Category: Sanctions For Frivolous Lawsuits

Plaintiffs win jurisdictional battle – case remanded to state court.


This case deals with the removal of lawsuits to federal court. The plaintiffs were represented by the defendant lawyers in the trial of a personal injury case. After a $32 million verdict was entered against them, they sued their former lawyers for legal malpractice. Plaintiffs filed their case in the Circuit Court of Cook County.

Defendants removed the case. To remove they had to show that there was complete diversity of citizenship between the parties. The problem was that two defendants were citizens of Illinois. This would have defeated removal and required that the case be remanded to State Court. Defendants sought to overcome this burden by arguing that the plaintiffs fraudulently joined the two local defendants.

The district court disagreed and remanded the case to the Circuit Court of Cook County. The law is as follows:

The Seventh Circuit directs federal courts to interpret the removal statute narrowly, resolving any doubts in favor of the plaintiff’s choice of forum in the state court. Schur v. L.A. Weight Loss Ctrs., Inc., 577 F.3d 752, 758 (7th Cir. 2009). Under the fraudulent joinder doctrine, a court considering removal may “disregard, for jurisdictional purposes, the citizenship of certain non-diverse defendants, assume jurisdiction over a case, dismiss the non-diverse defendants, and thereby retain jurisdiction.” Id. at 763 (quoting Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999)). Fraudulent joinder exists if the plaintiff has made false allegations of jurisdictional fact, or if a claim against a non-diverse defendant has no chance of success. Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992). Here, the defendants argue that the plaintiffs’ claims against Tannen and TLG have no chance of success.

Defendants seeking to remove a case from state court to federal court based on fraudulent joinder of a non-diverse defendant bear “a heavy burden.” Id. The test for fraudulent joinder is even more favorable to the plaintiff than the standard for deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Livingston v. Hoffmann-La Roche, Inc., No. 09 C 2611, 2009 WL 2448804, at *4 (N.D. Ill. Aug. 6, 2009). Warren must show that, after resolving all issues of fact and law in favor of the plaintiffs, the plaintiffs cannot establish a cause of action against Tannen or TLG. Poulos, 959 F.2d at 73. The Court must determine whether there is “any reasonable possibility” that a state court would rule against Tannen or TLG. Id. Warren, however, need not negate “any possible theory” that the plaintiffs might allege in the future; “only [the] present allegations count.” Id. at 74.

The ruling is as follows:

As stated at the outset, defendants seeking removal that depends on a finding of fraudulent joinder face the very high burden of showing that the plaintiff’s case against the non-diverse defendants has no chance of success. The plaintiffs’ prospects for success against Tannen may well be dubious, but that is not enough to warrant disregarding those claims in assessing the Court’s jurisdiction. Because defendants Tannen and TLG and plaintiffs Dillon Transport and Dillon are all citizens of Illinois, complete diversity as required by Section 1332 does not exist. This Court, therefore, lacks jurisdiction over the case and grants the plaintiffs’ motion to remand. Because the Court lacks jurisdiction over this case, it will not address the Warren defendants’ motion to dismiss for lack of personal jurisdiction. This case is remanded to the Circuit Court of Cook County.

The court essentially ruled that there was a valid basis to include Tannen as a defendant in the case. Therefore, he was not fraudulently joined. Therefore, the court had no subject matter jurisdiction. Therefore, removal was improper and another foray into federal court proved shortlived.

via Dillon v. NAMAN, HOWELL, SMITH & LEE, PLLC, Dist. Court, ND Illinois 2018 – Google Scholar

Edward X. Clinton, Jr.

Lawsuit Challenging FINRA Arbitration Dismissed for Lack of Jurisdiction


The Plaintiffs sued FINRA after their arbitration case was dismissed. They had been brokers and had been fired by their employer. They then filed claims with FINRA contesting the terminations. Shortly before the hearing, they withdrew their claims.  They then sued in federal court alleging that FINRA failed to provide them with an arbitration forum and failed to properly train arbitrators.

The Complaint was dismissed by the district court on grounds of arbitral immunity. On appeal, the case was dismissed because there is no federal jurisdiction. To establish diversity jurisdiction, plaintiffs needed to show that they were citizens from different states than the defendant and that there was in excess of $75,000 in dispute. The Seventh Circuit ruled that they did not satisfy the diversity requirement and the case was dismissed for lack of jurisdiction. The amount in controversy in the litigation was limited to $1800, the filing fee paid to FINRA to start the arbitration. The court ruled that the legal fees incurred by plaintiffs (which exceeded the diversity amount) could not be recovered in the lawsuit and therefore could not be used to meet the amount in controversy.  Judge Ripple dissented. He would have allowed FINRA” to keep the lawsuit in federal court.

via Webb v. FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC., Court of Appeals, 7th Circuit 2018 – Google Scholar

District Court Bars Expert Opinion That Was Not Disclosed On Time


Rule 37 allows a district court to sanction a litigant who withholds evidence. Usually, that consists of a failure to produce documents or a failure to answer interrogatories. Sometimes, the failure involves a litigant’s refusal to cooperate with depositions. Even more rare is the litigant who does not disclose the existence of a witness until discovery has closed and the Defendant has moved for summary judgment.

This case, Lamb v. Montgomery Township, is a civil rights case where the plaintiff alleged that the Township violated her rights under Title VIII and 42 USC Section 2000e.

For reasons that are not fully apparent from the opinion, Lamb did not disclose an expert on time. Instead, she waited until she filed her response to the Township’s summary judgment motion to attach an affidavit of an expert witness. The District Court struck the affidavit and granted summary judgment and the Court of Appeals affirmed that decision.

The reasoning is provided here:

The District Court did not abuse its discretion in striking the Brogna Declaration. The the record demonstrates that Lamb’s litigation conduct deprived the Defendants of the opportunity to depose Brogna. Federal Rule of Civil Procedure 26(a)(2) requires the disclosure of experts and their reports “at the times and in the sequence that the court orders.” Fed. R. Civ. P. 26(a)(2)(D). Under Rule 37, district courts are authorized to exclude evidence if a party violates the requirements of Rule 26(a). Fed. R. Civ. P. 37(c)(1). A party can overcome Rule 37 sanctions by demonstrating that a Rule 26 violation was “substantially justified or . . . harmless.” Fed. R. Civ. P. 37(c)(1). We have cautioned that district courts should only exclude critical evidence such as expert testimony upon “a showing of willful deception or flagrant disregard of a court order by the proponent of the evidence.” In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 791-92 (3d Cir. 1994) (internal quotation marks and citation omitted).

The District Court concluded that Lamb’s conduct was neither substantially justified nor harmless. First, her tactics deprived the Defendants of a meaningful opportunity to depose Brogna by classifying Brogna as an expert witness to avoid a fact deposition, and then by failing to produce her expert report (i.e. the Brogna Declaration) until well after the deadline for expert depositions. Second, the justification offered for that failure — that Lamb had not received relevant discovery in time for Brogna to provide a timely expert report — was unconvincing. Lamb had received the necessary discovery nearly two months prior to submitting her summary judgment opposition. The District Court determined that Lamb’s decision to blindside the Defendants at summary judgment, instead of providing a timely report or requesting an extension of expert discovery deadlines, was a flagrant disregard of the rules. There was no abuse of discretion in the consequent granting of the Defendants’ motion to strike.[6]

via Lamb v. Montgomery Township, Court of Appeals, 3rd Circuit 2018 – Google Scholar

1927 Sanctions awarded for false allegations


The case is Phillips v. FirstBank Puerto Rico, 13-105. The plaintiff alleged that her signature was forged on a mortgage note in 2003 and that the forgery was concealed from her. She also alleged that the mortgage was refinanced in 2009. She claimed that she learned of the forged 2003 signature only in 2009.

The court concluded that the statute of limitations had run on the claims. Worse still, the plaintiff testified at her deposition that her signature was genuine. The court awarded Section 1927 sanctions to the Defendant in the amount of $10,000. The explanation:

Throughout this litigation, Plaintiff’s Counsel has sidestepped dispositive issues and backtracked on verifiable factual matters in an effort to prolong the Court’s review of time-barred claims. In the original Complaint, Annette alleged that her signature was forged on the mortgage refinancing documents. (Compl. ¶¶ 9-10 (“[Annette] had no knowledge of the refinancing although her name and signature appeared on the application documents. . . . [T]he name and signature were not hers and must have been forged.”).) Despite her own and Counsel’s earlier protestations (see, e.g., Compl. ¶¶ 7-12; Tr. 31:5-6, ECF Nos. 70, 102-1 (“May 2, 2017 Tr.”) (“[T]he mortgage 2003, that is the document that is fraudulent.”)), in her deposition, Annette clarified that her authentic signature did appear on the documents. (Annette R.J. Phillips Dep. 62:22-66:8.)[4]

Based on Annette’s own sworn admissions, it has become clear to the Court that Annette’s signatures were authentic and, thus, the basis for the Complaint, and the arguments presented to the Court on May 2, 2017 in an attempt to overcome judgment on the pleadings, were untruthful. The efforts of Plaintiff and Plaintiff’s Counsel to conceal critical facts from the Court sufficiently establish bad faith. Notably, the 2003 refinancing documents which the Court reviewed and relied on at summary judgment, though presented for the Court’s review by Defendants (seeDef.’s Exs. H-K, ECF Nos. 73-8-73-11), appeared in Plaintiffs’ initial Rule 26 disclosures filed in July 2014 (see, e.g., ECF No. 31 at 2-3). As far as the Court can discern, for years Plaintiff has possessed documents which she knew reflected her authentic signature and confirmed her presence at the 2003 mortgage closing. Yet Plaintiff’s Counsel represented to the Court that the signatures were forged (May 2, 2017 Tr. 31:5-6); or that Annette was ill and medicated and could not remember appearing at the closing or signing the documents;[5] or that Annette was duped into signing these documents; or that “her mother used a pretext to get her to the bank and she ended up signing a refinancing of the mortgage” (Pl.’s Opp’n to Def.’s Mot. Fees and Costs at 1). This revolving-door defense and after-the-fact reframing of Plaintiff’s Complaint is a disingenuous and vexatious cover for the fact that Plaintiff’s original contentions were false and made in bad faith.

This is an ugly tale of a lawyer who should have known better and told the truth immediately when he learned that the 2003 signature was genuine. The lawyer was only found out when the client refused to support the false allegations in the complaint. The link is to an article about a lawyer who fixed a mistake as quickly as he could.

Sanctions Denied Where Lawyer Takes Affirmative Steps To Amend a Nonviable Claim

Ed Clinton, Jr.

 

Sanctions Denied Where Lawyer Takes Affirmative Steps To Amend a Nonviable Claim


This is a case originally filed by a prisoner against prison medical staff for deliberate indifference. The lawyer for the prisoner plaintiff filed a complaint and an amended complaint. After he received the Defendants’ motion to dismiss, he sought leave to file a Second Amended Complaint that would correct the flaws in the first two complaints. The district court allowed the amendment and denied a Rule 11 motion for sanctions. The explanation is revealing:

Defendants fault Lashuay for filing two complaints—the original complaint and the first amended complaint—which contained claims Lashuay now admits were not viable. See Mot. Am. Compl. at 3 (“Upon reviewing Corizon Defendants’ Motion, Plaintiff determined that his gross negligence claims were not viable and further that he should have included a municipal liability claim against Defendant Corizon Health.”). But the grounds for Defendants’ opposition to those claims became apparent only after Defendants filed their motion to dismiss. In other words, Lashuay did not seek to advance manifestly nonmeritorious claims even after Defendants had indicated why they were nonviable. To the contrary, upon receiving notice of the defects in his first amended complaint, Lashuay immediately attempted to file a second amended complaint which corrected those shortcomings.

These kinds of amendments are not only anticipated but encouraged by the Federal Rules. Federal Rule of Civil Procedure 15(a)(1)(B) authorizes a party to amend its pleading once as a matter of course in response to a motion to dismiss by the defendant (assuming the complaint has not already been amended). This Rule contemplates the common scenario where a plaintiff realizes defects in his claims only after a motion to dismiss is filed. The mere fact that a plaintiff attempted to advance nonmeritorious claims does not warrant Rule 11 sanctions (or denial of leave to amend).

Perhaps Defendants believe that Lashuay should have known that the claims advanced in its original and first amended complaints were nonmeritorious. But there is no evidence that the claims were advanced in bad faith, and the Court declines to sanction Lashuay for simply advancing nonmeritorious claims in the absence of additional evidence of culpability.

The quoted text demonstrates that the lawyer (a) reviewed the motion to dismiss and (b) sought to correct the problems with the Complaint as quickly as he could. He also was candid with the Court.

via LASHUAY v. DELILNE, Dist. Court, ED Michigan 2018 – Google Scholar

Fifth Circuit Dismisses Appeal of Sanctions Order


This is a case that was removed from the state court to the federal court. The plaintiff filed a motion to remand the case and the court, sua sponte, ordered defense counsel to show cause as to why he should not be sanctioned. The magistrate was concerned that some of the representations made by counsel were not true.  Ultimately the trial court allowed the Defendant to amend its notice of removal. The court also sanctioned defense counsel under Rule 11. The magistrate then sanctioned the attorney for one of the defendants:

On January 18, 2017, the magistrate judge held a hearing on the order to show cause. Following this hearing and an in camera inspection of documents in connection with the drafting of the initial notice of removal, including U&E’s efforts to obtain jurisdictional facts related to the LLC members, the magistrate judge issued a long, detailed order. See Nogess v. Poydras Ctr., LLC, No. CV 16-15227, 2017 WL 396307 (E.D. La. Jan. 30, 2017). The court granted Velocity’s motion to amend the notice of removal. Id. at *11. The court found that U&E failed to conduct a reasonable inquiry prior to filing the initial notice of removal and its failure merited Rule 11 sanctions. Id. at *12-14. The court also found that Ungarino misrepresented material facts at the December 21 hearing and that Ungarino’s ex parte communications with the district judge’s chambers were improper. Id. at *15-17. Accordingly, the court concluded that Ungarino’s conduct violated one or more of the Louisiana Rules of Professional Conduct and referred the matter to the Eastern District of Louisiana’s Lawyers’ Disciplinary Enforcement Committee for further investigation, proceedings, and discipline, if warranted. Id. at *17.

The District Court denied the appeal and the lawyer moved to certify an interlocutory appeal. The district court entered a final judgment on the sanctions award under Rule 54(b).

The Court of appeals dismissed the appeal because the requirements of Rule 54(b) were not met. Rule 54(b) allows the court to enter a partial judgment on some, but not all, of the claims for relief. Because the sanctions motion was not a “claim for relief” the district court could not enter a Rule 54(b) judgment. The appeal was dismissed.  The court also rejected an appeal under the collateral order doctrine.

The result here is significant because the lawyer who was the subject of the sanctions motion and award must wait until the end of the entire case to appeal the sanctions award. That could mean several years of waiting for the end of the case with a sanctions award hanging in the balance.

via NOGESS v. POYDRAS CENTER, LLC, Court of Appeals, 5th Circuit 2018 – Google Scholar

Court Sanctions Attorney For Filing Frivolous FDCPA Claim


A lawyer filed a claim under the Fair Debt Collection Practices Act, 15 U.S.C. Section 1692 (FDCPA) alleging that a debt collection letter from a law firm was misleading. The problem with this allegation is that the law firm defendant faithfully used the “safe harbor” language approved by the Second Circuit. The Defendant moved for judgment on the pleadings and the court granted the motion.  The court declined to sanction the plaintiff. However, the court awarded Rule 11 sanctions, on its own motion, against the plaintiff’s attorney.

The court reasoned that any competent lawyer practicing in the area of debt collection would know that the case,  Avila v.Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), provided a safe harbor for the debt collector. If the debt collector followed the language of Avila, he or she could not be held to have violated the FDCPA, at least in the Second Circuit. The court concluded that the lawyer for the plaintiff, Igor Litvak, should not have brought the claim or should have dropped it once he became aware of the safe harbor. The court explained:

Here, Timoshenko’s claim is patently frivolous in light of the Avila safe harbor, for all of the reasons discussed above. Moreover, the evidence suggests that Litvak, her attorney, knew this to be the case. As described in Defendant’s brief (and undisputed by Litvak), Defendant’s counsel spoke with Litvak on August 9, 2017 and advised him that the Collection Letter did not violate the FDCPA because the language at issue conforms to the safe-harbor language endorsed by the Second Circuit in Avila. See ECF No. 8-1 at 12. Any competent attorney would know Avilaforecloses Timoshenko’s claim, and once made aware of that case (assuming, generously, that he did not already know about it), Litvak should have advised his client to voluntarily dismiss this action. Instead, he responded with the same frivolous argument that the Court dispensed with above, pointing to Carlin and Balke and vowing to press on. But the patina of legality afforded by reference to plainly inapposite case law does little to cloak what looks to the Court suspiciously like a shakedown. Defendant likely could have settled this case for significantly less than the legal expenses it has incurred in filing its answer and motion, and no doubt Litvak knew as much when he decided to defend an indefensible position.

In view of the above, the Court will issue an order requiring Litvak to show cause why he should not be sanctioned for violating Rule 11(b)(2).[2] Litvak is advised that the Court will also be considering whether to order him to pay Defendant’s attorneys’ fees and costs pursuant to 28 U.S.C. § 1927. Defendant is welcome (though not required) to weigh in on the § 1927 issue, but no legal expenses incurred in briefing the issue will be included in any eventual award.

via TIMOSHENKO v. MULLOOLY, JEFFREY, ROONEY & FLYNN, LLP, Dist. Court, ED New York 2018 – Google Scholar