Month: January 2015

Rule 37 Sanctions Awarded Where Defendant Alters An Engineer’s Report

Raimey v. Wright National Flood Insurance (E.D. NY 2014).

The plaintiffs sued the defendant flood insurance carrier for breach of contract. They alleged that their home was damages by flooding during Hurricane Sandy and that the defendant wrongfully denied plaintiffs’ claim.

The defendant was sanctioned because it concealed a report by its engineer who found that the home was damaged beyond repair by Hurricane Sandy. The defendant did not produce the report in discovery. Instead, the defendant altered the report so that it reached the opposite conclusion.  The Magistrate Judge sanctioned the defendant and its counsel and the district court upheld the sanctions.

The district judge held (a) that prior court orders required the defendant to disclose the original unedited engineering report (b) that the failure to produce the report was improper; (c) that the failure to produce the report prejudiced the plaintiffs and made the litigation more costly; and (d) defendant’s counsel attempted to curtail the magistrate’s inquiry concerning the report during a hearing on the issue.

In sum, this is a textbook case of Rule 37 sanctions.

Alan Dershowitz Vows to Clear Name After Sex Abuse Accusation – The Hollywood Reporter

Alan Dershowitz Vows to Clear Name After Sex Abuse Accusation – The Hollywood Reporter.

I’m going to stick my neck out here and say that I believe Alan Dershowitz. So often, when allegations of misconduct are made the alleged perpetrator hides behind a lawyer. Here, Dershowitz has stepped up to the plate and has denied the allegations unequivocally. I am predicting that he will prevail in this matter. If the alleged victim is discredited or if the lawyers failed to check phone records or other available information before making their claims, Dershowitz should receive sanctions and other relief. If the victim cannot prove that she was in the same location where Dershowitz was, the claims will collapse quickly. So if the victim is claiming abuse on a certain day in a certain place,  her lawyers better have evidence that she was in that place or they will have a solid sanctions motion against them. For those interested in sanctions jurisprudence, this case will inevitably be instructive. The key inquiry is what work the lawyers did before they made the claims. Did they just interview the witness or did they actually locate corroborating documents?

Dershowitz spent his career defending the rights of criminal defendants, and, civil liberties. Because of that defense work, there are many who dislike him.

Edward X. Clinton, Jr.

Ford Accuses Lawyer Of Misrepresenting The Record But Sanctions Are Denied

Hollingsworth v. Ford Motor Co., Dist. Court, ED Michigan 2014 – Google Scholar.

In an employment case Ford moved for summary judgment and, later, sanctions on ground that the Plaintiff misrepresented the record in his response to the summary judgment motion. The court denied the motion for sanctions because plaintiff submitted a supplemental brief in response to the summary judgment motion and corrected the record.

The court explains:

“Here, Ford filed its Motion for Sanctions on September 29, 2014 (Doc. #74). It is undisputed that Ford served its motion on Plaintiff twenty-one days before it filed the motion, on or about September 8, 2014. Ford argues that Plaintiff “carved out” convenient parts of Beaudoin’s testimony in an attempt to blatantly misstate the evidence and mislead the Court. (Doc. #74 at 5-6).

On September 25, 2014, prior to Ford’s filing of its motion, Plaintiff filed a “Motion for Leave to File Plaintiff’s Supplemental Brief In Clarification/Amendment.” (“Clarification Brief,” Doc. #73). Plaintiff appears to dispute that he misrepresented Beaudoin’s testimony, and argues that he was merely highlighting the inconsistencies in Beaudoin’s testimony. (Doc. #84). Nevertheless, Plaintiff’s “clarification brief” acknowledges those portions of Beaudoin’s testimony that were previously omitted from its supplemental brief.

The Court does not find that sanctions are warranted in this case because Plaintiff attempted to correct the misrepresentation before the motion for sanctions was filed. Plaintiff filed a Motion for Leave to File a Supplemental Brief prior to Ford’s filing of its Motion for Sanctions. In its Motion for Leave, Plaintiff sought to clarify his prior position and to acknowledge the previously omitted testimony. (Doc. #73). This Court granted Plaintiff’s motion.

The crux of Ford’s accusation against Plaintiff is that he failed to accurately characterize Beaudoin’s testimony in an attempt to stave off summary judgment. The Court finds that Plaintiff’s supplemental brief effectively corrects this issue by acknowledging the previously omitted testimony. Further, Ford has not provided this Court with authority to show that sanctions are required under these circumstances. Therefore, the Court shall DENY Ford’s Motion for Sanctions pursuant to Rule 11.”

Edward X. Clinton, Jr.

Defendants Avoid Sanctions For Improper Removal Because Plaintiff’s Complaint Was Vague

Lundahl v. Home Depot, Inc., Court of Appeals, 10th Circuit 2014 – Google Scholar.

The plaintiff sued Home Depot, Citibank and three credit reporting agencies alleging that she “received an incorrect refund on her Home Depot credit card, which is issued by Citibank.” Plaintiff did not serve, and later voluntarily dismissed, the credit reporting agencies.

Home Depot and Citibank removed the case alleging that the complaint included two federal claims: (a) claims that plaintiff had been charged interest on her credit card in violation of ‘the federal and state usury laws,'” and (b) plaintiff had alleged willful violations of the Fair Credit Reporting Act, 15 U.S.C. §§ 1681.

Plaintiff moved to remand arguing that the sole claims asserted against the defendants was a violation of Wyoming law and claimed that the FCRA claim was only asserted against the rating agencies who were no longer parties to the case.

The district court remanded the case to state court. Plaintiff then sought Rule 11 sanctions for the removal. The district court denied the sanctions motion and the Court of Appeals affirmed.

The Court of Appeals explained: “Here, the district court determined that its decision to remand was a “close call,” and that it could “certainly see the basis” for Defendants’ removal, particularly given the deficiencies and generalities in Ms. Lundahl’s complaint. Hr’g Tr. at 7-9. Based upon our review of the record, we see no abuse of the district court’s discretion to deny Ms. Lundahl’s request for sanctions.”

Edward X. Clinton, Jr.

6th Circuit Rules That The Failure to Comply with Rule 11 Safe Harbor Negates Sanctions Motion

PENN, LLC v. PROSPER BUSINESS DEVELOPMENT CORPORATION, Court of Appeals, 6th Circuit 2014 – Google Scholar.

Rule 11(c) contains a safe harbor, which requires that a sanctions motion be separate from any other motion and that the sanctions motion be served upon the opposing party 21 days before the motion for sanctions is filed. The text of the safe harbor is as follows:

(2) Motion for Sanctions. A motion for sanctions must be made separately from any other motion and must describe the specific conduct that allegedly violates Rule 11(b). The motion must be served under Rule 5, but it must not be filed or be presented to the court if the challenged paper, claim, defense, contention, or denial is withdrawn or appropriately corrected within 21 days after service or within another time the court sets. If warranted, the court may award to the prevailing party the reasonable expenses, including attorney’s fees, incurred for the motion.”

The purpose of the safe harbor is to allow the other party time to withdraw the challenged pleading or paper.

In the Penn, LLC v. Prosper Business Development Corporation case, the Sixth Circuit affirmed the denial of a sanctions motion on the ground that the defendant seeking sanctions did not comply with the safe harbor.

Plaintiff filed a complaint alleging violations of the RICO statute and other torts. Defendants James Arnold and Arnold & Associates wrote what is commonly known as a warning letter. On December 6, 2010, the Arnold defendants stated that the complaint had no factual basis and that it should be withdrawn. The Arnold defendants stated that they would seek sanctions if the complaint was not dismissed before the time to answer.

On May 27, 2011, the district court dismissed the lawsuit.

On June 8, 2011, the Arnold defendants served their sanctions motion.

The district court denied the motion for sanctions.

On appeal the Sixth Circuit affirmed on the ground that the Arnold firm had not complied with the safe harbor in that its motion for sanctions was served after the case was dismissed. The Sixth Circuit held that a warning letter does not comply with the safe harbor.

The court explained:

“Here, the Arnold Firm served P&C with a copy of its Rule 11 motion on June 8, 2011, twelve days after the district court dismissed Penn’s claims against the firm. P&C contends that this late service deprived it of the safe-harbor period’s protection and, therefore, foreclosed the firm’s sanctions motion. Unable to rely on the June 8 letter under Ridder, the Arnold Firm argues that its December 6, 2010 letter satisfied Rule 11’s safe-harbor provision because it notified P&C of the firm’s intent to pursue sanctions approximately six months before the court dismissed Penn’s complaint and eight before the Arnold Firm moved for sanctions. But “[i]t would . . . wrench both the language and purpose of . . . the Rule to permit an informal warning to substitute for service of a motion.” Barber v. Miller, 146 F.3d 707, 710 (9th Cir. 1998).

First and most important, the rule specifically requires formal service of a motion. The safe-harbor provision states that “[t]he motion must be served under Rule 5” at least twenty-one days before filing it with the court. Fed. R. Civ. P. 11(c)(2) (emphasis added). We have no doubt that the word “motion” definitionally excludes warning letters, and our reading of the rule’s plain language finds support in the Advisory Committee’s Notes. In its gloss on the 1993 amendments, the Committee refers to letters as “informal notice” and recommends that attorneys send a warning letter as a professional courtesy “before proceeding to prepare and serve a Rule 11 motion.” Fed. R. Civ. P. 11 Advisory Committee Notes (1993 Amendments). “In other words, the Advisory Committee’s Notes clearly suggest that warning letters . . . are supplemental to, and cannot be deemed an adequate substitute for, the service of the motion itself.” Roth v. Green, 466 F.3d 1179, 1192 (10th Cir. 2006); accord In re Pratt, 524 F.3d 580, 588 (5th Cir. 2008) (“We may not disregard the plain language of the [rule] and our prior precedent without evidence of congressional intent to allow `substantial compliance’ through informal service.”); Barber,146 F.3d at 710 (“That requirement, too, was deliberately imposed, with a recognition of the likelihood of other warnings.”).

Furthermore, important policy considerations counsel against the Arnold Firm’s more permissive reading. We previously commented that “[t]he inclusion of a `safe harbor’ provision is expected to reduce Rule 11’s volume, formalize appropriate due process considerations of sanctions litigation, and diminish the rule’s chilling effect.” Ridder, 109 F.3d at 294. Similarly, the Advisory Committee reasons that “the `safe harbor’ period begins to run only upon service of the motion” in order “[t]o stress the seriousness of a motion for sanctions and to define precisely the conduct claimed to violate the rule.” Fed. R. Civ. P. 11 Advisory Committee Notes (1993 Amendments).”

The holding is noteworthy because of its clarity. Also, the Sixth Circuit criticized a Seventh Circuit case, Nisenbaum v. Milwaukee County, 333 F.3d 804, 808 (7th Cir. 2003) on the ground that the case did not follow the text of the rule.

This is an interesting issue and one that the Supreme Court may decide someday to resolve. For now, if you want sanctions, make sure to serve a motion for sanctions at least 21 days before judgment is entered. A warning letter is not sufficient to meet the requirements of Rule 11(c).

Edward X. Clinton, Jr.