Month: August 2014

Adventures In Diversity Jurisdiction – Court Denies Motion to Remand On The Basis of Fraudulent Joinder

CHARLA G. ALDOUS, PC v. Lugo, Dist. Court, ND Texas 2014 – Google Scholar.

This is a frequently litigated issue in federal court – whether a defendant’s citizenship should be discounted for purposes of diversity jurisdiction.

Defendants often want to remove a case from the state court to the federal court. All defendants must join in the removal petition. Here the defendants alleged that there was complete diversity of citizenship, in that the plaintiff and defendants were citizens of different states.

Plaintiff moved to remand the case on the ground that one of the defendants had the same citizenship as the plaintiff. Defendants argued that that defendant was fraudulently joined to defeat diversity jurisdiction.

The court lays out the legal framework as follows:

“Unless Congress expressly provides otherwise, a defendant may remove a state court civil action to a federal district court if the district court has original jurisdiction over the action. 28 U.S.C. § 1441(a). A federal court has original jurisdiction over civil actions in which there is diversity of citizenship between the parties and the amount in controversy exceeds $75,000 exclusive of interest and costs. 28 U.S.C. § 1332(a). Otherwise stated, the statute requires complete diversity of citizenship; that is, a district court cannot exercise subject matter jurisdiction if any plaintiff shares the same citizenship as any defendant. See Corfield v. Dallas Glen Hills LP, 355 F.3d 853, 857 (5th Cir. 2003)(citing Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806)). In considering citizenship, however, the court considers only the citizenship of real and substantial parties to the litigation; it does not take into account nominal or formal parties that have no real interest in the litigation. Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460-61 (1980). The citizenship of a party that is improperly joined must be disregarded in determining whether diversity of citizenship exists. Johnson v. Heublein, 227 F.3d 236, 240 (5th Cir. 2000).”

After careful analysis the court determined that the nondiverse defendant, Teresa Lugo, was improperly joined because the statute of limitations had run as to any claims against her. The court explained: “Defendants have convinced the court that Lugo would prevail on the statute of limitations defense; therefore, there is no reasonable basis for the court to predict that Plaintiffs might be able to recover against Lugo on their claim of negligent misrepresentation. Accordingly, the court holds that Lugo was improperly joined to defeat diversity jurisdiction.”

This is a classic case of fraudulent joinder of a defendant to defeat diversity jurisdiction.

Jones Day Sanctions Order – Lawyer Sanctioned For Tedious Objections At Deposition – But Eighth Circuit Reverses Sanction

Jones Day Sanctions Order.

This is a lengthy opinion by a federal district court judge, Mark W. Bennett, in which he sanctions a Jones Day lawyer for excessive and tedious objections at a deposition. In writing the opinion, Bennett is clearly out to reform the entire discovery process. He writes: “Discovery-a process intended to facilitate the free flow of information between parties – is now too often mired in obstructionism. Today’s ‘litigators’ are quick to dispute discovery requests, slow to produce documents, and all-too-eager to object at every stage of the process.” He also criticizes judges for ignoring this misconduct and encouraging obstructionist tactics. He argues that the judiciary should step up to the plate and sanction obstructionist lawyers. “Obstructionist litigators, like Ivan Pavlov’s dogs, salivate when they see discovery requests and are conditioned to unleash their treasure chest of obstructive weaponry. Unlike Pavlov’s dogs, their rewards are not food but successfully blocking or impeding the flow of discoverable information. Unless judges impose serious adverse consequences, like court-imposed sanctions, litigators’ conditional reflexes will persist. The point of court-imposed sanctions is to stop reinforcing winning through obstruction.”

As an aside, I agree with Judge Bennett. There are too many objections and delays in the discovery process. That conduct slows down the court system and wastes resources. Judges who urge lawyers to meet and work it out need to remember that some lawyers won’t produce, no matter what happens. In Chicago, the most difficult firms to work with are often the so-called litigation boutiques.

In any event, Judge Bennett sanctioned a Jones Day lawyer for obstructionist conduct during depositions. First, the lawyer used speaking objections when questions were asked to disrupt the flow of questions and answers. Second, the lawyer excessively used what are known as “form” objections. Third, Judge Bennett concluded that the lawyer was using the objections to coach the witness on what to say.

Specifically, Judge Bennett found that the form objections were a waste of time and were not necessary. Furthermore, the form objections did not explain what the problem was so that the questioner could cure the problem. As the court explained, “counsel’s ‘form’ objections, however, amplified two other issues: witness coaching and excessive interruptions.” Page 17.  The court found that certain objections were used to coach the witness not to answer questions. Judge Bennett objected to the use of “vague and ambiguous” as an objection because it was used to coach the witness to refuse to answer on the ground that the question called for speculation.

Judge Bennett objected to objections such as “You can answer if you know.” He is correct to find this conduct sanctionable. Those type of objections are designed to coach witnesses to give certain types of answers.

The sanction ordered is that the lawyer make a video discussing proper deposition conduct. I think the sanction is very odd, given the behavior, but Judge Bennett is on to something – lawyers should not be coaching witnesses during a deposition.

Update: the Eighth Circuit reversed the ruling on the ground that the sanction was inappropriate and out of line.

The court was concerned about (a) the lack of any complaint from the other side’s attorneys (b) the lengthy delay before sanctions were imposed; and (c) the failure to notify Ghezzi that sanctions were being considered.  The Court explained its ruling in this abstract:

“Then, sixteen months after defense counsel participated in the Bottock and Barrett-Reis depositions, one year after fact discovery had closed, and nine months after Abbott had moved for summary judgment based on excerpts of key depositions, the trial judge assumed control of the case for the first time and criticized defense counsel’s deposition conduct. Seven months later she was sanctioned under Rule 30(d)(2)—some two years after she had defended the Bottock and Barrett-Reis depositions without complaint from opposing counsel or inquiry by the magistrate judge. Cf. Manual for Complex Litigation § 11.42; Federal Judicial Center, Civil Litigation Management Manual, Ch. 3 (2d ed. 2010).

With few exceptions, sanctions should be imposed “within a time frame that has a nexus to the behavior sought to be deterred.” Thomas v. Capital Sec. Servs., Inc., 836 F.2d 866, 881 (5th Cir. 1988); cf. Cooter & Gell, 496 U.S. at 395-96. Rule 30(d)(2) sanctions assessed near the time of violation deter both ongoing and subsequent abuses. See Craig, 384 F. App’x at 533. Prompt action “helps enhance the credibility of the rule,” and by deterring further discovery abuse, “achieve its therapeutic purpose.” Cf. Matter of Yagman, 796 F.2d at 1183-84. This is especially true when sanctions are imposed sua sponte after the fact, for delay allows potential violations to pass unchecked and undeterred. E.g., Thomas, 836 F.3d at 881. The primary purpose of Rule 30(d)(2) was not well served by the post hoc procedures here. See Matter of Yagman, 796 F.2d at 1184 (concluding that “the benefit provided by the policy of deterrence is lost if the [district court] postpones imposition of [discovery sanctions] until the end of the case”); see alsoCraig, 384 F. App’x at 533….”

The court discussed the failure to notify counsel in this passage:

Here, there was no real notice of the nature of the sanction the court had in mind. While the trial judge did provide defense counsel advance notice of his reasons for considering sanctions under Rule 30(d)(2), nothing was mentioned about their unusual nature requiring counsel to produce and distribute an instructional video addressing the impropriety of unspecified form objections, witness coaching, and excessive interruptions. Nor were any “probable consequences” discussed at the subsequent sanctions hearing. See Fisher, 526 F.2d at 1343. The nature of the sanction became apparent only in the court’s final published opinion in the matter. See In re Tutu Wells, 120 F.3d at 380; see also In re Prudential, 278 F.3d at 192-93.

Once information about an unusual sanction appears in public, the damage to the subject’s career, reputation, and future professional opportunities can be difficult if not impossible to repair. See Adams v. Ford Motor Co., 653 F.3d 299, 308-09 (3d Cir. 2011). Defense counsel’s reputation was one of her “most important professional assets,” see id. at 305, and the district court’s unusual sanction might leave an indelible and deleterious “black mark” on her career, see In re Tutu Wells, 120 F.3d at 381 n.10.”

The Eighth Circuit opinion can be found at this link.

Comment: the sanction imposed by the District Court was harsh and unusual punishment. It is noteworthy that the Eighth Circuit did not vindicate the conduct of the attorney who made the tedious objections at the deposition. In my experience tedious objections of this sort are used to coach witnesses on how to answer questions and should be prohibited.

Edward X. Clinton, Jr.

The End of Prenda – Sanctions and Contempt Order Affirmed by Seventh Circuit

Duffy v. Smith :: Seventh Circuit :: US Courts of Appeals Cases :: US Federal Case Law :: US Case Law :: US Law :: Justia.

This ruling, affirming the sanctions and contempt orders against the Prenda Lawyers, was no surprise as the oral argument went poorly for them. See my post of April 8, 2014. The ruling may prove to be a troublesome one for lawyers who are named in sanctions motions after they withdraw form litigation. I have only discussed the issues that are important to the appeal and to lawyers. I have ignored many of the arguments and defenses raised by the Prenda Lawyers.

Prenda Law, according to the Seventh Circuit, consisted of Paul Duffy, John Steele and Paul Hansmeier. All three were Illinois lawyers. Prenda would file a lawsuit against unknown individuals and would then subpoena their internet provider for information identifying particular individuals. Then, Prenda would contact those people and would claim that they had wrongfully downloaded pornographic movies and would extract settlements from them.

In this particular case, Lightspeed Media Corporation, which operates pornography sit, sued Anthony Smith and other defendants. The case began in the State Court, where Lightspeed claimed that one John Doe defendant (identified through his IP address). Lightspeed then identified 6,000 other IP addresses and then served subpoenas on two internet service providers (ISPs) seeking the identity of the owner of each of the 6000 IP addresses. In the state court the ISPs refused to turn over the information. The trial court denied the motion to quash the subpoenas. The ISPs appealed and the Illinois Supreme Court held that the trial court erred by refusing to quash the subpoenas.

On August 3, 2012, Lightspeed amended the complaint and claimed that the ISPs were co-conspirators of those defendants who had wrongfully downloaded the pornographic movie. In the amended complaint the defendant John Doe’s name was revealed to be Anthony Smith.

On August 9, 2012, the ISPs removed the case to the District Court for the Southern District of Illinois. Lightspeed filed emergency motions to require the ISPs to produce personally identifiable information for each of the 6,000 alleged co-conspirators. The district judge denied the motion. The ISP defendants then submitted a motion to dismiss the case and a motion to stay discovery (stop discovery) while the motion to dismiss was pending. See Opinion at 4.

In November 2012, Hansmeier moved to withdraw. In March 2013, Steele moved to withdraw.

In May 2013, a California district court entered a rule to show cause against Duffy, Hansmeier, and Steele. That court also made a finding that Duffy, Hansmeier and Steele controlled Prenda Law. See Seventh Circuit Opinion at 5.

After the show-cause order was entered in California, Prenda moved to voluntarily dismiss the Lightspeed case. After the voluntary dismissal was granted, Smith (within 14 days) moved for sanctions pursuant to 28 U.S.C. Section 1927. Duffy responded but Hansmeier and Steele did not file responses. In October 2013, the district court granted the motion for sanctions. The lawyers moved for reconsideration. The court granted the request for a rehearing.

Then the ISPs became involved. They sought attorney frees from Steele, Hansmeier and Duffy.  After rehearing, the district court upheld its original order of sanctions to Smith and granted the ISP’s motion for sanctions. The district court assessed fees against the lawyers jointly and severally. The district court found that the lawsuit was frivolous and that the litigation “‘smacked of a bully pretense.'” The district court also ruled that the lawyers “were engaged in ‘abusive litigation…simply filing a lawsuit to do discovery to find out if you can sue somebody. That’s just utter nonsense.'” Opinion at 17-18.  The three lawyers then appealed.

Were Steele and Hansmeier given notice and an opportunity to be heard?

Steele and Hansmeier argued that they did not receive notice of the motion for sanctions. The Seventh Circuit disagreed because, first even if they did not have notice of the original motion, “the defect was cured when the district court granted rehearing on the sanctions issue.”  Second, Steele and Hansmeier did have notice of the original motion. The court explained that “[g]iven the close connections among the lawyers, it was reasonable for the court to conclude that service on Duffy would suffice to give notice to Steele and Hansmeier as well.”  This holding is supported by the common address used by the three lawyers and the impression they gave to the outside world that they were a team acting together. The Seventh Circuit also held that Steele received actual notice via email.

Did the Defendants Delay Too Long Before Seeking Section 1927 Sanctions?

Smith’s motion for sanctions was filed 10 days after the case was voluntarily dismissed, which was not too late for the court to lose jurisdiction. However, the ISPs did not seek sanctions until October 2013 (after Smith’s Motion for Sanctions was granted).

Was Joint and Several Liability Appropriate?

The lawyers argued that Section 1927 liability is direct and that it was wrong to hold the lawyers vicariously liable for each others’ actions. Opinion at 24. Here, the Seventh Circuit rejected the argument because the district court held a hearing and held them liable after determining that each one was individually liable.

The Seventh Circuit also affirmed a contempt holding for the failure to pay the sanctions promptly.


This case means the end of the Prenda enterprise and the careers of the lawyers who were involved in this appeal. The case may be more important to future lawyers defending themselves against sanctions motions. Lightspeed means that a lawyer can be sanctioned long after the lawyer withdraws from the litigation. Lightspeed also means that, in the future, there will be requests to sanction both the principal lawyer involved and anyone who helped that lawyer with the case.  The ugly spectre of joint and several liability will be raised again and again in future sanctions proceedings. Most importantly, Lightspeed will probably be read to mean that you can get notice of a sanctions motion by email. (This is also very scary for lawyers).

Thus, the Lightspeed case is a great victory for those who were fighting Prenda Law. They deserve congratulations. However, the case has introduced or reintroduced some scary doctrines into the law of sanctions including (a) sanctions after you withdraw; (b) service by email; and (c) joint and several liability.

Edward X. Clinton, Jr.