems a poor rule on which to base awards of sanctions.

Edward X. Clinton, Jr.

Lawyers Appeal From Sanctions Order Too Late – Appeal Dismissed

Feldman v. OLIN CORPORATION, Court of Appeals, 7th Circuit 2012 – Google Scholar.

Certain lawyers were sanctioned by the district court.  The sanctions award was set forth in a memorandum opinion, not a judgment order.  The lawyers made the mistake of waiting several months after the order was entered to appeal and the appeal was dismissed.

Judge Posner summarizes the procedural history as follows:

“The day before the plaintiff’s notice of appeal (on another issue) was filed, Global informed the district court that its attorneys’ fees had been $1,475. Two months later, on February 22, 2011, the judge approved the amount requested by Global and ordered the plaintiff’s lawyers— the present appellants—to pay, thus relieving the plaintiff of the obligation imposed by the previous order. The approval of the amount, and the order that the lawyers rather than the plaintiff pay it, were in the form of a “memorandum and order”; there was no separate judgment document.

The lawyers (who alone could appeal from an order directed against them, Halim v. Great Gatsby’s Auction Gallery, Inc., 516 F.3d 557, 564 (7th Cir. 2008)) filed a notice of appeal from the February 22 order on August 3, 2011. That was long after the expiration of the 30-day deadline to appeal a civil case. 28 U.S.C. § 2107(a); Fed. R. App. P. 4(a)(1)(A). Global asks us to dismiss the appeal as untimely. In response the plaintiff’s lawyers argue that because no separate judgment document ordering them to pay Global’s attorneys’ fees was ever entered, the order of February 22 did not become final for 150 days after the date on which that order was entered in the district court’s docket, and the notice of appeal was filed within 30 days after the 150th day.”

Comment: if there is any doubt file the appeal within 30 days of the order.  With appeals, you can be early (and get dismissed) and then refile.  This is much better than losing the appeal.

Edward X. Clinton, Jr.

Southern District of Illinois Rejects All Sanctions Claimed In Collection Case

PEOPLES NATIONAL BANK, NA v. AMERICAN COAL COMPANY, Dist. Court, SD Illinois 2012 – Google Scholar.

Peoples Bank filed a collection action against American Coal Company.  The bank was a secured creditor holding certain certain invoices for services rendered by P&K Business Corporation to American Coal.

Peoples prevailed at trial.  The case was a routine account state case in which the plaintiff claims that certain bills were not disputed by the defendant and became an account stated.  What motivated the sanctions motion was American Coal’s concession at trial that certain of the invoices were valid and that it owed the money.

The effect of this late concession was that the Bank was required to spend $340,000 in attorney fees to get ready for trial.  Peoples sought sanctions under Rule 11, Rule 37 and 28 USC 1927 for what it claimed was a frivolous defense.

The district court denied all sanctions.  First, it noted that Peoples had not complied with the Rule 11 safe harbor by giving the defendant 21 days to correct or withdraw the offending pleading.  Second, the court found the defense of the case was in good faith and therefore that sanctions under Section 1927 were not available.

The court describes the standard for 1927 sanctions as follows:

“The United States Court of Appeals for the Seventh Circuit has established standards for the imposition of Section 1927 sanctions:

[A] court has discretion to impose § 1927 sanctions when an attorney has acted in an objectively unreasonable manner by engaging in serious and studied disregard for the orderly process of justice; pursued a claim that is without plausible legal or factual basis and lacking in justification; or pursue[d] a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound.

Jolly Group, Ltd. v. Medline Indus., Inc., 435 F.3d 717, 720 (7th Cir. 2006) (quotations and internal citations omitted). Counsel must act unreasonably and vexatiously to warrant sanctionsSee Kotsilieris v. Chalmers, 966 F.2d 1181, 1184 (7th Cir. 1992). Vexatious conduct requires either subjective or objective bad faith. See Walter v. Fiorenzo, 840 F.2d 427, 433 (7th Cir. 1988) (“A court may impose sanctions under 28 U.S.C. § 1927, against an attorney where that attorney has acted in an objectively unreasonable manner by engaging in a serious and studied disregard for the orderly process of justice[.]”) (quotation omitted); Ordower v. Feldman, 826 F.2d 1569, 1574 (7th Cir. 1987) (intentional ill will or reckless conduct constitutes vexatious conduct); In re TCI, Ltd., 769 F.2d 441, 445 (7th Cir. 1985) (bad faith can be demonstrated by subjective evidence of malice, objective evidence of reckless conduct, or indifference to the law). The moving party must show subjective bad faith “if the conduct under consideration had an objectively colorable basis.” Dal Pozzo v. Basic Mach. Co., 463 F.3d 609, 614 (7th Cir. 2006). Objective bad faith requires only reckless indifference to the law, not malice or ill will. See Riddle & Assocs. P.C., v. Kelly, 414 F.3d 832, 835 (7th Cir. 2005) (quoting Kapco Mfg. Co. v. C & O Enters., Inc., 886 F.2d 1485, 1491 (7th Cir. 1989)) (“If a lawyer pursues a path that a reasonably careful attorney would have known, after appropriate inquiry, to be unsound, the conduct is objectively unreasonable and vexatious.”).”

Comment: this is an unusual sanctions motion.  Most sanctions motions are filed by defendants against plaintiffs who have filed frivolous pleadings.  It is tough to prove that the defense of a case was frivolous.

Edward X. Clinton, Jr.

State Farm Compelled To Produce Privilege Log In Insurance Dispute

Hurley v. State Farm Mutual Automobile Insurance Company, Dist. Court, D. South Dakota 2012 – Google Scholar.

This is a common issue in litigation.  Plaintiff sues an insurance company for coverage or bad faith and the insurance company withholds all the documents on the grounds of attorney-client privilege.

Here, plaintiff sought sanctions, which were denied.  The court, however, ordered State Farm to produce a privilege log.  A privilege log is a summary of the documents and why they being withheld.  The Plaintiff will have much more work to do before he gets the documents.

The court also required State Farm to produce its claims manual.

In request for production number 13, Hurley seeks “all documents . . . which relate to whether [State Farm] may withhold undisputed portions of UIM benefits from a policyholder until all disputed portions of the claim are resolved.” Docket 31-4 at 6. State Farm produced a portion of the Automobile Insurance Company’s claims manual. Hurley moves to compel production of the entire claims manual.

State Farm contends that because Hurley did not request the claims manual, it does not need to produce the entire manual. See Docket 35 at 13 (“Plaintiff should be held to the precise wording of his request for production number thirteen[.]”). Hurley does not work for State Farm and cannot be expected to know that the claims manual contains the information sought in request number 13. Instead, Hurley broadly sought “all documents,” not portions of documents, pertaining to withholding UIM benefits. The claims manual could lead to relevant information and provides context for the information relating to how UIM claims are handled. Thus, State Farm is ordered to produce the entire claims manual.”

Comment: a typical tough fight with an insurance company in a coverage or bad faith lawsuit.

Edward X. Clinton, Jr.

GEICO escapes Rule 11 sanctions in coverage litigation

GEICO GENERAL INSURANCE COMPANY v. Hampel, Dist. Court, SD Florida 2012 – Google Scholar.


GEICO has avoided Rule 11 sanctions in a complicated coverage battle because the defendant did not comply with the requirements of Rule 11.  GEICO and Hampel became involved in coverage litigation in state court.  The issue was whether Hampel was entitled to uninsured motorist coverage.GEICO then filed a new lawsuit for declaratory judgment in federal court.

A declaratory judgment lawsuit asks the court to interpret a contract, here an insurance policy.  GEICO wanted the federal court to say that it had no duty to provide coverage to Hampel.

The federal court dismissed the GEICO complaint on the ground that it would abstain from getting involved in the state court lawsuit.

Hampel then moved for Rule 11 sanctions, which were denied.  Hampel did not comply with the requirements of Rule 11:

The plaintiff contends that the defendant is not entitled to Rule 11 sanctions because she did not comply with the provisions of subsection (c)(2). The defendant did not file the instant motion for Rule 11 sanctions, directed at the complaint, until after the complaint was dismissed and never served it on the plaintiff prior to filing. As a result, the plaintiff did not have the opportunity, mandated by the Rule, to withdraw the complaint. Failure to give the opposing party the 21-day “safe harbor” provision forecloses relief under Rule 11Marcot v. Prem, Inc., 208 Fed. Appx. 781, 786 (11th Cir. 2006)In re Pratt, 524 F.3d 580, 586-88 (5th Cir. 2008). Courts consistently have held that “strict compliance with Rule 11 is mandatory.”Pratt, 524 F.3d at 588.”

Comment: courts are always reluctant to sanction litigants, and those seeking sanctions must comply with every requirement.

Edward X. Clinton, Jr.

Rule 11 Sanctions Denied Because Moving Party Waiting Until Judgment Entered



Rule 11 contains a safe harbor, which requires the party seeking sanctions to give the responding party 21 days to remove or correct the challenged pleading.  Failure to give this notice is fatal to the motion for sanctions.  Thus, a party cannot wait until after the judgment is entered and then move for sanctions.

The Church of Scientology attempted to renew a motion for sanctions filed in 2009 to no avail.

A party cannot move for sanctions after a judgment unless the opposing party enjoys the twenty-one day safe harbor before the judgment:

Service of a sanctions motion after the district court has [] entered judgment prevents giving effect to the safe harbor provision or the policies and procedural protections it provides . . . . If the motion for sanctions is served after [] a final order has been issued, the motion will be rejected because the party who allegedly violated [Rule 11] no longer is able to withdraw the improper papers or otherwise rectify the alleged offense and thus has not been given the full protection mandated by [Rule 11’s] safe harbor provision.

5A Wright & Miller, et al., Federal Practice & Procedure § 1337.2 (3d ed. 2011); Roth v. Green, 466 F.3d 1179, 1193 (10th Cir. 2006)Brickwood Contractors, Inc. v. Datanet Eng’g, Inc., 369 F.3d 385, 389 (4th Cir. 2004)Ridder v. City of Springfield, 109 F.3d 288, 297 (6th Cir. 1997) (“a party cannot wait until after summary judgment to move for sanctions underRule 11“); Advisory Committee’s Note on 1993 Amendments to Fed.R.Civ.P. 11 (“Given the `safe harbor’ provisions . . . a party cannot delay serving its Rule 11 motion until conclusion of the case”); 2 Moore, et al., Moore’s Federal Practice § 11.22[1][c] (3d ed. 2011) (“A party must serve its Rule 11 motion before the court has ruled on the pleading, and thus before the conclusion of the case. Otherwise, the purpose of the `safe harbor’ provision would be nullified”); 61A Am. Jur. 2d Pleading § 581 (“the [Rule 11] motion must be served 21 or more days prior to final judgment”); Georgene M. Vairo, Rule 11 Sanctions: Case Law, Perspectives and Preventive Measures, 96-97 (3d ed. 2004) (calling the submission of a post-judgment Rule 11 motion “a fruitless exercise” because “the court must deny the [] motion for failure to comply with the Rule 11(c) procedure”); see also Peer v. Lewis, 606 F.3d 1306, 1313 (11th Cir. 2010)In re Walker, 532 F.3d 1304, 1308 (11th Cir. 2008).”

Edward X. Clinton, Jr.

5th Circuit Reverses Rule 11 Sanctions Based on State Court Filings

Doss v. NPC INTERNATIONAL, INCORPORATED, Court of Appeals, 5th Circuit 2012 – Google Scholar.


The district court sanctioned lawyers for filing certain lawsuit in state court, lawsuits that were later removed to federal court.

Rule 11 has long been held to allow sanctions only for actions that take place in federal court, not state court filings that are part of cases that are removed to the federal court.

The court explained:

We nevertheless hold that the district court abused its discretion when it affirmed the magistrate judge’s sanctions pursuant to Federal Rule 11. Our decision in Tompkinsestablished that “the federal rules do not apply to filings in state court, even if the case is later removed to federal court.” Id. Instead, state pleading rules apply to cases that are initially filed in state court and later removed to federal court. Id. Thus, the district court abused its discretion by applying an erroneous view of the law when it affirmed the magistrate judge’s imposition of sanctions pursuant to Federal Rule 11.

Specifically, the magistrate judge imposed a $5,000.00 sanction under Federal Rule 11because the appellants’ counsel “needlessly increas[ed] the cost of litigation” by filing multiple lawsuits in state court. Doss, 2010 WL 3021533, at *2. The district court affirmed this penalty but reversed the date upon which the $5,000.00 payment would be due to the court.Doss, 2010 WL 3950578, at *3.

We reverse and remand the district court’s affirmance because Mississippi Rule 11 does not contain the same breadth as Federal Rule 11.”

The Fifth Circuit reversed the grant of sanctions and sent the case back to the district court for consideration of whether or not the attorneys violated the Mississippi state rules in filing the state court complaints.

Edward X. Clinton, Jr.

Rule 11 Sanctions Denied Because Moving Party Ignores Safe Harbor

REYFF v. MIDWESTERN AUDIT SERVICES, INC., Dist. Court, ED Michigan 2012 – Google Scholar.


Rule 11 contains a safe harbor requiring the party seeking sanctions to give the opposing party 21 days to withdraw an improper pleading.  F.R.C.P. 11(c)(2).

The court explained:

 Rule 11 sanctions are inappropriate here, because Defendant has not complied with the Rule’s mandatory “safe harbor” provision, which requires the party seeking sanctions to provide notice to the offending party by serving the Rule 11 motion on that party at least 21 days before filing the motion with the district court, thereby allowing the offending party 21 days to withdraw or correct the offending conduct. See Fed. R. Civ. P. 11(c)(2). The record does not reflect that Defendant complied with this requirement.”


Lawyer Sanctioned for Ignoring Controlling State Law In Foreclosure Matters

Dunbar v. WELLS FARGO BANK, NA, Dist. Court, Minnesota 2012 – Google Scholar.

A foreclosure defense attorney was sanctioned for ignoring controlling law.  The Court felt his only motive was to delay the cases and keep his clients in their homes.

Rule 11 sanctions may follow when a pleading, written motion or other paper (1) is submitted to the court for “any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation”; (2) is not supported by existing law or a nonfrivolous argument for the extension, modification or reversal of existing law; or (3) if the allegations contained therein lack support. See Fed. R. Civ. P. 11(b)(1)-(3); Clark v. United Parcel Serv., Inc., 460 F.3d 1004, 1008 (8th Cir. 2006). To satisfy the requirements of Rule 11, an attorney is obligated to conduct a reasonable inquiry into the factual and legal basis for a claim. Coonts v. Potts, 316 F.3d 745, 753 (8th Cir. 2003). In determining whether sanctionsare warranted, the court considers “whether a reasonable and competent attorney would believe in the merit of [the] argument.” Id. (citation and internal quotation marks omitted).

In the present case, as the court noted at length in its April 3 order and as Judge Schiltz discussed in Welk, the complaint and filings are contrary to the law of the state of Minnesota. Butler presents no argument for reversing or modifying that law, and instead argues that it does not apply. This court is bound to apply Minnesota law as interpreted by the Minnesota Supreme Court. Butler’s argument is frivolous under Jackson.

Despite the repeated dismissal of Butler’s actions in this district and the Eighth Circuit, he continues to file actions, congesting the docket of the court, taking resources away from cases that have merit and charging clients to pursue meritless claims. These frivolous actions have, at best, the result of allowing Butler’s clients to remain in their homes (or continue to own their rental properties) without payment. In fact, the real outcome for plaintiffs is to needlessly prolong the period of financial and housing uncertainty brought on by their failure to meet their loan-payment obligations. Defendants were forced to respond to Butler’s frivolous motions and arguments in this action, including filings made after he was ordered to show cause why he should not be sanctioned in Welk. Therefore, for the above reasons, and for the reasons stated in Welk, the court finds that Butler has violated Rule 11.”

In a footnote, the court listed a large group of lawsuits filed by the attorney, all apparently with the same baseless position.