Month: January 2017

Defense Counsel Sanctioned Under Rule 37(b)(2)

This is a typical Rule 37 sanctions case in which the party fails to respond to discovery and then makes a number of excuses that do not prove compliance. After detailing the discovery deficiencies, the court explains:

In response, Defendants do not contend that they have complied fully with the Court’s discovery orders. Instead, they argue the merits of the case, and claim that (1) they have repeatedly reached out to Plaintiffs’ counsel to discuss the responses, (2) they are confused by Plaintiffs’ assertion that they have continued to object to Plaintiffs’ requests, (3) Plaintiffs “have ample discovery” because they conducted a three-hour deposition of one of the Defendants, Leon Saja, and (4) they are continuing to gather documents in order to prepare supplemental discovery responses. Resp. 2-5, ECF No. 64.

None of those points remedy the fact that Defendants have had multiple opportunities to fully comply with the Court’s orders and have failed to do so. Instead of objecting to the Discovery Master’s report when it was issued back in December 2015, Defendants have engaged in delay tactics and willful noncompliance.

Civil Rule 37(b)(2) authorizes the Court to sanction behavior when a disobedient party fails to show that noncompliance was substantially justified, or that an award of reasonable expenses and fees would be unjust. Defendants have not provided adequate reasons for the repeated noncompliance. In its earlier order, the Court warned them that “any further failure to cooperate with the progression of the case or to comply with an order of the Court will be treated as conduct tantamount to bad faith, and will result in harsher sanctions under Civil Rule 37.” The Court will issue those harsher sanctions now: (1) Defendants shall pay the Plaintiffs’ reasonable expenses, including attorney fees, incurred with the present motion, see ECF Nos. 63, 67; (2) Defendants shall pay the Plaintiffs’ reasonable expenses, including attorney fees, incurred with the Plaintiffs’ motions to compel filed on March 13, 2015, see ECF Nos. 25, 26, 30, 40, 44; (3) Defendants shall pay Plaintiffs’ share of the Discovery Master’s fees and expenses associated with his appointment and resolution of the earlier discovery issues through the report issued on December 10, 2015; and (4) Defendants shall pay the entirety of the Discovery Master’s fees and expenses associated with his upcoming assessment of the discovery issues.

If the Defendants continue to defy the Court’s orders, the Court will impose harsher sanctions, including directing that certain designated facts be taken as established for purposes of the action as to Plaintiffs’ claims, prohibiting Defendants from supporting or opposing designated claims or defenses, or from introducing designated matters in evidence, and treating the noncompliance as contempt of the Court. See Fed. R. Civ. P. 37(b)(2).

Source: FIRNENO v. NATIONWIDE MARKETING SERVICES, INC., Dist. Court, ED Michigan 2017 – Google Scholar

District Court suggests it will sanction attorney who filed frivolous TILA claims against banks

The Truth in Lending Act allows a borrower to rescind a loan in certain circumstances. The borrower must file the action within three years of the disbursement of the loan proceeds. In this case the loan transaction occurred in July 2007 and the rescission notice was served in 2015, five years after the three-year limitations period expired.  Because the purported notice of rescission was sent long after the three-year period expired and the court granted summary judgment to the bank.

Because the lawyer for the plaintiffs had filed other lawsuits that were barred by the statute of limitations, the court entered an order requiring her to show cause why she should not be sanctioned. The court explained:

In addition to this suit, plaintiffs’ counsel, Jill J. Smith, has filed numerous actions in this district on behalf of borrowers seeking to effectuate purported rescissions pursuant to TILA, which were executed well after the three-year statute of repose expired.[2] Both this Court and Judge Robart have already sanctioned Ms. Smith for repeatedly asserting her frivolous legal theory concerning TILA rescissions and the arguments in support thereof. See Bank of New York Mellon, 2016 WL 4211529, at *3-5; Johnson v. Nationstar Mortgage, 2016 WL 6075574 at *2.

On March 10, 2016, in Johnson v. Nationstar Mortgage, this Court ordered Ms. Smith to show cause why she should not be sanctioned $5,000 pursuant to Federal Rule of Civil Procedure 11(c)(1). Specifically, the Court ordered Ms. Smith “to explain why the plain text of 15 U.S.C. § 1635(f) and the Supreme Court’s ruling in Jesinoski v. Countrywide Home Loans, 135 S. Ct. 790 (2015). . . [did] not squarely foreclose this suit.” Johnson v. Nationstar Mortgage, 2016 WL 6075574 at *2. Ms. Smith failed to respond to the Court’s show cause order, see Johnson v. Nationstar Mortgage, No. C15-1754-TSZ, docket no. 41, and despite the Court’s clear admonition that suits of this nature potentially violated Rule 11(b)(2), filed the instant action on March 31, 2016. Ultimately, on May 20, 2016, this Court sanctioned Ms. Smith $5,000 in Johnson v. Nationstar Mortgage, which she paid into the Court registry on July 27, 2016.

This sanction did not deter Ms. Smith, however, who on June 6, 2016, filed another complaint based on the same legal theory. See Johnson v. Bank of New York Mellon, No. C16-0833 JLR, docket no. 1. After ordering Ms. Smith to show cause, Judge Robart—noting the “troubling series” of frivolous TILA rescission actions filed by Ms. Smith and that prior sanctions had been ineffective in deterring her conduct—sanctioned Ms. Smith $10,000,[3] required her to reimburse any attorney’s fees or costs paid by her client, and sua sponte dismissed the case with prejudice. See Bank of New York Mellon, 2016 WL 4211529 at *3 (concluding that “Ms. Smith’s factual allegation that `the loan was never consummated’ and the legal theories underpinning that allegation violate Rules 11(b)(2) and 11(b)(3)”). Despite the sanctions levied by both this Court and Judge Robart, on September 3, 2016, Ms. Smith filed an opposition to Wells Fargo’s motion for summary judgment in this case that advances the same, comprehensively rejected arguments in defense of the same frivolous legal theory for which she has already been sanctioned.

In light of Ms. Smith’s disregard for the clear import of these sanctions, the Court ORDERS Ms. Smith to show cause why the Court should not impose additional sanctions pursuant to Federal Rule of Civil Procedure 11(c). Specifically, Ms. Smith shall explain why her contentions that plaintiffs’ notice of rescission was effective on mailing and that plaintiffs’ loan was never consummated “are warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law,” see Fed. R. Civ. P. 11(b)(2), in light of the plethora of cases in which Ms. Smith has served as counsel, including Johnson v. Nationstar Mortgage and Johnson v. Bank of New York Mellon, which have thoroughly rejected these arguments.

Ms. Smith’s conduct is especially concerning given that she may be accepting money from clients in exchange for her pursuit of entirely frivolous rescission actions on their behalf. Accordingly, the Court is considering monetary sanctions of $5,000 and reimbursement of any attorney’s fees and costs paid by plaintiffs in connection with this case. In addition, because it is clear that even significant monetary sanctions have not sufficed to deter repetition of the conduct, see Fed. R. Civ. P. 11(c)(4), the Court is considering the imposition of one or both of the following non-monetary sanctions: (1) requiring Ms. Smith to file a copy of this Order, together with any order imposing sanctions, each time she files a TILA rescission action in federal court; and (2) referral to the Washington State Bar Association.

Obviously, the responding attorney may be able to defend her conduct or show that her actions were reasonable.

Source: Jenkins v. WELLS FARGO BANK, NA, Dist. Court, WD Washington 2016 – Google Scholar