Category: Removal Sanctions

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.

Maybe On Second Thought Don’t Remove That Case To Federal Court

Anyone who has practiced litigation law for more than ten years will run into this situation. Your client has been sued in state court. After your first court appearance, you get a bad feeling that things are not going to go well in that case. You get a great idea – “Hey we can remove this case to federal court!” There are a few pitfalls with that great idea and the case captioned Jackson County Bank v. Mathew R. DuSablon, (7th Circuit. 2/6/19) could be a refresher course in bad removal.

The Jackson County Bank sued its former employee, DuSablon, in Indiana state court. After his motion to dismiss was denied, DuSablon tried to remove the case to federal court.

The way removal works is that you file a petition to remove the case. If the federal judge believes that there is jurisdiction, you are ok. If she decides there is no jurisdiction, you can end up paying the legal fees of your opponent.

In the DuSablon case, the district judge remanded the case to state court for want of jurisdiction and untimely removal and ordered DuSablon to pay costs and fees for wrongful removal. In this case, the bill amounted to $9,035.61 under 28 U.S.C. §1447(c).

DuSablon then appealed to the Seventh Circuit. Unfortunately for him, remand orders cannot be appealed. The court did hear the appeal of the sanctions award.  Because there were only state law claims raised in the case, there was no basis to remove the case. There was “no federal question.” Removal was untimely as well. The district judge viewed the removal petition as a litigation stunt to delay the resolution of the state case.

The Seventh Circuit held that “the district court did not abuse its discretion in determining that DuSable lacked an objectively reasonable basis to remove the case to federal court.” Alas, the court also allowed the Bank to file a fee petition for its fees on appeal.

In conclusion, “Ouch.”

Ed Clinton, Jr.

The Clinton Law Firm, LLC

District Court Remands Attorney’s Attempt to Move Discipline Case To Federal District Court

This case deals with the somewhat tricky rules of federal jurisdiction in the unusual context of a lawyer disciplinary proceeding. Lawyer discipline cases are creatures of state law. In Maryland, the case is heard by a trial court. Either party (the lawyer or the administrator) can then appeal to the Maryland Court of Appeals, which has final say on all attorney discipline issues.

Here, the lawyer attempted to remove the lawyer discipline case to federal court. The district court remanded the case to Maryland. The lawyer then made a second attempt at removal, this time arguing a different basis for federal jurisdiction. The district court again remanded the disciplinary case to the Maryland courts.

The court summarizes the procedural history of the case in this way:

This Court has previously granted a Motion to Remand in this case. Attorney Grievance Commission of Maryland v. Rheinstein, Civ. No. MJG-16-1591, ECF No. 30 (Mar. 17, 2017) (“First Remand Order”). Defendant alleges that the existence of new facts warrant the filing of a successive Notice of Removal.

The underlying cause of action remains the same. On February 17, 2016 the Attorney Grievance Commission of Maryland (“AGC”) filed, in the Maryland Court of Appeals, a Petition for Disciplinary of Remedial Actions against Jason Edward Rheinstein (“Rheinstein”). On February 19, 2016, the Court of Appeals of Maryland transmitted the Petition to the Circuit Court for Anne Arundel County to hold a judicial hearing pursuant to Maryland Rule 16-757.

On May 23, 2016, Rheinstein filed his first Notice of Removal, contending that this Court can exercise subject matter jurisdiction over the case under 28 U.S.C. § 1441 (federal question jurisdiction) and 28 U.S.C. § 1442 (federal officer jurisdiction). Civ. No. MJG-16-1591, ECF No. 1. AGC filed a Motion to Remand, which this court granted on March 17, 2017. In its First Remand Order, this Court found no federal jurisdiction based on a federal question, no jurisdiction based on federal officer standing, and that federal abstention principles favored a remand. Following the Order, trial was set in the Circuit Court for Anne Arundel County for September 5, 2017.

On Friday, September 1, 2017, Rheinstein filed a second Notice of Removal in this Court, contending that AGC’s recent interrogatory responses and deposition testimony gave rise to new and different grounds for removal. Notice of Removal ¶ 4, ECF No. 1. The state court proceeding was stayed on September 5, 2017, the next business day.

Analysis: The district court found that the removal petition was defective because the lawyer did not articulate a valid basis for federal subject matter jurisdiction. Simply because the lawyer may have committed some of the alleged violations in federal court cases did not confer federal subject matter jurisdiction on the district court. Further, there is a strong federal policy to avoid becoming involved in State disciplinary matters.  Ethics Comm. v. Garden State Bar Ass’n, 457 U.S. 423, 431 (1982). See also  Telco Commc’ns, Inc. v. Carbaugh, 885 F.2d 1225, 1228 (4th Cir. 1989). The opinion, in my view, correctly remanded the disciplinary case to the Maryland courts.

Edward X. Clinton, Jr.

Source: Attorney Grievance Commission of Maryland v. RHEINSTEIN, Dist. Court, D. Maryland 2017 – Google Scholar

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

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

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

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

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

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

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

Edward X. Clinton, Jr.

Prenda Law Is Sanctioned Again – This Time By Judge Darrah

Yesterday, Judge Darrah released an opinion sanctioning Paul Duffy and Prenda Law, Inc.  Duffy and Prenda Law are well-known for filing actions against individuals (mostly men) alleging that those individuals violated copyright law by downloading pornographic movies without paying for them. A search of Prenda Law or Paul Duffy on Pacer will yield hundreds of similar lawsuits against John Doe defendants.

According to its critics, Prenda files a case and then solicits settlements from the individual defendants. The defendants, so it is claimed, are reluctant to have their names disclosed in public. They settle with Prenda, often for significant sums of money.

During the last twelve months, Prenda Law and its lawyer, Paul Duffy, have become targets of sanctions motions in various federal courts.

The latest sanction order was written by Judge Darrah in the case captioned Prenda Law, Inc. v. Paul Godfread, Alan Cooper and John Does 1-10. The case began as a defamation lawsuit filed by Prenda Law against Godfread, an attorney, and Cooper, allegedly one of his clients. In the lawsuit Prenda claimed that the men had defamed Prenda by making anonymous posts on the internet.  The case began in the Circuit Court of St. Clair County, Illinois. Godfread and Cooper removed the case to the Southern District of Illinois on the basis of diversity jurisdiction.

Duffy then filed a motion to remand alleging that an amended complaint had been filed in the State court in which Alpha Law Firm, LLC, a Minnesota company, became the plaintiff instead of Prenda. However, the amended complaint was never filed in federal court. The defendants argued that the addition of Alpha was bogus – that Alpha Law was really a sham party designed to defeat diversity jurisdiction.

Shortly thereafter, the case was transferred from the Southern District of Illinois to the Northern District of Illinois on the ground that another “virtually identical” case was pending in that district.  Judge Herndon of the Southern District of Illinois denied the motion to remand on the grounds that (a) Prenda did not obtain leave to file the Amended Complaint before it filed the Amended Complaint in the State court(Illinois law requires that a party obtain leave to amend a complaint once the other party has been served – filing an amended complaint without leave is prohibited); and (b) Prenda had allegedly lied to the clerk of the court (in the State court) that leave to amend was not necessary as no one had been served with the original complaint.

Upon transfer to the Northern District of Illinois, the case was assigned to Judge Darrah. Duffy and Prenda filed another motion to remand asserting the same arguments that had been rejected by Judge Herndon. A hearing on the motion was held and then Prenda filed a motion to withdraw the Renewed Motion to Remand.

Judge Darrah sanctioned Prenda and Paul Duffy on two grounds: (a) a violation of Section 1927 and (b) Rule 11.

Judge Darrah found that Prenda and Duffy violated Section 1927 by refiling the motion to remand after it had been rejected. Further, he found that Prenda had violated Illinois law by filing the amended complaint in the state court and that Prenda had falsely claimed to the clerk of that court that leave to amend was not necessary because no one had been served with the complaint. Judge Darrah also found that Duffy misrepresented the holding of the Southern District of Illinois.  Sanctions were warranted because Duffy and Prenda had, in bad faith, multiplied the proceedings and had continued to advocate a motion to remand that was no longer tenable. Judge Darrah also rejected Prenda’s claim that it was entitled to the safe harbor contained in Rule 11(c)(2), which gives a party 21 days to withdraw a challenged paper or pleading. The court held that the safe harbor did not apply because the motion had already been rejected by Judge Herndon in the Southern District of Illinois.

Comment: the Defendants went to a great deal of work to trace the steps taken by Prenda Law to obtain a remand of the case to state court. They were intelligent enough to obtain an affidavit of the clerk of the court of St. Clair county. That affidavit was the strongest piece of evidence that Prenda and its lawyers were not being truthful with either the federal or state court. The moral of the story here is an old one – never lie to any court personnel or judges. Once the lie is uncovered, your reputation is seriously damaged. The two federal judges, both well respected judges, clearly believed that Prenda was playing some sort of game to manufacture a remand of the case. In my opinion, Judge Darrah acted correctly in imposing sanctions for Prenda’s behavior.

Disclaimer: obviously Prenda law disputes the claims that it acted in bad faith and that it violated Rule 11. It may well seek appellate review of Judge Darrah’s order.

District Court Remands Ugly Feud Between Lawyers To State Court

Fenton v. DUDLEY, Dist. Court, ND Illinois 2014 – Google Scholar.

This is an unusual removal action. Kelli Dudley is a lawyer in Chicago, Illinois. She represents a client, Tonya Davis, who brought a legal malpractice action against Ernest Fenton.

Davis alleged legal malpractice, as well as violations of the Fair Housing Act and the Civil Rights Act.  That case is pending in federal court before Judge Castillo.

Fenton then filed his own state court complaint against Dudley, alleging tortious interference with contract, defamation and other torts. Fenton’s case against Dudley alleged state law causes of action. Dudley and a co-defendant removed the case to federal court on the ground that the case implicated concerns under the Fair Housing Act and the Civil Rights Act.

Judge Pallmeyer remanded the Fenton v. Dudley case to state court. To remove a case to federal court, the party seeking removal must establish jurisdiction. Dudley chose to use 28 U.S.C. 1441(a), which requires a showing of a federal question.  The boilerplate law on this issue is as follows:

“The question whether the court has federal-question jurisdiction is “governed by the well-pleaded complaint rule, which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff’s properly pleaded complaint.” Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987) (internal quotations omitted). The fact that a state claim involves a contested federal issue is not by itself sufficient to trigger the federal court’s jurisdiction. Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 813 (1986). Instead, federal jurisdiction over a state-law action “demands not only a contested federal issue, but a substantial one, indicating a serious federal interest in claiming the advantages thought to be inherent in a federal forum.” Grable & Sons Metal Prods., Inc., v. Darue Eng’g & Mfg., 545 U.S. 308, 313 (2005).”

Here, there was no federal question because the complaint filed in the state court did not allege a federal cause of action. Instead, it alleged state court claims under Illinois law. The court followed the recent decision of the Supreme Court in Gunn v. Minton, 133 S.Ct. 1059 (2013), which held that cases alleging legal malpractice concerning patents did not implicate federal concerns and did not raise a federal question.

The court declined to sanction the attorneys for removing the case to federal court.

Conclusion: removal issues and federal jurisdiction issues can often cause a layperson’s eyes to glaze over. Here the case was remanded because no federal cause of action was alleged in the complaint. Had the complaint alleged a violation of the civil rights law or the Fair Housing Act, the case would then have raised a federal question and it would then have been properly removed to federal court. In my experience, many cases that are removed are often remanded promptly because the federal courts often find a flaw in the jurisdictional arguments. Removal of a case often leads to disappointment.

Edward X. Clinton, Jr.

Case is Remanded To State Court – But Sanctions Are Denied

Faust v. Menard, Inc., Dist. Court, ND Indiana 2012 – Google Scholar.

After this case was removed to federal court, the plaintiff filed a motion to remand it. The motion was granted and the case was remanded to state court.

Plaintiff then sought legal fees and costs pursuant to Rule 11 and 28 U.S.C. Section 1447 (c). The Rule 11 motion was denied.The court explained: “Although the court thinks that defendant’s legal decisions in this case were ill-conceived and may have flirted with RULE 11, it does not believe that a violation occurred. Plaintiff’s motion for sanctions will be denied.”

However, the court granted plaintiff’s motion for fees and costs under Section 1447(c).

Edward X. Clinton, Jr.