Month: November 2017

District Court Allows Expedited Discovery Where Plaintiff Concerned that Defendant is Hiding Assets

The case is captioned Tungsten Heavy Powder and Parts v. Khem Precision Machining, 17 cv 1882 (S.D. California).

This is a collection case where Tungsten sued Khem for payment for certain tungsten buffer weights. Tungsten sued and requested expedited discovery because it was concerned that the defendant was actively taking measures to dispose of its assets to frustrate the collection action. Normally, under Rule 26(f) discovery does not commence until the parties have had a chance to have a Rule 26 meeting concerning discovery. Tungsten argued that it could not wait that long to obtain discovery into the defendant’s finances and accounting records. The court found that the balance of the factors favored expedited discovery because Tungsten requested financial records and one deposition to determine if the Defendant was wrongfully hiding assets.

The explanation:

The Court finds that the balance of factors favors Tungsten. First, there is no motion for preliminary injunction pending, which weighs against Tungsten. However, Tungsten has a need to determine whether injunctive relief is necessary to ensure Khem does not improperly dispose of its assets. See Interserve, Inc. v. Fusion Garage PTE, Ltd., No. C09-5812-JQ(PVT), 2010 U.S. Dist. LEXIS 6395, at *7, 2010 WL 143665, at *2 (N.D. Cal. Jan. 7, 2010) (“Expedited discovery will allow plaintiff to determine whether to seek an early injunction.”). Preliminary injunctions have been granted in this District in such circumstances. See, e.g., Odyssey Reinsurance Co. v. Nagby, No. 16-CV-3038-BTM(WVG), 2017 U.S. Dist. LEXIS 165582, 2017 WL 4432453 (S.D. Cal. Oct. 4, 2017). Second, the discovery requested is limited to only one deposition and information related to any efforts by Khem to dispose of assets. Third, the deposition and documents sought are narrowly tailored to determining whether Khem has or plans to dispose of assets to prevent any recovery in this litigation. Fourth, the burden on Khem is relatively minimal. Tungsten requests a single deposition and documents that are readily obtainable and, as Khem acknowledges, would have to be produced in the normal course of the litigation. Any burden on Khem is outweighed by the interests of justice. Fifth, discovery in the normal course will commence in the next few months given that Khem has filed an Answer and a combined Early Neutral Evaluation and Case Management Conference has been scheduled. Thus, while the instant request for discovery is early, it is not extraordinarily so. This factor favors neither party.

Expedited discovery can be a useful tool in a collection case filed in federal court. (It is doubtful that expedited discovery could be obtained in any action filed in the courts of the State of Illinois).

This tool is worth considering if you have the right case and the balance of the factors favors your client.

Edward X. Clinton, Jr.

The Clinton Law Firm, LLC

Defendant City Sanctioned For Failing to Designate Rule 30(b)(6) Witness

Wheat v. City of East Cleveland

This is a civil rights case filed by four men who were released from prison after serving ten years of their sentences. The men won a new trial based on what is described as exculpatory evidence. The plaintiffs served a Rule 30(b)(6) deposition notice on the Defendant City of East Cleveland.

Rule 30(b)(6) requires a party, such as a company or other organization, to designate a witness for the organization who can answer questions on topics that the other party provides in advance. The 30(b)(6) deposition can be a useful tool to resolve litigation in an efficient manner.  The party who offers the witness (or witnesses) must prepare the witness to testify. So, in a civil rights case against the City of East Cleveland, the City would be required to locate someone who had knowledge concerning the events in dispute. The City would also be required to prepare that witness to testify.

Here, the City of East Cleveland struggled to find a witness who could testify and the Plaintiffs moved for discovery sanctions under Rule 37. A short quotation from the opinion will suffice:

Both Magistrate Judge Baughman and this Court have ordered the City of East Cleveland to designate a Rule 30(b)(6) witness who is competent to testify about the matters Plaintiffs requested. The City has failed to do so.

The Court recognizes that the events the City’s 30(b)(6) witness would testify about occurred almost two decades ago. In that time, memories fade, documents are lost or innocently destroyed, and relevant parties may leave the Court’s jurisdiction. If the City had shown that it undertook a diligent inquiry in an attempt to respond to Plaintiffs’ request, but the passage of time made their search impossible, the Court would see no reason for sanctions.

That is not what happened here. In response to Plaintiffs’ request that the City designate a 30(b)(6) witness, the City has attempted to designate three people. Initially, the City failed to designate anyone, purportedly because of the years between the events at issue in this case and the present litigation.[11]

Magistrate Judge Baughman then met with the parties and determined that the City had failed to perform a due diligent inquiry before failing to name a designee.[12] He ordered the City to perform its due diligence and to designate someone within thirty days of his order.[13]

Shortly after Judge Baughman’s order, the City attempted to designate the former Mayor of East Cleveland, Emmanuel Onunwor.[14] The City, however, has had zero contact with the former Mayor, and his location is currently unknown to the City.[15]

Then, the City designated Detective Patricia Lane, a named defendant who was, in counsel for the City’s words, “in a coma.”[16] This designation of someone so patently unavailable and unprepared to testify suggests that the City either willfully disobeyed Judge Baughman’s order, or, at best, negligently ignored his order to perform “due diligent inquiry.”

This Court then informed the City that neither Detective Lane nor Mayor Onunwor was a proper designation, and ordered the City to designate a witness who was competent to testify within thirty days.[17] The same day that this Court issued that order, the City designated former East Cleveland Law Director Helen Forbes Fields.[18] Ms. Forbes Fields is medically available to testify, and the City knows her location.[19]

The City, however, apparently never informed Ms. Forbes Fields that she would be the City’s designated witness. After Plaintiffs subpoenaed Ms. Forbes Fields and scheduled her deposition in consultation with the City, Ms. Forbes Fields called Plaintiffs’ attorneys. She told them that she (1) lacked any knowledge of the information Plaintiffs would depose her about, other than what she had previously stated in an affidavit, and (2) was unavailable at the time of her scheduled deposition.[20]

These facts make clear that the City never contacted Ms. Forbes Fields when scheduling her deposition with Plaintiffs, made no effort to prepare Ms. Forbes Fields, and seemingly did not contact her about serving as the designated witness. These lapses are especially troubling, because Federal Rule of Civil Procedure 30(b)(6) explicitly states that an organization must designate some person “who consent[s] to testify on its behalf.”[21]

The court, however, did not award any relief to the plaintiffs. Instead, the court gave the City of East Cleveland one week to identify a witness who could act as a 30(b)(6) representative. This opinion was especially entertaining because the City designated someone who is in a coma to testify and then designated another witness, but then failed to prepare the witness.

Edward X. Clinton, Jr.

The Clinton Law Firm, LLC



“Flimsy” Case Dismissed, But No Rule 11 Sanctions Awarded

This is a case where the plaintiff’s complaint was dismissed, but sanctions were denied. A medical provider hired Capital Collection to try to collect a bill for $351. The plaintiff sued under the Fair Debt Collection Practices Act. He alleged that the “least sophisticated consumer” would not understand to whom the debt belongs. As you can see, the plaintiff’s claim had little merit.

There is only one claim in the amended complaint: that Defendant failed to disclose the “name of the creditor to whom the debt is owed” when it wrote “Account for: Advanced Endoscopy & Surgical Ctr, LLC.” 15 U.S.C. § 1692g(a)(2). In the Third Circuit, communications from lenders to debtors subject to the FDCPA are analyzed from the perspective of the “least sophisticated debtor.” Brown, 464 F.3d at 454. The goal is to protect “all consumers, the gullible as well as the shrewd.” Id. (quotations omitted). A degree of care in choice of words is therefore required. “[M]ore is required than the mere inclusion of the statutory debt validation notice in the debt collection letter—the required notice must also be conveyed effectively to the debtor.” Wilson v. Quadramed Corp., 225 F.3d 350, 354 (3d Cir. 2000). However, the FDCPA prevents liability for “bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care.” Wilson, 225 F.3d at 354-55 (3d Cir. 2000) (quotations and citations omitted). We note, further, that we are to evaluate the entire letter, not bits and pieces of it. Context matters. See, e.g., Wright v. Phillips & Cohen Assocs., Ltd., 2014 WL 4471396, at *5 (E.D.N.Y. Sept. 10, 2014) (“The least sophisticated consumer would have known, after reading the entirety of the letter, that Defendant sought to collect a debt on behalf of [a creditor].”).

We note at the outset that Datiz and McGinty are merely persuasive authority on this Court, and not very persuasive at that. We are at pains to understand how even the “least sophisticated” of consumers—consumers definitionally being persons who pay bills (i.e., “consume”) at least occasionally—would fail to identify that a bill was being collected on by the Datiz or McGinty letters and that that bill related to the creditor identified by “re.” But that is of no moment here, for we need not decide on the meaning of “re.” We are asked instead to decide on whether “Account for” is language that sufficiently conveys, to the least sophisticated consumer, notice of a creditor seeking recovery of a debt.

Plaintiff’s argument for this proposition verges on the silly. Plaintiff argues that the letter here does not “explicitly” state that Advanced Endoscopy & Surgical Ctr, LLC—whose name is in the top right corner, in capitalized letters—is the current creditor to whom the debt is owed. “Account for,” Plaintiff argues, is an insufficient tip-off on who that creditor might be. Plaintiff similarly argues that the language of the letter, including the statement “[t]his claim has been sent to us for collection,” provides the least sophisticated consumer with “quite literally [] no way of knowing who currently owns her debt.” (Doc. No. 8 at 6.) Plaintiff further argues that some consumers are oblivious to the fact that debts are sold to buyers, and while he’s undoubtedly correct that some consumers are not aware of this, we fail to see how that fact matters here when the letter can be read only as a request to pay off a creditor’s debt. Ultimately, and despite Plaintiff’s contentions, there simply is no other way to read the letter. It literally says “this is an attempt to collect a debt by a debt collector.” The plain language of the letter indicates what its purpose is: to recover a creditor’s debts. It says who that creditor is. It says how much that creditor wants. If we assume the recipient of the letter has a passing knowledge of English, it does not strain the imagination to figure out why this ended up in his mailbox. And we presume Plaintiff has “a basic level of understanding and willingness to read with care.” Wilson, 225 F.3d at 354-55.

We therefore agree with Defendant that “the least sophisticated consumer does not mean an imbecile.” The letter at issue today appears to this Court to be fair notice, readable, and obviously relating to an outstanding debt owed to the creditor Advanced Endoscopy & Surgical Ctr., LLC and whose recovery is sought by a debt collector. It follows that Plaintiff’s complaint is bereft of merit and is, accordingly, dismissed.

Despite that holding, the court denied the Rule 11 sanctions motion even though the court faulted the work of the plaintiff’s lawyer. The reasoning:

Rule 11 requires an attorney who signs a complaint to certify that there is a reasonable basis in law or fact for the claim. Plaintiff has relied on two cases that found “re” to be insufficiently precise under the FDCPA, but aside from that has presented precious little to show this claim was remotely meritorious. Although we believe Defendant has failed to “stop, think, investigate and research before filing papers with the court,” Gaiarado v. Ethyl Corp., 835 F.2d 479, 482 (3d Cir. 1987),the fact that some courts have entertained similar actions indicates some basis in reality for believing the suit was not entirely frivolous. We therefore decline to impose sanctions, and the motion for sanctions is denied.

In sum, it takes a great deal of poor legal work to obtain Rule 11 sanctions. And, even here, where the complaint was extremely weak – there was not enough to merit sanctions.

Edward X. Clinton, Jr.

Macelus v. Capital Collection

Defendant’s Sanctions Motion Falls Flat Where Defendant’s Allegations of Wrongful Conduct Were “Frivolous.”

It is common to see Rule 11 sanctions motions filed in litigation. Defendants often file motions for sanctions. Here, the motion for sanctions was poorly prepared and did not meet the basic requirements to shift the burden to the Plaintiff to respond. The result: sanctions denied.

The legal standard:

By filing a Rule 11 motion for sanctions based on non-frivolous allegations, a party successfully makes a prima facie showing of sanctionable conduct. Vandeventer v. Wabash Nat’l Corp., 893 F. Supp. 827, 840 (N.D. Ind. 1995) (citing Shrock v. Altru Nurses Registry, 810 F.2d 658 (7th Cir. 1987). Once the prima facie showing is made, “the burden of proof shifts to the non-movant to show it made a reasonable pre-suit inquiry into its claim.” Digeo, Inc. v. Audible, Inc., 505 F3d 1362, 1368 (Fed. Cir. 2007). Thus, the burden of reasonable investigations falls on the proponent of a proposition, not the opponent. Vandeventer, 893 F. Supp. at 840. Here, the burden shifts to Plaintiffs to show that they reasonably investigated their claims against Defendants before filing their complaint now that Defendants have filed the instant motion for sanctions.

Assessing the reasonableness of a party’s pre-filing inquiry requires the court to ascertain whether “the party or his counsel [objectively] should have known that his position is groundless.” Cuna Mut. Ins. Soc’y v. Office & Prof’l Emps. Int’l Union, Local 39, 443 F.3d 556, 560 (7th Cir. 2006) (citations omitted). Plaintiffs are not required to have sufficient information to prevail on a motion for summary judgment, a motion to dismiss for failure to state a claim, or at trial to comply with Rule 11. Vista Mfg., Inc. v. Trac-4, Inc., 131 F.R.D. 134, 138 (N.D. Ind. 1990)(citation omitted). A plaintiff’s pre-filing inquiry must only be reasonable under the circumstances, which vary from case to case. Id. Therefore, the court must consider all the circumstances of a case before awarding Rule 11 sanctions. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 401 (1990). Moreover, Rule 11 sanctions are a rarity. District judges must “reflect seriously, and consider fully, before imposing (or denying) sanctions.” II Ltd. v. English, 217 Fed. App’x 527, 529 (7th Cir. 2007) (citing Mars Steel Corp. v. Cont’l Bank N.A., 880 F.2d 928, 936 (7th Cir. 1989)).

Here, neither party made a showing concerning the pre-filing investigation of the plaintiff.

The court noted that the allegations of sanctionable conduct were conclusory and “frivolous.”

In a footnote, Defendants also assert with confidence, but no factual or legal support, that their discovery responses to Plaintiffs have established that the marks at issue in this case have not been used such that Plaintiffs’ trademark infringement and unfair competition claims are now “patently frivolous.” [DE 63 at 9 n.4]. Defendants then seem to want the Court to extrapolate from their unsupported conclusion on the merits of this case that Plaintiffs’ refusal to dismiss those claims is evidence of Rule 11 sanctionable conduct. Similarly, Defendants argue that Plaintiffs’ production of FIT’s incorporation documents does not establish use of the mark in commerce making Plaintiffs’ refusal to dismiss the infringement and unfair competition claims sanctionable conduct showing lack of reasonable pre-complaint inquiry.

Once again, this is a quite a stretch to make at this early stage of litigation before discovery has closed, before any motions for summary judgment have been filed or considered, and before trial. Even assuming for the sake of argument that Defendants’ confidence is justified, Defendants have more persuasively suggested that Plaintiffs’ claims may lack substantive merit than they have shown that Plaintiffs’ pre-complaint inquiry into their claims was unreasonable under Rule 11 standards. As a result, the Court finds Defendants’ allegations of Rule 11 sanctionable misconduct to be unreasonable, and therefore, frivolous making them insufficient to establish a prima facie case of sanctionable conduct.

via AARON, MacGREGOR & ASSOCIATES, LLC v. ZHEIJIANG JINFEI KAIDA WHEELS CO., LTD., Dist. Court, ND Indiana 2017 – Google Scholar

Court Awards 9,000,000 for filing and refusing to drop hundreds of frivolous lawsuits

This is a decision awarding in excess of $9,000,000 in sanctions against two law firms that filed 1250 frivolous “Engle Progeny” product liability actions. Engle Progeny cases are injury lawsuits against tobacco companies. The sanctions were awarded pursuant to Rule 11 and 28 U.S.C. Section 1927.

The first award was of Rule 11 sanctions for 588 complaints filed for litigants who were deceased. The explanation:

The complaints filed in the 588 Actions were objectively frivolous. As the Eleventh Circuit observed, “any lawyer worth his salt knows [that] a dead person cannot maintain a personal injury claim.” In re Engle Cases, 767 F.3d at 1086-87. The complaints listing the 588 Pre-Deceased Plaintiffs alleged only a personal injury action— using the present or future tense in referring to the “Smoking Plaintiffs,” and asserting that they “have and will suffer” as a result of their disease. (E.g., Edwin Moody et al. v. R.J. Reynolds Tobacco Co., Case No. 3:08-cv-155-J-32HTS, Doc. 2, Complaint at ¶ 1.10). Nowhere did the complaints suggest that the smoker had died, and nowhere did they assert an alternative wrongful death or survival action. To the contrary, the concluding allegation in each complaint stated that each plaintiff’s injuries “are permanent and continuing and as such will be suffered into the future.” (E.g., id. at ¶ 11.1). These allegations were demonstrably false.

The complaints in the 588 Actions were also frivolous because Counsel lacked authorization to file or maintain them. “Perhaps the most basic factual contentions implicit in a complaint are that the plaintiff consents to the filing of suit and prays for the relief requested.” In re Deep Vein Thrombosis, No. MDL-04-1606 VRW, 2008 WL 2568269, at *1 (N.D. Cal. Jun. 24, 2008). The dead plaintiffs obviously could not have authorized Counsel to bring lawsuits on their behalf. Nor did Counsel have authorization from the Pre-Deceased Plaintiffs’ estates or their survivors because Counsel pled the complaints as personal injury actions on behalf of the Pre-Deceased Plaintiffs themselves. Therefore, “the most basic factual contention implicit” in the 588 personal injury complaints, i.e., that the plaintiff authorized and prayed for the relief requested, was untrue.

The court also awarded Section 1927 Sanctions for claims from nonsmokers and plaintiffs who did not live in Florida.

In the cases discussed below, the Court determines that Counsel multiplied the proceedings unreasonably and vexatiously by maintaining frivolous complaints in bad faith. Between 2011 and 2013, the Court learned that Counsel had filed dozens of Frivolous Actions (in addition to the 588 Actions). Counsel brought these Frivolous Actions without authorization or on behalf of non-smokers, people who never lived in Florida, and plaintiffs with previously adjudicated claims. The fatal defects in these actions surfaced not through voluntary disclosures from Counsel, but through alerts from Defendants, the hard work of the Temporary Special Master, and from the returned Court Questionnaires. Before the Court Questionnaire process, Counsel vigorously opposed any suggestion that someone should interview or question the plaintiffs. Counsel’s intransigence forced the Court to order Wilner to mail the Court Questionnaires to 2,661 plaintiffs and to have the Temporary Special Master review the results. The questionnaire process was time-consuming but necessary. It accomplished what Counsel would not: the identification of hundreds of frivolous cases, and the segregation of viable from non-viable claims.

In some of these cases, Counsel knew or must have known that a fundamental defect existed. As to others, Counsel acted with reckless indifference. Counsel insisted on maintaining cases without having bothered to obtain the plaintiff’s authorization, without having any basis for asserting that the plaintiff was even a smoker, and without knowing whether the alleged smoker ever lived in Florida (as required by Engle III). Moreover, Counsel’s resistance to the questionnaires and false assurances appeared calculated to prevent the discovery of such frivolous cases. At the very least, counsel’s behavior “grossly deviate[d] from reasonable conduct.” Amlong, 500 F.3d at 1240.

Counsel’s actions demonstrated a pattern of obfuscation and deception, which frustrated the Court’s efforts to rid the Engle Docket of frivolous cases and to promptly and fairly resolve the cases that had merit. Counsel’s maintenance of frivolous suits forced the Court to expend valuable resources—in terms of time, money, and manpower—to cope with the swollen Engle Docket. It also delayed the resolution of meritorious claims. As a result, sanctions are appropriate for the “excess costs” and “expenses . . . incurred because of [counsel’s] conduct.” 28 U.S.C. § 1927.

The court awarded a total of $9,164,404.12 against the two law firms that maintained the frivolous lawsuits.

Source: IN RE ENGLE CASES, Dist. Court, MD Florida 2017 – Google Scholar

Defendant Waited Too Long To File Rule 11 Motion

This case discusses a Rule 11 issue in the context of Bankruptcy Rule 9011. Plaintiff brought an adversary action against Discover Bank and its lawyer, Stephen Bruce, alleging that they violated the automatic stay by maintaining a garnishment over certain funds. The Defendants moved to dismiss the complaint, but their motion was denied. They then answered and served discovery requests. Eventually, the Defendants obtained summary judgment. At the conclusion of the case the Defendants moved for sanctions under Rule 9011. The court’s explanation:

The Sanction Motion was filed by Bruce on August 11, 2017, eighteen-and-a-half (18 ½) months after the filing of the Complaint, seventeen (17) months after the first safe harbor letter, sixteen (16) months after filing the Motion to Dismiss, nine (9) months after the second safe Harbor letter and the filing of the Motion for Summary Judgment and four-and-a-half (4 ½) months after the entry of the judgment in Bruce’s favor. If Bruce truly believed that the Law Firm’s conduct was so abusive and vexatious to warrant service of the safe harbor letters, and this Court has no reason to believe that Bruce wasn’t sincere in that belief, he should have pursued that motion by filing it shortly after the expiration of the twenty-one (21) day safe harbor in either February and/or November 2016. Instead, Bruce elected to wait and spend additional time and money in the discovery process and summary judgment process. The Court doesn’t know the reason for the delay, and the pleadings and oral argument did not enlighten the Court. It may have been because Bruce felt confident of the outcome and wanted to establish a precedent rather than cutting the litigation off at an early stage. “Suffice it to say that [Discover and Bruce] would be better served by reexamining their own litigation tactics rather than condemning plaintiff’s counsel for her litigation tactics.” Thompson v. United Transportation Union, 167 F.Supp.2d at 1260. The Court finds that Bruce’s Motion was not timely filed and can be denied on that basis alone, so is not necessary for the Court to decide the sanction motion on its merits. Accordingly,

IT IS ORDERED that Defendant Stephen L. Bruce Esq.’s Motion for Sanctions [Doc 90] is hereby DENIED.

In Re Waldrop