Month: February 2014

Rare Case – Court Sanctions Pro Se Litigant For Bad Faith Insurance Coverage Case

Alexander v. State Farm Lloyds, Dist. Court, SD Texas 2014 – Google Scholar.

This is a decision of the federal court for the Southern District of Texas. The case is sadly typical, except for its outcome. A pro se litigant brought a coverage case against State Farm after his home burned down. Unfortunately for him, the district court found that he repeatedly lied to State Farm in the claims process and after the lawsuit was filed.

The court found that the plaintiff misrepresented his need for additional living expenses and submitted fraudulent documents to support a claim for storage expenses.

Plaintiff then filed a coverage case in federal court. Three days into the jury trial, he dismissed his claims with prejudice. When State Farm sought sanctions, he retained lawyers to defend him.

“Mr. Alexander’s attorneys argue that he cannot be sanctioned, because his fraudulent actions—euphemistically referred to as “foolishness,” as if Mr. Alexander is an errant teenager and not a well-educated, upper middle class adult with a six-figure salary and a million-dollar home—all occurred prior to the filing of the lawsuit. (Doc. No. 73, at 25-26.) They contend that Mr. Alexander never lied during the course of the lawsuit, and therefore never displayed contempt for the judicial process. (Id.) The Court takes exception to the claim that Mr. Alexander never lied during the course of the lawsuit. The Court was present during Mr. Alexander’s testimony at trial. It observed the difficulty encountered by SFL’s trial counsel as she attempted to extract answers from Mr. Alexander to even the simplest questions. (Doc. No. 60, at 133-40.)

But more importantly, even assuming that Mr. Alexander had been completely forthcoming with his past misdeeds during the course of the lawsuit, his decision to sue SFL despite these misdeeds was itself contemptuous of the judicial process. Mr. Alexander is no simpleton. He works or has worked in the finance industry. He has an advanced degree. He operates multiple businesses. At trial, when it suited his purposes, he could be articulate, even persuasive. In short, Mr. Alexander is a sophisticated actor, and he understood the consequences of his behavior. He voided his policy by lying to SFL. He had been refunded all of his premiums. He had no arguable basis for receiving any more money from SFL. And he sued it anyway.

This is not simply a case in which a plaintiff thought the law was against him, but hoped that the jury would be moved by emotion. Lawsuits like that, although objectionable, are commonplace. This case involved conduct which could be said to extend beyond civil fraud to criminality. Mr. Alexander used the judicial system as a continuation of his lawless efforts to exploit the July 24, 2005 fire to squeeze additional money from SFL. There was no basis for recovery that was even colorable. Mr. Alexander hoped to deceive this Court and a jury using the same tactics that had already failed on SFL.

Mr. Alexander’s actions were manifestly in bad faith. Sanctions are warranted.”  The court granted sanctions under Rule 11 and its inherent authority.

Edward X. Clinton, Jr.

Domanus v. Lewicki: 7th Circuit Upholds Default Judgment As Discovery Sanction

Seventh Circuit Affirms Default Judgment Against Litigant As Discovery Sanction

Domanus v. Lewicki, 13–2435 (7th Cir. 2014)

This is an appeal from a default judgment entered against the defendants in the litigation. The plaintiff were shareholders in a Polish entity, Krakow Business Park (KBP) that was formed to develop a business park in Krakow Poland. Plaintiffs alleged that the three defendants, Adam Swiech, Richard Swiech and Derek Lewicki caused “KBP to pay out millions of dollars to the defendants for services never performed, and that the defendants stole cash and property from the company.” Plaintiffs alleged that the defendants used the proceeds to acquire cash and property in Chicago, Illinois. Plaintiffs sued under the RICO statute.

Plaintiffs alleged that the defendants did not cooperate with discovery requests and they eventually requested a default judgment from Judge Bucklo. The defendants argued in the district court that it was impossible for them to comply with the court’s discovery orders.

The district judge did not agree with the defendants and imposed a default judgment of $413,000,000. Consistent with a recent trend to sanction litigants who do not cooperate with discovery orders, the Seventh Circuit affirmed the default judgment. It is important to remember that discovery sanctions are reviewed for an abuse of discretion, a more lenient standard. That standard is designed to allow the district judge to manager her caseload and docket.

Procedural History

The document discovery dispute centered on three issues, two bank accounts and one computer hard drive.

The first account was an account at the Julius Baer bank, a Swiss bank. Plaintiffs alleged that Adam Swiech owned this account and that some of the funds wrongfully removed from KBP had ended up in the account. Swiech denied ownership of the account and did not produce any documents in response to the discovery requests. Plaintiffs sought to hold Swiech in contempt for failing to produce documents. The magistrate judge found Swiech’s behavior sanctionable, but did not hold him in contempt. The district judge increased the penalty and held Swiech in contempt. The Seventh Circuit described her decision to do so as “sensible.”

The second bone of contention was the defendants’ failure to produce documents for a Polish HSBC account belonging to Lewicki. Lewicki told the plaintiffs that he was unable to obtain the documents. Again, plaintiffs moved to compel and for sanctions, but the magistrate judge declined to impose them. The district judge again disagreed and held Lewicki in contempt. She found Lewicki’s testimony that he could not gain access to the documents to be “incredible.” The Seventh Circuit agreed that there was clear and convincing evidence necessary to support a contempt finding.

The third issue concerned a computer hard drive. In May 2011, Defendants produced 1800 pages of documents. Plaintiffs suspected that the production was incomplete and the defendants produced another 21 CD-ROM discs. In February 2012, plaintiffs moved for sanctions. They asked the court to order the defendants to produce certain missing emails. The Defendants responded that the hard drive had been destroyed in 2009, which was impossible as they had already produced many documents from 2010 and 2011 from that same hard drive. The magistrate granted a spoliation of evidence instruction as a sanction. The spoliation instruction allows the jury to infer that whatever evidence was withheld was unfavorable to the party that wrongfully withheld it. A spoliation instruction is a traditional, but weak, sanction for discovery misconduct. The district judge again increased the sanction by barring the defendants from using any documents from the hard drive and ordering Richard Swiech and Lewicki to obtain all of their missing emails from the email providers. As the Seventh Circuit concluded “such a sanction appropriately mitigated the harm to the plaintiffs as a result of the defendants’ wrongdoing.”

After additional deposition-related misconduct (failing to show up for depositions), the district judge granted a motion for default judgement against the defendants. The Seventh Circuit affirmed the default finding, holding that the defendants’ discovery misconduct demonstrated “a clear record of delay or contumacious conduct,” and “willfulness, bad faith or fault.” Maynard v. Nygren, 332 F.3d 462 (7th Cir. 2003).

A litigant who obtains a default judgment must still prove damages. The Seventh Circuit upheld the damages calculations of plaintiffs, which were presented by an expert witness.  The damages were then trebled under the RICO Statute.


This case shows that the federal courts are now beginning to enforce significant sanctions, even the use of a default judgment, where one party fails to comply with discovery. One interesting facet of the case is that on two occasions Judge Bucklo increased the sanctions ordered by the magistrate judge, which is unusual. The Seventh Circuit held that Judge Bucklo acted reasonably. The defendants did not help themselves by first producing some documents from a hard drive and then claiming that the hard drive had been destroyed years earlier. Withholding documents has always been against the federal rules of civil procedure, but it has taken many years for the courts to clamp down and consider harsh sanctions for noncompliance.

Edward X. Clinton, Jr.

Prenda Law Is Sanctioned Again – This Time By Judge Darrah

Yesterday, Judge Darrah released an opinion sanctioning Paul Duffy and Prenda Law, Inc.  Duffy and Prenda Law are well-known for filing actions against individuals (mostly men) alleging that those individuals violated copyright law by downloading pornographic movies without paying for them. A search of Prenda Law or Paul Duffy on Pacer will yield hundreds of similar lawsuits against John Doe defendants.

According to its critics, Prenda files a case and then solicits settlements from the individual defendants. The defendants, so it is claimed, are reluctant to have their names disclosed in public. They settle with Prenda, often for significant sums of money.

During the last twelve months, Prenda Law and its lawyer, Paul Duffy, have become targets of sanctions motions in various federal courts.

The latest sanction order was written by Judge Darrah in the case captioned Prenda Law, Inc. v. Paul Godfread, Alan Cooper and John Does 1-10. The case began as a defamation lawsuit filed by Prenda Law against Godfread, an attorney, and Cooper, allegedly one of his clients. In the lawsuit Prenda claimed that the men had defamed Prenda by making anonymous posts on the internet.  The case began in the Circuit Court of St. Clair County, Illinois. Godfread and Cooper removed the case to the Southern District of Illinois on the basis of diversity jurisdiction.

Duffy then filed a motion to remand alleging that an amended complaint had been filed in the State court in which Alpha Law Firm, LLC, a Minnesota company, became the plaintiff instead of Prenda. However, the amended complaint was never filed in federal court. The defendants argued that the addition of Alpha was bogus – that Alpha Law was really a sham party designed to defeat diversity jurisdiction.

Shortly thereafter, the case was transferred from the Southern District of Illinois to the Northern District of Illinois on the ground that another “virtually identical” case was pending in that district.  Judge Herndon of the Southern District of Illinois denied the motion to remand on the grounds that (a) Prenda did not obtain leave to file the Amended Complaint before it filed the Amended Complaint in the State court(Illinois law requires that a party obtain leave to amend a complaint once the other party has been served – filing an amended complaint without leave is prohibited); and (b) Prenda had allegedly lied to the clerk of the court (in the State court) that leave to amend was not necessary as no one had been served with the original complaint.

Upon transfer to the Northern District of Illinois, the case was assigned to Judge Darrah. Duffy and Prenda filed another motion to remand asserting the same arguments that had been rejected by Judge Herndon. A hearing on the motion was held and then Prenda filed a motion to withdraw the Renewed Motion to Remand.

Judge Darrah sanctioned Prenda and Paul Duffy on two grounds: (a) a violation of Section 1927 and (b) Rule 11.

Judge Darrah found that Prenda and Duffy violated Section 1927 by refiling the motion to remand after it had been rejected. Further, he found that Prenda had violated Illinois law by filing the amended complaint in the state court and that Prenda had falsely claimed to the clerk of that court that leave to amend was not necessary because no one had been served with the complaint. Judge Darrah also found that Duffy misrepresented the holding of the Southern District of Illinois.  Sanctions were warranted because Duffy and Prenda had, in bad faith, multiplied the proceedings and had continued to advocate a motion to remand that was no longer tenable. Judge Darrah also rejected Prenda’s claim that it was entitled to the safe harbor contained in Rule 11(c)(2), which gives a party 21 days to withdraw a challenged paper or pleading. The court held that the safe harbor did not apply because the motion had already been rejected by Judge Herndon in the Southern District of Illinois.

Comment: the Defendants went to a great deal of work to trace the steps taken by Prenda Law to obtain a remand of the case to state court. They were intelligent enough to obtain an affidavit of the clerk of the court of St. Clair county. That affidavit was the strongest piece of evidence that Prenda and its lawyers were not being truthful with either the federal or state court. The moral of the story here is an old one – never lie to any court personnel or judges. Once the lie is uncovered, your reputation is seriously damaged. The two federal judges, both well respected judges, clearly believed that Prenda was playing some sort of game to manufacture a remand of the case. In my opinion, Judge Darrah acted correctly in imposing sanctions for Prenda’s behavior.

Disclaimer: obviously Prenda law disputes the claims that it acted in bad faith and that it violated Rule 11. It may well seek appellate review of Judge Darrah’s order.