Author: eclinton

District Court Denies Rule 11 Sanctions Even Though Plaintiff Did Not Respond To Motion


David Bailey v. Interbay Funding, LLC, 3:17-cv-1457 (VAB) (D. Connecticut, June 19, 2020) should be considered the case of the fortunate plaintiff. Bailey sued the finance companies after they initiated foreclosure proceedings against him. Bailey claimed a number of violations and added claims for common law fraud and civil conspiracy. In January 2020, the Court granted a defense motion for summary judgment. Defendants sought sanctions under Rule 11 because they argued that the fraud claim was baseless. The Court essentially held that while the claims might well have been sanctionable, it would deny sanctions to bring the case to an end.

To grant a motion for sanctions, the Court must conclude that it is “patently clear that a [targeted party’s] claim has absolutely no chance of success,” K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 131 (2d Cir. 1995) (citation and internal quotation marks omitted); or that the targeted party’s factual claims are “utterly lacking in support,” Storey, 347 F.3d at 388.[1]

Defendants argue that “there is not, and never was, any good faith basis to allege that Defendants engaged in fraud, and Plaintiff’s obstinate insistence on doing so has forced Defendants to spend a significant amount of money defending this vapid claim.” Mem. for Sanctions at 2. They argue that no factual or legal basis existed at the time the Fourth Amended Complaint was filed because (1) Mr. Bailey knew the fraud claim was barred by the statute of limitations, id. at 13-15 (“Plaintiff unequivocally admits that he learned about the alleged defects in the Property shortly after March 6, 2006, which he admits impacted its value,” and no later than October 5, 2010, requiring him to commence this action by October 5, 2013, even if the statute of limitations could be equitably tolled); (2) Mr. Bailey released Defendants from these claims in various stipulation agreements, id. at 16-17; and (3) Mr. Bailey “is incapable of presenting any evidence to support” his fraud claim, yet persists in making unsupported claims of fraud, id. at 17-19.

Further, Defendants argue that Mr. Cayo “did not conduct a reasonable and competent inquiry before signing and filing the Complaint,” id. at 20, as required by his obligation under Rule 11 “to conduct a reasonable investigation of both the relevant facts and the law,” id. at 2. In Defendants’ view, “[e]ven if [Mr.] Cayo could not have conducted a full investigation into Plaintiff’s factual assertions without discovery from Defendants, [ ] he certainly had all the necessary information by November 12, 2018, when Defendants produced the loan file,” yet he “chose to ignore this information . . . and to pursue the baseless fraud claim.” Id. at 20.

Neither Mr. Bailey nor Mr. Cayo has responded to Defendants’ motion for sanctions. Nonetheless, the Court will not impose sanctions.

As Defendants acknowledge, Mr. Bailey admitted that he did not have documents showing Defendants’ alleged fraudulent concealment, but rather believed that Bayview had such documents in its file. Mem. for Sanctions at 9. Defendants contend that “by November 12, 2018, when Defendants produced almost 900 pages of Plaintiff’s loan file, both [Mr. Bailey] and [Mr.] Cayo had all the information they needed to confirm that there was no good faith basis to assert a fraud claim.” Id. But this loan file was produced months after Plaintiff submitted his Fourth Amended Complaint and therefore does not establish that it was “patently clear” that there was no chance of success on Mr. Bailey’s fraud claim.

After Defendants produced the loan file, the parties engaged in further discovery regarding the validity of the documents produced. See, e.g., Minute Entry, ECF No. 96 (Apr. 5, 2019) (Judge Hall setting deadlines for second deposition of Mr. Bailey and completion of expert analysis of handwriting). Defendants then moved for summary judgment, which Mr. Bailey opposed. Mot. for Summ. J.; Pl.’s Obj.

“`[A] litigant’s obligations [under Rule 11] with respect to the contents of . . . papers are not measured solely as of the time they are filed with or submitted to the court, but include reaffirming to the court and advocating positions contained in those pleadings and motions after learning that they cease to have any merit.'” Galin v. Hamada, 753 F. App’x 3, 8 (2d Cir. 2018) (summary order) (noting, however, that “it would not be appropriate for a district court to impose sanctions simply because a party unsuccessfully opposed summary judgment”) (citing Fed. R. Civ. P. 11 Advisory Committee’s Note (1993)).

But “Rule 11 sanctions are a coercive mechanism, available to trial court judges, to enforce ethical standards upon attorneys appearing before them.” Pannonia Farms, Inc. v. USA Cable, 426 F.3d 650, 652 (2d Cir. 2005) (citing Estate of Warhol, 194 F.3d at 334 (internal alterations and quotation marks omitted)). “Although the imposition of sanctions is within the province of the district court, any such decision should be made with restraint and discretion.” Id.; see also Lawrence v. Richman Grp. of CT LLC, 620 F.3d 153, 158 (2d Cir. 2010) (“Rule 11 does not . . . authorize sanctions for merely frustrating conduct.”); E. Gluck Corp. v. Rothenhaus, 252 F.R.D. 175, 179 (S.D.N.Y. 2008) (“Courts maintain a high bar for establishing a Rule 11 violation given judicial concern for encouraging zealous advocacy.” (internal citations omitted)). Rule 11 therefore “limits the sanctions that may be imposed for a violation of Rule 11 `to what is sufficient to deter repetition of [the wrongful] conduct or comparable conduct by others similarly situated.'” Salovaara v. Eckert, 222 F.3d 19, 34 (2d Cir. 2000) (quoting Fed. R. Civ. P. 11(c)); see also Universitas Educ., LLC v. Nova Grp., Inc., 784 F.3d 99, 103 (2d Cir. 2015) (“`[T]he main purpose of Rule 11 is to deter improper behavior, not to compensate the victims of it or punish the offender.'” (quoting 5A Wright & Miller, Federal Practice and Procedure: Civil 3d § 1336.3 (3d ed. 2004))).

The Court has now granted summary judgment to Defendants based on Plaintiff’s inability to produce evidence supporting his claims. See Ruling on Summ. J. Thus, one of the outcomes Defendants sought through sanctions—dismissal of the case, Mem. for Sanctions at 2—has occurred. See On Time Aviation, Inc. v. Bombardier Capital Inc., 570 F. Supp. 2d 328, 332 (D. Conn. 2008) (“[A] firmly held conviction of the correctness of one’s position does not authorize collateral attack on an opponent’s legal arguments by resort to Rule 11.”), aff’d, 354 F. App’x 448 (2d Cir. 2009).

Since the Court granted summary judgment to Defendants, Mr. Cayo has withdrawn his appearance from the case, and Mr. Bailey has not filed—and having failed to comply with the Court’s deadline, cannot file—anything further in this case. The case therefore will be closed.

Accordingly, rather than prolong this matter any further, this Court chooses to exercise its discretion and end this case.

Comment: the court denied the sanctions motion out of a desire to end the litigation and, perhaps, because the attorney who had represented the plaintiff withdrew from the case.

Should you have a question about federal procedure, do not hesitate to call me.

Ed Clinton, Jr.

Rule 37 Sanctions Awarded Where Party Refused to be Deposed


In this case, the plaintiff sought to collect a Maryland judgment in the Virgin Islands. Defendants resisted the efforts to take discovery concerning their assets and walked out of a scheduled deposition. Rule 37 sanctions were awarded. The explanation:

Plaintiff seeks sanctions for Defendants’ failure to proceed with the noticed depositions. The Court agrees that sanctions are warranted under the circumstances here.

In Goodwin v. City of Boston, 118 F.R.D. 297 (D. Mass. 1988), a Massachusetts federal district court was faced with a situation similar to that in the instant matter. The court there stated:

The filing of a motion to quash or a motion for protective order does not automatically operate to stay a deposition or other discovery. When it appears that a Court is not going to be able to decide a motion to quash or a motion for protective order before the date set for a deposition, counsel for the movant should contact counsel for the party noticing the deposition and attempt to reach an agreement staying the deposition until after the court acts on the motion to quash and/or the motion for a protective order. If agreement cannot be reached, it is incumbent on counsel for the movant to file a motion to stay the deposition until the court acts on the motion to quash and/or for a protective order and to alert the clerk to the need for immediate action on the motion to stay.

Id. at 298 (emphasis added); see also Barnes v. Madison, 79 F. App’x 691, 707 (5th Cir. 2003) (“[T]he mere act of filing a motion for protective order does not relieve a party of the duty to appear; the party is obliged to appear until some order of the court excuses attendance.”); Hepperle v. Johnston, 590 F.2d 609, 613 (5th Cir. 1979) (“The court’s inaction on appellant’s motion [for a protective order] to postpone the taking of his deposition … did not relieve him of the duty to appear for his deposition); Unlimited Holdings, Inc. v. Bertram Yacht, Inc., 2008 WL 4642191, at *5 (D.V.I. Oct. 15, 2008) (denying defendant’s request for sanction of dismissal, but noting that “[i]n the absence of a protective order, [plaintiff] was obligated to attend the deposition. . . .”); Sutherland v. Mesa Air Group, Inc., 2003 WL 21402549, at *5 n.10 (S.D. Fla. June 6, 2003) (“[T]he filing of a motion for a protective order alone would still not have relieved defense counsel of his obligation to attend the depositions; only when the district court grants the motion does the obligation to comply with a notice of deposition dissipate.”).

Shortly before the depositions at issue here were to take place, Defendants appealed the Magistrate Judge’s ruling and filed a motion for a protective order, but did not seek and obtain a stay of the depositions pending a ruling by the Court. By relying on their 39-minute-old appeal of the Magistrate Judge’s Order instead of a stay by the Court, and choosing to walk out of the deposition—or not appear at all—instead of adopting the suggestion presented by Plaintiff’s counsel to contact the Magistrate Judge, Defendants and their counsel acted at their peril.

Judge Miller’s Order denying the motion to quash the notices of depositions did not bring the case—nor any of the pending deadlines or scheduled discovery—to a halt. Judge Miller’s Order—even if Defendants disagreed with it—did not obviate the need for their continued compliance with the pending depositions, in the absence of a stay or protective order. Nor did Defendants’ motion for a protective order have the effect of staying the depositions. Simply stated, in the absence of a stay entered by the Court, Defendants were not relieved of their obligation to proceed with the depositions. Thus, the Court finds that Defendants failed to comply with their discovery obligation without just cause.

The Court further finds that sanctions are appropriate for Defendants’ flagrant disregard of well-established legal principles regarding the need for a court-ordered stay under the circumstances here. While the Court concludes that it would be too severe a sanction to deem it established that Defendants do not have sufficient personal property to satisfy the judgment, the Court nonetheless finds that Plaintiff should be awarded reasonable attorneys’ fees and costs associated with Defendants’ unjustified failure to proceed with the depositions. Plaintiff will be required to submit to the Court an application for such attorneys’ fees and costs for a determination of an appropriate award by the Court.

Choice Hotels International, Inc. v. Special Spaces, Inc., 2013-MC-0023, June 3, 2020 (D. Virgin Islands).

District Court Holds That Oregon Cannot Assert Personal Jurisdiction Over Alaska Lawyers


The case is MBJE, Inc. v. Barbara Norris, et al., No. 6:19-CV-00161 (D. Oregon, Eugene Division, January 23, 2020). The plaintiff is an Oregon corporation that filed a legal malpractice suit against attorneys who live and practice in Alaska. The underlying dispute concerned a probate case in the Alaska courts that the lawyers handled. When they were sued for legal malpractice in Oregon, the moved to dismiss for lack of personal jurisdiction.

The opinion summarizes the dispute:

“Plaintiff MBJE Inc. is an Oregon corporation. Plaintiff brings four legal malpractice claims against two Alaskan attorneys, Tonja Woelber and Barbara Norris, and their firms, Tonja Woelber, Attorney at Law, P.C.; Woelber & Passard, LLC; Law Office of Barbara A. Norris, LLC.[1] Plaintiff brings a legal malpractice claim, a breach of fiduciary duty claim (“BOFD”), and an indemnity claim against both defendants. Plaintiff also brings a breach of contract claim against Woelber.

Plaintiff was assigned the claims of Phillip Jones. Jones’ stepmother, Mary Buza Jones was a long-time resident of Alaska who died in Alaska. She left an estate (of real and personal property located in Alaska) that was probated in the Superior Court of Alaska. Jones called attorney Woelber in Alaska and asked her to represent him in the probate of his stepmother’s estate. Jones asked Woelber to have him appointed Personal Representative of that estate. She filed the probate action and successfully petitioned the court as requested.

As Personal Representative of his stepmother’s estate, Jones then contacted attorney Norris in Alaska and asked her to review a California settlement agreement involving the estate, which she did. Norris also, on Jones’ request, sent a letter to the Internal Revenue Service confirming that Jones was the Personal Representative of his late stepmother’s estate. Norris was known to Jones because Norris had represented Jones’ sister, who resided in Arizona, in a guardianship matter as to the siblings’ stepmother.

Woelber communicated with Jones by email, mail, and phone but never traveled to Oregon to meet with him. She sent invoices to an Oregon address. Norris communicated with Jones by email, fax, and telephone but never traveled to Oregon to meet with him. She sent invoices to a California address provided by Jones.

The two attorneys and their law firms are citizens of Alaska. Both defendants were and are licensed to practice law in Alaska. Neither attorney has ever been licensed to practice law in Oregon. Neither attorney has done business or advertised business in Oregon. Norris has been to Oregon for professional reasons two times. In 2015, she attended a deposition of an Oregon witness for an unrelated Alaska case scheduled by another counsel. And “many years ago,” on behalf of an Alaskan client, she came to Oregon to search for that client’s kidnapped children. Norris Decl. ¶ 5. Woelber has only been to Oregon as a tourist.

After plaintiff filed the present complaint, defendants moved to dismiss the claims for lack of personal jurisdiction, or in the alternative to transfer venue to the District of Alaska.”

The court concluded that there was no personal jurisdiction over the attorneys:

To establish specific jurisdiction for a tort claim, a plaintiff must show that a defendant purposely directed its activities at the forum state. Schwarzenegger, 374 F.3d at 804-05. Specifically, the plaintiff must show that a defendant (1) committed an intentional act (2) expressly aimed at the forum state (3) causing harm that the defendant knows is likely to be suffered in the forum state. Id.

Here, plaintiff asserts that defendants purposely directed activities at Oregon because (1) they provided legal services to Jones and advised him on the probate matter, and, (2) in receiving payment for these services, defendants “consummated a transaction” with Jones. Pl’s Resp. to Def. Mot. to Dismiss at 12-13.

But these claims are not based on intentional or purposeful acts. Plaintiff alleges malpractice and BOFD, which are claims of negligence. Plaintiff alleges not that defendants purposefully directed allegedly wrongful activities at Oregon but that they acted with “mere untargeted negligence.” Calder v. Jones, 465 U.S. 783, 789 (1984). Thus, as to the legal malpractice and BOFD claims, plaintiff fails to establish that defendants purposely directed their activities at Oregon. Thus, this Court cannot exercise specific personal jurisdiction over defendants with respect to plaintiff’s tort claims.

Comment: this result appears to be correct as the attorneys handled a case in Alaska, not Oregon, and would not have expected to be sued in Oregon.

Rule 11 Sanctions Granted For Frivolous Damages Claim


The plaintiff, a jewelry merchant, sustained damage when its inventory was destroyed in a fire in a BMW. Plaintiff sued BMW for damages and sought $5,677,114 in lost profits. The District Court granted the motion and sanctioned plaintiff $5,000 because the law is well settled that the merchant can only recover the replacement cost of the merchandise. The reasoning is provided below:

The claim for full retail value had absolutely no chance of success under governing precedents.[4] Where property is partially destroyed, the plaintiff may recover the lesser of: (1) the difference between the market value of the property before and after the harm was inflicted;[5] or (2) the replacement cost.[6] Hartshorn v. Chaddock, 135 N.Y. 116, 31 N.E. 997, 998 (1892)see also In re Sept. 11th Litig.,590 F. Supp. 2d 535, 541 (S.D.N.Y. 2008). Where the plaintiff’s property is totally destroyed, the measure of damages is its reasonable market value. Gass v. Agate Ice Cream, Inc., 264 N.Y. 141, 144, 190 N.E. 323 (1934)Reed v. Cornell Univ.,138 A.D.3d 816, 818 (N.Y. App. Div. 2016).[7]

Crucially, “[t]he market value of a merchant’s goods is the price at which they could be replaced in the market, not the retail price at which they could be sold.” Ever Win, Inc. v. 1-10 Indus. Assoc., 111 A.D.3d 884, 886, 976 N.Y.S.2d 123 (N.Y. App. Div. 2013) (quoting Wehle v. Haviland, 69 N.Y. 448, 450 (1877)). Recovery of the retail value, including the merchant’s lost profits, is only permissible in limited cases which do not apply here—for instance, if the merchandise was already under contract for a specified price and awaiting delivery, or if the goods were stolen by the defendants. Reed, 138 A.D.3d at 818Wehle v. Butler, 61 N.Y. 245, 245 (1874).

In opposing Rule 11 sanctions, Plaintiff’s counsel concedes that “after reviewing the available evidence” its client could not plausibly be entitled to damages based on retail value or lost profits. (ECF No. 109, “Pl’s Opp’n” at 5, 9-10). However, Plaintiff’s counsel nonetheless urges this Court to deny the motion on mootness grounds, citing a December 6, 2019 email he sent to Defendant’s counsel:

“In performing our review and analysis … we believe that the plaintiff can establish its damages based on the diminution in value of the business … and will seek permission from the court to amend our claim accordingly, and to produce expert analysis establishing a lost valuation claim of $1.5 Million. In the event the Court denies our motion to so amend and produce expert analysis, we agree to amend our complaint by withdrawing the claim for lost profits, and proceed with a claim based upon replacement cost….”

(Id. at 5). The Court is perplexed by Plaintiff’s counsel’s interpretation of his own email. He insists this email proves that Plaintiff accepted Defendant’s request to calculate damages based on replacement cost. (Id.). But his purported acceptance is no acceptance at all. It is a counteroffer, conditioned in part upon this Court’s uncertain permission to reopen discovery based on a new theory of damages.[8]

Accordingly, Defendant’s Rule 11 motion is granted.[9] Sanctions are imposed in the amount of $5,000, payable to the Clerk of the Court, to be paid within 30 days of this order.

Comment: the lawyer attempted to avoid the sanctions issue by writing an email to opposing counsel offering to withdraw the allegation. Instead, the lawyer should have simply withdrawn the allegation within the safe harbor period.

Zsa Zsa Jewels, Inc. v. BMW of North America, LLC, No. 15-cv-6519 (E.D. NY April 2, 2020).

Noncompliant Plaintiff Avoids Rule 37 Dismissal


If a party disregards a court order to produce documents or update discovery responses, the court may order dismissal of the case pursuant to Rule 37. In Glover v. CoreCivic of Tennessee, No. 18-cv-2330 (S.D. Cal. February 11. 2020), the plaintiff failed to comply with an order to supplement its discovery responses, but the court denied the defendant’s motion to dismiss. The court reasoned that both parties were not dealing with each other in an appropriate and civil manner.

Rule 37 allows for terminating sanctions to be levied against a party for not obeying an order to supplement discovery responses. Fed. R. Civ. P. 37(c)(1)(C). It is so harsh a penalty that it should only be imposed as a sanction in extreme circumstances. Henderson, 779 F.2d at 1423 (9th Cir. 1986). When sanctions for dismissal are considered, the court weighs: (1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice to defendant; (4) the public policy favoring disposition of cases on the merits; and (5) the availability of less drastic sanctions. Thompson v. Hous. Auth. of City of L.A., 782 F.2d 829, 831 (9th Cir. 1986).

The public’s interest in expeditious resolution of litigation is not a factor that weighs in Defendant’s favor. The parties’ seeming inability to work cooperatively in bringing this case to trial or settlement is evidenced by the recent flurry of motion practice in this case. Since this motion has been filed Plaintiff has filed a Motion for Evidentiary and Monetary Sanctions for Spoliation of Evidence (Doc. No. 34), a Motion for Extension of Time to File an Opposition to the Current Motion (Doc. No. 40), a Motion to Disqualify Counsel (Doc. No. 41) and a Motion for Relief from Court Order Pursuant to Fed. R. Civ. P. 60(B); Motion for Sanctions (Doc. No. 42), and Defendant has filed three motions to stay related to Plaintiff’s motion to disqualify, spoliation of evidence and its own motion to dismiss (Doc. Nos. 45, 46, 47.) But the responsibility for this cannot be laid entirely at Plaintiff’s door.

None of the remaining factors weigh in Defendant’s favor either. The delay in producing the documents is not so prejudicial to CoreCivics that it cannot be remedied by, for example, extending the discovery cut-off date. Furthermore, by its own admission, GEO Group has produced countless records related to Mr. Glover, including those under his aliases. Notably, absent from Defendant’s motion is any mention of the fact that the video of the alleged fall has been destroyed.

Finally, Defendant argues that the imposition of lesser sanctions is not feasible because Plaintiff has not produced or disclosed the information sought because it is unfavorable to him and that prohibiting him for producing evidence of injury would nullify his claim. But Defendant’s all or nothing approach is extreme and ignores other less drastic measures such as monetary sanctions, evidence and issue preclusion, or tailored jury instructions.[2] See Fed. R. Civ. P. Fed. R. Civ. P. 37(c)(1)(A)-(B). But Mr. Kaufman is in violation of Judge Stormes’ order, and the court has given him “crystal clear” warning of the significant consequences available to the court for any continuing failures. Henderson, 779 F.2d at 1424. At bottom, however, the record here does not reveal a long history of inexcusable delay and neglect on the part of plaintiff’s counsel and, as far as this court is aware, Mr. Kaufman has not violated any other discovery orders.

While the court is not condoning Plaintiff’s failure to comply with Judge Stormes’ order, dismissal of this case is not warranted under either Rule 37 or Rule 41. Accordingly, the court DENIES Defendant’s Motion to Dismiss for Lack of Prosecution (Doc. No. 31). The parties are reminded that the basic standards of professionalism are expected of all attorneys appearing before this court. See CivLR 83.4(a)(1)(a)-(b), (2)(a)-(b).

Comment: civil conduct is often the best way to avoid problems in any court.

Eleventh Circuit Affirms Rule 11 Sanctions For False Allegations in Complaint


This is an unpublished opinion, Estrada v. FTS USA, LLC, No. 18-15336 (11th Cir. April 20, 2020), the Eleventh Circuit affirmed a $60,000 Rule 11 sanctions award against lawyers who included a false allegation in their complaint.

The explanation follows:

The district court imposed sanctions under Rule 11(b)(3) because it found that Mr. Zidell and his firm filed a Fair Labor Standards Act (“FLSA”) complaint making the objectively frivolous allegation that FTS had “never” paid their client, Orlando Estrada, “any” overtime wages as required by the Act. The district court found this allegation demonstrably false because (1) FTS’s weekly time records—signed by Mr. Estrada—showed that FTS had paid him overtime wages during the months in question, and (2) Mr. Estrada acknowledged in his deposition that he had been paid the overtime wages documented in his earnings statements. The district court explained that Mr. Zidell and his firm did not conduct a reasonable investigation into Mr. Estrada’s claims and neglected to withdraw or modify the allegation in question when given the opportunity….

Continuing to lean on the language of the complaint, Mr. Zidell and his firm contend that satisfying the pleading requirements to state an FLSA claim under Federal Rule of Civil Procedure 8 render sanctions inappropriate here. This argument fails to advance Mr. Zidell and his firm’s position. The factual allegations required under Rule 8 “are subject to Rule 11’s command—under pain of sanctions—that `the allegations and other factual contentions have, or are likely to have following discovery, evidentiary support.'” Lowery v. Ala. Power Co., 483 F.3d 1184, 1216 (11th Cir. 2007) (quoting FED. R. CIV. P. 11(b)). Therefore, alleging facts sufficient under Rule 8 does not shield the pleading from Rule 11 scrutiny when the allegations are objectively frivolous. Said another way, the magistrate court sanctioned Mr. Zidell and his firm not because the wording of the complaint failed to state a claim, but instead because the allegation as worded objectively lacked evidentiary support.

Second, Mr. Zidell and his firm assert that their factual claim was not objectively frivolous because Mr. Estrada was also alleging that he was not paid “all” of the overtime wages to which he was entitled. This argument, however, ignores the fact that the unsupported factual allegation—that FTS “never” paid Mr. Estrada “any” overtime wages—was never withdrawn, and FTS was forced to defend against it. The assertion by Mr. Zidell and his firm that their case for Mr. Estrada “just . . . did not pan out,” see Appellant’s Br. at 32, does not show an abuse of discretion.

The court affirmed an award of $60,000 in sanctions, which was about 1/2 of the requested amount. A dissenting judge would remand for a full hearing on the reasonableness of the fee request.

Should you have an issue under Rule 11, do not hesitate to contact me.

Ed Clinton, Jr.

http://www.clintonlaw.net

Rule 37 Sanctions Denied Even Though Defendant Failed to Produce Documents


Gym Door Repairs, Inc. v. Young Equipment Sales, Inc. (No. 15-cv-4244 March 11, 2020) discusses a Rule 37 sanctions motion where one party failed to produce some documents. Here the court denied sanctions because the documents that were not produced would not have changed the outcome of the case. The plaintiffs obtained the documents by serving a FOIA request on a governmental body. The reasoning is included here:

In an opinion also dated January 28, 2020, the Magistrate Judge denied the plaintiffs’ request for Rule 37 sanctions based on the alleged failure of the Defendants to produce the documents that were disclosed as a result of the FOIL request. Federal Rule of Civil Procedure 72(a) requires this Court to set aside any portion of the order under review “that is clearly erroneous or is contrary to law.” As a “non-dispositive matter,” a Magistrate Judge’s pretrial discovery ruling is reviewed under this highly deferential standard. See Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d Cir. 1990). An order is clearly erroneous if the reviewing court is “left with the definite and firm conviction that a mistake has been committed.” See Easley v. Cromartie, 532 U.S. 234, 242 (2001) (citation and internal quotation marks omitted). “An order is contrary to law when it fails to apply or misapplies relevant statutes, case law or rules of procedure.” Thompson v. Keane, No. 95-CV-2442 (SHS), 1996 WL 229887, at *1 (S.D.N.Y. May 6, 1996) (citation and internal quotation marks omitted). See also Frydman v. Verschleiser, No. 14-CV-8084 (JGK), 2017 WL 1155919, at *2 (S.D.N.Y. Mar. 27, 2017).

It is not clear that the plaintiffs have filed a timely appeal from the denial of sanctions under Rule 37. The plaintiffs have not denominated their pleading as an appeal from the Magistrate Judge’s ruling, and have referred to Rule 37 only in the final sentence of their objections to the Magistrate Judge’s Report and Recommendation relating to Rule 11 sanctions. Even then, the plaintiffs do not detail any objections to the denial of their request for Rule 37 sanctions.

In any event, in this case, far from being erroneous, the Magistrate Judge correctly concluded that there was no basis for imposing any sanctions under Rule 37 because the failure to produce the documents disclosed in response to the FOIL request would not have changed the outcome of the summary judgment motions at all. There were numerous reasons to grant the summary judgment motions against the plaintiffs and the documents produced in response to the FOIL request would not have changed that result. Therefore, the decision of the Magistrate Judge was not clearly erroneous or contrary to law but was plainly correct.

The court denied all requests for sanctions.

New York Bankruptcy Court Denies Rule 11 Motion as Untimely


The timeliness of a Rule 11 motion is an issue which has not been adequately addressed by the courts. The issue can arise in the following situation: you represent a client and you file a claim. Some time later you withdraw from the case with the claim still pending. After you have withdrawn, the claim is dismissed and the opposing party files a Rule 11 motion against you. In re Patsy Fierro, No. 14-41439 (Bankruptcy Court E.D. New York, March 31, 2020).

Early in the case a creditor filed a claim that a debt was not dischargeable under the Bankruptcy Code. (A non dischargeable debt remains with the debtor after the bankruptcy). The lawyer withdrew and eventually the claim was rejected. 18 months after the lawyer withdrew the debtor file a Rule 9011 (Rule 11 in Bankruptcy Court) motion against the creditor and its lawyer. The court denied the sanctions motion. The court found that the lawyer acted appropriately and that the sanctions motion was untimely. The key fact is that when the lawyer withdrew there was no sanctions motion pending nor was there any threat that the other party would file such a motion.

Because it is not patently clear that the claims had no chance of success, it cannot be said that they were groundless. Thus, Kipiniak [Lawyer] and J.C. Ryan [Her Client] were under no obligation to withdraw the Proofs of Claim or the Non-Dischargeability Actions during Kipiniak’s time as lead counsel. This case can be distinguished from Fuerst v. Fuerst, where the District Court for the Eastern District of New York found that sanctions under Rule 11 were appropriate where an attorney failed to withdraw a complaint. 832 F.Supp.2d 210, 220 (E.D.N.Y. 2011). There, the parties previously signed a settlement agreement that released the claims brought in the complaint, causing the court to find that the complaint was groundless, as there was no longer a legal or factual basis to assert the causes of action. See id. Here, the Default Judgment was still in place at the time Kipiniak was lead counsel, and thus there was still a legal and factual basis to maintain the Proofs of Claim and the Non-Dischargeability Actions. As such, the actions of Kipiniak and J.C. Ryan were objectively reasonable pursuant to the Rule 9011(b) standard. See In re Beinhauer, 570 B.R. at 137. Consequently, the Court does not find sanctions appropriate under Rule 9011(b)….

This Court also finds that the Motion is untimely as to Kipiniak. Although the Debtors sent Kipiniak the Demand Letter on November 16, 2015, the Debtors did not properly comply with Rule 9011(c) until they served the Motion on April 28, 2018, which is eighteen months after Kipiniak was active in this matter. See Star Mark Mgmt., Inc. 682 F.3d at 175 (“An informal warning in the form of a letter without service of a separate Rule 11 motion is not sufficient to trigger the 21-day safe harbor period.”). This conclusion is supported by this jurisdiction’s recent holding in Goodwin v. MTA Bus Co. where the court found that Rule 11 sanctions were improper, in part, because the moving party waited approximately two years after the alleged sanctionable conduct to file the sanctions motion and the attorney they were seeking to sanction had already withdrawn from the case. 2017 U.S. Dist. LEXIS 41555, at *10 (E.D.N.Y. Mar. 22, 2017). The court explained that awarding sanctions would “defeat the goal, apparent from the text of Rule 11(c)(2) of streamlining litigation by allowing the party in the wrong the first opportunity to withdraw an offending paper.” Id. (internal quotations omitted). While it is true that Kipiniak never filed a formal notice of withdrawal, the record reflects she did not appear and argue on behalf of J.C. Ryan on any matters after October 2016. Even if the Debtors met the Rule 9011(b) standard, Kipiniak was no longer suited, in April 2018, to withdraw the Proofs of Claim and the Non-Dischargeability Actions. See In re Pennie & Edmonds LLP, 323 F.3d 86, 89 (2d Cir. 2003) (“[M]otions have been disallowed as untimely when filed after a point in the litigation when the lawyer sought to be sanctioned lacked an opportunity to correct or withdraw the challenged submission.”).

Comment: I agree wholeheartedly with this opinion. It is almost impossible to second guess the decisions of a lawyer who withdrew from a case (with no sanctions motion pending or threatened). In my career, on two occasions I had to defend sanctions motions that were filed after a hard fought case had concluded. In both instances the sanctions motion was denied.

Where Exactly Do You Live?


This may seem to be an unimportant question, but for federal jurisdiction it may make all the difference. In the case of Eberle v. Overdrive, Inc., No. 19-cv-466-jdp (W.D. Wisconsin January 28, 2020), the plaintiff filed suit against a former employer in Wisconsin state court. Overdrive sought to move the case to Ohio based on a forum clause. In response Eberle filed an affidavit that stated that he was a long-term resident of Wisconsin with deep ties to the state. Overdrive then removed the case to federal court. Eberle then moved to remand and filed a new affidavit that he was a citizen of Ohio and was raising children there. The court held an evidentiary hearing and determined that Eberle was, in fact, a citizen of Ohio and dismissed the case because both litigants were citizens of Ohio.

The more important question was: would Eberle face consequences for filing an affidavit in Wisconsin that contradicted the affidavit he later filed in federal court?

Sadly, Eberle did not face any adverse consequences because the arguably problematic affidavit was filed in the state court, not the federal court. The court held that Eberle would not be sanctioned. The explanation:

At the hearing, the court expressed concern that Eberle’s state-court affidavit regarding his ties to Wisconsin had been misleading. The affidavit portrayed Eberle as a current Wisconsin resident who stood to be inconvenienced by any transfer of his case to Ohio. See, e.g., Dkt. 1-3, at 11 (“I am a longtime resident of Wisconsin, having been born and raised here, and lived here most of my adult life. Until Defendant hired me in 2017, I lived in Gleason, Wisconsin where I have been residing since 2008.”); id. at 12 (“I still maintain a residence at W1446 Bear Trail Road, Gleason, WI 54435. I filed my taxes earlier this year as a Wisconsin resident.”). After the hearing, the court ordered Eberle to show cause why he should not be sanctioned under Federal Rule of Civil Procedure 11(c)(3).

Eberle contends that all his statements were and are factually accurate. That’s not true in every detail: as of the date of the affidavit, May 24, 2019, he had not yet filed his taxes for the year. But the main problem is not affirmative false statements; it is that Eberle intentionally omitted material facts. Eberle failed to disclose in state court that he had been a nearly fulltime resident of Ohio since 2017, that he had moved his family there, continued to work there, and intended to remain there permanently. It is inconceivable that Eberle was unaware of these facts, or that he and his counsel did not realize that these facts were highly material to Overdrive’s motion to stay the state case in favor of litigation in Ohio.

The court will decline to impose sanctions under Rule 11, but not because Eberle’s statements are factually accurate. The court would impose sanctions under Rule 11 for intentional material omissions in an appropriate case. But Eberle’s intentional material omissions related to statements made to the state court, not to this court. If Eberle had relied on his state-court affidavit in advocating for remand, I would consider Rule 11 sanctions for his counsel. See Fed. R. Civ. P. 11 advisory committee’s note to 1993 amendment (“[I]f after a notice of removal is filed, a party urges in federal court the allegation of a pleading filed in state court ([including] in disputes regarding removal or remand), it would be viewed as `presenting’—and hence certifying to the district court under Rule 11—those allegations.”). As it stands, I have found that Eberle was honest with this court; it was the state court whose dignity was insulted by the material omissions that made Eberle’s state-court submissions so misleading.

The court did award Overdrive its legal fees in removing the case under 28 USC 1447(c).

But that’s not the end of the matter. Under 28 U.S.C. § 1447(c), courts remanding an improperly removed case “may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” Eberle asked the court to shift costs and expenses to Overdrive for removing the case without an “objectively reasonable basis.” Dkt. 7, at 8-9 (quoting Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005)). That request is denied; Eberle’s state-court affidavit gave Overdrive a reasonable basis to infer that Eberle was a Wisconsin citizen. The court will, however, grant Overdrive’s request that Eberle be ordered to pay its removal-related fees and expenses. Although § 1447(c) is more commonly invoked against the defendant, there is “no party-based limitation in § 1447(c) on a district court’s discretion to award fees and costs.” Micrometl Corp. v. Tranzat Techs., Inc., 656 F.3d 467, 470 (7th Cir. 2011). Fee-shifting is appropriate here. Eberle’s misleading representations in state court prompted unnecessary expenditure of time and resources addressing a reasonable but ultimately flawed removal. See Martin, 546 U.S. at 141 (“a plaintiff’s . . . failure to disclose facts necessary to determine jurisdiction may affect the decision to award attorney’s fees”).

This is an excellent example of how removal issues can be confusing and complicated.

http://www.clintonlaw.net

Lawyer Sanctioned For Removing Case After Deadline Passed


The right of a defendant to remove a case to federal court is set forth in several statutes. To remove the defendant normally has to prove that there is federal jurisdiction. In this slip and fall case, the defendant had to show that the plaintiff and defendant were citizens of different states and that the amount in controversy exceeded $75,000. There is also a rule that no case can be removed more than one year after it was first filed.

Here, in Hajdasz v. Magic Burger, LLC, No. 19-12528 (unpublished) (11th Circuit, March 11, 2020), the case was a slip and fall case. The plaintiff had medical expenses of $26, 434, 31 and some future medical expenses. An expert testified that those expenses would be $2,800 per year for 22 years. The defendant then removed the case. The federal court remanded the case back to the state court and assessed Rule 11 sanctions in the amount of $2750 against the lawyer. The lawyer appealed the sanctions award.

Result: sanctions were affirmed. The lawyer’s decision to remove a case more than one year after it was filed was unreasonable. The explanation:

Because Metsch’s decision to remove his clients’ case is the basis for the Rule 11 sanctions, we review that law here. Any removal to federal court on the basis of diversity jurisdiction must satisfy both the substantive jurisdiction requirements of 28 U.S.C. § 1332 and the “procedural requirements regarding the timeliness of removal” pursuant to 28 U.S.C. § 1446. Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744, 756 (11th Cir. 2010). Where the requirements for diversity jurisdiction can be derived from the face of the complaint, “notice of removal of a civil action or proceeding shall be filed within 30 days after the receipt by the defendant . . . of a copy of the initial pleading.” 28 U.S.C. § 1446(b)(1). Where, as here, the complaint does not state facts that satisfy diversity jurisdiction, “a notice of removal may be filed within 30 days after receipt by the defendant . . . of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” Id. § 1446(b)(3). This late-removal procedure has a time limit, however, as a case that comes to satisfy the substantive requirements of federal diversity jurisdiction may not be removed “more than 1 year after the commencement of the action.” Id. § 1446(c)(1). The sole exception to this one-year removal cutoff is where “the district court finds that the plaintiff has acted in bad faith in order to prevent a defendant from removing the action.” Id. § 1446(c)(1). Bad faith is shown where the district court determines that “the plaintiff deliberately failed to disclose the actual amount in controversy to prevent removal.” Id. § 1446(c)(3)(B).

Here, Metsch removed his client’s case beyond the one-year anniversary of the filing of the complaint. Thus, one-year bar was plainly implicated. Id.. § 1446(c)(1). Metsch argues nonetheless that his client was excepted from the one-year deadline for two reasons: (1) Hajdasz’s refusal during discovery to provide a damages calculation amounted to “bad-faith”; and (2) our cautionary language in Lowery v. Alabama Power Co., where we stated that, in the context of a § 1446(b)(3)-type removal, a defendant removing a case to federal court must possess a document containing an “unambiguous statement that clearly establishes federal jurisdiction.” 483 F.3d 1184, 1213 n.63 (11th Cir. 2007). For these reasons, Metsch contends he had no option but to wait until Hajdasz moved in writing for a directed verdict of more than $75,000—which just happened to occur at the end of trial—before removing the case, and thus his decision to remove the case was not frivolous.

The district court found that Metsch’s invocation of the bad-faith exception to § 1446(c)(1) was “insupportable.”[9] We agree.[10] The district court found that the plaintiff’s discovery objections were well-taken and that there was no “bad-faith pattern” or failure to disclose the amount in controversy. Metsch has not demonstrated that the district court abused its discretion in so ruling.

Further, as the district court noted, the delay in learning the total damage amount was squarely attributable to Metsch:

The most telling factor in this particular case is the timeline of the discovery and the lack of any effort by Magic Burgers to take any steps whatsoever within the one-year removal period to compel [Hajdasz’s] damages response which it now alleges [Hajdasz] “deliberately withheld to avoid removal.”

Hajdasz v. Magic Burgers, LLC, No. 6:18-cv-01755-ACC-LRH, 2018 WL7436133, at *8 (M.D. Fla. Dec. 10, 2018) (emphasis added). Indeed, Magic Burgers took Hajdasz’s deposition 10 months after the suit was filed, asked only a few questions at that deposition pertaining to the damage amount, and neglected to move to compel answers to those deposition questions for nearly 16 months after the complaint was filed. And not once did Magic Burgers seek to compel responses to written discovery regarding damages. Because of Metsch’s lack of diligence, the one-year deadline passed. His untimely attempt to remove during trial, accordingly, was arguably frivolous. And therefore the district court did not abuse its discretion in so ruling. See A.S. ex rel. Miller v. SmithKline Beecham Corp., 769 F.3d 204, 212 (3d Cir. 2014) (finding that the bad-faith exception to the one-year limit applies only where a defendant can demonstrate “(1) that he has been pursuing his rights diligently, and (2) that some extraordinary circumstances stood in his way.” (quoting Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005))).

Federal removal rules are tricky and contain traps for the unwary. Federal judges often find ways to remand cases to state court, even where it seemed clear that there was removal jurisdiction. In this case, a bad decision to remove cost a lawyer $2,750.

Edward X. Clinton, Jr.

http://www.clintonlaw.net