3rd Circuit affirms discovery sanction against foreclosure law firm


McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F. 3d 240 – Court of Appeals, 3rd Circuit 2014 – Google Scholar.

This case arose out of a clerical error by a bank, which erroneously concluded that the plaintiff had defaulted on his mortgage. Plaintiff was not in default. However, the bank then sent the file to the defendant law firm which sent Plaintiff a demand letter.

Plaintiff then filed a putative class action against the law firm for alleged violations of the Fair Debt Collection Practices Act. The district court dismissed the FDCPA claims against the law firm, but it awarded plaintiff Rule 37 sanctions because the law firm violated an order requiring it to produce its legal bills. The defendant law firm did not comply with the order, but attached the bills to its own summary judgment motion. The district court awarded plaintiff Rule 37 sanctions. The third circuit affirmed. “The District Court, however, did find that PHS’s failure to produce the invoices during discovery was sanctionable under Fed.R.Civ.P. 37(b)(2)(A) and sua sponte ordered PHS to pay all expenses, including attorney’s fees, that McLaughlin had incurred in connection with his motion for reconsideration, reasoning that PHS’s action prevented full and timely investigation of the facts and led to additional briefing on the summary judgment motion.”

On appeal, the law firm argued that the sua sponte imposition of sanctions deprived it of an opportunity to be heard on the sanctions issue. The Third Circuit disagreed.  It explained:

“It is true that PHS did not receive notice that sanctions were being considered before the District Court initially imposed them and hence did not immediately have an opportunity to argue that its failure was substantially justified. PHS, however, eventually provided arguments why it believed its conduct was not sanctionable. More specifically, in connection with the briefing on the magnitude of sanctions, PHS explicitly laid out its arguments why its conduct was substantially justified and neither in bad faith nor willful and asked the newly assigned District Court Judge to “reevaluat[e] … the imposition ofsanctions.” ECF No. 111. The District Court considered these arguments, reaffirmed the relevance of the discovery sought and the impact of the tardy production, and, for those reasons “and for all of the reasons previously stated in” her predecessor’s decision, ordered sanctions in the form of attorney’s fees. Thus, PHS had notice of the conduct that the District Court found to be sanctionable, had an opportunity to be heard, and received review and a ruling from a different judge concerning their conduct. Accordingly, we conclude PHS received due process and we will affirm the sanctions order.”

The sanctions award was approximately $15,000.

Edward X. Clinton, Jr.

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