Author: eclinton

Wisconsin District Court Rejects Effort to Attack Illinois Sanctions Award

David Novoselsky was sanctioned in the sum of $100,000 in the Circuit Court of Cook County for actions related to a case he was handling. For some reason, Novoselsky then filed a lawsuit in the federal district court for the Eastern District of Wisconsin to challenge the sanctions award.

His lawsuit was dismissed and the District Court awarded further sanctions for the filing of a frivolous lawsuit.

The district court dismissed the case for lack of subject matter jurisdiction under the Rooker-Feldman doctrine. That doctrine generally prohibits federal courts from reviewing State Court judgments.

The district court also awarded sanctions pursuant to Rule 11 and 28 U.S.C. §1927.

The court first ruled that the Rule 11 letter sent to Novoselsky constituted “substantial compliance” with the safe harbor requirement in Rule 11. That usually requires the moving party to serve an actual draft motion for sanctions on the other party. The letter was deemed sufficient in this case.

The district court then found that Novoselsky’s arguments for jurisdiction were frivolous:

The Court agrees that these arguments were frivolous. It will address each in turn. First, and easiest, is Novoselsky’s claim that subject-matter jurisdiction could be premised on the Declaratory Judgment Act. It cannot. Rueth v. U.S. E.P.A., 13 F.3d 227, 231 (7th Cir. 1993). There is no ambiguity in the case law on this point; in any event, Novoselsky has apprised the Court of none. He should have known that this was an untenable argument.

Second, Novoselsky contended that the amount in controversy was satisfied as to Stevens because Judge Propes’s sanctions order “requires not only the payment of the face amount of $75,000 but interest accruing” on that sum. (Docket #23 at 5). However, the diversity statute, 28 U.S.C. § 1332, excludes interest. That statute requires that “the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.” 28 U.S.C. § 1332(a). In her order, Judge Propes awarded Cushing the sum of $25,000 and Stevens $75,000. Neither meets the amount-in-controversy requirement standing alone. Anthony v. Sec. Pac. Finan. Servs., Inc., 75 F.3d 311, 315 n.1 (7th Cir. 1996). Judge Propes’ order that interest accrue on the amounts does not change things, since that interest is incidental, arising only by virtue of delay in payment, and is not itself a basis for the present suit. See Principal Mut. Life. Ins. Co v. Juntunen, 838 F.2d 942, 943 (7th Cir. 1988); 14AA Charles Alan Wright et al., Fed. Prac. & Proc. § 3712 (2011). Whatever post-judgment interest has accrued on these awards cannot be considered.

Moreover, the two amounts cannot be aggregated in order to cross the jurisdictional threshold; that is permitted “only if the defendants are jointly liable; however, if the defendants are severally liable, plaintiff must satisfy the amount in controversy requirement against each individual defendant.” LM Ins. Corp. v. Spaulding Enters. Inc., 533 F.3d 542, 548 (7th Cir. 2008). Novoselsky did not credibly contend that payment to Stevens would affect his obligation to Cushing, or vice versa, other than to baldly state that Judge Propes awarded them as a “unitary sum.” (Docket #23 at 6); Batson v. Live Nation Entm’t, Inc., 746 F.3d 827, 833 (7th Cir. 2014) (finding an argument “forfeited because it was perfunctory and underdeveloped”). A plain reading of her order reveals that the two awards are distinct despite being issued at the same time. Thus, this argument too was wholly meritless.[6]

Third, and finally, is Novoselsky’s allegation that personal jurisdiction existed over Movants. The Fourteenth Amendment’s Due Process Clause protects a defendant from being haled into court in a state where it has no meaningful connections. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 464 (1985). Due process requires that for personal jurisdiction to exist over a nonconsenting, out-of-state defendant, the defendant must have “certain minimum contacts with it such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'” Int’l Shoe Co. v. State of Wash., Office of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)).

However, for specific personal jurisdiction—the only type arguably relevant in this case—mere minimum contacts are not enough. uBID, Inc. v. GoDaddy Grp., Inc.,623 F.3d 421, 429 (7th Cir. 2010). It is also important that the plaintiff’s claims arise from or relate to the defendant’s contacts with the forum State. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984)Int’l Shoe, 326 U.S. at 317-18. Specific personal jurisdiction exists only where the defendant’s contacts with the forum state “directly relate to the challenged conduct or transaction.” Tamburo v. Dworkin, 601 F.3d 693, 702 (7th Cir. 2010).

The sole allegation connecting Movants with the State of Wisconsin was their decision to preserve Judge Propes’ sanctions award by filing proofs of claim and an adversary complaint for nondischargeability in Novoselsky’s ongoing bankruptcy proceedings in this district. See (Docket #1 ¶ 7) (“[T]he dispute over the sum in controversy in this complaint arises from claims brought against Plaintiff by Defendants seeking relief against Plaintiff in the Courts of the Eastern District of Wisconsin.”). Those actions have nothing at all to do with Novoselsky’s claims in this case.

As the allegations of the complaint itself make clear, this case rests entirely on the parties’ interactions in Illinois. Novoselsky engaged in sanctionable conduct there, Judge Propes’ sanctions award was issued there, and the parties disputed the legality and interpretation of the sanctions award there. Id. ¶¶ 8-11. Indeed, even the several other cases that Novoselsky thought had some bearing on the sanctions award were all either Illinois state or federal cases. See id. ¶¶ 12-28. Although not relevant to the propriety of personal jurisdiction over Movants, it is worth noting as well that the breach-of-contract claim against the Estate was likewise based solely in agreements and conduct that occurred in Illinois. See id.¶¶ 29-33. Thus, while it is true that Movants sought to reap their sanctions award from Novoselsky’s bankruptcy estate, his claims regarding the sanctions award have no connection whatsoever to this State. Personal jurisdiction over Movants was not plausible in this case. See Burger King, 471 U.S. at 474-75 (a defendant must have sufficient contacts with the forum, related to the suit at bar, that it “should reasonably anticipate being haled into court [in the forum State]” on that suit).

Novoselsky’s opposition to Movants’ motion to dismiss did not help matters. It was scattered, incoherent, and quite clearly the product of no meaningful legal research. For instance, without any citation to authority, Novoselsky maintained that the Declaratory Judgment Act “on its face does provide for jurisdiction.” (Docket #23 at 5). This is simply not true.

The brief also fell well short on the matter of personal jurisdiction. Novoselsky stressed that Movants tried to obtain sanctions despite—for reasons he did not cogently explain—the need for those sanctions to be paid to the Estate. Id. at 8-9. This, he reasoned, represented Movants’ affirmative choice to enter Wisconsin and fight Novoselsky here over the sanctions award. See id. But here again, his brief is devoid of appeal to any authority other than, apparently, his own intellect.

Litigants of all kinds—and perhaps especially lawyer-litigants— should be expected to conduct reasonably careful research in finding that jurisdictional premises for suit are satisfied. Novoselsky did not do so, and that failure is worthy of sanctions. Movants’ cited cases support this view. First, in International Shipping Co., S.A. v. Hydra Offshore, Inc., 875 F.2d 388, 393 (2d Cir. 1989), plaintiff’s counsel was sanctioned for filing a complaint that on its face ran afoul of the complete diversity requirement of 28 U.S.C. § 1332. In particular, he had named aliens on both sides of the dispute, thereby clearly and unequivocally destroying diversity. Id. at 391. The jurisdictional defect was unmistakable to a reasonably prudent lawyer. Id.

Even more apt is a comparison to a prior instance in which a federal court meted out sanctions against Novoselsky. In MB Financial, N.A. v. Stevens, 678 F.3d 497, 498 (7th Cir. 2012), the Seventh Circuit affirmed a sanctions award against Novoselsky for frivolously removing an Illinois state case to federal court. The problems with removal were manifold— Novoselsky was not a party in the state case, much less a defendant; he did not secure any of the defendants’ consent to remove; removal was not proper because the defendants were all Illinois citizens; and the time for removal had long since expired. Id. at 498-99.

Here, as in numerous prior cases, Novoselsky offered outlandish jurisdictional claims backed up by uninformed, spurious arguments. The problems in this case would be plain to any lawyer of reasonable ability after consultation with pertinent authorities. Novoselsky apparently eschewed those authorities in favor of his own beliefs about what the law is. Consequently, the Court finds that Novoselsky’s jurisdictional contentions in this case were frivolous, violated Rule 11(b)(2), and are deserving of an appropriate sanction.[7]

In sum, the court awarded sanctions in the form of attorney’s fees, but the left the specific amount of those fees for a further hearing.

via NOVOSELSKY v. ZVUNCA, Dist. Court, ED Wisconsin 2017 – Google Scholar

The District Court Has Sanctioned Maurice J. Salem  

Maurice J. Salem is a New York attorney who has never become licensed in Illinois. He has had numerous battles with Illinois judges, the ARDC, and others over the status of his license (or his lack of a license).

The latest chapter in this sad tale is an order from the District Court affirming a Bankruptcy order sanctioning Salem $20,000.  Salem became involved in a long-running bankruptcy case and appears to have filed claims that were previously rejected by other courts (or the bankruptcy court). Sanctions were awarded pursuant to Rule 9011 of the Bankruptcy Rules, which is essentially identical to Rule 11 of the Federal Rules of Civil Procedure.

How it all went bad

Salem became involved after many issues had been resolved against his clients. They had even appealed (unsuccessfully) to the United States Supreme Court. Despite the fact that they had lost in every court for many years, Salem filed more motions as noted by the District Court:

After protracted appeals that went all the way to the Supreme Court, the Bankruptcy Court’s finding that the Trust was Debtor’s alter ego ultimately was upheld. See Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015). While the case was on remand to the Seventh Circuit, Debtor wrote the Seventh Circuit a letter asserting that “[o]ne piece of evidence [that his attorney] failed to provide or disclose was that I was no longer the trustee [of the Trust] after 2007, revoked by my mother, Soad Wattar and her attorney.” Case No. 15-cv-10694, Docket Entry 15-25 at 1. Debtor attached a copy of a document titled “Revocation of Trustee to Soad Wattar Revocable Living Trust of 1992” (the “Revocation of Trustee”). The Revocation of Trustee purported to show that on November 1, 2007, Debtor resigned as trustee and Ragda took over as successor trustee. Debtor’s allegations directly contradicted his earlier representations that he was the trustee of the Trust at the time he filed for bankruptcy and that he resigned as trustee in 2010. The Seventh Circuit, apparently unpersuaded by Debtor’s letter, affirmed the Bankruptcy Court’s July 6, 2010 decision that the Soad Wattar Trust was the alter ego of Debtor. See Wellness Int’l Network, Ltd. v. Sharif, 617 F. App’x 589, 591 (7th Cir. 2015).

Soon after Debtor’s appeal of the alter ego ruling was concluded, Salem entered an appearance in the bankruptcy case as counsel for Haifa. Haifa, purportedly acting as executrix of Wattar’s Estate, filed a motion to vacate the Bankruptcy Court’s August 5, 2010 turnover order pursuant to Rule 60(b)(4) of the Federal Rules of Civil Procedure. Haifa argued that the Estate was never served with process and therefore (1) the Bankruptcy Court did not have personal jurisdiction over the Estate and (2) the Bankruptcy Court’s August 5, 2010 order requiring the turnover of property held in the Trust was void. In her reply brief, Haifa attached a document that she claimed was the most recent version of Wattar’s will, dated April 28, 2007 (the “April 28, 2007 Will”). The April 28, 2007 Will named Haifa executor of her mother’s estate. Haifa also alleged that Ragda had been the trustee of the Trust since 2007, pursuant to the Trust Revocation. The Bankruptcy Court denied Haifa’s motion, and Haifa appealed to this Court. See generally Case No. 15-cv-10694. On reconsideration, this Court determined that the appeal of the denial of the Rule 60(b)(4) motion should be remanded to the Bankruptcy Court for further proceedings. See Case No. 15-cv-10694, Docket Entry 58.

While the appeal in Case No. 15-cv-10694 was pending, Salem entered an appearance on behalf of Ragda in the Bankruptcy Court. Haifa and Ragda filed a motion for leave to sue the Trustee, Hartford, and Wells Fargo. Their motion did not explain why they should be granted leave to sue; instead it “trail[ed] off midsentence” and did not address why Intervenors had a prima facie case to sue the Trustee individually. See Case No. 16-cv-4699, docket entry 26-7 at 16. The attached proposed complaint shows that Haifa and Ragda sought to sue Hartford and Wells Fargo for breach of contract, breach of fiduciary duty, and negligence for turning over Trust assets to the Trustee. The proposed complaint also alleged a Bivens claim against the Trustee for using his alleged authority as a federal agent to take property that belonged to Wattar’s Estate—namely, the proceeds of a Hartford insurance policy and the assets of the Estate held by Wells Fargo—without notice or hearing. The proposed complaint alleged that this violated the Estate’s procedural and substantive due process rights. The proposed complaint further asserted that the proceeds from the Hartford insurance policy were exempt from the bankruptcy proceeding pursuant to Illinois law.

In addition, Ragda filed a motion in the Bankruptcy Court seeking reimbursement of more than $900,000 for (1) funds she allegedly spent paying the mortgage and taxes on one of Trust’s assets, a house located at 36 Revere Drive, South Barrington, Illinois (the “Barrington house”) while the appeal to the Supreme Court was pending; and (2) the proceeds of the Hartford insurance policy, of which Ragda claimed to be the beneficiary.

The Bankruptcy Court entered orders denying both Ragda and Haifa’s motion for leave to sue the Trustee and Ragda’s motion for reimbursement (these two motions are referred to collectively as the “Motions”). Ragda and Haifa appealed to this Court. See Case No. 16-cv-4699.

While that appeal was pending, the Bankruptcy Court ordered Salem, Ragda, and Haifa to show cause why they should not be sanctioned for violating Federal Rule of Bankruptcy Procedure 9011(b)(1-3) by filing the Motions. All three appeared at a show-cause hearing on June 21, 2016 and filed written responses.

Why Sanctions?

In his second issue on appeal, Salem argues that the Bankruptcy Court failed to “state any facts . . . showing any `unnecessary delay’ or any litigation costs . . . as a result of the two [M]otions.” [6] at 17. Salem asserts that it was unfair for the Bankruptcy Court to fault Ragda and Haifa for making “repeated filings . . . aimed at undoing settled issues,” because “the Motion to commence an action against the Trustee . . . by the Estate of Soad Wattar was never previously filed and the Estate was never a party in the bankruptcy court proceeding until Salem appeared,” and “the Motion for Funds by Ragda Sharifeh for paying the mortgage on a house in the bankruptcy estate . . . was never previously litigated.” Id. Further, Salem argues perfunctorily that “Ragda’s life insurance proceeds of $540,000.00 that the trustee seized was not a frivolous claim” because Ragda “was the beneficiary with standing to sue,” id., and that Ragda was entitled to reimbursement for paying the mortgage on the Barrington House, because she was forced to pay it to avoid foreclosure, id. at 15.

Before addressing these arguments, the Court notes that Salem does not address the Bankruptcy Court’s detailed analysis concerning why Salem failed to establish any legal or factual basis for Ragda and Haifa to sue the Trustee, Hartford and Wells Fargo. Salem did not address the Bankruptcy Court’s analysis in his notice of appeal or in either brief, and therefore waived any challenge to that part of the Bankruptcy Court’s sanctions order. See [6-1] at 54-62.

The Court now turns to the arguments that Salem did raise on appeal. First, the Court concludes that the Bankruptcy Court did not abuse its discretion in determining that the filing of the Motions caused unnecessary delay. Debtor filed the bankruptcy case in 2009, and the Bankruptcy Court decided in 2010 that the Trust was Debtor’s alter ego and its assets could be included in the Bankruptcy estate. Debtor’s appeal of the Bankruptcy Court’s alter ego ruling was finally resolved in 2015. Yet the bankruptcy case is still going on. Since 2010, Ragda has made repeated, unsuccessful attempts to undo the turnover order and obtain Trust assets, as detailed in Section I of this opinion. Her motion for reimbursement for mortgage payments was another attempt by “the Sharifeh family [to] get back . . . lost assets.” [6] at 20. Haifa became involved in the bankruptcy case in 2015, when she filed her Rule 60(b)(4) motion to vacate the turnover order. When she lost that motion, she appealed. But instead of allowing the appeal to be resolved, she and Ragda moved for permission to sue the Trustee individually for a Bivensviolation, and to sue the Hartford and Wells Fargo for, essentially, complying with the turnover order. The Bankruptcy Court found that motion to be legally and factually baseless, and Salem does not challenge that aspect of the Bankruptcy Court’s sanctions order. Ragda and Haifa’s filings, which were prepared by Salem, undoubtedly have delayed the final resolution of the bankruptcy case.

Further, the Bankruptcy Court did not abuse its discretion in rejecting Ragda and Haifa’s excuse that “they were not involved in th[e] case throughout the eight years it has been pending.” [6-1] at 70. As the Bankruptcy Court explained, Salem “and his clients [had a duty] to review the court records to familiarize themselves with the posture of the case and the courts’ prior rulings” and “cannot ignore binding rulings just because they were not actively involved in this matter when the earlier [o]rders were entered.” Id.

Second, the Bankruptcy Court did not abuse its discretion in finding that Salem’s (and his clients’) actions needlessly increased the cost of litigation. The Bankruptcy Court identified specific costs that the bankruptcy Estate will incur as a result of Salem filing the motions— namely, the Trustee’s costs defending the appeal from the Bankruptcy Court order denying the Motions, which at the time of the order totaled $12,587.50. Salem claims that the Bankruptcy Court should not have considered those costs, because the appeal was pending before this court. But it is the Bankruptcy Court that considers and rules on the Trustee’s claims for reimbursement. It was therefore proper for the Bankruptcy Court to take those claims into consideration in its sanctions motion. Salem does not cite any statute or precedent that calls this conclusion into question. See Silk v. Bd. of Trustees, Moraine Valley Cmty. Coll., Dist. No. 524, 795 F.3d 698, 709 (7th Cir. 2015) (`”[t]he absence of any supporting authority or development of an argument constitutes a waiver on appeal'” (quoting Kramer v. Banc of Am. Sec., LLC, 355 F.3d 961, 964 n.1 (7th Cir. 2004)).

Third, Salem fails demonstrate that the Bankruptcy Court abused its discretion in finding that Ragda’s claim for $540,000 in life insurance proceeds from Hartford was frivolous. He does not support his argument with any discussion of the relevant facts or law, and therefore has waived it. See Crespo v. Colvin, 824 F.3d 667, 674 (7th Cir. 2016) (“`perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived'” (quoting United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir. 1991)). Even if Salem had bothered to discuss its merits, his argument is baseless. As this Court determined in Case No. 16-cv-4699, Ragda’s motion was properly denied because: 1) Ragda failed to adequately plead that she had any interest in the insurance proceeds; and 2) the insurance policy was not exempted from Debtor’s bankruptcy estate under Illinois law, 735 ILCS 5/12-1001(f), because only Debtor would be eligible to claim the exemption in the bankruptcy case, and the exemption applies only where the deceased insured’s child was “dependent upon” the insured. See Case No. 16-cv-4699, Docket Entry [53] at 10-11.


Suing the Bankruptcy Trustee was an idea that was frivolous and bizarre. The Trustee is retained by the Court to administer the bankruptcy and make tough decisions. Suing the trustee was a guarantee of court hostility. Bringing up old claims (that had been rejected previously) and that lacked evidentiary support was also a terrible idea. In sum, the actions of Salem (in my opinion) were of extremely poor judgment.

Edward X. Clinton, Jr.

Source: IN RE SALEM, Dist. Court, ND Illinois 2017 – Google Scholar

Elevator Company’s Motion to Preclude Expert Is Denied

The plaintiff in this lawsuit was allegedly injured when an elevator did not level properly. Plaintiff sued the Otis Elevator Company and, after discovery, Otis moved to preclude the plaintiff’s expert from testifying. The expert has opined that there was a defect in the elevator and that Otis should have noticed the defect and correct it. Defendant moved to preclude the opinion on the ground that the expert did not fully disclose his rationale or reasoning.

The court rejected the challenge to the expert:

Rule 26 is intended “to prevent a party from `sandbagging’ an opposing party with new evidence.” Conte v. Newsday, Inc., No. 06-Civ.-4859 (JFB) (ETB), 2011 WL 2671216, at *4 (E.D.N.Y. July 7, 2011) (citation omitted). “A district court has wide discretion to impose sanctions, including severe sanctions, under Federal Rule of Civil Procedure 37” and, in reviewing a district court’s exercise of that discretion, the Second Circuit considers: “`(1) the party’s explanation for the failure to comply with the disclosure requirement; (2) the importance of the testimony of the precluded witnesses; (3) the prejudice suffered by the opposing party as a result of having to prepare to meet the new testimony; and (4) the possibility of a continuance.'” Design Strategy, Inc. v. Davis, 469 F.3d 284, 294, 296 (2d Cir. 2006)(quoting Patterson v. Balsamico, 440 F.3d 104 (2d Cir. 2006)) (internal brackets omitted). “[A]lthough a `bad-faith’ violation of the Rule 26 is not required in order to exclude evidence pursuant to Rule 37, [such a violation] can be taken into account as part of the party’s explanation for its failure to comply.” Id. at 296 (emphasis omitted). “[C]ourts in this Circuit have recognized that preclusion is a `harsh sanction,'” and it remains a “discretionary remedy even if “`the trial court finds that there is no substantial justification [for the party’s conduct] and the failure to disclose is not harmless.'” Conte, 2011 WL 2671216, at *1 (quoting Design Strategy, Inc., 469 F.3d at 297) (citations omitted). Preclusion for violation of Rule 26(a) “should be distinguished from the question of” the admissibility of expert reports under Federal Rule of Evidence 702 (“Rule 702”): “Whereas Rule 26(a) guards against the presentation of sketchy and vague expert reports that provide little guidance to the opposing party as to an expert’s testimony, Rule 702 guards against the presentation of insufficiently reliable evidence to the finder of fact.” Id. at *4.

Defendant has not sufficiently demonstrated that Mr. Carrajat’s supplemental expert report and his conduct violate Rule 26 nor that sanctions—especially the “harsh sanction” of preclusion—are warranted here. Defendant has not demonstrated that Plaintiff has withheld factual or theoretical underpinnings of Mr. Carrajat’s expert testimony. Rather, it is apparent from the reports and from the extensive deposition testimony that Defendant elicited even before production of Mr. Carrajat’s supplemental report that Mr. Carrajat relies on his background knowledge of the equipment in question, performed an inspection of the equipment, relies on Plaintiff’s testimony that the wheels of the pallet jack were obstructed by misleveling of the cab, and draws inferences (including inferences as to missing maintenance documentation) from the evidence that Defendant has produced concerning the maintenance of the Subject Elevator. This record does not demonstrate that Plaintiff has withheld information as to Mr. Carrajat’s opinions or the facts or data Mr. Carrajat considered in forming them. Defendant’s issues appear to concern the weight or evidentiary quality of Mr. Carrajat’s testimony. At this point in this action, the Defendant has sufficient “guidance” as to Mr. Carrajat’s testimony, and the Defendant has not demonstrated that it suffered prejudice “as a result of having to prepare to meet” whatever “new testimony” emerged at Mr. Carrajat’s deposition or otherwise. Cf. Design Strategy, Inc., 469 F.3d at 296(holding that district court properly took “severe” prejudice into account in finding that Rule 37 sanctions were warranted).

Accordingly, Defendant’s motion to preclude the testimony of Mr. Carrajat pursuant to Federal Rules of Civil Procedure 26 and 37 is denied.

The court was of the view that the challenge to the expert’s testimony was related to the weight and credibility of the testimony. Those are determinations for the jury. Litigation about experts remains a huge issue in the law and can have enormous implications for plaintiffs bringing injury claims. Had the expert in this case been barred, plaintiff would have lost the case on summary judgment.

Source: Meade v. Otis Elevator Company, Dist. Court, SD New York 2017 – Google Scholar

The Family Law Case That Would Not Go Away – 

The plaintiff, Dawn Bach-Reffitt, believed that she had been defrauded in her divorce action, which was settled in 2013. She filed a federal RICO action against her ex-husband. That RICO action was dismissed and the district court granted Husband’s motion for Rule 11 sanctions.

After the divorce was settled in 2013 and a consent judgment entered, the plaintiff brought a claim to reopen the divorce case on the ground that the consent judgment was procured through fraud. The divorce judge rejected that motion, partly on the ground that the plaintiff had released her claims against her ex-husband. The plaintiff then filed a separate fraud lawsuit in state court, which she also lost. Her third strike was the federal RICO action.

The court concluded that plaintiff’s claims were barred by the release and by the consent judgment. Further, she lacked RICO standing as federal courts have denied standing to disappointed family law litigants.

The court granted Rule 11 sanctions on the ground that the claims asserted by Dawn were frivolous and were not warranted by existing law or a good faith argument to extend existing law. The explanation:

This dispute has a contentious and lengthy history and evinces a high level of animosity not only between the clients, but also counsel. Moreover, the universe of information available for determining the propriety of sanctions is not limited to Dawn’s complaint.

Setting aside the question of whether Dawn filed her complaint for an improper purpose under subsection (b)(1), in this Court’s judgment, Dawn’s claims violate subsection b(2) because they are contrary to both the facts and the law and are not otherwise supported by a nonfrivolous legal argument. To begin, as noted above, regardless of Dawn’s characterizations in her complaint, she alleges intrinsic fraud in the divorce proceeding—Kevin committed discovery fraud by failing to disclose the true value of his Peninsula stock, which caused her to accept a less favorable property division under the Consent Judgment. The Michigan cases discussed above require that, in such instances, the proper remedy is a motion for relief from judgment filed in the court that rendered the judgment—in this case, the family court. Dawn filed such a motion, which the family court denied as untimely. She also filed an independent fraud action in the circuit court, which the circuit court dismissed because Dawn should have been filed a motion for relief from judgment in the family court. Filing a RICO complaint in federal court was not a viable third option, particularly in light of the preclusive effect of the Consent Judgment and the broad release contained therein. Dawn’s (or her counsel’s) argument that the Consent Judgment authorizes or does not preclude additional lawsuits outside of the family court is based on an unreasonable reading of the Consent Judgment. Moreover, none of the Michigan cases Dawn cited in her opposition to Defendants’ motion to dismiss supported her position. In short, Dawn’s counsel should have known that filing a RICO claim in federal court to skirt the Consent Judgment was legally improper.

Having concluded that Dawn’s complaint violated Rule 11(b)(2), the Court concludes that an award of reasonable attorney’s fees and costs is an appropriate sanction. The Court will not grant Defendants’ request to impose fees against Dawn, however, in light of Rule 11(c)(5)(A), which precludes courts from imposing monetary sanctions “against a represented party for violating Rule 11(b)(2).” Accordingly, the Court will order Defendants’ counsel to submit appropriate documentation for an award of fees against Dawn’s counsel and their firms. Fed. R. Civ. P. 11(c)(1).

Edward X. Clinton, Jr.

Source: BACHI-REFFITT v. Reffitt, Dist. Court, WD Michigan 2017 – Google Scholar

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