Month: March 2014

Adventures in Diversity Jurisdiction

FHL, INC. v. Walker, Dist. Court, MD Alabama 2014 – Google Scholar.

Diversity jurisdiction depends on the citizenship of the parties, not their residences, office addresses or where they conduct business. Although this issue is taught in law school, experienced lawyers sometimes forget to allege the citizenship of the various parties. I will admit that I have even made this mistake in my career. Here the district judge was merciful and allowed the plaintiff to amend the complaint to allege citizenship, not residency or an office address. As the court correctly noted, residency is not enough. Citizenship is the same as domicile.

It is remarkable how many cases are dismissed every year by the federal courts for lack of diversity jurisdiction. You would think we lawyers would have learned by now.

Edward X. Clinton, Jr.

Evidence is Lost By A party To Litigation – But Sanctions Are Modest

QUANTLAB TECHNOLOGIES LTD. v. GODLEVSKY, Dist. Court, SD Texas 2014 – Google Scholar.

In this case, Quantlab Technologies sued several defendants, including two former employees and alleged that they stole Quantlab’s software code. As discovery proceeded, the court determined that the defendants lost numerous computers and other devices which may have contained evidence of the theft. The court explained the potential loss of evidence:

Quantlab bases its claims against Mr. Mamalakis primarily upon his decision in mid-tolate 2012 to wipe clean and/or give away twenty-three developer work stations used while he was at the helm of SXP. (Doc. No. 449 at 7, 17.) As discussed in greater detail above, SXP had about twelve developers who wrote code — including, but not limited to, code for the “brain” — and worked remotely from across the country. (Doc. No. 471 at 44-45, 54-56.) Mr. Mamalakis has not disputed that he wiped some developer work stations and gave away others,[6] but he nevertheless strenuously objects to the imposition of dispositive sanctions….

In sum, the developer workstations were relevant, and their absence prejudices Quantlab, because those machines would have provided a more complete picture of how SXP’s code changed over time and could have helped to show whether SXP developers used Quantlab code as a guide while they worked. In fact, they may have been the single best way to make such a showing. This is not to say that Quantlab has shown that the developer workstations necessarily would have helped to prove Defendants’ duplicity; there is a chance that the developer workstations would have proved totally worthless and could even have been useful to Defendants in exculpating themselves. But the developer workstations would have been a fairly obvious place to look for relevant evidence, and because Mr. Mamalakis wiped some clean and gave others away, no one will ever know what they would have revealed.

The court ultimately concluded that the defendants negligently allowed potential evidence to be destroyed, but it did not find evidence of willful conduct. Thus, the court rejected the request for litigation-ending sanctions and instead ordered a spoliation instruction. The court left open the possibility of reconsidering the litigation ending sanctions issue.

A spoliation instruction, the court suggested, would allow the jury to draw an adverse inference against the defendants that the defendants allowed certain evidence to be lost or destroyed and that the jury could find that the lost evidence was harmful to the defendants’ legal position.

In sum, spoliation cases tend to involve a great deal of side litigation – the court here held a hearing to determine what was destroyed and why. Often the side litigation about spoliation and Rule 37 becomes more important than the merits of the dispute.

Edward X. Clinton, Jr.


Lawyer Seeks Sanctions Against JP Morgan Chase – But Sanctions Are Denied

JP Morgan Chase Bank, NA v. Winget, Dist. Court, ED Michigan 2014 – Google Scholar.

This case is a feud about a mortgage and a bank loan. The defendant, Larry Winget, obtained a partial victory in the district court under which the terms of the parties’ agreement. Winget prevailed on his affirmative defense of reformation. Reformation is a legal doctrine under which a court can amend a written contract to conform the contract to the parties’ agreement. Obtaining reformation is exceedingly difficult and rare.

The problem for Winget is that although he obtained a partial victory, Chase bank prevailed on the liability issues – Winget was liable under the reformed note.

Winget sought sanctions under Rule 11 on the ground that the Bank’s denials of the allegations in the complaint were untrue and that the Bank knew those denials were untrue.

The district court denied sanctions on the ground that Chase had a factual basis for its denials of the allegations. The fact that Chase lost on one part of the case was insufficient to show that Chase lacked a factual basis for its position.

Edward X. Clinton, Jr.

Rule 37 Sanctions Awarded To Deter Future Violations

HOY’S, INC. v. EBJ&F, LLC, Dist. Court, D. Nevada 2014 – Google Scholar.

This is a breach of contract case in which the plaintiff moved to compel and for sanctions for failure to produce documents. The Defendants admitted that they had failed to fully respond to document requests and interrogatories. The Court sanctioned the defendants $1000 to deter future discovery abuses. It explained in part:

“The purpose of discovery is to provide the parties with a method “to obtain the fullest possible knowledge of the issues and facts before trial.” Hickman v. Taylor,329 U.S. 495, 501 (1947). For the discovery system to properly function, the costs of resisting discovery must outweigh the benefits of impartial or evasive discovery. “If the only sanction for failing to comply with the discovery rules is having to comply with the discovery rules if you are caught, the diligent are punished and the less than diligent, rewarded.” Poole ex rel. Elliott v. Textron, Inc., 192 F.R.D. 494, 506 (D. Md. 2000). Rewarding noncompliant parties contravenes the rule’s purpose of securing “the just, speedy, and inexpensive determination of every action and proceeding.” FED. R. CIV. P. 1.”

This decision shows the slow but steady trend in favor of sanctioning those who fail to produce documents and answer interrogatories on time.

Edward X. Clinton, Jr.

Illinois Court Rejects Invasion of Privacy Claim Against Johnson & Bell

This case is captioned Merdelin Johnson v. Johnson and Bell, Ltd., and Target Corporation, Robert Burke and Jennifer Rose, 2014 IL. App (1st) 122677.

Johnson filed a personal injury lawsuit against Target corporation. Later she found that Target and its lawyers had attached documents to the final pretrial order that included her “social security number, date of birth, financial information, medical information and references to ‘G.J.’, a minor. She filed a sanctions motion in the federal case on the basis that Target had filed the documents in the public federal computer filing system and that Target had violated the Court’s rules that personal information be redacted from filed pleadings. The federal court denied the request for sanctions but required Target to redact the documents containing the personal information.  Plaintiff filed a similar motion before the Seventh Circuit, which was also granted.

After the federal litigation had concluded, Johnson filed a complaint against Target and the lawyers for invasion of privacy and other torts. The defendants moved to dismiss. The trial court dismissed the complaint pursuant to Section 2-619 of the Illinois Code of Civil Procedure on the basis of the absolute litigation privilege, res judicata and collateral estoppel. 

The Appellate Court affirmed on the basis of the absolute litigation privilege. That privilege holds that “An attorney is absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, or in the institution of, or during the course and as a part of, a judicial proceeding in which he proceeds as counsel, if he has some relation to the proceeding. The Appellate Court found that the absolute privilege applies to invasion of privacy lawsuits as well. Furthermore, the Appellate Court agreed that the absolute litigation privilege applied also to the other causes of action, such as negligent infliction of emotional distress.

The Appellate Court also noted that “there is no civil cause of action for misconduct in prior litigation.” ¶19 (quoting Harris Trust and Savings Bank v. Phillips, 154 Ill. App. 3d 574, 585 (1987). In other words, the plaintiff was required to litigate this issue in the federal case, not in another lawsuit.  The opinion distinguishes Kurczaba v. Pollock, 318 Ill. App. 3d 686 (2000), which held that the absolute litigation privilege did not apply where a party to litigation sent the complaint to third parties not involved in the litigation.

In sum, this case reminds us that federal sanctions litigation belongs in federal court and should not be relitigated in the state courts.

Edward X. Clinton, Jr.